Stock Commentary

Quick takes from around the market

Merkado Barkada

October 24, 2023 | 8:30am

1. San Miguel [SMC 105.30, up 2.5%; 433% avgVol] [link] clarified that its President and CEO, Ramon Ang, made an “indirect” investment in Metro Pacific (MPI) “in his personal capacity”. SMC went on to reveal that Mr. Ang’s investment in MPI was “on the invitation of Mr. Manuel V. Pangilinan”, and that Mr. Ang was elected to MPI’s board of directors at a meeting held on October 17. The original reporting did not mention the size of Mr. Ang’s investment, but did quote a “ranking Metro Pacific source” as saying that Mr. Ang’s investment was a “prelude” to the eventual merger of the SMC and MPI tollroad businesses “that could potentially be a huge initial public offering.”

MB quick take: It’s somewhat disheartening to see MPI jerk to life again after delisting, but it makes sense if you consider the delisting as a condition precedent to a boatload of value-enhancing activity. The MPI Consortium had no incentive to do anything good prior to the tender offer, and now has all the incentive in the world to wheel and deal since it has now captured a greater proportion of the potential spoils. I think the tollroad speculation is interesting, and aligns with statements that MVP has made about pushing MPI’s tollroad business towards an IPO, and it fits in generally with the recent pattern of cooperation between SMC and MPI on tollroads going back to news in July that the two companies were planning to “jointly develop” a tollway project to link Cavite and Batangas.

2. DITO CME [DITO 2.98, down 12.9%; 41% avgVol] [link] was halted for an hour yesterday after the DITO board approved the issuance of 3.3 billion common shares to Summit Telco Holdings Corporation (Summit) at a price of P1.00/share. Summit purchased primary shares from DITO, which caused DITO’s outstanding shares count to rise from 16.24 billion to 19.54 billion. Summit, a Singaporean firm that was incorporated in June of this year, now owns 25% of DITO’s outstanding shares.

MB quick take: Just another day in Totally Normal Land, where massive chunks of a national telco are sold off to a newborn foreign company with no operational history. Who owns Summit? Is this company related to the other Singaporean firm, Xterra Ventures, that purchased DITO shares back in Q3? What’s the plan? Shares in DITO tanked over 12% once the 1-hour halt was lifted.

3. Phoenix Petroleum [PNX 6.00 unch; 3% avgVol] [link] disclosed that its board approved the “divestment” in PNX Petroleum Singapore Pte (PNXPS) by way of “share buy back”. PNX said that the buyback was pursuant to the “Liability Management Exercise” that is intended to “generation additional working capital to support core business operations.” According to PNX’s Q2 Quarterly Report, PNX owns 85% of PNXPS, which is the PNX Group’s “regional trading arm”. No value for the transaction was provided, though a PNX official did say that the proceeds would be used to “shore up (Phoenix’s) working capital needs, particularly to purchase inventory for its B2B customers.”

MB quick take: It’s not immediately clear what this does to PNX’s financials going forward, or how the group’s aspirations within the region (particularly in Singapore, and to a lesser extent, Vietnam) could be impacted by this divestment. I get that every Dennis Uy company is basically bathing in cortisol on a daily basis from being in a constant state of fight or flight, but as a long-term investor, I still take issue with the group’s unwillingness to explain its moves to investors and contextualize those moves within the broader framework of a Roadmap to Avoiding Bankruptcy. I think I’m giving the group too much credit, since (from a communications perspective) it was this way even under the blue skies of the Duterte days for the Davao mini-mogul.

3. April Lee Tan [link] wrote in her column, “Another bad news for PH stocks”, that the “sharp rise in US long-term bond rates is the biggest risk facing the stock market right now.” Ms. Tan said two negative consequences (among many) were the potential for weaker economic growth and lower stock prices. She also wondered whether the rise in the 10Y bond yields would be a “harbinger of an upcoming recession and bear market in stocks”, pointing to 2001 and 2007 when long-term bond rates also increased “after the yield curve was initially inverted,” and speculated that the Philippine market would be vulnerable to bear market “contagion” from the US if indeed the sharp rise in 10Y bond yields are the signal of an approaching US recession.

MB quick take: There is no way to sugar-coat how ugly the market is right now, and I feel like Ms. Tan is doing a lot of heavy lifting here to try and find a silver lining to the dark clouds that have been swirling over our market for so long. As she points out, our stocks are already quite cheap from a valuation perspective, but there have been so many dips over the past year that I can’t imagine there are many long-term investors with enough dry powder (or conviction) to salivate at the thought of (even) cheaper stocks. Who hasn’t been hydrated from salivating so much already? Anyone who has wanted to pick up a valuable company on the cheap has had months and months of great opportunities to do so. The prospect of smashing that “BUY” button to snipe a deal kicked up by an international financial contagion event is just not that appealing to me right now. Perhaps that’s just a symptom of what Ms. Tan calls the “no interest” market that we have right now (low volumes and “ridiculously cheap valuations”).

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