Pan-Asia Equity Bottom-up, Wickhams Hill

Lloyd Moffatt

I am a fundamental-value investment analyst with a bent for events and soft catalysts.

During my time on both the buy-side and sell-side I focussed on small and mid-cap companies in ASEAN, Australia and HK/China.

Although a generalist, my background as an engineer lends itself toward deep-dive research in more practical sectors like consumer and industrials.

Previous recommendations include:

Concepcion Industrial		(CIC PM)	BUY	03/12/2015		+100.1%
OSIM International		(OSIM SP)	BUY	11/12/2015		+36.9%
Bellamy's Australia Ltd	(BAL AU)	SELL	08/06/2016		+60%
Pryce Corp				(PPC PM)	BUY	14/07/2016		+105%
Rukun Raharja			(RAJA IJ)	BUY	16/02/2017		+61%
Asian Pay Television Trust (APTT SP)	BUY	30/12/2016		+67%

Pan-Asia Equity Bottom-up

Inaugural Dividend Is a Harbinger of Things to Come

1Q18 Update - The Next Philippine Cash Cow

Pryce Corp: 2Q18 Update - Another Solid Quarter, 110% Upside

Pryce Corp: FY17 Profit up 29%, 8x PE and 5% Yield

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

On Oct 19, <a href="https://www.smartkarma.com/entities/10665" target="_blank" data-smartkarma-citation="entities:10665:1">Cosco Capital (COSCO PM)</a> announced that it had entered an SPA with an unknown party to divest its holding in Liquigaz for an estimated transaction value of P12-13bn. The implied valuation for Liquigaz came at a staggering 13.7x FY18 EBITDA and 24.8x FY18 Net Income. This is vastly higher than direct comparable <a href="https://www.smartkarma.com/entities/23216" target="_blank" data-smartkarma-citation="entities:23216:1">Pryce Corp (PPC PM)</a>, which is currently valued at just 3.9x FY18 EV/EBITDA and 6.6x FY18 PER, by our estimates.
Through industry sources, we have identified that it is an affiliate or subsidiary of <a href="https://www.smartkarma.com/entities/7424" target="_blank" data-smartkarma-citation="entities:7424:1">Petron Corp (PCOR PM)</a> that made the acquisition. Liquigaz is Petron’s largest competitor, by volume, in every Luzon market. In fact, Liquigaz is the primary wholesaler of LPG to independent refilling stations who compete away the margins of integrated players like Petron and Pryce Corp. It will be directly in their interest to raise prices in Luzon.
Pryce Corp would be similarly set to benefit in North Luzon where it holds around 30% market share, representing 115MT of LPG in FY18. Similarly, just a PHP2/kg increase in margin would translate to P230m in EBIT, adding 13% to our FY18 estimate for PGI. This figure is a far cry from the margins achieved in VisMin, and could trend higher in the long-term as the market organizes.
We offer a novel approach for Pryce’s gas business (PGI), by splitting the Luzon and VisMin businesses and applying the acquisition multiple to the Luzon business while a more conservative market multiple of 6x to the VisMin business.
The implied share price of PGI is PHP9.0 based on FY18 estimates, growing to PHP11.6 next year, making Pryce arguably one of the most undervalued companies in emerging ASEAN. However, we see there are three issues: Capital structure, Corporate structure, and, Liquidity.
To address these issues, we suggest that the company return excess capital to shareholders through higher dividends, spin off the real-estate assets, and, increase free-float to 50% through share sales to institutional investors.

On Oct 19, Cosco Capital (COSCO PM) announced that it had entered an SPA with an unknown party to divest its holding in Liquigaz for an estimated transaction value of P12-13bn. The implied valuation for Liquigaz came at a staggering 13.7x FY18 EBITDA and 24.8x FY18 Net Income. This is vastly higher than direct comparable Pryce Corp (PPC PM), which is currently valued at just 3.9x FY18 EV/EBITDA and 6.6x FY18 PER, by our estimates.
Through industry sources, we have identified that it is an affiliate or subsidiary of Petron Corp (PCOR PM) that made the acquisition. Liquigaz is Petron’s largest competitor, by volume, in every Luzon market. In fact, Liquigaz is the primary wholesaler of LPG to independent refilling stations who compete away the margins of integrated players like Petron and Pryce Corp. It will be directly in their interest to raise prices in Luzon.
Pryce Corp would be similarly set to benefit in North Luzon where it holds around 30% market share, representing 115MT of LPG in FY18. Similarly, just a PHP2/kg increase in margin would translate to P230m in EBIT, adding 13% to our FY18 estimate for PGI. This figure is a far cry from the margins achieved in VisMin, and could trend higher in the long-term as the market organizes.
We offer a novel approach for Pryce’s gas business (PGI), by splitting the Luzon and VisMin businesses and applying the acquisition multiple to the Luzon business while a more conservative market multiple of 6x to the VisMin business.
The implied share price of PGI is PHP9.0 based on FY18 estimates, growing to PHP11.6 next year, making Pryce arguably one of the most undervalued companies in emerging ASEAN. However, we see there are three issues: Capital structure, Corporate structure, and, Liquidity.
To address these issues, we suggest that the company return excess capital to shareholders through higher dividends, spin off the real-estate assets, and, increase free-float to 50% through share sales to institutional investors.

What Does the Acquisition of Liquigaz Mean for Pryce Corporation?