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Mark Yu
Mark Yu
Articles (397)  | Author's Website |

Underperforming IPO: Eagle Cement

Philippine cement supplier needs more room to grow to prove itself

July 12, 2017 | About:

Philippines-based Eagle Cement (PHS:EAGLE), the recently publicly listed 79 billion Philippine pesos ($1.55 billion) cement business operator, reported 19% year-over-year revenue growth to 3.77 billion pesos and a more impressive 30% year-over-year profit growth to 1.03 billion pesos, resulting in a 27.3% margin compared to 25.1% in the same period last year.

Although Eagle Cement recorded 383 billion pesos (23% higher year over year) in cost of goods sold and 25.7 billion pesos (9.2% increase) in overall operating expenses, the company did not record any loss in relation to its year-earlier debt extinguishment and other expenses that were responsible for its 120.3 billion pesos profit reduction therefore leading to higher profitability in the current quarter.

Excluding the 120.3 billion pesos deductions last year, Eagle Cement could have still recorded a healthy low-teens profit growth year over year.

“Eagle added that its retail business remains strong and with the government’s pronouncement of increased infrastructure spending under its 8 trillion pesos Build Build Build plan, the firm is optimistic about its prospects.

“While it continues to keep its stronghold in the market, Eagle is also completing its third integrated cement production line in Bulacan, which is expected to be operational by 2018. It will add 2 million metric tons to Eagle’s capacity. The company is also set to begin construction of its fourth integrated cement production line in Cebu and its supporting facilities in Visayas and Mindanao in a bid to penetrate the cement market in the region.

“Eagle also discloses that it is actively seeking further expansion as local demand for cement constantly increases."

(Government push via tax incentive)

“In relation to the need for more cement output, BOI’s inclusion of cement projects in the new Investment Priorities Plan (IPP) for tax incentive purposes is a move also welcomed by Eagle. Paul Ang, president and CEO of Eagle, affirms that this effort by the government reinforces its commitment to push for growth through infrastructure. ‘It’s a strategic move to encourage cement firms to expand, especially with a looming 47 million metric ton demand by 2025.’

“With Eagle’s increase in capacity through the addition of two integrated cement plants from its third line in Bulacan and in Cebu, it has demonstrated a lead in the local cement industry that will support the growing demand in the country.” -- Company press release

Total returns

Eagle Cement launched its public enlistment on May 29. Shares appreciated by 3.27% (at the time of writing) since then.


Trailing 12 months figures were not available at the time of writing.

Fiscal year 2016 sales and profits figures, meanwhile, indicated multiples of 5.95 times compared to a trailing industry figure of 3.02 times and 19.2 times vs. a trailing industry figure 16.6 times (Reuters).

The firm also had a price-book (P/B) ratio of 4.1 times vs. industry figure 2.31 times.

The company has yet to provide any dividends to its shareholders. Nonetheless, it has provided 45 million pesos, 0.06% yield, to its preferred shareholders in the recent quarter.

Should Eagle Cement consistently exhibit the same strong growth figures for fiscal year 2017, forward price-sales (P/S) and price-earnings (P/E) multiples indicated 5 times and 14.8 times.

Eagle Cement

According to its IPO prospectus, Eagle Cement was incorporated and registered with the Philippine Securities and Exchange Commission on June 21, 1995.

Eagle Cement is a fully integrated Filipino-owned company primarily engaged in the business of manufacturing, marketing, sale and distribution of cement. The company has the newest, state-of-the-art and single largest cement manufacturing plant in the Philippines.

Eagle Cement is the fourth-largest player in the Philippine cement industry based on sales volume with the fastest-growing market share among all competitors in the industry since it started commercial operations in 2010.

As of the company’s prospectus, the Philippines' 11th-richest man and Eagle Cement’s chairman, Ramon S. Ang, with a net worth of $1.4 billion, directly owned 29.29% of Eagle Cement and also through Far East Cement Corp. indirectly owned another 68.57% of the issued and outstanding shares of Eagle Cement (1).

According to filings, both major shareholders' stakes are to be withheld by the 180-day lockup requirement.

Eagle Cement intended to use its recently IPO proceeds (approximately 7.5 billion pesos) to partially finance the construction of its Cebu Cement Plant.

According to filings, the Cebu Cement Plant will be a fully integrated plant built to manufacture cement using the raw materials to be extracted under the Mineral Production Sharing Agreements of Eagle Cement in the province of Cebu.

The plant will use approximately 2.5 million tonnes of limestone per annum which will produce an estimated 1.5 million tonnes to 2.0 million tonnes of cement. Majority of the cement produced will be dispatched from the plant by sea to a network of bulk cement distribution terminals across the Visayas and Mindanao.

The production in the Cebu Cement Plant is expected come on stream in 2020 (2).

In addition to this project, the company already has the largest integrated single plant production capacity in terms of cement output in the Philippines through its primary cement production facility located in Barangay Akle, San Ildefonso, Bulacan (the “Bulacan cement plant”). The Bulacan cement plant consists of two production lines with an annual combined cement production capacity of approximately 5.1 million metric tons or 130 million bags per annum.

In review of Eagle Cement’s competitors, 85.2 billion pesos Holcim Philippines (PHS:HLCM), produced 11.5 million metric tons in fiscal year 2016. Another competitor, 36.9 billion pesos Cemex Holdings Philippines (PHD:CHP), delivered 5.7 million metric tons in the same period.

Nonetheless, Eagle Cement also maintains a grinding and packaging facility in Limay, Bataan. The company also is in the process of constructing a third production line in its Bulacan Cement Plant, due to be completed in 2018 which will increase its cement production capacity by 2 million metric tons or about 50 million bags per annum. This will bring total production capacity to about 7.1 million metric tons or about 180 million bags per annum.

Eagle Cement has two wholly owned subsidiaries: South Western Cement Corp. and KB Space Holdings.

South Western Cement is organized primarily for the manufacture and sale of cement and its byproducts and owns mineral rights in Malabuyoc, Cebu.

KB Space Holdings is a land holding company that owns several parcels of prime commercial land in Mandaluyong City. This wholly owned subsidiary engaged in property leasing has not yet started its commercial operations as of the recent quarter.

According to filings, Eagle Cement is organized into one reportable segment which is the quarrying, manufacturing and sale and distribution of cement products.

Sales and profits

In the past two fiscal years, Eagle Cement had revenue growth average of 23.1%, profit growth average of 15% and profit margin average of 32.1%.

Cash, debt and book value

As of March, Eagle Cement had 8.91 billion pesos in cash and cash equivalents and 8.15 billion pesos in principal loans with a debt-equity ratio of 0.42 times compared to 0.33 times in December 2016. As observed, overall loans increased by 2.15 billion pesos while equity, mostly retained earnings, rose by 986.3 million pesos in the past three months.

Intangible assets that were 0.62% of the company’s 31.23 billion pesos seemed negligible. Eagle Cement grew its book value by 5.4% to 19.2 billion since December.

Cash flow

In the first quarter, Eagle Cement’s cash flow from operations declined by 27.1% year over year to 1.42 billion pesos compared to the same period last year. Despite the impressive profit growth, the company recorded significant higher cash outflow in its receivables, inventories and other current assets resulting in much lower cash flow from operations in the recent period.

Capital expenditures, including allocation to intangible assets, were 892.2 million pesos leaving Eagle Cement with 530 million pesos in free cash flow compared to 1.17 billion pesos in first-quarter 2016.

As mentioned earlier, no dividends were provided to the company’s common shareholders, but 8.49% or 45 million pesos of its free cash flow were provided as dividends to its preferred shareholders.

In the past two fiscal years, Eagle Cement provided a cumulative 645 million pesos or 12.2% of its 5.27 billion free cash flow in such dividend payouts.

In the recent quarter, the company also took in 2 billion pesos in loans, net any repayments/interests.


Eagle Cement did not clearly record significant market appreciation after its IPO in May. Recent quarter operations indicated the company has consistently delivered high-teen revenue growth figures followed by increased profitability. Nonetheless, these growth figures appeared to be somewhat lower than previously achieved figures in past fiscal years.

The company’s purpose of raising funds to further expand its operations during the year-old Duterte administration’s #BuildBuildBuild 8 trillion pesos project appeared to be timely and prudent of the majority-owned cement production firm.

In addition, Eagle Cement’s balance sheet seemed to be appealing having carried acceptable debt levels and demonstrated growing book value. The company has, though, been consistently providing a small amount of its free cash flow to its preferred shareholders in recent years.

At 4.1 times book value, the newly listed Eagle Cement shares did seem to reflect a hefty premium at today’s market valuations.

In summary, Eagle Cement is a pass.


1. Company filings.

Far East Cement Corp. is beneficially (100%) owned by shareholder Ramon S. Ang.

Far East Cement was incorporated in the Philippines on Feb. 17, 1993, primarily engaged in the business of manufacturing, marketing, sale and distribution of cement, cement products and byproducts. Currently, the company has ownership interest in holding companies and companies engaged in the cement manufacturing industry.

2. Eagle Cement currently distributes its products in the Luzon region which constitute about 65% of total cement demand in the Philippines, particularly in the following areas: National Capital Region (Metro Manila), Region I (Ilocos Norte, Ilocos Sur, La Union, Pangasinan), Region II (Batanes, Cagayan, Isabela, Nueva Vizcaya, and Quirino), Region III (Nueva Vizcaya, Nueva Ecija, Bulacan, Pampanga, Tarlac, Bataan, Zambales) and Region IVA (Cavite, Laguna and Batangas, Rizal, and Quezon). As of 2015, NCR still serves as the center of construction and infrastructure activity in the country. Eagle Cement is considered one of the leading players in areas with the highest economic activity in the Philippines with an estimated market share of 30% in NCR, Region III, and Region IVA, based on internal Company data. As of the date of this prospectus, the company does not sell its products in other countries.

Disclosure: I do not have shares in any of the companies mentioned.

About the author:

Mark Yu
A doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

Attempts to dissect company filings per day. Dislikes goodwill and intangible assets.

For quicker reading--jump ahead to an article's conclusion.

One company (review) a day keeps the speculation (hopefully) away.

Would typically invest $500 to $3000 of own money per buy recommendation.

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