PHN – A Company with an Identity Crisis

PHN has not found what it is really is. PHN started as Bacnotan Consolidated Industries, Inc. (BCII) with investments in cement, steel, pulp and paper, and financial services and ran by Philippine Investment Management Consultants (PHINMA), Inc. BCII was basically an investment vehicle of PHINMA. BCII was a vehicle of PHINMA to raise funds to be invested in what was then growing industries.

The partnership in PHINMA cratered and changes were made. BCII divested its investments in the industries it nurtured and change its name to PHN. Along the way it lost its identity. PHN seems not to know what it is. Is it an aspiring conglomerate or an investment vehicle?

This identity crisis makes PHN hard for the investors to understand and value. PHN touched a 52-week low of 8.26 and as of December 29, 2017 it closed at 8.40 which is 21.69% down a year ago. We believe PHN is undervalued and we recommend to buy the same.

PHN has potential values. PHINMA should refocus PHN into an investment vehicle. If PHINMA will not refocus PHN as an investment vehicle then it should have no right to collect management fees from PHN. PHN is once a venture fund, it invests in growth industries and once it matures it sells them. Like the cement which it sold to Holcim and banking which it cashed-out during the banking consolidation years of the early 2000s.

We can see PHN investing and scaling two industries the steel & construction technologies and educational services. The two investments are cash flows and earnings positive.

Aside from the two investments PHN has also the following investments: PHINMA Energy Corporation (PHEN, 26.245); PHINMA Property Holdings Corporation (PPHC, 35.42%), Microtel Development Corporation (PHINMA Hospitality, 36.23%), Trans-Asia Petroleum (12.99%), and others. Those investments have as of December 31, 2016 a carrying value of 3.4 Billion.

To focus PHN as a venture fund/investment vehicle and unlock value, it should dispose PPHC, PHINMA Hospitality, and Coral Way Hotel Corporation. With regards to PPHC, real estate development is capital intensive and cash flow negative aside from owning only a minority interest, we could not find a scenario where PHN could make a profit out of it. All other investments where it has minority interests except for PHEN should be disposed of and the proceeds be used to further scale the two investments it already had or find a new investments to grow and scale. We found no reason for PHN deploying capital on those minority investments. What is PHN expecting from those investments, investment cash flows? capital gains?

Right now, PHN’s investments in steel and construction materials and education services are enough unicorns of PHN which could provide tremendous value once unlocked. We exclude PHEN from the divestment because PHN has been realizing the value from the said investment through dividend cash flows and capital appreciation.

PHINMA should remake PHN into a venture fund again, funding and scaling business then unlocking their values through out-right sale or initial public offerings.

We can gamble to recommend it a buy right now and advocate for PHINMA to remake PHN into a venture fund to grow the value of PHN.