Trader’s Playbook
August 10, 2021
Converge ICT Solutions Inc.
Bloomberg: CNVRG PM / Reuters: [Link]
CNVRG: New PSEi constituent effective on 16 BUY ON PULLBACKS
August 2021
Last T raded Price (10 A ug 2021) 26.85
• Month-to-date, Converge ICT Solutions Inc.’s (CNVRG) M k t . Cap (P bn) 204.34
share price has surged by over 20% after it was announced
to be included in the Philippine Stock Exchange Index Consensus T arget Price 23.42
• Normally after the effective date, the share price of the Upside/Dow nside -12.77%
stock recently included in the PSEi normalises.
• Those who bought at our buying levels are suggested to CNVRG vs. PSEi year to date price
take some profits. Accumulating once CNVRG pulls back to performance
around P25.00 or the gap around P24.00 is advisable for a 90.0%
better risk to reward trade.
70.0%
What Happened:
50.0%
Following our Buy on Pullbacks call on CNVRG last 17 June 2021
entitled “Ride the uptrend”, the counter touched as low as P21.70 30.0%
and reached our recommended profit taking level of P25.00 last 06 10.0%
August 2021, gaining 15.0%. CNVRG rallied after the counter was
-10.0%
announced to be included in the Philippine Stock Exchange Index
beginning on 16 August 2021. -30.0%
CNVRG PSEi
-50.0%
Our View:
Usually, after the effective date, the share price of the stock recently
included in the PSEi normalises. In the past, we note that the share
prices of Emperador Inc. (EMP), Bloomberry Resorts Corp. (BLOOM), Equity Research Analyst
Puregold Price Club, Inc. (PGOLD), and Security Bank Corp. (SECB) Royce Aguilar
respectively pulled back by 2.7%, 12.5%, 0.7%, and 17.3% three +63 (2) 8859-0600
months after they were officially added in the PSEi. Beyond our
expected near-term price action for CNVRG, we remain positive on its
long-term growth prospects. The company is well poised to benefit
from emerging themes during and after COVID-19, such as work
from home, E-learning, and home entertainment. Additionally, we
think that CNVRG can generate strong returns from the following: (i)
stable and recurring revenue given the long-term nature of customer
contracts; (ii) high margins as result of fixed cost leverage; and (iii)
strong cash flow generation on higher utilisation of its fiber assets.
With its strategic focus on the local fixed high-speed broadband
market, CNVRG is poised to catalyse fiber broadband penetration in
the country – securing for itself a multi-year runway of opportunities
that is fuelled by outsized demand for high-speed data and
connectivity, while at the same time garnering untapped market share
and connecting more people to the Internet.
Recommendation:
Those who bought at our buying levels are suggested to take some
profits. Accumulating once CNVRG pulls back to around P25.00 or
the gap around P24.00 is advisable for a better risk to reward trade.
Set cut loss below P22.50 and take profits at around P28.00.
Trader’s Playbook
Technical Corner
Analysis: After sharply rallying this month, CNVRG found resistance at P28.00. With CNVRG
trading at overbought levels (RSI: 76.19), it is likely that the counter will pull back in the
coming sessions.
Trading Plan: Those who bought at our buying levels are suggested to take some profits.
Accumulating once CNVRG pulls back to around P25.00 or the gap around P24.00 is
advisable for a better risk to reward trade. Set cut loss below P22.50 and take profits at
around P28.00.
Peer Table
NI M argin
EPS F Y 21F P/E F 12 P/BV F 12 ROE F Y 21F
F Y 21F
CNV RG 0.77 23.19% 28.50 5.34 18.87%
GLO 168.06 13.48% 12.59 2.83 25.38%
T EL 132.15 14.74% 9.89 2.01 22.98%
M edian 1 3 2 .1 5 1 4 .7 % 1 2 .5 9 2 .8 3 22.98%
Trader’s Playbook
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