Philippine Markets Newsletter

This industrial company sailed its way to progress through growth and innovation, achieving a Uniform ROA of 15%, not 8%

January 4, 2023

This industrial company’s continued focus on its growth strategy allowed it to remain resilient and innovative despite the pandemic. However, as-reported metrics show that that isn’t the case.

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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As the government limited movement within and out of the country, the transportation industry was unsurprisingly badly hit by the pandemic. Some ports in the world, for example, had to close terminals because of the threat of the virus spreading.

In the Philippines, Asian Terminals Inc. (ATI:PHL) was no exception. 

Asian Terminals, known for the Batangas Port, services over three million passengers traveling by sea and approximately two hundred thousand vehicles for local passengers. Typically, these vehicles are inter-island ferries and roll-on/roll-off ferries or RoRo.

Aside from the Batangas Port, the company has container terminals, general cargo, Batangas Container Terminal, Off-Dock Yards, and South Cotabato Port, which caters to passengers and cargo, just like the Batangas Port. 

Despite the pandemic, the company was still able to pull its business off thanks to its digital presence even before 2020, successfully launching ePay Portals, MPort, and WebTrack—to name a few. This enabled customers to settle their fees easily and track cargo, minimizing further delays.

Now, as most of the restrictions have already been lifted, the company has turned its focus to its growth strategy, allotting around PHP 5 billion to support its ports and logistics infrastructure projects in Manila, Batangas, and Laguna.

On top of that, Asian Terminals also developed and utilized its AI-powered auto gate system in order to provide smarter, faster, and safer ports and logistics services to its clients.

Yet, despite all the progress, looking at as-reported metrics, it appears Asian Terminals has not benefited from its adaptability. As-reported return on assets (ROAs) show the company has produced little economic value for its stockholders, only reaching 8% in 2021.

In reality, Uniform Accounting shows that Asian Terminals’ focus on its growth plans has generated better returns, with Uniform ROA reaching 15%.

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 2021 particularly, Asian Terminals has PHP 3.5 billion worth of excess cash, making up 11% 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 31.7 billion asset base is adjusted to partially reveal its TRUE Uniform ROA of 15%. Essentially, the company utilized just PHP 25.7 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 fifteen years.

Through Uniform Accounting, we can see that the company’s true ROAs have been understated. For example, as-reported ROA was 8% in 2021, but its Uniform ROA was 2x higher at 15%. 

Asian Terminals’ asset turns are stronger than you think

For a decade, as-reported metrics have understated Asian Terminals’ asset turns, a key driver of profitability.

Moreover, Uniform turns have already eclipsed at 0.9x. In comparison, as-reported margins have not reached 0.9x over the same time period, making the company appear to be a less efficient business than real economic metrics highlight.

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 8.7x, below the global corporate average of 18.4x, but around its historical P/E of 8.9x.

Low P/Es require low EPS growth to sustain them. In the case of Asian Terminals, the company has recently shown an 8% Uniform EPS shrinkage.

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 Uniform earnings shrinkage of 2% in 2022 and 2023.

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 14.00 stock price. These are often referred to as market embedded expectations.

The company is currently being valued as if Uniform earnings were to shrink 17% annually over the next three years. What sell-side analysts expect for Asian Terminals’ earnings growth is below what the current stock market valuation requires through 2023.

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

To conclude, Asian Terminals’ Uniform earnings growth is near peer averages, but 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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