Special Report: Which stock could replace EDC in the PSE index (PSEi)?

PinoyInvestor’s Special Reports cover our partner brokers’ expert analysis on a range of topics affecting the stock market. These may include economic updates, sector analyses, upcoming IPOs, and more! Learn how you can use this report in the PinoyInvestor guide.

 

Note: This Special Report was published on August 6, 2017 and predicted that Robinsons Retail Holdings Inc. (RRHI) would replace Energy Development Corp. (EDC) in the PSE index (PSEi). The PSE has just announced that RRHI would indeed replace EDC in the index effective September 28, 2017. Investors who bet on RRHI after this Special Report was published have now gained +15%, rising from PHP 87.00 back when the Special Report was published to PHP 100.00 today.

 

Our Partner Broker’s Analysis

PSEi recomposition review

The in-house review for the recomposition of the Philippine Stock Exchange index (PSEi) this coming September, which covers the period of July 2016 – June 2017, reveals no change in the PSEi composition.

The Reserve list, which is composed of the five highest-ranking companies based on full market capitalization next to the 30 index members, are:

1. Double Dragon Properties (DD)

2. Robinsons Retail Holdings Inc. (RRHI)

3. D&L Industries (DNL)

4. Bloomberry Resorts Corp. (BLOOM)

5. Vista Land & Lifescapes (VLL)

 

Voluntary Delisting of EDC

Following EDC’s tender offer which will lead to eventual delisting of EDC from the PSE, this calls for an emergency review of the PSEi composition. The vacancy created shall be replaced by the highest ranking company by full market cap in the Reserve List using the “volume-weighted average price” (VWAP) for 10 trading days prior to the deletion.

Please note that the tender offer will end on September 18 and will not end with automatic delisting since EDC’s public float will still be above 10% post transaction. Management didn’t give any target dates for the filing of voluntary delisting.

 

Possible Replacements

Assuming that EDC will be delisted today, RRHI will replace EDC in the PSEi.

Caveat is that the “volume-weighted average price (VWAP)” will be based on the last 10 trading days prior to deletion. Hence, there is still a chance for the rest of the companies in the list to catch up in the ranking.

For DD, assuming that RRHI will maintain its VWAP from July 17 – Aug 3 of 86.78, DD can be added to PSEi if it’s VWAP reached PHP 54.00 / share.

However, we believe that DD is not a viable index constituent, given its current P/E of 201.7x, which will result in ~21x PSEi P/E (+2.0x). A relatively more expensive index will affect investor’s confidence.

 

This report is prepared by PinoyInvestor’s partner broker below. Sign up to this stock broker to avail of their complete trading brokerage services:

AP Securities (formerly Angping & Associates Securities)
AP Securities (formerly Angping & Associates Securities)

AP Securities (formerly Angping & Associates Securities) is one of PinoyInvestor’s partners in delivering superior and reliable stock research reports that help Filipino investors make smart stock investing decisions! Learn more about them here.