MAPUA INSTITUTE OF TECHNOLOGY

School of Graduate Studies In Engineering Management

A STATISTICAL STUDY OF THE PHLIPPINE STOCK EXCHANGE COMPOSITE INDEX SECURITIES USING CLUSTER ANALYSIS

Submitted by

Angelo C. Santos

Submitted to:

Professor: Dr. Ma. Cecilia C. Carlos

September 22, 2012

A Statistical Study of PSE composite index security listed in the Philippine Stock Exchange

Abstract
Purpose This case study apply cluster analysis on 15 out of 30 PSE composite index securities that are listed in the Philippine stock exchange. Cluster analysis can help the reader/investor cluster the securities in which they can analyze natural groupings of the stocks and apply intrinsic value principles develop by Benjamin Graham.
Disclaimer: As mentioned by various value investing books, there is no correct intrinsic value. Every investor can provide same information but place a different intrinsic value on a company or securities. For this case study, we can use other term for value investing which is "margin of safety". This means an investor can use the estimation to buy stock on a price with discounts or buy securities/stocks with price less than it is worth.

Design/methodology/approach This paper examines the current Fundamental Analysis of the PSE composite index securities listed in the Philippines stock exchange. This case study uses Benjamin Grahams Stock Calculation based from his book Intelligent Investor. This paper will show the reader/investor cluster analysis of the chosen securities and the commonalities among the groups they belong. The result of the cluster analysis can be used to fully utilize investments portfolio based from the guidelines in the "Security Analysis and "The Intelligent Investor" books written by Benjamin Graham. These two books are most famous investing texts and often considered as a mandatory reading material for any investor. Key Words - P/E ratio test, Price-to-book ratio test, Rare bargain test and Blended multiplier test. Findings This paper attempt to apply Fundamental Analysis on the chosen PSE composite index securities. Paper Type Case Study using Cluster Analysis.

Background of the Study

The Philippine Stock Exchange (PSE) is the national stock exchange of the Philippines. It is one of the oldest stock exchanges in Southeast Asia, having been in continuous operation since its inception in 1927. It currently maintains two trading floors, one at its headquarters in the Philippine Stock Exchange Centre (formerly Tektite Towers), Ortigas Center in Pasig City, and one at the Ayala Tower One in Makati City's Central Business District. The PSE is composed of a 15-man Board of Directors, chaired by Jos T. Pardo. The Philippine Stock Exchange Composite Index (PSEi) is the main index of the PSE, while the All Shares Index is the broader index of the exchange. As of May 22, 2012, the Philippine Stock Exchange has 344 listed companies with a total market capitalization of US$229 billion. There are also 134 trading participants registered at the PSE. The remaining six indices are sector indices based on a company's main source of revenue. Although listed in an index, companies are listed on the PSE under the First Board, Second Board or the Small and Medium Enterprises Board based on market capitalization. PSEi is composed of thirty (30) listed companies. The selection of companies in the PSEi is based on a specific set of criteria. Which are indicated below: 1. The companys free float level should be at least 12%, up from the previous 10% requirement. The free float level is the number of shares available to third-party investors. This new criteria effectively requires PSEi index companies to have more shares that are owned by the investing public. 2. The company must rank among the top 25% in terms of median daily value in nine out of the twelve-month period in review. This ultimately requires PSEi stocks to have a certain level of trading volume that makes it liquid. This is a change from the current rule of fixed P5 million average daily trading values. 3. The ranking of qualified companies should be based on full market capitalization instead of float market capitalization.

Philippine Stock Exchange index (PSEi) List:

1. Aboitiz Equity Ventures (AEV) 2. Aboitiz Power (AP) 3. ABSCBN Corporation (ABS) 4. Alliance Global Group, Inc. (AGI) 5. Ayala Corporation (AC) 6. Ayala Land (ALI) 7. Banco de Oro Unibank, Inc. (BDO) 8. Bank of the Philippine Islands (BPI) 9. DMCI Holdings (DMC) 10. Energy Development Corporation (EDC) 11. Filinvest Land (FLI) 12. First Gen Corporation (FGEN) 13. First Philippine Holdings Corporation (FPH) 14. Globe Telecom (GLO) 15. International Container Terminal Services Inc. (ICT) 16. JG Summit Holdings (JGS) 17. Jollibee Foods Corporation ( JFC) 18. Lepanto Consolidated Mining Company (LC / LCB) 19. Manila Electric Company (MER) 20. Manila Water Company (MWC) 21. Megaworld Corporation (MEG) 22. Metro Pacific Investments Corporation (MPI) 23. Metropolitan Bank and Trust Company (MBT) 24. Philex Mining Corporation (PX) 25. Philippine Long Distance Telephone Company (TEL) 26. Robinsons Land Corporation (RLC) 27. Security Bank Corporation (SECB) 28. SM Investments Corporation (SM) 29. SM Prime Holdings (SMPH) 30. Universal Robina Corporation (URC)

Note: Since this case study is about investing principles, short background on the author of the books mentioned in the abstract will be discussed.

Data and Methodology

Benjamin Graham (May 8, 1894 September 21, 1976) was a British-born American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book Security Analysis. According to Grahams value investing is Any investment should be worth substantially more than an investor has to pay for it. He believed in thorough analysis of Companys financial statement, it should focus on assets and liabilities, above-average profit margins on products or services, and ample cash flow to fianc operations and other expenditures. This financial analysis was usually called Fundamental Analysis by investors. In his book the Intelligent Investor, Mr. Graham he mention two types of investor; the Enterprising or Active investor whose strategy in buying stocks focus on researching individual stocks they have purchased or are planning to purchase. They read financial statements most of the time. They are the deep value investors and look at other type of investment vehicles like fixed income investments. Another type of investor is the Defensive or Passive Investors who are enthusiastic on investing their money but do not want to spend a lot of time researching individual stocks they have purchased or are planning to purchase. They give their money to fund managers or financial institution who invests it for them. In short this type of investor doesnt want to put so much time analyzing or looking at bargain stocks unlike active investors. Often times they have lesser return in investment compared to the former. Definition of the basic terms use in the computation Earnings Per Share (EPS) - is the company's net income divided by the number of outstanding common shares. It is the portion of the company's profit or net income for each share of stock purchase by an investors. Price-to-Earnings Ratio (P/E ratio) - is the stock price divided by the earnings per share, so the result tells you how much you'll be paying for one dollar of the company's earnings. Since stock prices reflect

investor demand, this ratio tells you the price investors are currently willing to pay in proportion to the company's earnings. P/E ratios of 20 means investors are willing to pay twenty times more for a stock than the stock's earnings per share. Equity - it is the Ownership interest in a corporation in the form of common stock or preferred stock. Total Equity - The total amount of preferred stock equity added to the amount of common stock equity. Outstanding Shares - The shares of a corporation stocks that have been issued and are in the hands of the public. Book Value is also known as accounting value which shows the company's net worth. A company's book value per share is calculated by subtracting its liabilities from its assets, then dividing the result by the number of shares outstanding. Price-to-Book ratio (PB) - This ratio compares the market's valuation of a company to the value of that company as indicated on its financial statements. The higher the ratio, the higher the premium the market is willing to pay for the companys above its hard assets. A low ratio may signal a good investment opportunity, but the ratio is less meaningful for some types of companies, such as those in technology sectors. This is because such companies have hidden assets such as intellectual property which are of great value, but not reflected in the book value. Current Asset is a balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. Total Liabilities - A company's total liabilities can be split up into two basic parts, short- and long-term liabilities. Short-term liabilities are typically liabilities which are due within one year or less. Long-term liabilities are those with a time horizon of maturity is past the one year point. Liabilities such as loans, leases and taxes due can fall into either category. Net Working Capital - A measure of a company's operating liquidity expressed as current assets less current liabilities. Companies with current liabilities that exceed current asset are operating with a

working capital deficiency which may prevent them from fulfilling short term obligations such as accounts payables, operational expenses and current interest payments. Analysts track net working capital over time in order to assess a company's operational efficiency. Blended Multiplier Test This test is a stock selection suggested by Benjamin Graham in his book the Intelligent Investor. According to Graham, he suggested that the product of three year average P/E ratio multiplied by price-to-book value ratio should not exceed 22.5.

Note: In this case study, we will focus on the basic computation of financial statement of our chosen PSEi companies. This computation was based on Grahams stock calculation and serenity.

Data Description and Source The data used in the Grahams Stock Calculation from Appendix A are all extracted from the Philippines Stock Exchange circulars available in the PSE website. Author of this case study attached the shortcut on the financial information from the chosen securities calculated. While the Forecasted 2012 EPS were extracted from the Bank of the Philippines Islands asset management investment research website under the weekly Philippine stock valuation guide, it was mentioned by BPI that stock valuation guide they created were also extracted from Bloomberg terminal server. Bloomberg terminal is the platform that streams together price data, financials, news and trading data while Bloomberg itself is the major global provider of 24-hour financial news and information including real-time and historic price data, financials data, trading news and analyst coverage, as well as general news and sports.

Statistical Software Used The Data from Appendix A were composed of fifteen securities which in the software classified as cases and four test result of Grahams Stock Calculation that we classified as variables. We use the software called Statistica which is a statistics and analytics software package developed by StatSoft. Statistica provides data analysis, data management, data mining, and data visualization procedures. Since

Statistica offer a wide range of statistical solution, we use cluster analysis in this case study to collect different algorithms from the Graham Stock calculation test results. There are different types of cluster analysis but we use joining or tree clustering algorithm. The purpose of this algorithm is to join together objects or cases into successively larger clusters, using some measure of similarity or distance. A typical result of this type of clustering is the hierarchical tree.

Analysis and Interpretation of Results The Hierarchical Tree of our Data

2 3

Analysis of Hierarchical Tree Based from the result of tree clustering algorithm, we form 4 major groups that can be classified based of their linkage distance. We can name the groups based on their Grahams test result taxonomy. But before we describe each cluster, lets look on the suggestion of Graham in the computed P/E ratio.
Note: Benjamin Graham looked at P/E Ratios as a measure of stock market performance and calculated average ratios for the periods 1871-1970. The lowest average in that period was 9.5 (1941-50) and the highest was 18.1 (1961-63). Graham compared these calculations to the rates available on high-class bonds. (A P/E ratio of 20 implies an earnings yield of 5%).

The 1st group composed of companies that based from Grahams stock selection for Enterprising Investor calculation are considered near or fall on the criteria of Good or Enterprising stocks. This groups P/E ratio is slightly above 20; have a slightly good price to book ratio, and good to acceptable net-workingcapital ratio which means this group falls between relatively leverage up to positive net working capital. Price to assets ratio is from moderate to slightly moderate and the blended multiplier was slightly above the suggested ratio by Graham. The 2nd group composed of companies that based from Grahams stock selection for Enterprising Investor calculation are considered near or fall on the criteria of OK or NCAV (Net-current-assetValue) stocks. This groups P/E ratio are on the acceptable range which below 20s; They have high price to book ratio, and low net-working-capital ratio which means this group falls on highly leverage or debt-ridden companies. Price to assets ratio is high and above the required blended multiplier test by Graham. The 3rd group composed of companies that based from Grahams stock selection for Enterprising Investor calculation fall on the criteria of Excellent or Defensive stocks. This groups P/E ratio passed Grahams requirement in price earning ratio test; a very good price to book ratio, and high net-workingcapital ratio which means this group are capital efficient companies. Price to assets ratio is very moderate and passes the required blended multiplier test ratio suggested by Graham. The 4th group composed of companies that based from Grahams stock selection for Enterprising Investor calculation are considered Caution before you Buy stocks. I name them by myself due to the following reasons; P/E ratio is very high, and falls three to four times higher compared to the average of

20; they have a high price to book ratio and a very low net-working-capital ratio which means this group falls on highly leverage or debt-ridden companies. Price to assets ratio is also very high and four times above the required blended multiplier test.

Conclusion and Recommendation

Based from the result of our cluster analysis using tree clustering algorithm, we form four clusters out of the
fifteen PSEi securities. The four clusters have the following group recommendation:

1. Good or Enterprising Stocks This group can be recommended for purchase, but with slight diligence by checking if debt are not more than 110% of stocks assets. P/E is slightly higher than Graham recommend but still acceptable in my opinion. This group will fall as my 2 nd choice of stocks to purchase.

2. OK or NCAV (Net-current-asset-Value) Stocks - This group requires highest amount of diligence. Investor must check earnings stability of these securities for the past 10 years and track the net working capital overtime to assess if the operational efficiency falls on the acceptable range of the investor. 3. Excellent or Defensive Stocks This group meet all the criteria for defensive investment and considered safest type of stock. This group is highly recommended and will fall as my 1st choice of stocks for purchase. 4. Caution before you Buy - This group is opposite of the excellent or defensive stocks which fail on all of the criteria mentioned by Graham in his intelligent investor book. P/E ratio is above 20 and considered to be an speculative investment according to Graham, we cant recommend this group.

As a final note on this case study, when it comes to financial freedom and accumulation of wealth, financial advisers are suggesting investment in stock market. Stock picking or selecting stocks based on a set of criteria created by Graham is one of the many tools used by investors to achieve high rate of return on investment. But then again there is no fool proof system for picking stocks. Enterprising investor stock selection is only a strategy, as nothing more than an application of a theory of how to choose the right stock. Sometimes other stock selection theories can be successful at the same time. Thus, Enterprising Investor investment strategy must first fits your personal outlook, time frame, risk tolerance and the amount of time you can devote to study stocks you are planning to purchase. The result of this cluster analysis can be used to fully utilize your investments portfolio by purchasing stocks that fall on the Excellent or Defensive criteria which are considered undervalued stocks. These sets of stock test computation standard are created by Graham more than half a century ago and show a high percentage of success as shown on its historical evidence. He also mentioned that this stock selection process is not a matter of purely of chance or guesswork but governed by an analysis of past records in relation to the current market prices. Author of this case study done series of this analysis and test and computation can be viewed on the Appendix A of this article.

Appendix A
Basis of computation for Fundamental Analysis of 15 PSEi. Note: This analysis has also limitation; below details cant be cover by these Fundamental computations a. EPS calculation does not isolate other income and extra-ordinary income. b. Analysis does not cover earnings stability, dividend records, earnings growth and for futures earnings or forward P/E ratio, I use Bloombergs Stock Valuation as reference for the Forecasted Earnings-per-share for 2012. c. BLENDED MULTIPLIER result should be taken as arbitrary level. Ratios do not tell us the whole story by itself. It is more useful to compare the ratios of one company to other companies in the same industry. d. PRICE-TO-BOOK ratio should be taken as arbitrary level. Ratios do not tell us the whole story by itself. It is more useful to compare the ratios of one company to other companies in the same industry.

1. JG SUMMIT HOLDINGS, INC. JGS CURRENT PRICE = Php 33.50 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = Php 1.2600 2010 Earnings-per-share = Php 2.4200 2011 Earnings-per-share = Php 3.1900 2012 F. Earnings-per-share = Php 2.1000 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 2.24 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 14.96 PRICE-TO-BOOK RATIO TEST Total Equity = Php 200,406,696,000 Outstanding Shares = 6,797,191,657 Book-Value per Share = Php 29.48 Price-to-Book ratio (PB) = 1.14 NET-WORKING-CAPITAL TEST Current Asset = PhP 102,877,162,000 Total Liabilities = PhP 130,758,372,000

Net Working Capital = PhP (27,881,210,000) Current Asset to Total Liabilities ratio = 0.79 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 14.96 P/B = 1.14 P/E*P/B = 17.05 2. FIRST PHILIPPINE HOLDINGS CORPORATION FPH CURRENT PRICE = Php 77.00 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = Php 12.8160 2010 Earnings-per-share = Php 41.0430 2011 Earnings-per-share = Php 3.0990 2012 F. Earnings-per-share = Php 6.81 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 15.942 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 4.83 PRICE-TO-BOOK RATIO TEST: Total Equity = Php 94,404,000,000 Outstanding Shares = 548,826,277 Book-Value per Share = Php 172.01 Price-to-Book ratio (PB) = 0.44

NET-WORKING-CAPITAL TEST: Current Asset = Php 55,938,000,000 Total Liabilities = Php 78,833,000,000 Net Working Capital = Php (22,895,000,000) Current Asset to Total Liabilities ratio = 0.71 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 4.83 P/B = 0.44 P/E*P/B = 2.13

3. ABOITIZ EQUITY VENTURES, INC. AEV CURRENT PRICE = Php 48.20 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = Php 1.494 2010 Earnings-per-share = Php 3.9600 2011 Earnings-per-share = Php 3.8380 2012 F. Earnings-per-share = Php 4.16 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 3.36 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 14.34 PRICE-TO-BOOK RATIO TEST: Total Equity = PhP 97,169,966,000 Outstanding Shares = 5,521,871,821 Book-Value per Share = PhP 17.60 Price-to-Book ratio (PB) = 2.76 NET-WORKING-CAPITAL TEST: Current Asset = PhP 60,452,116,000 Total Liabilities = PhP 108,848,292,000 Net Working Capital = PhP (48,396,176,000) Current Asset to Total Liabilities ratio = 0.56 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 14.34 P/B = 2.76 P/E*P/B = 39.58 4. AYALA CORPORATION AC CURRENT PRICE = Php 415.00 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = Php 11.8600

2010 Earnings-per-share = Php 17.1300 2011 Earnings-per-share = Php 14.5300 2012 F. Earnings-per-share = 20.17

Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 15.92 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 26.07 PRICE-TO-BOOK RATIO TEST: Total Equity = Php 178,104,444,000 Outstanding Shares = 593,678,528 Book-Value per Share = Php 300.00 Price-to-Book ratio (PB) = 1.37 NET-WORKING-CAPITAL OR RARE BARGAIN TEST: Current Asset = Php 150,364,719,000 Total Liabilities = Php 221,136,635,000 Net Working Capital = Php (70,771,916,000) Current Asset to Total Liabilities ratio = 0.68 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 26.07 P/B = 1.37 P/E*P/B = 35.71

5. ALLIANCE GLOBAL GROUP INC AGI CURRENT PRICE = Php 12.00 (as of 09/03/12) P/E RATIO: 2009 Earnings-per-share = Php 0.4921 2010 Earnings-per-share = Php 0.7108 2011 Earnings-per-share = Php 1.1776 2012 F. Earnings-per-share = Php 1.04

Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 1.00 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 12.00 PRICE-TO-BOOK RATIO: Total Equity = PhP 133,865,781,169 Outstanding Shares = 10,269,827,979 Book-Value per Share = PhP 13.03 Price-to-Book ratio (PB) = 0.86 NET-WORKING-CAPITAL TEST: Current Asset = PhP 144,432,484,754 Total Liabilities = PhP 128,738,827,915 Net Working Capital = PhP 15,693,656,839 Current Asset to Total Liabilities ratio = 1.12 GRAHAMS BLENDED MULTIPLIER: P/E = 12.00 P/B = 0.86 P/E*P/B = 10.32 6. ROBINSONS LAND CORPORATION RLC CURRENT PRICE = Php 19.00 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = Php 1.0900 2010 Earnings-per-share = Php 1.2100 2011 Earnings-per-share = Php 1.1600 2012 F. Earnings-per-share = Php 1.12

Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 1.15 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 16.52 PRICE-TO-BOOK RATIO TEST: Total Equity = Php 45,685,714,507 Outstanding Shares = 4,093,830,685

Book-Value per Share = Php 11.16 Price-to-Book ratio (PB) = 1.67 NET-WORKING-CAPITAL OR RARE BARGAIN TEST: Current Asset = Php 22,155,979,799 Total Liabilities = Php 24,098,984,465 Net Working Capital = Php (1,943,004,666) Current Asset to Total Liabilities ratio = 0.92 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 16.52 P/B = 1.67 P/E*P/B = 27.59

7. MANILA ELECTRIC COMPANY MER CURRENT PRICE = Php 254.2 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = Php 5.13 2010 Earnings-per-share = Php 8.2100 2011 Earnings-per-share = Php 11.2800 2012 F. Earnings-per-share = Php 14.59

Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 9.80 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 25.94 PRICE-TO-BOOK RATIO TEST: Total Equity = PhP 64,713,000,000 Outstanding Shares = 1,127,141,091 Book-Value per Share = PhP 57.41 Price-to-Book ratio (PB) = 4.39

NET-WORKING-CAPITAL TEST: Current Asset = Php 86,629,000,000 Total Liabilities = Php 143,648,000,000 Net Working Capital = Php (57,019,000,000) Current Asset to Total Liabilities ratio = 0.60 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 25.94 P/B = 4.39 P/E*P/B = 113.88

8. METROPOLITAN BANK & TRUST COMPANY MBT CURRENT PRICE = Php 92.75 (as of 09/03/12) P/E RATIO TEST:

2009 Earnings-per-share = Php 3.0100 2010 Earnings-per-share = Php 4.1100 2011 Earnings-per-share = Php 5.0200 2012 F. Earnings-per-share = Php 6.08 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 4.56 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 20.34

PRICE-TO-BOOK RATIO TEST:

Total Equity = PhP 118,047,000,000 Outstanding Shares = 2,111,386,017 Book-Value per Share = PhP 55.91 Price-to-Book ratio (PB) = 1.63

NET-WORKING-CAPITAL TEST: Current Asset = PhP 871,255,000,000 Total Liabilities = PhP 824,715,000,000 Net Working Capital = PhP 46,540,000,000 Current Asset to Total Liabilities ratio = 1.06

GRAHAMS BLENDED MULTIPLIER TEST: P/E = 20.34 P/B = 1.63 P/E*P/B = 33.15 9. FILINVEST LAND, INC. FLI CURRENT PRICE = Php 1.29 (as of 09/03/12) P/E RATIO TEST:

2009 Earnings-per-share = PhP 0.0900 2010 Earnings-per-share = PhP 0.1200 2011 Earnings-per-share = PhP 0.1200 2012 F. Earnings-per-share = Php 0.14 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 0.118 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 10.93 PRICE-TO-BOOK RATIO TEST: Total Equity = PhP 44,054,331,000 Outstanding Shares = 24,249,759,506 Book-Value per Share = PhP 1.82 Price-to-Book ratio (PB) = 0.69 NET-WORKING-CAPITAL OR RARE BARGAIN TEST: Current Asset = PhP 39,155,787,000 Total Liabilities = PhP 33,319,367,000

Net Working Capital = PhP 5,836,420,000 Current Asset to Total Liabilities ratio = 1.18 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 10.93 P/B = 0.69 P/E*P/B = 7.54 10. SM PRIME HOLDINGS, INC. SMPH CURRENT PRICE = Php 13.94 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = Php 0.5270 2010 Earnings-per-share = Php 0.5840 2011 Earnings-per-share = Php 0.6520 2012 F. Earnings-per-share = Php 0.59 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 0.588 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 23.78

PRICE-TO-BOOK RATIO TEST: Total Equity = Php 65,150,074,220 Outstanding Shares = 17,373,677,760 Book-Value per Share = Php 3.75 Price-to-Book ratio (PB) = 3.67 NET-WORKING-CAPITAL OR RARE BARGAIN TEST: Current Asset = Php 21,731,640,192 Total Liabilities = Php 75,730,438,559 Net Working Capital = Php (53,998,798,367) Current Asset to Total Liabilities ratio = 0.29 GRAHAMS BLENDED MULTIPLIER TEST:

P/E = 23.78 P/B = 3.67 P/E*P/B = 87.27 11. MANILA WATER COMPANY, INC. MWC CURRENT PRICE = Php 26.80 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = PhP 1.3100 2010 Earnings-per-share = PhP 1.6200 2011 Earnings-per-share = PhP 1.7400 2012 F. Earnings-per-share = Php 2.14 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 1.70 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 15.76 PRICE-TO-BOOK RATIO TEST: Total Equity = PhP 24,703,368,000 Outstanding Shares = 2,012,186,848 Book-Value per Share = PhP 12.28 Price-to-Book ratio (PB) = 2.15 NET-WORKING-CAPITAL OR RARE BARGAIN TEST: Current Asset = PhP 9,032,547,000 Total Liabilities = PhP 38,725,372,000 Net Working Capital = PhP (29,692,825,000) Current Asset to Total Liabilities ratio = 0.23 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 15.76 P/B = 2.15 P/E*P/B = 33.88

12. GLOBE TELECOM, INC. GLO

CURRENT PRICE = Php 1,150.00 (as of 09/03/12) P/E RATIO TEST:

2009 Earnings-per-share = Php 94.59 2010 Earnings-per-share = Php 73.29 2011 Earnings-per-share = Php 74.02 2012 F. Earnings-per-share = Php 78.49 Average earnings-per-share (based on the past 3 years and 1 year Forecasted) = 80.10 Average price earnings ratio (based on the past 3 years and 1 year Forecasted) = 14.36 PRICE-TO-BOOK RATIO TEST: Total Equity = Php 49,185,754,000 Outstanding Shares = 132,395,285 Book-Value per Share = Php 1,160.00 Price-to-Book ratio (PB) = 3.12 NET-WORKING-CAPITAL TEST: Current Asset = Php 36,766,595,000 Total Liabilities = Php 95,576,825,000 Net Working Capital = Php (58,810,230,000) Current Asset to Total Liabilities ratio = 0.38 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 14.36 P/B = 3.12 P/E*P/B = 44.80 13. BANK OF THE PHILIPPINE ISLANDS BPI CURRENT PRICE = PhP 73.90 (as of 09/03/12) P/E RATIO TEST:

2009 Earnings-per-share = PhP 2.6200 2010 Earnings-per-share = PhP 3.3800 2011 Earnings-per-share = PhP 3.6100 2012 F. Earnings-per-share = Php 4.27 Average earnings-per-share (based on the past 3 years and 2 quarters) = PhP 3.47 Average price earnings ratio (based on the past 3 years and 2 quarters) = 21.30 PRICE-TO-BOOK RATIO TEST: Total Equity = PhP 92,294,289,000 Outstanding Shares = 3,556,356,173 Book-Value per Share = PhP 25.95 Price-to-Book ratio (PB) = 2.97 NET-WORKING-CAPITAL OR RARE BARGAIN TEST: Current Asset = PhP 842,765,791,000 Total Liabilities = PhP 806,812,901,000 Net Working Capital = PhP 35,952,890,000 Current Asset to Total Liabilities ratio = 1.04 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 21.30 P/B = 2.97 P/E*P/B = 63.26

14. PHILIPPINE LONG DISTANCE TELEPHONE COMPANY "Common" TEL CURRENT PRICE = PhP 2,760.00 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = PhP 210.38 2010 Earnings-per-share = PhP 212.85 2011 Earnings-per-share = PhP 163.24

2012 F. Earnings-per-share = Php 177.8 Average earnings-per-share (based on the past 3 years and 2 quarters) = PhP 191.07 Average price earnings ratio (based on the past 3 years and 2 quarters) = 14.44 PRICE-TO-BOOK RATIO TEST: Total Equity = PhP 146,323,000,000 Outstanding Shares = 216,055,775 Book-Value per Share = PhP 677.25 Price-to-Book ratio (PB) = 4.24 NET-WORKING-CAPITAL TEST: Current Asset = PhP 66,661,000,000 Total Liabilities = PhP 238,951,000,000 Net Working Capital = PhP (172,290,000,000) Current Asset to Total Liabilities ratio = 0.28 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 14.44 P/B = 4.24 P/E*P/B = 61.22 15. BDO UNIBANK, INC. BDO CURRENT PRICE = PhP 60.65 (as of 09/03/12) P/E RATIO TEST: 2009 Earnings-per-share = 2.57 2010 Earnings-per-share = 3.3700 2011 Earnings-per-share = 3.9100 2012 F. Earnings-per-share = Php 3.87

Average earnings-per-share (based on the past 3 years and 2 quarters) = PhP 3.43 Average price earnings ratio (based on the past 3 years and 2 quarters) = 17.68

PRICE-TO-BOOK RATIO TEST: Total Equity = PhP 103,393,000,000 Outstanding Shares = 3,580,875,328 Book-Value per Share = PhP 28.87 Price-to-Book ratio (PB) = 2.12 NET-WORKING-CAPITAL OR RARE BARGAIN TEST: Current Asset = PhP 1,122,075,000,000 Total Liabilities = PhP 1,068,284,000,000 Net Working Capital = PhP 53,791,000,000 Current Asset to Total Liabilities ratio = 1.05 GRAHAMS BLENDED MULTIPLIER TEST: P/E = 17.68 P/B = 2.12 P/E*P/B = 37.48

Appendix B Amalgamation Schedule

Plot of Linkage distances

Appendix C Table of Graham Stock Computation Calculation from Appendix

References:
http://en.wikipedia.org/wiki/Benjamin_Graham https://www.bpiassetmanagement.com/pages/philippine-stock-valuation-guide http://en.wikipedia.org/wiki/STATISTICA http://www.pse.com.ph/stockMarket/home.html - for definition of PSE Reference for definition of basic term used: http://www.investorwords.com & http://www.investopedia.com http://www.investopedia.com/university/greatest/benjamingraham.asp#ixzz26uXDpeGp http://www.investorwords.com/19147/net_working_capital.html#ixzz270PSM54C

http://www.investorwords.com/3822/price_to_book_ratio.html#ixzz270OYb8eR

http://www.investorwords.com/4533/shares_outstanding.html#ixzz270NQ80mZ

http://www.investorwords.com/8721/total_equity.html#ixzz270NE7rba http://www.netplaces.com/investing/doing-your-homework/investor-math-basics.htm Reference for Appendix A http://www.pse.com.ph/resource/corpt/2012/JGS_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/JGS_17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/FPH_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/FPH_17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/AEV_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/AEV_17A_Dec2011.pdf

http://www.pse.com.ph/resource/corpt/2012/AC_17Q_Aug2012.pdf http://www.pse.com.ph/resource/corpt/2012/AC_17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/AGI_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/AGI_17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/RLC_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/RLC_17A_Sep2011.pdf http://www.pse.com.ph/resource/corpt/2012/MER_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/MER_17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/MBT_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/MBT_A17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/MWC_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/MWC_17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/FLI_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/FLI_17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/GLO_A17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/GLO_17A_Apr2012.pdf http://www.pse.com.ph/resource/corpt/2012/BPI_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/BPI_A17A_Dec2011.pdf http://www.pse.com.ph/resource/corpt/2012/TEL_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/TEL_17A_Mar2012.pdf http://www.pse.com.ph/resource/corpt/2012/BDO_17Q_Jun2012.pdf http://www.pse.com.ph/resource/corpt/2012/BDO_201212627_07102012.pdf Appendix B: Statistica Software Index and Glossary for the cluster analysis definition.