FREE Stock in Focus: PCOR (25 Sept 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 21 Sept 2017 Potential Profit % Brokers' Highest Target Price Brokers' Lowest Target Price
PCOR Petron Corp 6 0 0 12.33 10.56 16.71% 12.80 11.80


Our Partner Broker’s Analysis and Opinion
RCBC Securities BUY 12.80 25 Sept 2017



PCOR likely to surpass our 2017 forecast

Petron (PCOR) reported 1st Half (1H) 2017 net income of PHP 7.57 billion, 49% higher year-on-year (yoy). Revenues were 28% higher at PHP 206.96 billion, with consolidated sales volume up 2% to 52.9 million barrels. Operating income increased by 27% to PHP 14.56 billion. Financing charges also increased by 27% to PHP 4.54 billion, but total Other Income (Charges) fell 11% to -PHP 3.58 billion as miscellaneous income negated the higher interest expenses. After deducting preferred dividends and the distribution to undated capital securities, Petron’s net income available to common shareholders amounted to PHP 5.24 billion, 85% higher yoy. That resulted in EPS of PHP 0.56, 87% higher than the year-ago’s PHP 0.30.

Petron looks likely to surpass our full year net income forecast of PHP 11.97 billion. For this reason, we have upgraded our forecast to PHP 15.52 billion. We have also upgraded our 2018 forecast to PHP 16.86 billion from the previous PHP 10.49 billion.


RMP2 has substantially improved margins

Our original forecasts reflected gross margins of 8.6% in 2017 and 7.9% in 2018. However, we have seen a substantial increase in the GPM since Petron’s upgraded refinery started full-blast operations in the latter part of 2015. In the 10 years to 2015, Petron’s GPM ranged from 1.3% – 8.7%. However, GPM averaged 11% in 2016 and 10.2% in the 1H 2017, with the quarterly numbers ranging from a low of 9.1% to a high of 11.6%. The higher GPM also trickled down the line, with operating margin at 6.9% in 2016 and 7% in the 1H2017, markedly improved from the range of -0.7%-5.5% from 2006-2015.


Less vulnerable to falling oil prices

The company’s higher margins have enabled Petron to better absorb a decline in oil prices. Note that Petron is negatively affected by falling oil prices. However, because of its more robust margins post-RMP2, the company has become less vulnerable to declining oil prices.


Our Partner Broker’s Recommendation

There still seems to be some degree of skepticism over Petron’s ability to sustain its current robust profitability, which has consequently limited its share price rise.

The misalignment between the company’s historical profitability and price is glaring. Petron’s price averaged PHP 13.52 in 2013 on EPS of PHP 0.28 and PHP 12.40 in 2014 on EPS of –PHP 0.15. In contrast, in the more recent periods of higher eps, its price has been lower. Petron’s share price averaged PHP 9.96 in 2016 on EPS of PHP 0.60 and currently stands at PHP 10.62 on 1H 2017 EPS of PHP 0.56.

PE-wise, the multiple averaged 48.4x in 2013, 16.6x in 2016, and 9.2x at the current price on forecasted 2017 earnings.

We believe that as profits in the succeeding quarters affirm our view that the company’s higher level of profitability post-RMP2 is sustainable, the counter’s price should move towards Php12.80, equivalent to an EV/12-month forward EBITDA of 8.0x.

This multiple is halfway between PCOR’s current multiple and listed comparable Pilipinas Shell Petroleum, Corp.’s (SHLPH) Bloomberg consensus multiple of 8.9x.

At this price, PCOR’s 12-month forward PE will be 10.2x, still below SHPLH’s 14.5x. The potential share price upside is 20.8%, while the expected total return, inclusive of the 0.9% forecasted dividend yield, is 21.7%. We recommend a BUY.



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RCBC Securities
RCBC Securities

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