Eagle Cement soars

Yesterday, Tuesday, May 30, Ramon S. Ang became P2.6 billion richer. His Eagle Cement Corp. listed its shares for public sale on Monday, May 29. 

Eagle’s initial public offering (IPO) price was P15 per share, which was 18 times the company’s expected income for the year.  Still, Eagle was 3x oversubscribed, according to stock market analysts. For every one share, there were three buyers.

That pent-up demand can now be satisfied by the stock market, which may explain Eagle’s slow but determined rise in per-share price. Which is why Eagle’s nearly 100 percent owner, Ang, will be piling up wealth in the coming days.  The five-billion Eagle Cement shares listed on Monday were as of yesterday valued at P77.6 billion at the closing price per share of P15.52, up 52 centavos or 3.5 percent from the P15 per share IPO price (which valued Eagle at P75 billion or $1.5 billion), or an increase of P2.6 billion in just one day of trading.

I am writing about Eagle not because I have shares (I never buy IPO shares and shares of companies I write about) but because Eagle offers a template on how to be rich in the Philippines overnight. 

Please note though that not everyone who wants to become rich can list shares in the stock exchange and reap a windfall.  Getting rich in this country of 105 million where there are only five thousand (yes, 5,000) Filipinos who make P5 million a year in income requires a great deal of entrepreneurship, hard work, guts, raw courage and luck.

In 2009, Ang didn’t even produce a metric ton of cement.  This year, he is producing five million tons a year, making Eagle the largest single plant cement manufacturer. Next year, output will rise to 7.1 million tons per year.  From zero in 2010 to No. 1 in 2017 is one big achievement to sneeze at.

About 20 to 30 years ago, cement was a sunset industry.  It was considered overcrowded, with too many players who were losing money.

But then housing boomed. Some five-million houses were needed yesterday.  Only about 249,000 new houses are built each year, even as demand increases by 400,000 a year, equivalent to the number of new families being formed each year. 

The construction sector itself, which belongs to industry, has grown by 11.6 percent per year in the last five years, more than double economic growth rate in the same period.  Cement consumption per capita is the lowest in the Asean-5, at 212 kilos per person, less than half the consumption of Vietnam, Thailand and Malaysia, and below the global average.

Then business also boomed.  The economy has grown by an average of five percent per year for the past 18 years, an unprecedented growth and the longest economic expansion in the country’s history.  The boom has been fueled by unbridled consumer spending, which in turn, has been fueled by inflows of overseas money from earnings of some 12-million expat Filipinos.  

Today, P72 of every P100 of economic production comes from consumption—spending by consumers —on cellphones, appliances, cars, condos and houses.  Every year, the Philippines makes $27 billion or P1.35 trillion from OFW remittances.  The government has not been able to harness this huge pile of income.  So the money goes into consumption instead.

Don’t believe the BS that Philippine presidents have been great which is why the economy is booming.  No.  The economy will boom even if the president of the Philippines were a dog—or a rat.   That’s how strong the economy is.  It is like a giant iceberg floating in the middle of the ocean.  Thru sheer inertia or the physics of motion, the iceberg moves by itself.   That is the economy.  Now, on top of the iceberg is a rat.  The rat feels great because he thinks he is the one moving the iceberg.  That is the president of the Philippines.

So even if President Duterte declares martial law nationwide and fulfills his critics’ claim that he has killed 9,000 extra-judicially, the economy will just keep growing.   Why?  Inertia in motion.

Now, businessman like Ramon Ang has seized on this phenomenon and have thus moved into areas that are the consequences of or the preconditions for further growth—like power, toll roads, construction materials, and consumer products like beer, beverages, packaging, and food and fuel   Hence, the rise and dominance of companies that Ang manages—San Miguel, Purefoods, Petron, and his own Eagle.

But growing is not just a matter of taking a stake.  It requires good governance, technology (which lowers cost and improves quality), employing the right people, the right timing, and of course, luck and execution brilliance.  RSA recalls that the Sy family came ahead of him in diversifying into cement, but didn’t quite make it.

In producing cement, RSA made sure the factory is close to its raw materials, limestone.  He did that.  Next, he made sure he is close to his customers, in Metro Manila and the rest of Luzon, which accounts for 60 percent of the economy and where Eagle has 30 percent of the cement market.    This integration, from raw material to finished product to retail outlets, results in lower cost.  Hence, RSA is able to price his Eagle Cement P2 lower per bag than the competition.   He is now targeting a higher market share.

Integration and lower cost also means higher profits.   According to Chinabank Securities, Eagle’s profit margin—before interest, taxes, and depreciation or EBITDA, is 42.4 percent on average—almost twice Holcim’s 26.2 percent and quadruple Cemex’s 9.6 percent. Chinabank Securities thinks Eagle’s share price could rise to P27 per share, eventually, despite the high starting base price of P15.

Says leading stockbroker Dino Bate: “Eagle has been doing well vs. the industry.  They continue to grow their revenues while the others are experiencing declines. They also have better margins given that they don’t have to pay royalties and their plants are located closer to the market they want to serve.”


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Topics: Tony Lopez , Eagle Cement Corp. , initial public offering , IPO , stock market
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