Biz Buzz:

Troubled PH
corporate icon
● Philippine Daily Inquirer

● 24 Feb 2020

● —RONNEL W. DOMINGO

For the most part, it looks like the Philippine economy will feel the adverse effects of the new
coronavirus outbreak on a broader scale than what economic planners had originally envisioned.
That’s because the country has some serious economic ties with China—the nexus of the
outbreak—that is now starting to ripple across the domestic economy.
For one, trade volume is down between both nations as there is simply not enough goods to ship.
Why? Most Chinese factories are still shuttered as the government struggles to contain the virus.
But there is one Filipino company that is being hit by this phenomenon pretty hard.
Biz Buzz learned that one iconic firm—so iconic that it is close to 80 years old—has been
feeling the pain from the COVID-19 outbreak quite intensely. That’s because this company has a
substantial exposure to the tourism sector, which has, naturally, been hit hard in recent weeks,
too.
To be sure, it’s not the only firm in its industry that’s suffering. It’s major local competitor—
owned by the family of another taipan—is also feeling the pain from the virus outbreak. But this
industry rival is on surer financial footing and is in the black, thanks to its business model.
Not so with this troubled Philippine corporate icon.
Biz Buzz has heard from multiple sources that this company has been “losing $1 million a day”
even before the coronavirus plunged its entire industry into a major bloodletting around the
world. And they’ve been in the red for some time now.
With the coronavirus outbreak causing the entire industry’s revenues to sink dramatically, one
could only imagine the volume of red ink this company is swimming in now.
In fact, we’ve heard from at least a couple of sources familiar with the situation that a key
government official friendly to the owners of this troubled firm has been going around from
tycoon to tycoon, wondering out loud whether they’d like to “invest” (polite corporate language
for “takeover” or “rescue” in the financial sense) in this troubled corporate icon.
This jibes exactly with the company’s move in recent days to prepare its structure for the
eventual entry of another investor, possibly to an extent larger that its present owner’s
shareholdings.
The question now is ... will this corporate white knight arrive in time? Or will it arrive at all,
given the lack of interest from other tycoons even at bargain basement prices? Abangan! —
DAXIM L. LUCAS
Megaworld on Pogos
Following news reports about China canceling passports of its citizens who are working for
Philippine Offshore Gaming Operators (Pogos), speculations about the real estate sector’s
exposure to these Chinese companies began to spread like wildfire.
Reportedly among the most affected stocks was the
Andrew Tan-led Megaworld, which some analysts believe has the most exposure to Pogos.
However, the company says that, contrary to some analysts’ data, Megaworld’s office buildings
leased out to Pogo firms contributed only around 2 percent of its total revenues as of end-2019
and 4 percent of pretax earnings.
Also, the firm says that Pogos occupied only about 11 percent of Megaworld’s total gross
leasable office area of 1.3 million square meters as of last year. Most of these Pogo companies
operate in developments around Greater Manila. However, looking at Megaworld’s portfolio, it
has more office projects outside of Metro Manila that have no exposure to Pogos.
With Megaworld’s expansive and diversified portfolio of residential, retail and hospitality
businesses—which comprises more than 80 percent of its overall revenues—the speculation of
heavy exposure can be confusing. Hopefully, more clarity will emerge to assuage the market. —
DAXIM L. LUCAS
Injap’s bet on PH consumers
The formal offer period isn’t until a month from now, but potential investors are already flooding
the underwriter of Merrymart Consumer Corp.’s initial public offering (IPO) with queries and
reservation requests.
And why not? Investors are hungry for the first IPO of 2020, which will not happen until April 2,
leading to a lot of pent-up demand for stock market investors. More importantly, Merrymart is
only offering 1.6 billion shares at P1 apiece. That’s a P1.6-billion issue that’s light enough to
stay afloat even in a challenging market environment.
PNB Capital and Investment Corp. is the issue’s lead underwriter, issue manager and
bookrunner.
But what’s more important for value investors is the story behind the company.
According to Merrymart chair Edgar “Injap” Sia II— yes, the same young tycoon who
masterminded the phenomenal Mang Inasal chain— the company’s goal is no less than setting
up a total of 1,200 stores nationwide within the decade. And its ultimate goal is to reach P120
billion in systemwide sales during this timeframe. Pretty ambitious for a company that has only
four fullsize supermarkets operating at present.
But challenge-loving Injap has proven naysayers wrong before, most recently in fully
implementing the three-pillared business strategy of Doubledragon Properties Corp., which he
coheads with Jollibee’s Tony Tancaktiong.
We’re told that a total of 27 operating branches are expected by the second quarter this year and
the 100th branch of Merrymart is expected to open by the fourth quarter of 2021 next year.
How’s that for breakneck rollout speed?
Its business concept it simple. It aims to cover all the grocery retail categories from small,
medium and large retail formats with Merrymart Store, Merrymart Market and Merrymart
Grocery.
The smallest format is a household essential store concept that combines groceries, personal care
and pharmacy products—all the high-margin goods that makes a convenience store tick.
This three-in-one innovation and expansion through franchising is expected to bring in
operational efficiencies and enable the company to rapidly scale up and build up durable
competitive advantage.
At the same time, franchising also creates business opportunities for many budding
entrepreneurs. This expansion program will create more than 15,000 new jobs for Filipino
workers over the near term and is expected to exceed 50,000 workforce across the firm’s entire
network by 2030.
Talk about being aggressive. —DAXIM L. LUCAS
Oil price relief
Quarterly global oil demand is expected to fall for the first time “in more than 10 years” as the
market reels from the effects of the lingering coronavirus problem, according to the International
Energy Agency (IEA).
The IEA said in its latest Oil Market Report that first-quarter demand was cued for a decline of
435,000 barrels a day (bpd).
“We have cut our 2020 growth forecast by 365,000 bpd to 825,000 bpd, the lowest (level for any
quarter) since 2011,” the Paris-based group said.
Also, the IEA also noted that lower-than-expected consumption among the predominantly
affluent members of the Organization for Economic Cooperation and Development has reduced
demand growth in 2019 to 885,000 bpd.
Worldwide output of crude oil was “largely unchanged” compared to last year.
In the Philippines, decreases in pump prices of diesel have been on a six-week run, with cuts
having reached a total of P5 a liter.
Last week, pump prices of gasoline went up for the first time this year.
With global demand falling, oil prices are sure to follow. So are local pump prices.