Philippine Markets Newsletter

Anchors away! This port company sailed its way to the top through its technological solutions, achieving Uniform ROAs of 16%

February 23, 2022

This marine ports company made a mark in the industry through its smart trade solutions and supply chain digitalization efforts.

While its as-reported metrics do not show it, the company’s technologically-aware nature enabled it to pull Uniform ROAs of more than 16%.

Also below, Uniform Accounting Embedded Expectations Analysis and the Uniform Accounting Performance and Valuation Tearsheet for the company.

Philippine Markets Newsletter: 
Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus
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While automation and digitalization have been in the works for years now, it’s only in the past two years when we saw mass adoption of these practices to be able to adapt, survive, and thrive in the pandemic. 

For example, in the educational sector, Far Eastern University (FEU:PHL) further invested in its IT infrastructure and education technology by adopting the Canvas Learning Management System (LMS).

For the retail sector, Robinsons Retail (RRHI:PHL) shifted online by relying on other big third-party platforms such as Lazada, Shopee, and GrabMart, while the SM Group (SM:PHL) further developed its online shopping channels like ShopSM and the SM Store.

Today, we are going to talk about the technological efforts of a company that belongs to the industrials sector, Asian Terminals, Incorporated (ATI:PHL).

No stranger to innovative advancements, the company has already established itself in the digital space by developing efficient processes to guarantee secure and transparent transactions.

Asian Terminals used this advantage during the pandemic to further accelerate its industry position by improving its smart trade solutions and supply chain digitalization efforts.

Just last year, the company launched its revitalized online payment platform, ePay Portals, enabling customers to conveniently settle port fees at the palm of their hands.

Besides serving as a payment gateway, the portal is also adept at remotely printing gate passes, invoices, and receipts safely, which would ensure the efficiency of cargo delivery and pullouts.

Another technological innovation is Asian Terminals’ web applications, which includes the following:

  • MPort – enables clients to view real-time vessel and container information through their phones
  • WebTrack – enables clients to do the same through computers and tablets
  • Terminal Appointment Booking System (TABS) – oversees the orderly movement of trucks and cargoes

To top it all off, the company was also able to transition to the more powerful Zodiac Terminal Operations System (TOS), a proprietary software that focuses on digital trade solutions for port terminals. Currently, this continues to benefit Asian Terminals’ ports in Manila and Batangas.

This successful software adoption made the company the pioneer cargo terminal among the DP World-affiliated ports around the globe.

Overall, just like FEU, Asian Terminals also looks poised to survive and thrive through its already-established technological initiatives despite industry challenges during the pandemic. However, looking at its as-reported metrics, it looks like the company hasn’t been able to surpass 12% in the past five years.

In reality, its ability to digitally adapt to changes in the consumer environment has enabled Asian Terminals to achieve higher ROAs than as-reported, with Uniform ROAs reaching 19% in recent years.

One of the main contributors to such discrepancy is its treatment of excess cash. While as-reported financials treat Asian Terminals’ entire cash balance as part of its asset base, Uniform Accounting removes the cash that’s not necessary to operate and fulfill obligations—cash above what one might view as “operating” cash.

The purpose of removing excess cash is to see what the true operating assets of the firm are. Removing excess cash allows investors to see through the distortions that come from management carrying much more cash on the balance sheet than what is operationally required. 

In 2020 particularly, Asian Terminals has PHP 3.9 billion worth of excess cash, making up 13% of the company’s as-reported assets.

Removing excess cash and applying the other adjustments Valens makes, Asian Terminals’ 8% as-reported ROA and PHP 30.8 billion asset base are adjusted to reveal its TRUE Uniform ROA of 17%, by essentially utilizing just PHP 25.1 billion of Uniform assets.

Asian Terminals’ earning power is stronger than you think

As-reported metrics distort the market’s perception of the firm’s historical profitability. If you were to just look at as-reported ROA, you would think Asian Terminals’ profitability has been weaker than real economic metrics have highlighted in the past thirteen years.

For example, Uniform ROA for Asian Terminals was 17% in 2020, substantially higher than the as-reported ROA of 8%, making the company appear to be a much weaker business than real economic metrics highlight for the past sixteen years.

Moreover, after expanding from 9% in 2005 to a peak of 31% in 2010, Uniform ROA fell to 14% levels in 2014-2015. Then, Uniform ROA rebounded to 19% in 2017, before compressing to 17% in 2020.

Asian Terminals’ asset turns are stronger than you think

Strength in Asian Terminals’ Uniform ROA has been driven by strong Uniform asset turns. In fact, Uniform turns have been higher than as-reported turns in thirteen of the past sixteen years.

After rising from 0.4x-0.5x levels in 2005-2011 to a high of 0.6x in 2012, as-reported asset turns declined to 0.3x in 2015. Then, as-reported turns recovered back to 0.4x-0.5x levels from 2016-2019, before collapsing back to 0.3x in 2020.

Meanwhile, Uniform turns climbed from 0.4x-0.5x levels in 2005-2009 to a peak of 0.9x in 2012, before dropping to 0.5x levels in 2013-2015 and subsequently rebounding to 0.6x-0.7x levels in 2016-2019. Since then, Uniform turns have compressed to 0.4x in 2020.

Looking at the firm’s turns alone, as-reported metrics are making the firm appear to be a less asset-efficient business than is accurate.

SUMMARY and Asian Terminals, Inc. Tearsheet

As our Uniform Accounting tearsheet for Asian Terminals, Inc. (ATI:PHL) highlights, the company trades at a Uniform P/E of 7.6x, which is below the global corporate average of 24.0x, but around its historical P/E of 8.3x.

Low P/Es require low EPS growth to sustain them. In the case of Asian Terminals, the company has recently shown a 17% Uniform EPS growth.

Sell-side analysts provide stock and valuation recommendations that in general provide very poor guidance or insight. However, sell-side analysts’ near-term earnings forecasts tend to have relevant information.

We take sell-side forecasts for Philippine Financial Reporting Standards (PFRS) earnings and convert them to Uniform earnings forecasts. When we do this, Asian Terminals’ sell-side analyst-driven forecast is to see a 1% Uniform earnings growth and an immaterial Uniform earnings decline in 2021 and 2022, respectively.

Based on current stock market valuations, we can use earnings growth valuation metrics to back into the required growth rate to justify Asian Terminals’ PHP 13.42 stock price. These are often referred to as market embedded expectations.

The company is currently being valued as if Uniform earnings were to shrink 16% over the next three years. What sell-side analysts expect for Asian Terminals’ earnings growth is above what the current stock market valuation requires through 2022.

Furthermore, the company’s earning power is 3x the long-run corporate average. Also, cash flows and cash on hand are 3x its total obligations—including debt maturities, capex maintenance, and dividends. Together, this signals a low credit and dividend risk.

Lastly, Asian Terminals’ Uniform earnings growth is in line with its peer averages, but it currently trades below its average peer valuations.

About the Philippine Markets Newsletter
“Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus”

Some of the world’s greatest investors learned from the Father of Value Investing or have learned to follow his investment philosophy very closely. That pioneer of value investing is Professor Benjamin Graham. His followers:

Warren Buffett and Charles Munger of Berkshire Hathaway; Shelby C. Davis of Davis Funds; Marty Whitman of Third Avenue Value Fund; Jean-Marie Eveillard of First Eagle; Mitch Julis of Canyon Capital; just to name a few.

Each of these great investors studied security analysis and valuation, applying this methodology to manage their multi-billion dollar portfolios. They did this without relying on as-reported numbers. 

Uniform Adjusted Financial Reporting Standards (UAFRS or Uniform Accounting) is an answer to the many inconsistencies present in GAAP and IFRS, as well as in PFRS. 

Under IFRS, each company’s financial statements are rebuilt under a consistent set of rules, resulting in an apples-to-apples comparison. Resulting UAFRS-based earnings, assets, debts, cash flows from operations, investing, and financing, and other key elements become the basis for more reliable financial statement analysis. 

Every Wednesday, we focus on one Philippine-listed company that’s particularly interesting from a UAFRS vs as-reported standpoint. We highlight one adjustment that illustrates why the as-reported numbers are unreliable. 

This way, we gain a better understanding of the factors driving a particular stock’s returns, and whether or not the firm’s true profitability is reflected in its current valuations. 

Hope you’ve found this week’s Uniform Earnings Tearsheet on a Philippine company interesting and insightful. 

Stay tuned for next week’s Philippine company highlight!


Angelica Lim
Research Director
Philippine Markets Newsletter
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