Sunday, March 31, 2024

COMING UP: PH: CLI FOO ends; PH: March inflation data; INT'L: Crypto shenanigans; SM buys 29% stake in CREIT for P5-B; Cebu Pacific FY23 profit: P7.9-B (up 156%); Jollibee buys 10% stake in Botrista for $28-M (Monday, April 1)

Happy Monday, Barkada --

The PSE gained 5 points to 6904 ▲0.1%

I have always kicked around the idea of doing a fun April Fools' Day episode where I glowingly shill Davao Dennis' PSE shitcoins, or where I breathlessly cover some obvious paid-for story by a starlet with some provocative title like "Marian Rivera appreciates time at home with her Dingdong", but I can never pull the trigger.

It always makes me feel very uncomfortable to deliver anything to your inbox that I don't stand behind 100%. I don't want to muddy the waters and give you even a second of confusion about what you're reading, even if I'm able to squeeze a chuckle out of it.

So, here's to a sober April Fools' Day post, and a wonderful start to Q2!

In today's MB:

  • COMING UP: The week ahead
    • PH: CLI FOO ends
    • PH: March inflation data
    • INT'L: Crypto shenanigans
  • SM buys 29% stake in CREIT for P5-B
  • Cebu Pacific FY23 profit: P7.9-B (up 156%)
  • Jollibee buys 10% stake in Botrista for $28-M

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▌Main stories covered:

  • [COMING_UP] Quick look at the week ahead... Domestically, Cebu Landmasters will wrap up its follow-on offering sale of preferred shares tomorrow (the listing is next week), and on Friday, we’ll get the inflation data for March from the Philippine Statistics Authority (which will set the table for the BSP’s decision on interest rates on Monday of next week). Internationally, it’s a relatively quiet period on the central bank front (rate decisions by Chile, Kenya, and Poland – not a big deal for us), and we won’t get very much in the way of inflation data in the US as the American consumer price index data won’t be available until Thursday of next week.

    • MB: You will have to forgive me if my eyes have been wandering a little bit into the crypto space. It’s hard to ignore Bitcoin’s run, and while these blooms aren’t rare, they aren’t even a yearly thing so when they come around I pay attention. The latest data shows that the next Bitcoin halving event is scheduled to happen on April 20. The biggest question in crypto: is the halving already priced in?
  • [NEWS] SM Investments buys 28.79% stake in CREIT for ₱5-B... SM Investments [SM 972.00 ▼1.0%; 63% avgVol] spent ₱5 billion to purchase 1,884,374,000 shares of Citicore Energy REIT [CREIT 2.79 halted] from CREIT’s parent company, Citicore Renewable Energy Corporation (CREC), at a price of ₱2.6534/share. The shares were all secondary, meaning that the money that SM paid for the shares went to CREC (not CREIT), and the transaction was completed by way of a block sale. CREIT shares were voluntarily halted to “give the investing public sufficient time to consider or assess the impact of the execution of the block sale before transacting CREIT shares.” In the associated press release, CREC referred to its relationship with SM as a “partnership” that “unlocks potential synergies given the energy requirements of the SM group”. CREC is still CREIT’s single largest shareholder at 32.88%.

    • MB: While the price SM paid is at a ~5% discount to CREIT’s current market price, it’s in line with CREIT’s Q1 average price and oddly similar to where CREIT traded during that weird flash crash on March 19, the day before the Biz Buzz article broke the news an unnamed “blue chip conglomerate” was looking to buy a significant stake in CREIT. There was no talk in the press releases of SM getting representation on CREIT’s board, but I’d expect that kind of detail to come out once the deal is formalized.
  • [EARNINGS] Cebu Pacific FY23 profit: ₱7.9-B (up 156%)... Cebu Pacific [CEB 32.00 ▲3.2%; 195% avgVol], the Gokongwei Family’s budget airline, reported a FY23 net income of ₱7.9 billion, up 156% from its FY22 net loss of ₱14.0 billion. Revenues were up 57% to ₱85.1 billion, with the passenger segment up 78% to ₱62.5 billion and the ancillary revenue segment up 66% to ₱24.1 billion. Cargo segment revenues were down 42% to ₱4.1 billion. CEB reported flying 20.9 million passengers (up 41%) on 140,730 total flights (up 30%) in FY23, with a load factor of 84.0% (up from 75.3%). CEB’s average fare was ₱2,993, up 26.4% from FY22’s average fare of ₱2,367. Looking ahead to 2024, CEB said that a “return of the global aviation industry to normal growth patterns is expected”, with “international recovery” (mainland China and “traffic rebound”) a major focus for regional airlines in SE Asia. CEB said that it expects to announce the “single biggest aircraft order in the history of Philippine aviation” in the second quarter.

    • MB: This is the first year of profitability for CEB since COVID obliterated domestic and international air travel as we knew it. Globally, airlines are projected to generate record operating profits in FY24. Domestically, CEB’s metrics for FY23 were exceptional, and its prospects for an even stronger FY24 are basically certain. The company is poised to sign on the dotted line for the biggest plane buy deal in PH history. On paper everything is great, but there’s an issue beneath the surface that makes these boom times different from previous periods of hypergrowth in CEB’s life: plane scarcity. To put things in Cars terms, the pre-COVID growth of CEB was like Lightning McQueen’s journey through the Piston Cup in Cars 1: sleek rookie ripping through a field of aged race cars, marking the change in the game from legacy largess to upstart efficiency. Then, the global tragedy occurred: Cars 2, which we will not discuss here. Also COVID. Now, in its Cars 3 phase, CEB is back to its old tricks, pushing the limits of what its fleet can do, but it’s struggling to achieve growth without a little help from friends. There’s a plane shortage. Every airline in the world is growing. Like when McQueen supports his friend Cruz Ramirez to race on his behalf, CEB has had to basically rent planes from other airlines to satisfy its route commitments. Can you tell I have a toddler? The moral of this bad analogy is that Cars 2 should have never been made as a sequel to Cars 1, and CEB’s ability to sustain growth will come as a function of its ability to cobble together a ragtag team of homegrown and rented assets to bridge the gap between now and whenever it can get the first deliveries of its new set of planes.
  • [NEWS] Jollibee buys 10% stake in Botrista for $28-M... Jollibee [JFC 252.60 ▼0.6%; 240% avgVol] disclosed that it purchased a 10% stake in Botrista, a “leader in the beverage technology space”, for $28 million through its subsidiary, Jollibee Worldwide Pte. Ltd. (JWPL). According to JFC’s press release, Botrista “holds more than 100 patents globally for its proprietary dispense technology” that allows an automated system to prepare and sell “cold specialty coffee and tea-based drinks”.

    • MB: The company’s tagline is “increase ticket size with craft beverages”, but this investment likely serves a dual purpose for JFC which is increasingly coffee- and beverage-focused. This isn’t a vending machine play. This is about putting a self-serve kiosk inside of an existing JFC branded location (Jollibee, Coffee Bean and Tea Leaf, Highlands Coffee, Milksha, Common Man, etc) and having consumers purchase and receive drinks directly from this machine without having to interface with a cashier, and without the location’s back-of-the-house staff needing to prepare the drink. So while it remains to be seen if ordering drinks from a robot will cause consumers to upsize and upsell themselves into spending more, at the very least you can bet that JFC is thinking of this as a way to cut operational costs and further streamline the on-premises dining experience. Not for the consumer, but for the company. It reduces the amount of preparation space needed for a location to serve specialty drinks, which increases the “potential paying customers per square meter” of each location. It reduces the number of touches needed to fulfill orders, which lowers headcount and increases profitability. Will customers like it? I get the feeling we’re about to find out.

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