Investing in Philippines: My personal analysis: Cebu Air Inc. (CEB)


Thursday, October 13, 2011

My personal analysis: Cebu Air Inc. (CEB)


Cebu Air Inc. which is commercially known as Cebu Pacific is JG Summit's air transportation  business. 

The company has been around since August 1988 but only listed in the Philippine Stock Exchange via IPO last October 26, 2010. Cebu Pacific has been the leading "Low Cost Carrier" in the Philippines. They started with local flights to famous Philippine destinations and now has flights in the nearby ASEAN countries, China, South Korea, Japan, and Taiwan.

From its IPO level of 125 pesos, CEB has been at the 70 level making this its support level. Though a lot were skeptical about the aviation industry due to rising fuel cost CEB has posted earnings for the past years and still  shows earnings this year to date. News of further expansion with the the additional 4 A320 planes and increase flights to some ASEAN countries come January 2012 has made analysts and investors hopeful in the carriers future. Indications is that its current price level is the best price to get in. 


Fundamentally CEB is in good shape. 

Current ratio is at 1.06 signifying CEB's capability to pay currently maturing payables is a good sign for a big company specially in the transportation industry.  A Debt to Equity of 101.51 may be scary but of this Long Term to Debt to Equity is at 89.76 quite manageable level. 

As mentioned earlier even with the rising cost of fuel  last year and first months of 2011 CEB still managed to be a profitable company. With operating cost almost at 50% of revenues curbing expenses is a great task that CEB is able to handle.


Competition has become tight with ZestAir(formerly Asian Spirit) and AirPhilExpress(Air Philippines of PAL) penetrating the market. Another issue with CEB is the so many complaints in regards to their service and hidden charges. This is one of the possible downer of CEB's passenger volume. 

A lot of investors who jump in during CEB's IPO at 125 level are either waiting or have given up. Most analyst though believe that CEB might be back at the 92-98 level thus some indicate a buy rating. The 70 level might be the lowest that CEB can get and as for the past 2-3 days with PSEi going up and regaining its 4500 level its not surprising that some are starting to accumulate.

So what are the possible reasons why I see CEB a good buy in the coming months? Lets recap:

- Expansion with 4 new planes and additional local and
  international flights
- Declining fuel price
- PAL problem
- Better business outlook in 2012

and do you remember this?
(this is the rehearsal and actual performance in the aircraft)

But again this is just my opinion; how about you what do you think of Cebu Pacific? Share your thoughts, leave some comments.   



Anonymous said...

I have considerable amount of Cebu Pacific shares i purchased during the IPO. I am now frustrated on how the price per share has been going down and it seems that it won't go up anymore.

What do you think i should do? Do i just sell it as soon as it goes up, even if i will still be selling at a loss, then just invest the money again to stocks that have more chances of going up?


Investing in Philippines said...

Thank you for asking. My I ask what was your purpose when you bought CEB during its IPO? CEB is fundamentally good company but to most traders they see the airline business this year as not so good place to put in money due to the high fuel cost.

But moving forward with the good economic outcomes soon the airline business will be okay. Now how much loss have you incurred already? It would hurt if you are already at a 25% loss but the very best move you can do is to re-balance and invest your proceeds in selling CEB to a better stock for now.

Lucky for those who are just starting to consider CEB because I believed with the expansion CEB's price will soon rise to what it was.

Philipss said...

Excellent video!
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