San Miguel Corporation (SMC): A Buy on Breakout?

San Miguel Corporation (SMC) clarified news reports on September 3, 2018, from The report stated that SMC is set to hit the revenue target ahead of its 2020 aim.

It is at the back of new investments in new business ventures as well as the paying off of its traditional lines.

Allegedly, SMC President Ramon S. Ang reiterated that the company is already expecting net sales to go beyond PHP 900 million this year, not even including Masinloc.

Masinloc is a 630 Megawatt coal-fired power plant in Zambales the company bought at PHP 1.9 billion.

Even without the contribution of Masinloc, SMC expects consolidated revenues to grow by 11 percent this year. This figure is beyond its 2018 target of 10 percent.

Including the power plant, expected revenues would grow by 14 percent.

The company confirms the above statements above the PHP 1 trillion revenue target as well as the contribution by the Masinloc plant.

Financial Performance

San Miguel Corporation reported consolidated revenues for the first half of the year at PHP 499 million. It is 27 percent higher than the same period in 2017, driven by higher volumes of SMB, the selling price of Petron, and the Food Group and GSMI.

Both food and energy business grew by double digits.

The cost of sales also rose by 29 percent at PHP 392.86 billion due to higher crude price and the effects of the excise tax on Petron. The cost of raw materials for food contributed to the rise as well.

Furthermore, the cost of oil rose. It is a factor in its Sual Power Plant. The weakening peso took its toll on the company’s value.

Operating income stood at PHP 67 billion, 25 percent higher than the same comparable period in 2017. Net income totaled PHP 27.59 billion, 6 percent higher than 2017.

San Miguel Corporation trades at a Price to Earnings Ratio (P/E) of 18.92, undervalued compared to the index at 16.39. Nonetheless, the company is overvalued regarding Price to Book Value (P/BV) at 1.32 versus the industry average of 0.62.

The company also declared a cash dividend amounting to PHP 0.35 per share with a record date of Oct. 5, 2018. The payment date is October 30, 2018.

It is the third dividend declaration for the year. Cumulative dividends declared for 2018 totaled PHP 1.05 per share. It translates to a dividend yield of 0.62 percent using the current price of PHP 168.10.

Technical Analysis

SMC appears to start a bullish outlook. The 15 EMA and 20 SMA currently act as support. Price pierced the 50 SMA, showing a bullish signal.

Meanwhile, the volume starts to grow on the green candles. MACD poised for a bullish crossover.

Moreover, RSI is also bullish but is not yet at overbought levels. Estimated support is at 166.26 while expected resistance is at 173.11.

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