A
lot of what you do see in terms of the profit growth you do have now
is engineering stock
[such as buybacks and global labor arbitrage], …These are the
levers companies have to work with. They're taking advantage of the
fact that there's a lot of opportunities to just continue to engineer
their earnings. –Mike Thompson Chairman of S&P Investment
Advisory Services at the CNBC
In
this issue:
Phisix
7,300: Average EPS Growth for PSEi’s Top 15 Issues Crashed by 30%
in 2015! Some EPS Growth May Be Due to Financial Engineering
-Priceless
Commentaries From Some Annual Reports Demonstrate that the Law of
Economics Work!
-The
Jury is OUT: Average EPS Growth for PSEi’s Top 15 Issues Crashed by
30% in 2015!
-The
Fabulous Eight’s Divergence: Record Highs as EPS Growth
Underperforms!
-Behind
GTCAP’s 32% Eps Growth: Financial Engineering and Creative
Accounting?
-GTCAP’s
Real Estate Woes, Add LTG and Rockwell to the Roster
-GTCAP’s
Stumbling Auto Sales and the Real Growth Story
-Examples
in the PSE of How BSP’s Inflationary Policies Transfer Wealth to
the Elites
-It’s
Not Just Jollibee, McDonalds and Max’s Group Shares JFC’s
Financial Predicaments!
Phisix
7,300: Average EPS Growth for PSEi’s Top 15 Issues Crashed by 30%
in 2015! Some EPS Growth May Be Due to Financial Engineering
Priceless
Commentaries From Some Annual Reports Demonstrate that the Law of
Economics Work!
(italics
added)
Shangri-La
Plaza’s revenue slightly declined by P41.2M mainly due to temporary
close down of certain areas during the year on the Main shopping mall
for renovation. Business was also affected by increased
competition from newly opened shopping centers in the nearby
areas—Shang
Properties 2015 Annual Report1
In
addition, sales attainment during the period was also generally
weaker
than expected due
to increasing competition—Anchor
Land Holdings 2015 Annual Report2
Most
of listed firms released their 2015 annual reports last week.
The
above quotes extracted from the management discussion of the 2015
annual report of the said companies are PRICELESS!
Such
statements essentially reveal that the fundamental laws of economics
work!
In particular, the imbalances from the credit fueled artificial
economic boom, via the race to build supply (malinvestments), have
finally surfaced on the financial results of many companies. And such
formative financial strains have impelled some industry people to
recognize of the emergent existence of oversupply. Albeit, their
perspective comes in the lens of “competition”, which represents
a symptom rather than the cause, as shown in the above excerpts.
Nevertheless,
blissful
ignorance rules!
The dominant perception has been that inferior results of 2015
signify an anomaly. So the intensive competition to build supply
capacity financed by credit inflation continues…
Yet,
will the sustained sprint on capacity expansion improve on eps growth
for 2016? Or will this further aggravate on the present the eps drag?
The
answer will most likely determine the returns of the PSEi at the end
of the year.
The
Jury is OUT: Average EPS Growth for PSEi’s Top 15 Issues Crashed by
30% in 2015!
At
the onset of 2015, the public was made to expect that the earnings of
publicly listed of firms would balloon at the rate of mid-teens. And
such lofty projections had been used to justify a succession of
frenzied pumps for the headline index or the Phisix to reach a
milestone 8,127.48 in April of the same year.
Well
the results are in. Or hope has been transformed into reality with
the release of the eps scorecard for 2015.
And
the grade for consensus forecast: Fail!
For
the top 15 Phisix issues, the average earnings growth (sum of eps
growth rates divided by 15) in 2015 has stumbled to just 6.63% from
9.38% in 2014 (top chart). So instead of a projected 60% jump to an
eps growth of 15%, the average earnings growth skidded by a hefty
30%!
If
applied to the weighted average for the top 15 (the summation of the
products of the market share weight of component issues multiplied by
their respective eps growth rate), eps growth rate collapsed from
10.16% in 2014 to 5.51% in 2015 or a crash of 45.73%.
Back
to the nominal average, a slight a majority or 8 issues posted eps
growth LOWER in 2015 than in 2014, although the number of negative
growth has dwindled by 40% from 5 in 2014 to 3 in 2015.
Eps
numbers more than meets the eye as explained below
Remember
that the top 15 issues accounted for about 80% of the share
weightings of the PSEi basket as of Friday. 80/20 looks very much
like Pareto’s rule at work. I haven’t accounted for the latter
half
So
2015’s eps performance only exposed consensus forecasts as sheer
hyperbole.
And
such blatant misperceptions brought about by excessive optimism had
been revealed by the two market crashes in August 2015 and January
2016, which paradoxically were blamed on external forces!
For
the consensus, valuations don’t ever matter, and the overpriced
securities will become even more overpriced to perpetuity. Yet recent
market crashes say valuations do matter!
Yet
what has changed in 2016?
If
the baseline of 9.4% average eps growth (for the top 15) in 2014 had
been used as springboard for a pump towards PSEi 8,100, then what
would be the foundation for the recent parabolic rally? 2015’s much
lower base of 6.63% eps growth???
Wouldn’t
it be a supreme irony where tanking eps growth should function as
tinder for more frenzied propulsion of the bids on the PSEi???
And
to expand the logic further, should a return to last year’s growth
rates (9.4%), justify even higher
price levels
than when the baseline was at 9.4% and expected growth was at
15-16%???
In
the absence of eps growth, current market actions have only been
puffing up valuation to nosebleed or celestial levels.
Also,
since equity prices have gone in the opposite direction with eps
growth, what happens if those expectations fail again? Won’t this
serve as additional fodder to instability?
As
I raised in January 20153:
Or
has this been about flagrant misappreciation of risks that signifies
as symptoms of financial destabilization in progress?
Perhaps
in a state of denial some may posit, ‘this won’t happen’.
Really? But 2015 is now a fact: eps growth fell with a thud! REDUCED
G-R-O-W-T-H happened! Two crashes in August 2015 and January 2016
were facts too. Crashes were a reality too!
The
vertical ascent or the V-bounce does NOT expunge the cause of the
crash. Rather, soaring stocks on falling eps growth means that the
V-rebound enhanced it!
To
reemphasize, Phisix at 7,300 has been a product of a concentrated
pump on select issues within the spectrum of the top 15 biggest
market caps. And as proof, there are now EIGHT issues, or more than
half of the 15 biggest market caps that have either carved fresh
landmark heights or are within striking distance from historic highs.
Yes
all these have been happening even when eps growth rates in 2015 have
been dropped substantially lower than 2014! In short, bad news IS
good news? Haven’t the incantation been that the Phisix was about
G-R-O-W-T-H???
So
what gives?
The
Fabulous Eight’s Divergence: Record Highs as EPS Growth
Underperforms!
Here
are the eps and price charts of four index issues headed for opposing
directions
EPS
growth rate of the biggest listed firm SM investments have been down
for the past three consecutive years, yet stock prices have partially
broken above the 2013 highs a few weeks back!
Note
that SM’s previous high in occurred in May just as the PSEi reached
7,392.
The
eps growth of Aboitiz Equity Venture has been at the NEGATIVE zone
for three straight years! However, 2015’s decline has ebbed from
the double digit eps growth contraction in 2014 and 2013. Does a
reduced negative number justify fresh record highs????
Ayala
Corp’s eps growth rate tumbled to just 13.61% in 2015 from 45.3% in
2014, 20.55% in 2013 and 20.18% in 2012. Anywhere you look at AC’s
2015 performance, they were substantially less than the previous
years!
So
should lower eps growth rates justify higher price level, and
consequently, overstretched valuations?
Notice
too that Ayala Corp’s record high was in April 2015. As of Friday,
AC share prices are off 4.75% from the 2015 milepost.
Add
to the list of near apogee is Metro Pacific Investments, which stock
has just been an earshot 3.23% away from the May 2013 high.
MPI’s
eps grew by 13.11% in 2015, which is certainly better than 2014’s
9.71%, but still below the 2013 and 2012 rates at 15.83% and 23.08%.
So a growth rate of 13% rationalizes higher price level than when
growth rates were at 15% and 23%?
Without
including the charts, here the other issues with share prices at
record or near record levels
SMPH
also reached its former record level last week. Although the firm’s
2015 eps growth skyrocketed by 48.8% in 2015, this was vastly
inflated from a non-recurring or one-time gain in marketable
securities. Otherwise, eps gains would have been materially lower
given the sinking top line which was mostly from zero growth
(actually .15% increase) in real estate sales (SM
reported negative numbers) but also from a weakening of rental
income despite the introduction of a substantial number of new
inventories in both categories. And parent SM’s eps growth would
have been negative, if such non recurring gains were excluded!
GTCAP
touched its old record high in May of 2015 a few weeks back. The
company reported an incredible 32.41% surge in eps growth. But what
seems isn’t the same as what has been. The surge in eps growth was
considerably a function of the incorporation of financial figures
from a newly acquired real estate company: Property Company of
Friends. The revenues of the new company inflated both the top and
bottom line. Ironically, the newly acquired company posted a huge 35%
drop in sales growth year on year in 2015 while Federal Land posted a
modest 9.9% real estate sales. In short, creative accounting was a
big contributor to the eps upsurge (see below).
Only
JGS have, so far, divulged of a seemingly relatively better eps
health yet. I say “yet” because I haven’t vetted much on the
firm’s FS. But it would look as if a big segment of gains were due
to the petrochem projects that went online in 2015. And such had been
backed by modest contributions from other subsidiaries, even when
topline numbers like CEB and URC has withered.
Curiously,
the growth rate of domestic sales of subsidiary URC plunged
to 10.67% in 2015 from 16.39% in 2014 and 15.47% in 2013 even when
overall sales jumped to 18.05% in 2015. The top line was apparently
boosted by a surge in foreign sales 39.36% mainly due to the
inclusion of a recently acquired company.
Like
GTCAP, creative accounting was instrumental in the inflation of eps.
Additionally and ironically, the immensely inflated top line was
significantly negated by a surge in financing cost which crashed eps
growth to just 5.58% in 2015 from 16.96% in 2014, 24.32% in 2013 and
63.72% in 2012.
For
the eight issue, JFC I
delved on this last week.
Moreover,
financial
engineering and creative accounting have played noteworthy roles in
the eps growth for many companies in 2015. Even more, behind the eps
growth has been the greater surge in debt levels of many companies.
Truly
amazing!
Fascinatingly,
a non PSEi issue but a key member of the bank-financial index,
Security Bank, has virtually gone ballistic or has risen by nearly 90
degrees or close to vertical from the January lows!
Why?
Because of the 2015’s 7.49% eps growth, which has been
substantially lower than the 45.3% growth rate in 2014??? Or has such
been due to Bank of Tokyo-Mitsubishi’s reported
20% acquisition of the said bank?
None
of these has become a reflection of G-R-O-W-T-H but of destabilizing
torrid speculative pumps!
Phisix
7,300: The Predicament of the Fabulous Eight
Understand
that the series of record highs or near record highs for the price
levels of the half of the top 15 biggest market cap have been
achieved even when the PSEi remains off by a substantial 10% from its
headline equivalent in April 2015.
This
is important. The path to April 2015 has been entirely distinct from
today.
Most
of the same big cap issues reached their previous records when the
PSEi was at the RECORD or just a margin away from 8,127. To be
specific; SM, SMPH*, JGS and GTCAP in April, AC in May and JFC in
February 2015.
*SMPH
was the first to break into new records (post April 2015), even when
the PSEi began to falter from its landmark highs. Unfortunately,
there had been four attempts for a breakthrough which all sputtered.
Nonetheless, the fifth attempt was made last week.
In
other words, record 8,127 resonated with an equivalent milepost high
for these issues which backed the PSEi’s feat. Today, these issues
have taken the onus of producing PSEi at ONLY 7,300!
Or
said differently, current prices for these issues have reached or
surpassed their record price levels when the PSEi was at 8,127! This
implies of a substantial
lack of participation
from the rest of the field. Or that the latest bear market has
severely damaged the capacity of the others to participate.
Yet
current actions have consequences.
Unless
a broader base of PSEi issues jump on the bandwagon to share the
burden,
excessive
reliance on the fabulous eight for a renewed push to the 8,000 level
would translate to the stark compounding of extant mispricing,
as shown by their respective PERs (as of April 14): SM 26.98, JGS
31.73, SMPH 34.62, AC 26.22, AEV 19.43, GTCAP 26.66, JFC 44.92 and
MPI 19.32!
Put
differently, the asymmetry in the burden of price actions tilted
towards only the fabulous eight would mean that 8,000 would be a
vastly more difficult target to attain than in 2015. This comes even
with the sustained help of the index managers.
This
week the low volume sessions meant that the weekly gains of 1.02% had
to be accomplished mainly through last minute pumps in April 11,
12
and 15.
Yet
these issues are unlikely bear all the weight for a sustained upside
push. Reason? Excessive valuations will pose as key or structural
hurdle.
And remember, the baseline for 2016 has been a decline
of 2015 eps growth which should serve as headwind
And
since the fabulous eight are unlikely to carry the weight, the risk
is that the lack of broader participation may instead spur these
overbought and overpriced issues to an exhaustion that would prompt
for a volatile (and possibly violent) downside move.
In
short, the V-pump has underwritten the demise of the bulls.
And
like in 2015, failed expectations would have devastating
repercussions.
Will
the monster four year head and shoulder chart pattern of the Phisix
be formed? Will it support the dilemma of the fabulous eight
predicated on its skewed contributions to the Phisix?
A
break of 7,400 may temporarily succeed, but at what cost?
Behind
GTCAP’s 32% Eps Growth: Financial Engineering and Creative
Accounting?
I
have noted of GTCAP’s seeming use of creative accounting/financial
engineering to bloat on their eps.
Although
GTCAP is a holding company, based on 2015’s numbers, 75% share of
its revenues were from automotive sales (Toyota Motor Philippines and
Toyota Cubao), 11 % from power generation Global Business Power
Corporation, 5.6% from real estate (Fed Land and PCFI) and 3.5% from
“equity accounting” or “equity in net income of associates and
jointly controlled entities” (Metropolitan Bank & Trust Company
(“Metrobank” or “MBT’), AXA Philippines, Toyota Manila Bay
Corporation (“TMBC”), and Toyota Financial Services Philippines
Corporation)4
(p 80)
Overall,
GTCAP main business remains skewed towards the automotive industry.
Nonetheless,
last year, for its property business, GTCAP acquired an initial
22.68% stake in affordable (low cost) housing Property Company of
Friends, Inc (PCFI) “for Php7.24 billion, with an option to
increase its direct shareholding to 51% within the next three years”.
With the acquisition and the “attainment of effective control” of
PCPI, “PCFI’s financial statement was consolidated into GT
Capital’s financials effective September 1, 2015”. (p.89)
Thus
explains why GTCAP’s real estate topline ballooned by 54%!
GTCAP’s
consolidated performance numbers departs from its equivalent by
segment.
Take
Federal Land. GTCAP’s main property company posted a mere 10%
growth in revenue mainly from “real estate sales and interest
income on real estate sales which rose by 8% from Php7.0 billion to
Php7.5 billion driven by increased sales recognized from ongoing
high-end and middle market development projects situated in Pasay,
Mandaluyong, Bonifacio Global City, Manila and San Juan” and from
“rent income which grew by 8% from Php769 million to P830 million
owing to annual price escalation”. (p 89)
Moreover,
while real estate sales grew by a mediocre 8% clip in 2015 (given the
large supply expansions), such accounted for a dramatic slowdown
relative to the blistering 28.2% pace in 2014. The decrement in real
estate sales growth apparently filtered into Fed Land’s income
which grew by 10% in 2015 that was sharply down from 2014’s blazing
rate at 18.73%. (lower left window)
As
for newly incorporated PCFI, income dropped 32.7% due to a 33.94%
collapse in real estate sales in 2015 (lower right window)!
Nonetheless,
the PCFI’s inclusion to the GTCAP’s consolidated financial
statement ballooned her real estate top line by 54% which likewise
bolstered the bottomline.
So
poor FS seen via segment performance precipitately morphed into a
stellar consolidated version most likely due to accounting cookery!
GTCAP’s
Real Estate Woes, Add LTG and Rockwell to the Roster
Yes
GTCAP’s decaying real estate performance adds to my roster of real
estate companies encountering seminal difficulties.
Perhaps
we can add two more.
LTG
Group’s real estate sales had sharply been down by 15% in 2015.
(upper window) This followed a 52.1% collapse in real estate sales in
2014. In 2014, LTG declared a “temporary halt in sales activities
to pave the way for the Company’s value optimization plans for its
existing projects” (p 62)5.
LTG was quiet about real estate sales for 2015, instead they focused
mainly on rental income. Nonetheless, LTG has earmarked funds for
property development in Mactan Cebu, Ortigas Pasig and Novaliches
Quezon City/Caloocan City. (p.50)
Meanwhile
Rockwell Land’s real estate (condo) sales decreased 1.18% in 2015.
This was led by the sharp 12% fall in residential condo sales which
the annual report pointed to “the lower completion of The Grove,
Edades, and Alvendia, which were substantially complete already in
2014”6.
Residential sales accounted for 73% of total revenues. Sales of
commercial spaces partly offset the drag on residential sales.
Despite
topline strains, these companies will continue to build, build and
build.
GTCAP’s
Stumbling Auto Sales and the Real Growth Story
Back
to GTCAP. Recall that I
had an issue with the seeming contradictory numbers released by
the cheerleader Chamber
of Automotive Manufacturers of the Philippines (CAMPI) relative to
GTCAP’s Toyota sales reports, where the latter’s announced third
quarter sales numbers showed of a slump in growth
to just 2.31%
even when the former keeps bragging of 25+% growth rates?
Based
on GTCAP’s annual report, automotive sales numbers shows of only
11% increase in peso sales growth in 2015. This accounts for a
collapse
in growth rate when compared to 2014’s raging 46.34%! While fourth
quarter 2015 performance of Toyota’s auto sales recouped to grow at
15.29%, this was down by 58% from 2014’s 4Q growth rate at 37.14%.
As
for the quantity, from GTCAP: “In
2015, TMP exhibited record retail sales of 125,027 units, an 18%
increase from that of previous year. With this feat, TMP earned its
14th Triple Crown award which means Number 1 in passenger car sales,
Number 1 in commercial vehicle sales and Number 1 in overall sales.
Overall market share grew from 36.3% in 2013 to 39.4% in 2014 and
38.9% in 2015.” (p.88)
So
Toyota sales (in units) grew by only 18% in 2015. And given that TMP
holds about 40% market share (rounded off), then this means other car
manufacturers had to deliver 30% to produce 25% growth rate.
And
here is one important thing missed from the GTCAP eps announcement.
Behind
GTCAP’s 32% surge in eps was an even colossal G-R-O-W-T-H story.
Growth in GTCAP’s total debt (short term + long term + bonds
payable) net of the current portion exploded by 67.79% (note 17)!!!
Such growth rate has been more than thrice the 2014 counterpart at
19.19%!
Don’t
you notice? There have been so much accounting profits for these
companies to become so cash deficient. So given the dearth of liquid
resources, companies like these resort to leveraging up at a rate
faster than either sales growth and or profit growth.
Guess
where these business models will eventually end up to?
Examples
in the PSE of How BSP’s Inflationary Policies Transfer Wealth to
the Elites
As
a final note on GTCAP, let us revert back to subsidiary Fed Land’s
income growth.
Apparently,
property
inflation contributed significantly to GTCAP’s top and bottom line,
via the increase in rent income “owing to annual price escalation”.
Or higher rents, due to property bubbles, benefited GTCAP’s FS
while reducing the purchasing power (through lesser disposable
income), as well as, the diminishing housing affordability for
renters.
As
a side note, here is another example of how the money illusion from
central bank’s invisible redistribution policies of subsidizing
property owners. This is an excerpt from the annual report of another
company7:
“Net
other income increased by 1,707.29% or P=163,190,477 this year. Bulk
of the increase came from gain on investment property as property
assets were appraised during the year.
Increase in fair value of investment property amounted to
P=176,725,230 and P=14,243,119 in 2015 and 2014, respectively.”
(italics added)
Money
illusion simply translates to the ephemeral inflation of incomes,
profits, assets and equity values brought about by sustained bank
credit expansion promoted by the BSP through her policies.
Again,
increased rental income or the surge in gains of property assets in
the books of listed firms merely represents the transmission channels
from the BSP’s trickle down (negative real interest rate) policies.
Such monetary policies redistributes wealth in favor of property
companies/landowners/speculators that comes at the expense of the
consumers, renters and future property buyers, as well as, currency
holders.
As
the late free market economist Percy Greaves explained8:
(bold mine)
The
injection of new money into a society adds no new wealth. It
merely redistributes purchasing power, and thus the titles to
existing wealth.
Those who receive some of the new
money can buy more
of the existing goods before prices rise, while others
find prices rising before their incomes do.
So some can thus take what a free market, with an unmanipulated
quantity of money, would allocate to others. Every
increase in the quantity of money therefore helps some at the expense
of others.
Nevertheless,
there is no such thing as a free lunch. And that the present free
lunch experiment by the BSP IS coming to an end.
It’s
Not Just Jollibee, McDonalds and Max’s Group Shares JFC’s
Financial Predicaments!
When
it comes to incipient pressures on sales by major food chains, it
appears that JFC’s conditions have not been isolated.
Looking
at the JFC’s major rival, McDonald’s through GOLDEN
ARCHES DEVELOPMENT CORPORATION (GADC), which is a subsidiary of
Alliance Global Group (AGI), we basically see the same predicament:
increasing pressures on the topline.
Like
Jollibee, McDonalds suffered a huge drop (a near halving at 48.55%)
in sales growth rate from 2014’s 17.34 to 8.92% in 2015.
Like
Jollibee, McDonald’s net profit growth rate suffered a steep
decline, from a positive 1.27% in 2014 to -4.76% in 2015.
Curiously,
McDonalds added 28 stores to its inventory which at the yearend
accrued to 481 nationwide where 53% are company owned while 47% are
franchised. (p.21)
Stunningly,
those additional 6% of stores in 2015 produced unimpressive or
marginal growth.
AGI
reported9:
“Average sales per restaurant increased by 4%, with 3% growth in
sales per company-owned restaurant and 6% for sales per franchised
restaurant. Business extensions provided a growth rate of 15%, with
Drive-thru boosted total revenues by 11%. Value pricing strategy is
adopted in order to drive more guest count and price adjustments are
strategically implemented to mitigate the increase in cost of raw
materials and to maintain the level of product quality. This is
however outspaced by the increases in prices of imported raw
materials and product mix shift and costs of utilities and crew
labor. As a result, net profit contracted slightly 5% year-on-year.
GADC’s results accounted for 15% and 4% of AGI’s consolidated
revenues and net profit, respectively” (p.48)
In
the above, AGI’s annual report tried to explain away the residual
G-R-O-W-T-H, where they focused on the changes in the mix of sales,
without dealing with the huge collapse in topline sales. AGI’s
annual report just painted by the ‘positive’ numbers.
Apparently
too, the falling peso may have increased McDonald’s operating costs
through “increases in prices of imported raw materials”.
Again,
increasing pressures on the topline being transfused into the
bottomline.
And
it has not been just JFC and McDonalds.
Here
is the Max Group on its 2015’s performance (italics mine)10:
Max’s
Group reported consolidated revenues of P10.37 billion for the twelve
months ended 2015 up
6% from P9.74
billion for the twelve months ended 2014. Restaurant sales came
in 6% higher
at P8.59 billion, driven by the opening
of 84 new
stores primarily across winning brands Max’s Restaurant, Pancake
House, Yellow Cab Pizza and Krispy Kreme, which collectively account
for around 83% of total revenues. The Company also discontinued 38
underperforming sites including 10 Le Coeur De France as part of its
on-going rationalization to improve overall store network
profitability. Moreover, Max’s Group added
21 franchised outlets including 7 overseas to
boost its growing franchise portfolio for 2015. As a result,
Commissary sales increased 2% to P1.28 billion from P1.26 billion
while franchise income (franchise and royalty fees) rose 37% to
P497.51 million from P364.15 million for 2014
Max's Group has a network
of 588 outlets including 35 overseas as of December 31, 2015.
Restaurant sales accounted for 83% of total revenues at P8.59 billion
(p40)
Nevertheless
the company “plans to roll out approximately 60-70 stores including
15-20 overseas with minimal churn” (p 42)
But
because of its merger with 20 Max entities (p 30-31), like GTCAP,
what used to be losses suddenly transformed into profits. Max appears
to have used cooking not only for sales but also in its books too.
Yet
even Max’s top line has grown almost at the rate of JFC and
McDonalds (which has been on decline) even when they have
aggressively been opening stores here and abroad. So Max will be
spending a lot for expansion predicated on those topline growth
numbers that appears to be very fragile and susceptible to either a
collapse or a surge in business costs or both. And since the rate of
supply side expansion seems greater than the topline and or
bottomline growth, Max will likely to finance their future projects
through increased leverage. And topline fragility can easily be
transmitted to tarnish on the bottomline and put pressure on existing
liabilities.
Retail
food giants like JFC, McDonalds and Max are major clients of shopping
malls. This means that any further exacerbation of financial strains
on these organizations will eventually affect their expansion plans
or even their existing stores.
They may like Max start to close less productive outlets like Le
Coeur De France.
But
so far, the
existing mindset has been that weakening financials have due to
inadequate supply,
so
the supply side response of more expansion.
Except for the prologue quotes by a few, hardly anyone seem to absorb
the fact weak
demand can be a function of oversupply.
It’s
odd because everyone seem to keep talking about a Philippine consumer
boom. Yet 2015’s performance numbers by key consumer outlets or
food retail giants like JFC, McDonalds and Max have been showing
otherwise.
Updated to add: In my previous discussion of JFC, I forgot to tackle one thing: JFC's soaring debt. Almost everyone is doing the same thing.
______
1
Shang
Properties Inc., Annual
Report 2015 edge.pse.com.ph April 15 2016 (p.16)
2
Anchor
Land Holdings Annual
Report 2015 edge.pse.com.ph April 15 2016 (p 23)
3
See
Phisix:
Draghi’s Bazooka Sends Philippine, Indonesian, Indian and New
Zealand Stocks to Record Highs! January 24, 2016
4
GT
Capital 2015
Annual Report edge.pse.com.ph April 14, 2016
5
LTG
Group 2015
Annual Report edge.pse.com.ph April 15, 2016
6
Rockwell
Land, 2015
Annual Report edge.pse.com.ph April 15, 2016
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Jolliville
Holdings Corporation 2015
Annual Report edge.pse.com.ph p.19 April 15, 2016
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Jr The Theory of
Money August 31, 2012 Mises.org
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Alliance
Global Group 2015
Annual Report edge.pse.com.ph April 15, 2016
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