FREE Stock in Focus: CHP (15 Nov 2017) by RCBC Securities

PinoyInvestor’s “Stocks in Focus” summarizes our partner brokers’ Fundamental Analysis of a company and explains the rationale for the stock’s long-term Target Price and broker’s recommendation. Learn how you can use this report in this PinoyInvestor guide.


Summary of Brokers’ Recommendations for this stock
Stock Code Company Buy Hold Sell Brokers' Average Target Price Closing Price on 13 Nov 2017 Potential Profit % Brokers' Highest Target Price Brokers' Lowest Target Price
CHP Cemex Holdings Philippines 1 2 1 5.53 4.15 33.13% 6.80 4.25


Our Partner Broker’s Analysis and Opinion
RCBC Securities HOLD 4.40 15 Nov 2017


Core net income down 69% year-on-year (yoy)

Cemex Holdings Philippines, Inc. (CHP) reported 9-month 2017 core net income of PHP 845 million, down 69% yoy. Core net income excluded FX losses. Sales declined by 13% to PHP 16.6 billion, as the average selling price (ASP) of cement was 16% lower and cement sales volume fell 3%.

Cost of sales, on the other hand, increased by 1% to PHP 9.3 billion. Operating expenses grew by 7% to PHP 5.5 billion. 9M 2017 net income margin deteriorated to 4% from 10% a year ago.


Forecast revisions

We revised our FY2017 forecasts to factor in the 9M2017 results. We lowered our cement ASP assumption by -2% to PHP 4,300 per metric ton (MT) and, as a result, our net income margin estimate declined by 110bps to 4.6%. Our new 2017F core net income is PHP 1.03 billion, 16% lower than our previous PHP 1.23 billion.

Using our adjusted forecast, we estimate that a 5% decline in the price of cement will reduce our 2017F net income forecast by 93%. Given the results of our sensitivity analysis, we raise our concern on the ability of CHP to remain profitable in an environment of declining cement ASP. Based on our estimates, it would only take a 5.4% decline in cement price (from our current assumption) to bring down Cemex’s net income to break-even.


Massive infrastructure spending plan yet to take-off

The massive infrastructure spending plan of the government has yet to take off. As of end-August, infrastructure spending only reached PHP 337.6 billion, just 39% of the PHP 864 billion FY2017 budget. We believe that if the ambitious infra-spending plan indeed materializes, the additional cement demand as a result thereof would provide support to the ASP of cement and would usher in a recovery for the price-sensitive Cemex.


Our Partner Broker’s Recommendation

We have a Target Price of PHP 4.40 for CHP, 36% lower than our previous Target Price of PHP 6.90. Our forecast horizon extends up to year 2030 and, thereafter, we assumed a constant growth rate of 5%. Our Target Price offers a return of 7% from CHP’s last close of PHP 4.10. We recommend HOLD.

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RCBC Securities
RCBC Securities

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