Cemex Holdings Philippines (CHP) Unravels

Undescripts.com has previously reported that CHP may have overpaid its parent, Cemex Mexico, in the acquisition of the controlling interest in the two cement operating companies it now wholly owns resulting to the booking of a massive goodwill in its balance sheet which at year-end 2016 constitute 55% of CHP’s assets.  The massive goodwill was justified by the existence of an assembled workforce and dealer network in the two cement operating companies. However, scrutiny on CHP’s finances showed that in the face of fierce competition in the cement industry its much touted “workforce” and “dealer network” fails to provides a “moat” for them.  Its “workforce” and “dealer network” did not present cost advantages to the company as other cement companies showed lower costs than them allowing the other cement companies to easily enter the market and capture significant market shares.  We expected then that CHP’s massive “goodwill” will unravel itself.  Please see our previous report.

On February 9, 2017 CHP issued a press release announcing their 2017 full-year results.  CHP reported that revenue declined from 24.3B to 21.8B due to lower cement prices.  Prices of cement were low because of the fierce competition in the industry with the influx of imported cement.  CHP’s “workforce” and “dealer network” did not deter other cement companies and cement importers from entering the market.  This event shatters the justification of the massive “goodwill” booked in its balance sheet.

Blockchain is changing how we use and think about money.

The poor results of CHP makes its share price expensive.  CHP, as of end of February 15, 2018, is trading at 4.01.  With the poor results, it is now trading at 29.85 PE ratio as compared to Holcim Philippine’s (HLCM) 17.49.

The price of CHP has gone down 56.88% from a year ago to 4.01 resulting to a price-t- book ratio of 0.7077.  We sensed that the market is now recognizing the impairment of its goodwill,thus, a share price lower than its book value.  With the current price of CHP some institutional investors have gobbled it up.  Institutional investors are reportedly now holding 13.68% of CHP’s total oustanding shares.

Undescripts.com maintains that the price of CHP has still to go down to make it a rational investment. At the current price its PE ratio is unjustifiable, its stock price has to go down further to align its PE ratio to its peers. In the meantime we cannot expect any dividend from CHP as it is presently struggling with its earnings.