Buying out Korean group from local unit



PHOENIX Semiconductor Philippines Corp. (PSPC), the listed subsidiary of STS Semiconductor and Telecommunications Co. Ltd. of Korea, has good financials. It reported, among others, retained earnings of $42 million as of Dec.31, 2014 based on its audited financial statement and $42.5 million as of Sept. 30, 2015 after paying $11 million in dividends.

Since Phoenix has yet to file its audited financial performance for 2015, Due Diligencer is using the data from the company’s 2014 audited financial statement.

In 2014, PSPC reported net income of $17.4 million, up from $13.6 million in 2013 and $12.5 million in 2012. These profits resulted from increasing revenues of $234.4 million in 2014; $209.7 million in 2013; and $196.2 million in 2012.

Despite its consistent profitability, Phoenix may be headed for some kind of internal war, a threat that may not necessarily hurt the company’s profitability. Hopefully, the agitation by a group of public stockholders could do more good than harm to Phoenix and save it from whatever is hurting its mother company back home.

Mother company
The website of the Philippine Stock Exchange does not contain any disclosure that may indicate there is trouble brewing at Phoenix. However, an email from a reader of The Manila Times suggests the Korean group and 216 Filipino stockholders may be headed for war.

STS Korea owns 1.84 billion PSPC shares, equivalent to 85 percent of outstanding. PCD Nominee Corp. holds 300.2 million shares, or 13.9 percent, for Filipinos.

Although based in Korea, STS, which is listed on the Korea Exchange, reported in a PSE-posted disclosure on Oct. 1, 2015 “the cessation of its joint administration proceedings with its creditor banks on Sept. 30, 2015.” It also “disclosed that a substantial portion of its loans amounting to KRW80 million ($67.84 million) was already paid to its creditor banks, leaving a small portion to be settled soon.”

Earlier, that is, on Sept. 10, 2015, STS Korea reported the remittance to its account of $112.2 million by SFA Engineering Corp., a new investor. The infusion beefed up STS Korea’s working capital as a result of “a voluntary joint administration proceeding…in order to put in place a debt restructuring program.”

These filings could mean STS Korea had encountered some financial difficulties that it needed a debt-restructuring program.

Pricing Phoenix
I am not taking up the points raised by Rommel Ablin in his assessment of Phoenix’s financial performance and his suggestions so as not to preempt the company on its response. Instead, this piece will focus more on PSE filings and interpret some numbers, particularly those that have something to do with a potential takeover by a Filipino group.

Question No. 1: Will STS Korea sell its 85-percent control of Phoenix? Its local unit is providing it with dividends to ease whatever financial burden has been hurting it. Why give up “the hen that lays the golden egg?”

Question No. 2: Who will buy out STS? Will the Filipino group be able to pay STS’ asking price? At Phoenix’s close of P1.61 per share on Monday, the stock had a market value of P3.5 billion, of which 85 percent would be equivalent to almost P3 billion.

Buying out STS Korea would entail more than the market value. How about the premium? Phoenix hit a 52-week high of P3.00, which would value the company’s outstanding shares at P6.495 billion, of which 85 percent would be P5.5 billion.

In buying out a majority stockholder, the buyer would take more than computing available numbers. It needs to undertake a so-called due diligence audit which would require digging more data than had already been disclosed. In short, postings on the PSE website would not be enough basis for deciding on either a buy-in or a buy-out.

Phoenix has been fully compliant with the market’s full disclosure rule that governs listed companies. It is up to Ablin to make the public aware of his stock-watch report by sending it to the company. Phoenix, in turn, must post it on the PSE website.

A suggestion for Ablin: Why not also furnish the Securities and Exchange Commission and the Philippine Stock Exchange a copy each of your position paper to show their officials that not all public stockholders are passive investors who are in the market only for dividends?


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1 Comment

  1. Japanese and Korean accounting has much to be desired, coupled by their business practices. Hint..both books carries negative inventories….you are financial readers, try to connect this article with this.

    I was an auditor once fortunate enough to visit these countries.