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Happy Wednesday, Barkada --

The PSE gained 113 points (!!) to 6851 ▲1.7%

Good work! Over 200 Barkadans clicked on the PSE STAR registration link yesterday. There's another full day of presentations (schedule below), so I am literally begging you to take the time to check it out. You don't have to commit to the whole day. Just watch part of one!
Click here to register!
Here's the schedule of events for today: BNCOM: 10:25 AM DNL: 11:15 AM PIZZA: 1:30 PM CREIT: 2:15 PM MREIT: 3:10 PM
*** PROGRAMMING NOTE *** I'm going on vacation tomorrow. I'm still going to be in the markets, I just won't be researching, writing, and producing MB each morning before my family wakes up. :) I'm still reachable by Twitter, Reddit, Facebook, and email if you have any questions, comments, concerns, or business inquiries!
See you at 8 AM on September 1!
Congrats to LanAustria (@airtsua_lan) for winning the P1,000 Grab Food voucher draw! Thank you to all the 55 Barkadans that retweeted and shared to enter!
Shout-outs to Eddie V. Tangonan, Jon Bal, Monreg#1977, Jonathan Burac, LanAustria, mike, Inhinyerong Trader, Jr Martin, BokLamayan, Just’n, Palestinian_Sonic, Stephen Chiong, Jay Agonoy, Zhar, Bien EC, Pao, BonitZ, A J M Ching, Makisig Tan, kalelManila.eth, Palaboy Trader, JH, Alex Axle, Alex Suthisarn, Alex, Lance Nazal, Palaboy Trader, Dividend Pinoy | PGG, Corgi Buttowski, Chip Sillesa, arkitrader, leaf, meloi, Marvin Mercado,and Jing for the retweets, and to Catherine Buhat, Marvin Quezon, Padilla GJ, Marvin Rodriguez Gonzaga, Marc Carlson Yee Buhat, Lian Santos, Evolves.co, and Mike Ting for the FB shares!

▌In today's MB:

• DITO CME lost ₱7.3 billion on forex in H1
• VistaREIT Q2 div is actually a blended special/regular dividend
• JG Summit’s Q2 profit didn’t drop 95%... it went up 335%!
• PLUS: Quick takes on CTS, COL, and ALLDY

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▌Today's sponsor: Balai Ni Fruitas

▌Top 3 MB indices:

 Crony ▲2.86% REITs ▲1.77% Logistics ▲1.65% 

▌Bottom 3 MB indices:

 Hedgy Metal ▼0.49% Power Gen. ▼0.03% Connectivity ▲0.02% 

▌Main stories covered:

• [Q2] DITO CME lost ₱7.3 billion on forex in H1... DITO CME [DITO 3.76 ▼0.53%] [link] posted a Q2/22 net loss of ₱8.6 billion, down 292% from its Q2/21 net loss of ₱2.2 billion, and down 9% from its Q1/22 net loss of ₱7.9 billion. DITO is the parent company of Dito Tel, but the 3rd telco’s financials were not officially incorporated into DITO’s financial statements until the share-swap was executed in H2 of 2021. Prior to Dito Tel’s inclusion, DITO’s financials were basically the interest that the company made off of extending loans to Dennis Uy’s other companies, like Udenna Corp and Chelsea [C 1.18 unch], while waiting for the share-swap to complete. The result is that year-on-year comparisons of the Q2 and H1 data are basically useless. Of course DITO will show a 957% uptick in H1 revenue; it didn’t really earn anything in H1/21. Of course DITO will show massive upticks in H1 expenses; it didn’t really do anything in H1/21. This means that we need to be looking at quarter-on-quarter data to derive anything interesting about Dito Tel. On a q/q basis, DITO’s ₱8.6 billion net loss is only 9% worse than the ₱7.9 billion loss it posted in Q1. Comparing DITO’s Q1 report to its Q2 report, total revenues are up 27% to ₱1.7 billion, but DITO’s operating loss widened by 0.35% to ₱3.4 billion. General expenses were up 3% to ₱2.9 billion. Interest expense was up 34% to ₱0.8 billion. DITO also revealed that it incurred ₱7.3 billion in unrealized foreign exchange losses in H1, as the value of the Philippine Peso (the currency its customers use to pay for its services) dropped dramatically as compared to the US Dollar and the Chinese Yuan. As of the end of H1, DITO has US $1.16 billion in interest-bearing loans that, at current exchange rates, represent ₱63.9 billion in liabilities. The exact same loan, measured at the end of 2021, represented “only” ₱59.0 billion in liabilities. That’s a net difference of ₱4.9 billion in just 6 months.
  
  • MB: Those forex losses are startling. When DITO says that the losses are “unrealized”, what it means is that they expect to lose that amount (as of the current exchange rates) as DITO makes its payments on its outstanding debt. The losses will be “realized” when the payments are made, and the foreign exchange difference is felt. It also means that the underlying exchange rates could continue to change to help DITO, or to hurt it even worse. Outside of that unsolved forex problem, Dito Tel’s operating losses are still growing, despite throwing a ton of new subscribers onto its network. While the headline will be distractingly bad, there are two things I liked from an administrative perspective. First, DITO actually referred to Dito Tel as “the Company’s largest investment” in the first paragraph of its Management Discussion section (the only change in the paragraph from Q1). Second, DITO revealed that its average revenue per unit (ARPU) for H1 was ₱81. ARPU is a basic telecommunications metric that measures the profitability of a company’s users, and this was the first time that DITO has publicly used this metric in its earnings reports. Is this a good result for DITO? No, but operations are not as bad as the headline losses could make you think. I mean, they’re not good. And DITO still has a massive amount of forex exposure risk, but the operating loss basically flatlined while going from 5 million subscribers at the start of Q1 to 9.6 million at the end of Q2. In a sea of red, that’s something to work with.
• [UPDATE] VistaREIT dividend was a combination of a special and regular Q2 dividend... The VistaREIT [VREIT 1.74 ▼0.57%] Investor Relations department confirmed to me that the VREIT Q2 div was actually a combination of a special dividend (₱112 million) from income generated from May 1 through June 14, and a regular dividend (₱45,100,616) from income generated in the final half of June, from June 15 through to VREIT’s listing on June 30. The IR department also updated VREIT’s occupancy rate to 97% (up from 91%), and its WALE to 4.1 years (down from 5.1 years).
  
  • MB: Thanks to the VREIT IR department for their quick response, and for wishing me good “VHealth”. Haha. Let’s forget about the “special” part of this dividend for a second, and just focus on the “regular” component to see how VREIT’s first dividend compares to its REIT Plan guidance of an 8.25% yield (based on the IPO offer price of ₱1.75/share). If the regular dividend represents (roughly) what shareholders get from half of a month’s distributable income (~₱0.006/share), then we could annualize this amount by multiplying it by 24 (the number of half-months in a year) to get a full-year dividend of ₱0.1443/share, which, at VREIT’s IPO price, represents an estimate annual yield of 8.24%, right in-line with VREIT’s guidance.
• [CORRECTION] JG Summit’s Q2 net income didn’t drop 95%... it went up 335%!... Yesterday, my headline reported that JG Summit [JGS 55.60 ▲1.00%] [link] had delivered a Q2 net income of only ₱44 million, which I said was a 95% drop from its Q2/21 net income of ₱815 million. That’s not even close to correct. My script took the “net income attributable” line from JGS’s 17Q earnings report instead of the “net income after taxes” line, and in a rush, I wasn’t critical enough of that to spot the mistake. My breakdown of the individual business units is still accurate, as is (I believe) my analysis of how exposed JGS is to inflation and the second-order effects of it, but my headline and the summary numbers about the quarter were just completely off. I called JGS’s quarter a “dog’s breakfast”, but maybe the real dog’s breakfast was my write-up, and JGS’s quarterly report was just more or less “fine”, but with several worrying points of vulnerability to continued inflationary pressures.
  
  • MB: I apologize to you all for my error. Thank you to Dom for sending me a message to ask some questions about my data. That got the process of discovery started. Some days, I feel like a guy surrounded by hundreds of scripts in various states of disrepair, but for some reason on this day I decided to just John Daly the results of my scripts (just “grip it and rip it”) without taking a closer look. Seems like my upcoming break will be the perfect opportunity for me to take a deep dive into my own Google Sheets logic and Python code. Don't feel bad for me, I love it so much. But sometimes I let myself live with ""mostly working"" code for too long, and this error tells me that I need to make a few improvements!
• [NOTES] Quick takes from around the market...
  
  • CTS Global [CTS 1.09 unch] [link] H1 net income up 74% y/y on unrealized foreign exchange gains. CTS said that its H1 global trading revenue fell 53% y/y to ₱28.3 million, and that its local trading revenue fell 46% to ₱20.2 million, for a combined drop of 41% y/y. While trading revenues are down, CTS noted that it had an unrealized foreign exchange gain of ₱44.2 million in H1 that saved its weak trading performance by boosting net income significantly. MB: I don’t think that any of CTS’s IPO investors were clicking “BUY” with the thought of sweet unrealized foreign exchange gains and income from low-risk government debt instruments dancing through their heads, but here we are. Remove the ₱44.9 million in foreign exchange gains from H1/22 and the ₱3.8 million in foreign exchange gains from H1/21, and the picture looks dramatically different: H1/22 core net income of ₱5 million, down 80% from its H1/21 core net income of ₱24.9 million. That’s abysmal. It’s even worse if we isolate for Q2: core net loss of ₱6.6 million, down 8,150% from its Q2/21 core net loss of ₱0.08 million.
  • COL Financial [COL 3.51 unch] [link] Q2 profit ▼57% y/y, ▼46% q/q, to ₱49 million, with 1H profit ▼71% y/y to ₱140 million. COL blamed the huge drop in profitability on a “significant drop in commission revenues”, and the lack of non-recurring revenue from the sale of financial assets in H1/22. COL saw an 8% increase in the number of new customer accounts, bringing its total to ~507,000, but noted a 9% drop in net customer equity to ₱102 billion. COL also noted that the PSE itself was down 13.6% during H1, and that the average daily turnover fell 16.6% y/y to ₱7.5 billion. MB: The previous year, COL’s H1 account growth was 23% y/y, and its net customer equity growth was 53% y/y. This year’s numbers are tiny in comparison. While overall market sentiment is important to COL's possible earnings, I don’t agree with COL trying to make some kind of “high bar effect” argument about the impact of its sale of financial assets in H1/21 somehow making its H1/22 look that much worse. The revenue COL recognized in H1/21 on the sale of those assets was just ₱55 million, which was just 6.7% of its total H1 revenue that year. Take those sales out, and COL still made ₱424 million in profit in H1/21, and its H1/22 performance is still 67% lower. If I were a COL shareholder, I’d be wondering why the company hasn’t done more to appeal to the masses that flocked to its system during the crypto frenzy and basurapalooza of late 2020 and early 2021.
  • AllDay Marts [ALLDY 0.35 ▼4.05%] [link] Q2 profit ▼19% y/y, ▲215% q/q, to ₱87 million, with 1H profit ▼94% y/y to ₱11 million, largely due to ₱170 million in losses related to the Alabang fire in January. Operationally, ALLDY noted a marginal 2.2% y/y improvement in H1 sales, but that was considerably less than the 20% y/y sales increase it noted last year. Finance costs were lowered 70% to ₱10 million due to “loan settlements” made using proceeds of ALLDY’s 2021 IPO. MB: Forget for a second that the fire never happened. I don’t know if I’m able to patch up the lost sales and opportunity cost of the ₱170 million spent on dealing with the lost inventory and damage to the property, but just dump that ₱170 back into the Q2 and H1 financials; nothing happens to Q2 (the fire was in Q1), but the H1 results actually improve so much, from down 94% to up 1% y/y. Yes, Q2 is still a “thing”; if we put the ₱170 million back into Q1, that puts the net income there up to around ₱95 million, and that leaves Q2 down 19% y/y and down 8% q/q. Not the best trend for a consumer-facing business in the midst of a consumer-facing business recovery, where the stock price is down 40% from its IPO price and down 25% since the start of Q2.

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