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Eliminating the “swing votes”. Philex’s CEO Walter Brown and Vice chairman Roberto Ongpin,
together with DBP, have agreed to sell a combined 452Mil shares or 9.24% of Philex to the First
Pacific Group for Php9.5Bil or Php21.00/sh. This effectively increased Fist Pacific’s stake in Philex
to 40%.
Expecting a correction in share prices. We expect this development to trigger a sharp
correction in Philex’s share price. The likelihood that there will continue to be a battle for control
is now very small given that the next biggest shareholder is SSS with a 22% stake. Any party who
would like to challenge First Pacific will have to acquire more than 18% of Philex in the open
market. This should prove to be a very difficult feat. We also do not expect any tender offer to
take place. First Pacific acquired its shares over a span of more than one year. Moreover, although
it is the biggest shareholder, it does not own more than 50% of the company. Finally, Philex’s
valuation is very expensive. Based on our estimates, Philex’s fair value is only Php6.90/sh, only a
third of the price paid by First Pacific.
Reiterating SELL rating. We have a SELL rating on PX given the stock’s unattractive valuation.
Although the recent rally in copper and gold price has improved Philex’s earnings outlook and
the viability of the Boyongan Project, the stock’s current valuation can not be justified.
Entry credit: CitisecOnline.com
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