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I.

The Philippine Stock Echange and its Composition

The Philippine Stock Exchange Composite Index (PSEi), formerly called Phisix, is a
fixed basket of thirty (30) common stocks of listed companies, carefully selected to represent
the general movement of the stock market. In other words, it is the benchmark measuring the
performance of the Philippine stock market.

PSEI List of Companies 2019


1. Ayala Corp. (AC)
2. Aboitiz Equity Ventures, Inc. (AEV)
3. Alliance Global Group, Inc. (AGI)
4. Ayala Land, Inc. (ALI)
5. Aboitiz Power Corp. (AP)
6. BDO Unibank, Inc. (BDO)
7. Bloomberry Resorts Corp. (BLOOM)
8. Bank of the Philippine Islands (BPI)
9. DMCI Holdings, Inc. (DMC)
10. First Gen Corp. (FGEN)
11. Globe Telecom, Inc. (GLO)
12. GT Capital Holdings, Inc. (GTCAP)
13. International container Terminal Services, Inc. (ICT)
14. Jollibee Foods Corp. (JFC)
15. JG Summit Holdings, Inc. (JGS)
16. LT Group, Inc. (LTG)
17. Metropolitan Bank & Trust Company (MBT)
18. Megaworld Corp. (MEG)
19. Manila Electric Company (MER)
20. Metro Pacific Investments Corp. (MPI)
21. Puregold Price Club Inc. (PGOLD)
22. Robinsons Land Corp. (RLC)
23. Robinsons Retail Holdings, Inc. (RRHI)
24. Semirara Mining and Power Corp. (SCC)
25. Security Bank Corp. (SECB)
26. SM Investments Corp. (SM)
27. San Miguel Corp. (SMC)
28. SM Prime Holdings, Inc. (SMPH)
29. PLDT (TEL)
30. Universal Robina Corp. (URC)

The selection of these companies is based on a specific set of criteria. Under the
revised policy on index management, companies should meet three (3) criteria to qualify under
the PSEi:

 Free float - the company’s free float level must be at least 15%.
 Liquidity - the company must rank among the top 25% in terms of median daily value in
nine out of the twelve-month period in review.
 Full market capitalization - stock should be one of the highest-ranked market
capitalization (MCAP), measured by the company's stock price multipled by the number
of shares being publicly traded.

II. San Miguel Corporation as Part of the Philippine Stock Exchange

As we go through the different companies in the Philippine Stock Exchange, we


decided to choose this company. San Miguel Corporation (SMC) was originally founded in 1890
as La Fabrica de Cerveza de San Miguel, a single brewery in the Philippines. It was established
by Don Enrique Ma Barretto de Ycaza. The Company has since then transformed itself from a
beverage, food and packaging business into a diversified conglomerate with businesses in fuel
and oil, energy, infrastructure, and real estate industries.

The Company's product portfolio includes beer; spirits; non-alcoholic beverages;


poultry; animal feeds; flour; fresh and processed meats; dairy products; coffee; various
packaging products; and a range of refined petroleum products.

SMC has strategic partnerships with international companies, among them are
Kirin Holdings Company, Limited for beer; Hormel Foods International Corporation for
processed meats; Nihon Yamamura Glass Company, Ltd., Fuso Machine & Mold Mfg. Co. Ltd.
and Can-Pack S.A. for packaging products; and Korea Water Resources Corporation for its
power business.

In present, the company is managed by Chief Executive Officer Eduardo M.


Cojuangco, Jr., and Chief Operating Officer Ramon S. Ang. The Company's subsidiaries include
San Miguel Brewery, Inc.; Ginebra San Miguel, Inc.; San Miguel Food and Beverage, Inc.; SMC
Global Power Holdings Corp.; SEA Refinery Corporation; San Miguel Holdings Corp.; and San
Miguel Properties, Inc.
III. Financial Statement and Industry Analysis

San Miguel Corporation


Consolidated Income Statement (in million)

Period Ending: 2018 2017 2016 2015


31/12 31/12 31/12 31/12
Total Revenue 1024943 826086 685314 672243
Revenue 1024943 826086 685314 672243
Other Revenue, Total - - - -
Cost of Revenue, Total 825748 644221 514021 532067
Gross Profit 199195 181865 171293 140176
Total Operating
908629 715654 586453 592799
Expenses
Selling/General/Admin. Expenses,
74177 63356 63254 51840
Total
Research & Development 152 127 103 144
Depreciation / Amortization 7781 7340 8282 7643
Interest Expense (Income) - Net
- - - -
Operating
Unusual Expense (Income) 771 610 793 1105
Other Operating Expenses, Total - - - -
Operating Income 116314 110432 98861 79444
Interest Income (Expense),
-41385 -27593 -38019 -33742
Net Non-Operating
Gain (Loss) on Sale of
- - - -
Assets
Other, Net -1813 -1656 -3367 -90
Net Income Before Taxes 73116 81183 57475 45612
Provision for Income Taxes 24468 26369 17053 16781
Net Income After Taxes 48648 54814 40422 28831
Minority Interest -25571 -26589 -22951 -16545
Equity In Affiliates - - - -
U.S GAAP Adjustment - - - -
Net Income Before
23077 28225 17471 12286
Extraordinary Items
Total Extraordinary Items - - 11818 162
Net Income 23077 28225 29289 12448
Total Adjustments to Net
-7317 -7317 -6839 -6425
Income
Income Available to 15760 20908 10632 5861
Common Excluding
Extraordinary Items
Dilution Adjustment - - - -
Diluted Net Income 15760 20908 22450 6023
Diluted Weighted Average
2383 2383 2384 2385
Shares
Diluted EPS Excluding
6.61 8.77 4.46 2.46
Extraordinary Items
DPS - Common Stock
1.4 1.4 1.4 1.4
Primary Issue
Diluted Normalized EPS 6.83 8.95 4.78 2.75

San Miguel Corporation


Consolidated Statement of Financial Position (in million)

Period Ending: 2018 2017 2016 2015


31/12 31/12 31/12 31/12
Total Current Assets 594470 506338 479427 422611
Cash and Short Term Investments 244672 206713 203465 181366
Cash 38716 33021 29559 33011
Cash & Equivalents - - - -
Short Term Investments 205956 173692 173906 148355
Total Receivables, Net 129893 116040 114525 100727
Accounts Receivables - Trade, Net 63298 55030 41333 45648
Total Inventory 129384 105997 86363 67467
Prepaid Expenses 75797 66328 62688 60830
Other Current Assets, Total 14724 11260 12386 12221
Total Assets 1676642 1379643 1306824 1246022
Property/Plant/Equipment, Total - Net 597216 526281 506974 499529
Property/Plant/Equipment, Total -
857473 751379 709262 702175
Gross
Accumulated Depreciation, Total -260257 -225098 -202288 -202646
Goodwill, Net 130852 60124 58113 58603
Intangibles, Net 146608 134438 125165 139969
Long Term Investments 96837 71486 71283 61525
Note Receivable - Long Term 21158 14543 10068 9389
Other Long Term Assets, Total 89501 66433 55794 54396
Other Assets, Total - - - -
Total Current Liabilities 433127 361771 379608 319719
Accounts Payable 70070 75191 58790 46692
Payable/Accrued - - - -
Accrued Expenses 9140 7567 8097 2525
Notes Payable/Short Term Debt 184024 149863 189277 146859
Current Port. of LT Debt/Capital
75396 53833 47770 54121
Leases
Other Current liabilities, Total 94497 75317 75674 69522
Total Liabilities 1338897 1079346 1026882 1007885
Total Long Term Debt 684303 500573 451086 493551
Long Term Debt 561936 362565 297238 330838
Capital Lease Obligations 122367 138008 153848 162713
Total Debt 943723 704269 688133 694531
Deferred Income Tax 22899 20674 17229 15329
Minority Interest 174202 170765 156839 146740
Other Liabilities, Total 24366 25563 22120 32546
Total Equity 337745 300297 279942 238137
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable,
-32221 -32221 -32221 -62221
Net
Common Stock, Total 16443 16435 16425 16417
Additional Paid-In Capital 177938 177750 177641 177871
Retained Earnings (Accumulated
221165 210225 192890 176782
Deficit)
Treasury Stock - Common -67093 -67093 -67093 -67093
ESOP Debt Guarantee - - - -
Unrealized Gain (Loss) 514 277 214 -
Other Equity, Total 20999 -5076 -7914 -3619
Total Liabilities & Shareholders'
1676642 1379643 1306824 1246022
Equity
Total Common Shares Outstanding 2383.9 2382.27 2380.21 2378.52
Total Preferred Shares Outstanding 1472.06 1472.06 1472.06 1072.06
Industry Average Company Average

Liquidity:

Current Ratio 1.54 2.06

Quick Ratio 1.22 1.26

Liquidity Ratio

 Current Ratio

The current ratio of 1.54 which is lower than the 2.06 industry average reveals that SMC may
have difficulty meeting its current obligations with their current assets. Thus, it indicates a poor
financial health of the corporation and need to take an action.

 Quick Ratio

The quick ratio of 1.22 which is lower than 1.26 industry average means that SMC has a
relatively lower liquidity position than its competitors. Thus, SMC may either increase its current
assets or reduce current liabilities to improve its ratio.

Asset Management

 Asset Turnover Ratio

Going back to the past three years, SMC's asset turnover ratio, it shows that the company tries
to generate more of income (the ratio is increasing) througg maximization of its available asset.
Recent year's ratio of 0.53 implies that the net income generated is almost half of the its total
asset. In comparison to the industry's asset turnover ratio (which is higher), indicates that assets
are more utilized in the creation of profit. It is somehow closely related, knowing the difference
of 9%. As a result of this difference, it is recommended that SMC continues take chance of
increasing the efficiency of its assets to produce higher profit.

 Inventory Turnover
Over the past three years, the inventory turnover declines, which tries to show how the
company projects higher sales on the next years. Since there are higher inventories,
opportunities of sale grow as well. SMC's current inventory turnover ratio is much closer to the
industry's normal ratio. To be specific, current cost of goods gold is usually six times larger than
its average inventory in their industry. It is assumed that for the next years, the company must
find ways of maintaining its proper inventory management.

 Accounts Receivable Turnover Ratio

The collection of accounts receivable is much essential to a company. For SMC, over the past
three years, they used to collect more of it, causing turnover to increase. This indicates that in
relation to company's credit sales, collection is stable. It also suggest that company might have
proper strategy of managing its accounts. But comparing with the industry average, it was 2
times larger that SMC's ratio. Despite this difference, it doesn't neccessarily mean that the
company is not doing good with their receivables. In their industry, there must be more relaxed
credit policies, while SMC tries to restrict the collection of its accounts.

Solvency

 Long Term Debt to Equity Ratio

This ratio indicates the value of investments made by owners or stockholders against the funds
obtained from long term creditors. It indicates the proportion of debt and equity used to finance
the entity's asset. Given both high ratios of the company and the industry average, it can be
concluded that SMC belongs to a capital-intensive industries. It is because industries must
purchase more property, plants and equipment to operate.

 Total Debt to Equity

This refers to the ratio of long-term and short-term liabilities compared to equity. As an equation,
it is expressed as your business’ short- and long-term liabilities divided by its equity. As a
company’s total-debt to equity ratio increases, it poses a greater financial risk to banks and
creditors. So as you can see, it's growing compare to the industry average for about 34.05 %. It
means that SMC are getting more liabilities in relation to it's equity to fund assets which indicate
that there's a significant reliance on debt to obtain assets-high leverage.

Profitability

 Gross Margin

Having a low Gross Margin indicates that a high cost of goods sold, which can be attributed to
adverse purchasing policies, or stiff market competition but it doesn’t mean that it has a low
sales.

 Operating profit margin


High Operating profit margin indicates that the company is well equipped to pay for fixed cost
and interest obligations, have better chances to survive an economic slowdown and more
capable of offering lower prices than their competitors that have a lower profit margin.

 Pretax margin

Higher Pretax margin is very good. It is an indication of high degree of operational profitability.

 Net profit margin

High net profit margin measures the efficiency of SMC at converting sales into actual profit. It
also indicates how good they are at cost control.

 Return on Asset

Company’s ROA is not that far from the industry average. This indicates that the infrastructure
aspect of SMC and its telecommunication is becoming highly asset intensive that requires big
investments to purchase machinery and equipment in order to generate income.

 Return on Equity

SMC’s high ROE indicates that it is more capable of generating cash internally, and therefore
less dependent on the debt financing.

 Return on Investment

Even though ROI is below the average, it is still a good return. it is still have a positive ROI, that
means that the total cost of the investment was recoup in addition to some left over.

Market Value Ratio

 Market Price/Book Ratio (M/B Ratio)

During the most recent quarter (MRQ) in 2018, SMC's M/B Ratio was 1.06 times. This means
that SMC have P1.06 for every P1.00 of equity. Since the M/B ratio is more than its industry
average of 0.62, it implies that the stock is a good investment .

 Basic Earnings per Share

The annual report of SMC shows 6.61 times Basic EPS. The company earns P6.61 for every
share of its stock. The Basic EPS is above the 2.5 industry average. Higher EPS indicate that
more value is earned for a company with higher profits.

 Diluted Earnings per Share

Diluted EPS indicates that there are no convertible securities in the company and thus, equaled
to its Basic EPS. The Diluted EPS is more than its industry average, similar to the Basic EPS
 Dividend Yield

SMC's most recent dividend yield (2018) of 0.84% is 0.96% lower relative to the industry
average of 1.8% which indicates a decrease in compensation to every stockholder's shares.
Thus, SMC cannot afford to compensate a higher yield in its recent performance which is not
favorable to investor's desire in earning higher yield as possible.

 Book Value Per Share

A comparison of SMC's book value per share and its industry average exhibits the
undervaluation of its shares. Higher BVPS shows that the stocks are more valuable. Hence,
stock price should increase.

 Price-Earnings Ratio

A higher P/E ratio indicates a positive future performance which the investors are looking
forward to. SMC's most recent P/E ratio (24.57) is approximately 50% higher than its industry
average (16.39). Hence, this higher ratio purports the anticipation of investors to a positive
performance and growth of SMC in the future.

 Payout Ratio

The most recent payout ratio of 20.58% (2018) increased by 0.96% in comparison with 19.62%
(2017) payout ratio of SMC. The consistency of payout ratio trend is more valuable for the
investors over its varying level.
SHAREHOLDERS

IV. Company's Organizational Structure


BOARD OF DIRECTORS

Eduardo
BOARD M. Cojuangco
OF DIRECTORS
(Chief Executive Officer)

Eduardo M. Cojuangco Ramon S. Ang


Ramon S. Ang
(Chairman) (Vice Chairman)
Aurora T. Calderon
(Chief Operating Officer & (Vice President & Director)
President)

DIRECTORS INDEPENDENT DIRECTORS


Ferdinand K.Constantino
(Chief Financial Officer
Aurora T. Calderon & Treasurer)
Reynaldo G. David
Bella O. Navarra
(Vice President & Chief
AccountingJose
Officer)
C. de Venecia Margarito Bustalino
Joseph N. Pineda Teves
(Vice President &
Deputy Chief Financial
Inigo U. Zobe Reynato Serrano Puno
Officer)

Ramon F. Villavicencio
Virgilio S. Jacinto
Reynabeth D. de Guzman
(Secretary, Compliance
(Head-Investor Relations)
OfficerThomas A. Tan
& General
Counsel)

Joselito Dee Campos

Alexander J. Poblador

Estelito P. Mendoza

Menardo R. Jimenez

Leo S. Alvez
Major issues discussed:

1.Development on their major projects that still on-construction such as ;


 San Miguel Brewery’s new brewery in Tagoloan, Misamis Oriental
 San Miguel Pure Foods new hotdog plant in Cavite
 Feed mill facilities in Bataan and Bulacan
 SMC Global Power commercial operations for units 2 and 3 of the Malita and Limay
Greenfield power plants
 Network expansion program for Petron Corp.
 SMC Infrastructures on-going projects; Skyway Stage 3, MRT-7, TPLEX

2. Future plans such as;

 That the company extend 50% discount on its products to senior citizens
 Increase the cash dividends paid by the company to its common stockholders
 Build a new International gateway—the New Manila International Airport in Bulacan
VI. Recent Projects and Developments of San Miguel Corporation

This section presents the two flagship projects of San Miguel Corporation in
Bulacan namely the Bulacan International Airport or the New Manila International
Airport, and the Bulacan Bulk Water Supply. Indeed, these projects definitely serve as
mainstream to reach out in the community, and to leave a legacy.

Project #1: New Manila International Airport or Bulacan International Airport

Project Background:

Transportation Secretary Arthur Tugade and San Miguel Aerocity Inc. (company
wholly owned by SMC) President Ramon Ang signed a contract for the $15-billion
Manila International Airport on September 2018. Tugade said that it will contribute to the
public freedom of choice in traveling since the said project will serve as an alternative
to NAIA and help to decongest the traffic in Metro Manila. The airport is expected to
accommodate 100 million passengers per year up to 200 million if it's upgraded to have
6 runaways. The airport will be fully owned by the government under a "build operate
transfer" program , SMC President Ang.

Implementation and Progress:

The groundbreaking of project is set on December 2019 and will be constructed


on a 2400- hectare property in Bulakan, Bulacan, alloting space of 4 runways, 8
taxiways and 3 passenger terminals. In addition, according to Ang, the 4 runways will be
completed in 5 years. The outline plan of transportation system involves of 5 roads
leading to the airport: Cavite coastal road or the Manila-Cavite Expressways, two routes
in the Skyway system and respective routes from Mecauayan and Bocaue. (Tuquero,
2019).

Challenges:

In the opening of bids conducted by the DOTr's and Awards Committee (BAC),
there were no rivals to challenge the original proponent for the construction, operation
and maintenance of the international airport. However, San Miguel Holdings Corporation
may have to post a security bond amounting to as much P125 billion to secure the right
to build, operate and maintain the set budget in New Manila International Airport
(NMIA).
Project #2: Bulacan Bulk Water Supply Project (BBWSP)

Project Background:

San Miguel Corp.’s (SMC) P24.4-billion Bulacan Bulk Water Supply Project
(BBWSP) is a public-private partnership project of Luzon Clean Water
Development Corp. and K-Water Resources Corporation which primarily aims to
provide adequate water supply in the province of Bulacan. (Flores, 2019).

Furthermore, this project is also entitled to be one of the two water projects of
the Metropolitan Waterworks and Sewerage System (MWSS) under the country’s
partnership program. This project was started by the Aquino Aquino
administration in 2012 but it is the first major water project to be completed during
Duterte’s term. (Simeon, 2018).

Objectives:

As manifested by the current water consumption issues where the main


sources of water from deep wells in the province are slowly running out, the
Bulacan Bulk Water Supply Project (BBWSP) aims to address the water supply
requirements of municipalities in the province of Bulacan, thereby reducing
groundwater extraction and use of deep wells which are being discouraged due
to adverse environmental impact. The project intends to supply treated bulk
water to water districts in Bulacan province through the construction, operation,
and maintenance of facilities for abstraction, treatment, and conveyance of
treated bulk water supply. (Simeon, 2018)

Simply, the said water project aims to provide the residents with ready
access to fresh, potable surface water while balancing the competing needs of a
growing population, industry, agriculture, and the environment in the province of
Bulacan just like what President Ramon Ang of SMC shared in an interview.
(Manila Standard, 2019).

Implementation and Progress:

As highlighted to be the first major water project to be implemented under the


Duterte administration, its dry run operation started on December 17, 2018; and
its commercial operations officially commenced last January 14, 2019 which was
followed by the project’s phase 1 milestone completion ahead of schedule.
(Mayuga, 2019).

Furthermore, as part of the completion, The BBWSP consists of three stages.


Stage 1 covers six water districts consisting of San Jose del Monte, Marilao,
Meycauayan, Bocaue, Obando and Balagtas while Stage 2 covers seven water
districts consisting of Guiguinto, Calumpit, Bulakan, Plaridel, Sta. Maria,
Paombong and Malolos. Meanwhile, the construction of Stage 3 which covers the
remaining 11 municipalities of Baliuag, Plaridel, Pandi, Hagonoy, San Rafael, San
Miguel, Norzagaray, Angat, Dona Remedios Trinidad, San Ildefonso, and Bustos,
has not yet started. (Flores, 2019)

The formal start of operations in January 2019 will also signal the beginning
of the 25-year concession period which will last until 2044.(Simeon, 2018).

With this, as announced, an information is delivered that the construction is


set to start in the year 2022, or even earlier. (Business Inquirer, 2019).

Implication and Promise:

Indeed, with a renewed purpose in mind, President Ang highlighted stated


that with the help the company’s financial resources, teams and technical
capabilities, he would promise to deliver several projects that support our fast-
economic growth which is evident in the projects like this and the Bulacan
International Airport. (Mayuga, 2019).

VII. San Miguel Corporation's Stock Price Movement

Stock price movements are affected by numerous fundamental and technical


factors. No exact equation can be used to calculate its precise value. However, stockholders
and other stakeholders can still formulate their analysis as to how stock prices will behave with
the help of these factors. For San Miguel Corporation, the following factors may possibly
contributed to the movement of its stock price:

 Economy

Changes in economic condition affect stock prices. During favorable conditions,


stock prices rise and eventually changes according to the economy. Since the economy
changes, stock price of San Miguel Corporation are also expected to fluctuate.

 Interest Rates
Generally, when interest rates have fallen significantly, consumers and
businesses will increase spending, causing stock prices to rise. On the other hand, rising
interest rates have lead to lower stock prices in the market. Last year, San Miguel Corporation
had a bond offering which included 5-year Series E Bonds due 2023 with a fixed interest rate
equivalent to 6.2500% a year, 7-year Series F Bonds due 2025 at 6.6250% and 10-year Series
G Bonds due 2028 at 7.1250%. The fluctuation of interest rates contributed to change in its
stock prices.

 Dividends

Declaration of dividends also indicates a movement in stock prices. Dividend rate


lower than investor's expectation often leads to decline in stock price. Dividends per share of
San Miguel Corporation have changed for the last years. Its 2017 dividends per share (Php 1.4)
was lower than in 2016 which was Php 1.75. The significant fluctuations of its dividends per
share resulted to changes in stock prices.

 EPS (Earnings per Share)

One of the main concerns of the stockholders is the return on their investment
which drive the stock prices and may influence the market sentiments. San Miguel Corporation's
2016 EPS (basic) growth is 272.73% which provided a high return to shareholders. However, its
2017 and 2018 EPS (basic) growth fell with -6.89% and -24.68%, respectively.

 Market Sentiments

Market sentiments often provides biased and subjective judgment as to how stock
prices will move. San Miguel Corporation's stocks may be affected by the perceptions of market
participants and individuals who are building their expectations and analysis to the extent of
their future earnings.

 Company Earnings

Corporations may probably have a goal in common, maximizing stockholders value.


One of its key determinant is the companies performances evidenced by their annual net
income. San Miguel Corporation's 2016 net income growth is 41.80% which contributed to the
rising price of it's stocks. Moreover, 2017 net income growth rose substantially to 60.98%.
However, its 2018 net income growth fell to -18.24% which may have an adverse impact in its
stock prices.