Inside the boardroom with TOP CEO Erik Lim

Merkado Barkada (MB): Erik, congratulations to you and the TOP team for making it through the IPO process to this point, and for being the PSE’s first IPO of 2025. You have to be confident to do what you’re doing, but even more so when the market is this volatile! 
 

Erik Lim (EL): Thank you MB! We’ve prepared for our IPO since pre-pandemic and we are just excited that hopefully we are finally listing this April 8, 2025. 

MB: I want to talk about the price drop and the huge reduction in the deal size. I think most people would look at that and without having to see more, they’d assume that the family is excited to raise capital to grow, but just not that interested in giving up so much of its business at a lower valuation. Is there some of that visceral feeling behind the change, or are the considerations for the price and size adjustments coming from some other place?
 

EL: The adjustment in our offer price is still based on our growth and expansion strategy. We are currently focusing on strategic activities that will have impact on our near-term growth that can be felt immediately by our investors. 

With our revised IPO proceeds, we continue to focus on the expansion of the Light Fuels brand, as well as fuel importation.  The retail expansion plan will enable us to generate revenue much faster (as against constructing our depot which is more capital intensive and take longer to achieve payback). So with the shift in our plans, our capital requirement is significantly lower this time that is why we decided to reduce our capital raise for the IPO. 

MB: TOP delayed its IPO by almost four months, and the new plan is quite different from the previous plan. Is the new focus on retail service stations something that arose out of your conversations with investors, and in particular, potential anchor investors?
 

EL: The story and plan for the IPO has been focused on 3 items: Importation, Integration, and Expansion.

By moving the listing date of the IPO, we were able to discuss with our potential investors and at the same time assess a more efficient deployment of capital. The allocation of our previous proceeds was more focused on constructing a new depot facility, but since our current depot facility can accommodate importation, we decided to take out the construction of new depot facility. By doing so, we will be able to start our importation efforts sooner than expected, which will provide us with more control over the supply chain, ensuring reliability and minimizing risks.

Part of the proceeds is also to purchase our own oil tanker ship to integrate with our planned fuel importation operations, to ensure a consistent and reliable supply of fuel, maximize efficiency, and ultimately enhancing our operational capabilities and market positioning.

About 48% of the adjusted proceeds is allocated for the construction of 20 Light Fuels Service Stations. With the expansion of Light Fuels, we will be able to expand our market presence and drive sales volume. We hope to achieve economies of scale as we grow and expand our network and as our operations become more efficient. These are all part of our overall vertical integration strategy.

MB: You mentioned that you’d like an anchor investor that is also a strategic partner with logistics expertise. Is this part of a strategy to make fuel deliveries more efficient between a growing network of service stations? 
 

EL: An anchor investor who is also a strategic partner with logistics expertise would greatly benefit us both in the short and long term. Aside from capital investment, with their logistics expertise, they can contribute to streamlining and optimizing our supply chain. Their international network of contacts could also open up new opportunities for partnerships to further accelerate our growth. We’re fortunate to be in talks with potential investors who could also contribute to our growth operationally. 

MB: When we first talked before the IPO deferral, you said that TOP would pursue a vertical integration strategy to “capture more of the value chain in the Visayas”. Is this still the plan? If so, how have the changes to this deal altered TOP’s potential approach to climbing up and down the value chain? 
 

EL: Vertical integration is still the key for our business to be more efficient in the different supply chains – it’s one of the main reasons why we’re expanding our retail network and why we’re going to start our importation efforts soon. As mentioned, part of the gameplan is to allocate proceeds for “Integration” by purchasing our Oil Tanker ship to give us more flexibility, operational efficiency, and reliability of supply.

MB: How have the changes impacted the timeline?
 

EL: Timeline-wise, we are still on track with our plans, in fact, we have probably accelerated it sooner than expected. What’s important for the Top Line right now is to make sure that all of the different supply chains synergize with each other to give the best possible efficiency and service to our customers.

MB: Are there any lines of business--not contained within the prospectus--that dovetail with TOP's current business and its planned expansion? Your wholesale and niche market approach is probably new to most and the future evolutions of the business not as well understood. 
 

EL: What I can share with you is that our strategic direction involves natural industry progression. At TOP, we are pursuing a vertical integration strategy to capture more of the value chain in the Visayas, both through:

Forward integration - where we are expanding our network of retail service stations (Light Fuels stations) to enhance market presence, with particular focus on the growing motorcycle segment, recognizing it as a niche with unique fueling and service needs. We are also enhancing the customer experience by incorporating retail spaces within our service stations. These areas will provide essential amenities for travellers while increasing our revenue streams. 

Backward integration - We are entered into depot operations and laying the groundwork for future fuel importation. This is critical as it allows us to gain greater control over our supply chain, helping us manage logistics efficiently and maintain consistent and reliable fuel supply.

Both forward and backward strategies ensure we're not only growing in scope but also strengthening our ability to take advantage of the growing fuel demand in the Visayas region. 

MB: How big do you think a motorcycle-focused segment could be in terms of revenue contribution for TOP, and how soon could investors expect to see moves in this direction paying off for the company?
 

EL: Our industry study shows that there are about 6.8 million registered motorcycles in the country as of 2023 and the LTO has said that there are over 1.2 million motorcycles in Central Visayas alone representing 68% of total vehicle users. 

With this in mind, we focus our strategic expansion to accommodate this growing niche market.  With Light Fuels Express, we aim to capture this niche through our unique value proposition- the full canopy design to fully shelter motorcycles; our fuel pump designs built to accommodate simultaneous fueling of motorcycles, motor wash services, and anchor tenants catering specifically to motorcycle and two-wheeled vehicle needs.  

In our expansion for Light Fuels Express, we are looking at a “Convenience Store” rather than a “Supermarket” approach expansion strategy. If you look at the current service station these are larger outfits about 1,000sqm or more. We are looking at building smaller outfits for the Light Fuels Express about 500sqm or lower (depends on the area), this will enable us to be nearer to the market and cater to motorcycle and light vehicles. 

With the first mover advantage, we believe this is something "fresh" and "new" to the industry which will also help us capture our targeted market.

MB: Does TOP have aspirations to grow into a nationwide brand?
 

EL: As Bisdako (Visayan-blooded), we know the Visayan market by heart. We’re focused on Central Visayas because we believe that there’s still low-hanging fruit in our backyard, so to speak. This allows us to focus our efforts, as well as our resources (rather than spreading ourselves too thin). This also allows us to maximize our infrastructure before expanding – which results in better profit margins.

We may consider expanding outside the region once the growth trajectory matures – but that’s further down the road. We want to make sure first that our investors can reap the benefits in the region that we know very well. We believe that in the foreseeable future, there is still a huge runway for expansion in Central Visayas. 

MB: Are there any loose generalities that investors can use to input their forecasted price of oil per barrel to adjust your projected financials up/down?
 

EL: It’s quite difficult to break it down, since there are a lot of inputs that can affect the price of our final product. Forex fluctuations, oil price swings, as well as a changing regulatory landscape. For example, the Philippine government increased the CME proportion in biodiesel from 2% to 3% (which resulted in a price increase). However, we have always been prudent in managing our costs to maintain competitive pricing of our products through bulk orders from our suppliers as a hedging mechanism to keep our profit margins. But, if we were to break it down with general assumptions with everything status quo, for every dollar change in the price per barrel translates to about Php 0.30 to Php 0.40 change in the per liter in the pump price, this will also depend on the Peso to Dollar Exchange rate.

MB: On a more personal level, every business owner that I've known has experienced long bouts of sleeplessness when doing a significant expansion like this. Their minds play through all the disaster movie scenarios where their massive spending projects are side-swiped by some external force (new lockdowns, global war, political instability, etc). This has only upticked since COVID. I know we can all read the risks portion of the prospectus, but what are the disaster scenarios that play through your mind at night about this expansion?
 

EL: Yes, you’re right, there have been a lot of sleepless nights when we started TOP until now, especially while we are growing and carefully crafting our expansion strategies for the company. We are just quite fortunate that we have a very good team, as what they say, it's actually a great team of people that makes the company great! And at the same time, we share the burden by having sleepless nights to achieve our goal.

Execution risk and competition are probably the scenarios that keep us up at night. We hope to be one of the first movers, but once we show that there’s a robust market that's still prime, we expect others to follow. But with our experience and track record, we believe that the combination of strategic positioning, customer focused-service, our strong team with a keen focus on execution, and streamlined operations give us an unparalleled edge. 

That being said, we believe that our ability to execute sets us apart. Our partners at ICCP and PNB Capital noted during our discussions that our implied revenue growth outpaces all the PSEi constituent companies over the past three years. Moreover, we have better profit margins as well as ROA and ROE metrics than our listed peers. 

We don’t think these expansion plans will be easy, but we also have a very good team that gets the Central Visayas market (notably, Central Visayas’ GDP actually outpaced NCR, as well as the rest of the Philippines in aggregate, post-COVID). This puts us in a very good position to capture that strong growth.

MB: To the bags under our eyes and the fire in our hearts! Thanks for being a good sport and hitting my questions head-on. Best of luck to you, to the TOP team, and to all of the IPO buyers on the company’s upcoming market debut!
 

EL: Our pleasure MB. Thank you once again for the opportunity to discuss TOP to your avid readers. We look forward to sharing more exciting updates about TOP in the future. Take care and God bless!

MB bottom-line: I love IPOs because they’re so many things all at once: the chance to learn about a new business; the opportunity to watch price discovery happen in real-time; and a rare moment when the entire market looks in the same direction all at once.

TOP is going to hit the market at a fascinating time. At the macro level, interest rates have come down a bit and look to still come down a bit more, but geopolitical issues have surged to the top of every risk analysis thanks to the Trump trade wars and general instability. The Philippines continues to grow faster than the SE Asian average. At the market level, the PSEi just finished a formidable bull run that had some speaking in hushed tones about 8k before the US election news kicked us back to the mid-6k zone, and the subsequent turbulence bounced us around between the high 5s and low 6s where we are today. 

How will the market react?

We don’t know, but we’re about to find out. I like how Mr. Lim has given us a way to estimate the impact of oil price fluctuations, and I like that this IPO is about growth. IPO buyers will see their money put into building out a tight network of regionally-focused service stations that could serve as a platform for future success. 

There’s a lot going on that requires your consideration. There’s a portfolio of risks that TOP can’t directly control (oil and forex being the biggest), and it’s not clear how the market will react to a new entrant during this period of volatility. As always, do your own research and only make decisions that are right for you based on your personal situation. I hope you’ll read what Mr. Lim and I have discussed today, but please do not base any investment decision purely on what you’ve read here this morning. This is a long-term investment that needs deliberation!

Thank you again to Erik for taking the time to talk with me, and to the entire TOP team for their willingness to participate in this process. Best of luck to all, let’s see what happens next! 

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