Arriving with MacroAsia

MacroAsia Corporation (MAC), formerly known as Infanta Mineral and Industrial Corporation (IMIC), was incorporated on February 16, 1970 to primarily engage in the business of geological exploration and development. On January 26, 1994, the Securities and Exchange Commission (SEC) approved the change in the IMIC's original purpose to that of a holding company, and its corporate name to Cobertson Holdings Corporation. In November 1995, the SEC further approved the change in corporate name to its present name. MAC began commercial operations as a holding company under its amended charter in 1996.

MAC at present is engaged primarily in aviation-related support businesses. It provides aircraft maintenance, repairs and overhaul services, charter flight services, airport ground handling services and in-flight catering services and operates a special economic zone at the Ninoy Aquino International Airport (NAIA). All subsidiaries and associated companies of MAC render services directly to the airline customers/locators at NAIA, Manila Domestic Airport, Mactan-Cebu International Airport and Davao International Airport.

MAC operates mainly through its four subsidiaries and two affiliates, namely, Lufthansa Technik Philippines, Inc., MacroAsia Catering Services, Inc., Cebu Pacific Catering Services, Inc., MacroAsia Airport Services Corporation, MacroAsia Properties Development Corporation, and MacroAsia Air Taxi Services, Inc. 

Aside from airport businesses, MAC also has mining projects after receiving from the government a Mineral Production Sharing Agreement (MPSA) in 2006. The MPSA covers 1,114 hectares as renewal of its rights in the nickel-rich area in Brooke's Point, Palawan. In May 2007, MAC received its second MPSA covering 410 hectares in another nearby area in Brooke's Point, Palawan. Both areas are used to be held and mined by IMIC.

SNAPSHOT
# of shares outstanding:	1,234,312,000
Current Price:	2.75
Market Value	3,394,358,000
Stockholders’ Equity (As of 30-Jun-12)	3,212,941,000
Price to Book Value Ratio	1.06
Price to Book Value (Appraised) Ratio	-
P/E Ratio	194.24
ROE	0.54%
ROA	0.47%
Free Float	25%

FINANCIAL RESULTS In Thousand
	2012F	2011		2010
Revenues	1,728,188	1,361,874		1,171,611
Cost of Services	1,208,188	1,014,280		882,902
Gross Profit %	30%	26%		25%
G & A Expenses	346,478	346,304		361,830
Net Income/(Loss)	34,950	299,456		401,126
EPS	0.028	0.2416		0.32
Book Value	3,212,941	3,227,900		3,034,740
Stock Price	2.75	3.00		3.00
Book Value Per Share	2.60	2.60		2.43
P/E Ratio	97.12	12.42		9.33
Price to Book Value Ratio	1.06	1.15		1.23
Outstanding Shares	1,234,312	1,239,530		1,247,020
Total Assets	3,683,489	3,854,842		3,423,095
Stockholders’ Equity	3,212,941	3,227,903		3,034,741
ROA	0.95%	7.77%		11.72%
ROE	1.09%	9.28%		13.22%

·         Revenues are increasing for the In‐flight and other catering and ground handling and aviation

·         Direct cost increased by 26% while revenues increased by 33%. Cost efficient is in the works.The management has effectively reduced the cost of services provided. Moreover, the 14% increased in G&A expenses is minimal at 14% increase

·         Majority of the profit of MAC is coming from its affiliates, Lufthansa Technik Philippines, Inc. In fact, among the companies, LTP is the bread and butter of MAC as far as income contribution is concern. Thus, it is no surprised that when LTP incurred a net loss for 1H12, it spilled over unto MAC. The current loss is temporary because of the increased costs associated with starting up the A380 hangar for operations. Once this is over, revenues will go up and consequently its net income.

·         The dividend yield per year is 2.75% at its current price of 2.75.

·         MAC’s price has been descending since its peak in 2007 which is almost 6 pesos. At its current price of 2.75, it is already down by more than 50% and we still don’t know how low the price will go.

·         The average P/E and PBV for the past five years are 15 and 2 respectively. I think that is quite high considering that 2007 is the peak of the last bull cycle. A more conservative estimate should be P/E of 10 and PBV of 1.5.

·         A 600,000 net income is achievable at least in 2013 I think because of the expanded hangar operations of LTP and improving revenues. With that in mind, a P/E of 10 would result in a target price of 4.87 which is very conservative because the computation merely rely on the current businesses. Mining and PPP projects are excluded.

·         Passenger loads and flight frequencies of airlines are the two most important factors that affect the revenue levels of the Group’s operating units. With the improving economic outlook of the Philippines, air travel is seen to rise in the foreseeable future.

·         A very liquid company with more than 1 billion peso in cash at its disposal, it can partly fund the Mining and PPP airport projects which can provide an upside for MAC.

·         MAC has a buyback program of 50 million because the management believes that the company is trading below its inherent value. As of June 30, 2012 it spent P42M already and is still counting. An insider also bought 50K shares last month.

Mining Treasure

Bulawan Mining Corporation (BUMICO) assigned its rights, interests and obligations to MacroAsia under its Operating Agreement with PHILEX, involving 62 mining claims in Negros Occidental, of  which 6 are covered by a Mining Lease Contract and were subjected to mining operations by PHILEX from 1996-2002.

PNB Management and Development Corporation  (MADECOR), assigned its rights, interests and  obligations to MacroAsia under its Operating Agreement with PHILEX, involving 61 mining claims in Negros Occidental.

The assignment is limited to the Assignors’ rights, interests and obligations under their respective operating agreements with PHILEX.  

The Company’s mining project, which is basically a reactivation of the Infanta Nickel Mine that was operational in the 1970’s, is expected to generate revenues as soon as all the mining permits for operations are secured. The mining project has already been endorsed for operations by the local government units and the Palawan Council for Sustainable Development (PCSD), and has been granted the Environmental Compliance Certificate (ECC) for operations on September 09, 2010. The Company is in the final stage of securing its Certificate of Precondition (CP) from the National Commission on Indigenous People (NCIP). This document signifies the formal granting of Free and Prior Informed Consent by the indigenous peoples within the host barangays as attested by the NCIP.

In this Memorandum of Agreement, Jinchuan and MacroAsia recognize their common interest in nickel mining in Palawan and agree to cooperate with each other by jointly developing and operating if possible, their nickel laterite properties upon respective completion of all statutory requirements for mining operations.  The two companies also agreed to undertake a joint venture to construct a processing facility, subject to a mutually-acceptable feasibility study, with an end in view of adding value to their respective commercial operations.  Over the life of the project, the estimated value of the investments being targeted is about US$1 Billion.

Considering the existence of an ore stockpile and roads within the mining tenement, it is possible to start ore shipment less than a year after all permits are completed.

The diversification shall move MAC away from its core aviation related business. Mining is a different business and it requires a different approach to the core business of the group. We all know that mining eats up a lot of resources and this may drain the cash of MAC. MAC has more than a billion of cash at its disposal.  

I believe that this is a game changer for MAC if the operation is successful. MAC can take a cue from MARC, a listed nickel mining company.

Expanding presence abroad

MacroAsia, whose management is led by chairman Washington Sycip, derives the bulk of revenues from aircraft maintenance and repair as well as inflight services like catering. It is also expanding its presence abroad and recently signed a joint venture in Qatar to go into industrial catering, with an initial P12 million investment, Chua said. He said MacroAsia will gain 44-percent equity in the partnership but will maintain management and board control. Lucio Tan Jr., MacroAsia director, said the company is also in talks to form similar joint venture deals with companies in Europe and Asia but he declined to elaborate.

I think it is one way for MAC to increase its revenues in the future further.

MacroAsia looks at PPP airport projects

MacroAsia Corp., a listed aviation services firm, will be used as Tan’s vehicle to participate in these airport and related cargo terminal projects, company president and chief executive officer Joseph Chua said.

Source: Philippine Stock Exchange