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It’s official. The offer price of SMC was set at PHP110 per share + 0.331 for the relevant fees. That’s equivalent to a steep 28% drop in the value of the shares since the trading was halted (last close at PHP153). Of course you should be more sorry if you decided to buy and hold to your SMC shares when it was still trading at above PHP170. The pricing was finalized yesterday, although it was announced last week that the issue (or to put it more correctly: share sale size) was reduced to USD850 Million. In my three years of work experience as a gopher and highly-paid encoder slash faxer and messenger (pun intended), this share sale manifested the greatest intentional equity value decay I’ve ever seen. Unless we will include Cebu Air, Inc., which dropped by 36% since its IPO last year. However, the decay in value for the case of Cebu Air is much different in my honest opinion. At least for the case of Cebu Pacific, you know that the proceeds have “reinvestment objectives”, unlike SMC where bulk is just to pay Top Frontier. The only problem with Cebu Air is that they have so much high self-worth that they thought their equity should be valued at 19-20x PE (haha!).

But for the case of San Miguel, here are my two cents given this new development:

• As early as January,  San Miguel made some pronouncements that they will float around PHP200 Billion. It appeared very ridiculous at the beginning (both in terms of valuations and offer size, but with the way San Miguel are doing things, it felt nothing was impossible at that time.
• Then come first to second week of April, San Miguel adjusted their issue size to USD 1.5-USD1.2 Billion PHP65 to PHP85 Billion. They made the shares valuation contingent on the bids of the investors via the joint lead arrangers. Like I said, they tried to do it the Boy Edeza way. It was a combination of Top Frontier share sale and treasury share sale coupled with exchangeable bonds.
• Last week, San Miguel once again adjusted their issue size to USD 850 Million, equivalent to PHP36 Billion. It is still bigger than the IPO size of Cebu Air, but it is obvious that there are really no hardcore reinvestment needs for SMC. From PHP200 Billion down to PHP36 Billion? It is simply a share sale gain that Top Frontier or the Ramon Ang block want to do. If my memory is correct, the Ramon Ang block made its way to acquire the shares owned by the government and exchanged them into preferred shares (which are now apparently owned legitimately by Danding Cojuangco). At that time, the final acquisition value was PHP75. So  Top Frontier’s shares that will be sold in the secondary market (which is still relatively small compared to the total shares the group owns),  will still gain by 46.67%. Even if the offer price dropped to PHP110, they would be very indifferent.
• Though I still don’t know what the actual split is between the secondary shares and the treasury shares, the new offer price of PHP110 would translate to a trailing PE of 18x to 20x. The peer valuations are as follows:

Comparables	Trailing PE
SMC	20x (estimate)
SM	18.69x
AEV	9.68x
AC	20.88x
JGS	11.18x
AGI	15.82x
MPI	26.88x
DMC	16.02x
PSEi	13.78x

•  Though it is still relatively overvalued vis-a-vis the market and a few of  its conglomerate peers, it has perhaps gone down beyond its retracement (i.e. various support) levels. Also, it seems to be cheaper compared to the likes of MPI and are almost of the same value relative to Ayala and and SM Investments Corp.

My only regret or perhaps failure as an analyst is not being able to see through this all at once. Haha. But at this point, I think it really is worth giving this a shot both on a fundamental and technical standpoint as long as you don’t mind having your money in the pocket of Top Frontier. In terms of trading play, I don’t think SMC will go back to its PHP75 levels. However, just a CAUTION: both the upside and downside are really high. I’m just banking on the fact that the offer price is way below retracement levels and that the valuations are cheaper than its previous pricing plans. If there’s anything I learned in trading, it is always a good thing to buy stocks that are on sale. SMC is currently on sale, I just don’t know if it will be on a much lower bargain price come crossing/listing day. If I’m able to pool some funds and if my stockbroker will pick up an allocation, I’ll probably line-up and get the minimum (since I’m a low-wage guy and that’s only what I can afford: that is 100 shares, haha).

Now, if you are one of the unlucky ones who bought SMC while it was anywhere higher than PHP153, you have no choice but to buy in bulk at PHP110 and average your exposure down.

Just my two cents.

Postscript: if I may just share, whenever ATR Kim-Eng and BDO Capital are involved in a public offering, expect the terms of the deal to be out of this world. They never fail to surprise me with their pricing creativity, and they always challenge my brain cells. Of course it can also be mainly attributed to the creativity of the international lead arrangers, who I assume have a much bigger say in the underwriting syndicate. However, this SMC share sale really takes the cake! Ramon Ang, ikaw na! Ikaw na talaga. 

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