2010 First Philippine Holdings Corporation Review

First Philippine Holdings Corporation
First Philippine Holdings Corporation (FPH) was formed 50 years ago with the primary purpose of acquiring Meralco shares(stocks, notes, securities, and entities). Currently, the company diversified into businesses with interest in power generation, real estate development, roads and tollways operations, manufacturing and construction, financing and other service industries. Lopez Holdings Corporation (LPZ), the parent company, owned 44.26% of FPH.

Business Details:
FPH's investments/businesses are the following:

1. Power Generation
First Gen Corp (FGEN)- FPH owns directly 66.2% of the common shares of FGEN. It is the largest Filipino majority-owned and controlled Independent Power Producer in the Philippines with installed capacity of 2,178 MW as of December 31, 2010. FGEN's businesses includes the following power generation companies: FGPC, FGP, FG Bukidnon, BPPC, FG Hydro and EDC (Energy Development Corporation).

2. Power Distribution
FPH has 30% investment in Panay Electic Company, Inc.(PECO) and 6.6% interest in Meralco (this is after they sold most of their shares to PLDT group).

3. Pipeline Services
First Philippine Industrial Corporation operates the country's largest commercial petroleum pipeline. Last Oct 28, 2010, a petroleum leak occurs on the said pipeline resulting to shutdown. Repair was completed though last November 10, 2010.

4. Property Development
Rockwell Land Corporation is 49% owned by FPH. It also have 70% stake in First Philippine Industrial Park.  FPH also wholly own First Philippine Realty Corporation.

5. Manufacturing
FPH owns the following :
Philec (97.98%)- manufacturer of distribution and power transformer
FEDCOR (100%) - provider of quality products and services in the distribution, control and efficient utilization of electrical energy.
FPPS (100%) - manufacturer of dry-type transformer for American Power Conversion (APC).
FSCI (40%) - manufacturer of thin and light weight wiring components for Fujitsu, Hitachi, IBM, Sony, Toshiba and among others.
FPSC (74%) - provides wafer-slicing services for the solar energy industry.

6. Others
First Balfour Inc., is the construction arm of FPH.
Securities Transfer Services, Inc (STSI) is the stock and transfer agent of FPH. It handled underwritings of IPO of  FGEN, TUNA, and EDC.

Business Performance Review:
Revenue have been slowly picking up for the past few years due to some business reorganization and diversification. The company sold majority of its shares in Meralco and focus its resources to Power Generation by buying shares in EDC and etc. This trigger the inconsistent net income and cash flow generation for the past few years as shown in the following chart (Click to zoom).

ROE (2010) = 27.19
Average ROE for 5 years = 10.97
Net Profit Margin = 44.13%

The Average Return of Equity for the past 5 years is not exciting however last year's net income shoot up mainly due to Meralco shares disposal. However, like I have said the diversification process of the said companies by acquiring new investments particularly in the Power Generation Sector which has a great demand in our country. This is quite evident with their most recent performance, in which 82% of their income source was from the power generation. As per literature, ROE higher than 15 means profitable business which I expect from FPH in the future. Another good aspect of FPH is high Net Profit Margin (NPM) which gives it more edge against competition.

Annual Net Income Growth Rate = 38.30% (for the last 6 years).

Risk and Debt:
DE Ratio = 76 (Debt to Equity Ratio)
Current Ratio = 1.9

FPH's finances is very healthy as shown in its debt and liquidity level. Debt to Equity Ratio of 100 or less is good while Current Ratio(current asset/current liabilities) of more than 1.5 means they are more than capable to pay their debt obligation. Also, the proceeds of Meralco share sale gives a lot of cash to the company.

Dividend Yield = 3.19%

PE Ratio = 1.47
PB Ratio = 0.47
Intrinsic Value = P176.1 per share
Current Price = P64.3 (as of Apr.25, 2011 closing)
Upside = 173.86%
(Click the illustration below to zoom)

Intrinsic value of FPH is calculated based on the 2010 Annual Report . Discounted Cash Flow method is employed. Cash flow is projected to grow at a very conservative rate of 12% and discounted at 15% which includes worst case scenario interest rate of 6% and other risk. The stock is so cheap that buying them now will give you more margin of safety.

Other Factors:
FPH is buying back it shares since last year. Though the temporary closure of its pipeline last year have scared the investors, the loss is very minimal and negligible. The damaged incurred P45.6 M loss only compared to its P64,285 M revenue.

Strong buy is recommended to FPH as shown in its potential to grow due to its main business, which is Power Generation. The stocks price currently is very low compared to its book value and DCF based intrinsic value.


The assumptions used above are based only on historical data and doesn't guarantee future performance of the company. All investors are advised to conduct their own independent research into individual stocks before making a purchase decision.

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