BUY 8990 Holdings, Inc. HOUSE Time To Buy A House
Rating
AP Securities, Inc.
BUY
(formerly Angping & Associates Securities, Inc.)
Property Company
8990 Holdings, Inc.
Ticker
24 November 2016
HOUSE
Theodore T. Tan
Jerrie Mae Hyvi P. Respicio
Research Analyst +632 848 2915 local 147 [email protected]
Initiating Report
Time To Buy A House
Research Assistant +632 848 2915 local 147 [email protected]
November 23 Stock Price
Target Price
Return Potential
Market Cap
P 6.95
P 11.47
65%
P 39 Bn
Aggressive Expansion to Drive Growth The housing backlog remains largely unmet and is estimated to reach 5.5 Mn by year-end. Of the total projected housing needs from 20122030, which is around 6.23 Mn units, the economic housing segment accounts for 41.6%. This shows a more than adequate demand for mass housing projects. 8990 Holdings, Inc. (HOUSE), as one of the leading mass housing developers in the Philippines has taken advantage of these growth opportunities by launching 14 projects in 2016, totaling 75,608 units, valued at ~P 66.95 Bn. In addition, the Company has a land bank of 548 ha, on which the Company expects to build 109,818 units with an estimated value of P 128.88 Bn.
DECA Nation to Benefit from Regional Growth HOUSE has built its self-styled "DECA Nation" in the growing regions
outside Metro Manila. The Company has strategically established its market presence in these expanding regions, banking on growing population, income, and demand for goods and services, such as housing. With its good brand following in Visayas and Mindanao, the Company delivered a total of 32,421 units in VisMin, as of December 2015. Currently, the Company is aggressively expanding its footprint in Luzon with 22,124 units is in its pipeline for 2016. More so, continued economic growth is expected in the Visayas and Mindanao regions under the current administration‟s bid to invigorate areas outside the nation‟s capital. With the Company's strong record and brand acceptance in aforementioned regions, HOUSE will be one of the companies that should benefit from faster regional domestic growth.
Initial coverage on 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the Company’s wellestablished businesses in Visayas and Mindanao should benefit from the anticipated growth. The Company’s aggressive stance and sustainable margins provides an edge to its competition.
12-month Price Performance 116
106
96
86 HOUSE PM
Absolute PSEi
PCOMP
1m
6m
12m
-4.49%
-8.71%
-2.37%
-10.08%
-6.99%
-2.15%
Emerging Dividend Player Under its dividend policy, the Company has consistently distributed cash dividends to its shareholders. For 2015 and 2016F, HOUSE distributed dividends with an average yield of 3.4%. HOUSE‟s 2016F dividend yield of 3.6% is the highest among its direct comparables FLI (3.5%) and VLL (2.3%), as well as other big property players, having an average yield of 1.3%.
Stock Data Property
Sector Ave. Value Traded (last 30 days)
Pm
1.18
12m high/low
P
8.34 / 6.41
PER FY 2016F
x
7.7
PBV FY 2016F
x
1.8
AP Securities, Inc. This research report was prepared by the APS Research Department. The opinions contained in this report are those of APS Research Department. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
8990 Holdings, Inc.
Industry Overview
Industry Overview
Rising Need for Houses Alongside the Philippines‟ economic expansion, with GDP hovering between 6.0%-7.0% since 2012, population has also increased dramatically. Philippine population, measured by the number of families in the Family Income and Expenditure Survey of National Statistics Office, grew 16.1% in 2009-2012 compared to 6.0% in 2006-2009. Based on the study of Subdivision and Housing Developers Association (SHDA) and Center for Research and Communication of University of Asia & Pacific entitled “The Housing Industry Road Map of the Philippines: 2012-2030”, UN World Population Prospects showed that the average increase in the number of Philippine households from 2001-2015 stands at 333,537 per year. Likewise, housing needs are seen to grow hand-in-hand with the number of households in the succeeding years. Despite the growing demand for housing, the average supply of houses in the Philippines for the past 15 years has stayed below 200,000 units per year. This has led to a housing supply deficit. Cumulatively, the housing backlog as of 2015 reached 4.7 Mn housing units, and is estimated to reach up to 5.5 Mn by year-end (Exhibit 1).
Exhibit 1: Current Housing Backlog in the Philippines 600,000 400,000 200,000 (200,000)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(400,000) (600,000) (800,000) (1,000,000) New Surplus/(Deficit) Source: Housing Industry Road Map of the Philippines: 2012-2030
Total Demand
Total Supply
8990 Holdings, Inc.
Industry Overview
Using the same projected households in the succeeding years, a total of about 10.1 Mn housing units are needed to eradicate housing backlog in the Philippines.
Exhibit 2. Future Housing Needs 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 -
Can't Afford
Socialized
Economic
Low Cost
Mid End
High End
Source: UN World Population Prospects
8990 Holdings, Inc.
Investment Highlights
Investment Highlights
The DECA Nation 8990 Holdings, Inc. (HOUSE PM) is one of the leading mass housing developer in the Philippines. Under its DECA Homes and Urban DECA Homes brands, the Company caters to economic housing of single attached units and medium-rise condominium units, respectively. HOUSE has also ventured into high-rise condominium projects called Urban DECA Towers. The Company‟s DECA brand is already present in 10 cities nationwide as HOUSE builds its so-called “DECA Nation” (Exhibit 3).
Exhibit 3: GRDP Growth Rates in DECA Nation (Project Sites)
5.3%
5.9% CAVITE
PAMPANGA Units Delivered: 4,486
Units Delivered: 4,396
Subdivisions: 2
Subdivisions: 5
4.8% 5.3% BULACAN
CEBU Units Delivered: 16,302
Units Delivered: 0
Subdivisions: 15
4.8%
Subdivisions: 0
6.6% NCR
LAPU - LAPU Units Delivered: 0
Units Delivered: 316
Subdivisions: 0
Subdivisions: 0
8.3%
7.9% DAVAO
ILOILO Units Delivered: 12,867 Units Delivered: 2,972 Subdivisions: 10 Subdivisions: 2
8.3%*
BACOLOD Units Delivered: 0 Subdivisions: 0
* Growth in Western Visayas was used. No data yet for the newly-created Negros Island Region
Source: Philippine Statistics Authority, Company Data
3.3% GENERAL SANTOS Units Delivered: 280 Subdivisions: 0
8990 Holdings, Inc.
Investment Highlights
The Company has established a strong record and good brand acceptance in the Visayas and Mindanao, more particularly in Iloilo, Cebu City, Davao, and General Santos. In 2006, the Company expanded its footprint in Luzon, with its first subdivision in Angeles, Pampanga. The Company, then, launched another DECA Homes project in CALABARZON Region (Cavite) and its first DECA Tower in Metro Manila (EDSA). This year, the two latest additions to its DECA Nation are to be located in Bacolod and Bulacan.
Aggressive Expansion to Drive Growth Growth Opportunities in Underserved Market Amid the current mismatch between supply and demand in the property industry, HOUSE has focused on supplying affordable housing units to the underserved market. In the past two years, a slowdown in sales-take up was recorded in the residential segment, specifically in the condominium market, on increasing supply albeit with fewer takers. In contrast, housing backlog remained high with 4.7 Mn initial housing needs, as of 2015. This disconnect has led to a deficit that requires attention.
Exhibit 4: New Housing Need (2012-2030) Market Segment
Price Range
Surplus/ (Deficit)
Units Needed
2001-2011
2012-2030
% of Total Needed
Can't Afford/Needs Subsidy
P 400k and Below
(832,046)
1,449,854
23.3%
Socialized Housing
P 400k and Below
(663,283)
1,582,497
25.4%
Economic Housing
P 400k – P1.25 Mn
(1,962,077)
2,588,897
41.6%
Low-Cost Housing
P 1.25 Mn – P 3.00 Mn
(462,160)
605,692
9.7%
Mid-Cost Housing
P 3.00 Mn – P 6.00 Mn
250,403
No Need
High-End Housing
P 6.00 Mn and Above
224,011
No Need
(3,919,566)
6,226,940
Total Need
100.0%
Source: The Philippine Housing Industry Roadmap: 2012-2030
Most of the housing requirements come from the socialized, economic, and lowcost segments. Affordable housing developers remain few and the backlog continues to increase. Given that the economic housing segment accounts for 41.6% of the total need from 2012-2030, there is more than adequate demand for mass housing projects, such as HOUSE‟s units which are priced from P 400,000 to P 1,250,000. In total, regarding the whole market, around 10.1 Mn houses are needed in order for the backlog to be completely addressed and served. For the foreseeable future this translates to an estimated average of 264,805 units needed per year in terms of economic housing. HOUSE has a present production target of 12,454 housing units in 2016 which only accounts for 4.7% of the total segment‟s need. This solidifies the company‟s growth prospects moving forward as demand remains largely unmet.
8990 Holdings, Inc.
Investment Highlights
Exhibit 5. Future Housing Needs vs HOUSE Production 700,000 600,000 500,000 400,000 300,000 200,000 100,000 -
Total
Economic Housing Need
HOUSE Production
Source: The Philippine Housing Industry Roadmap: 2012-2030, Company Data
To take advantage of the growth opportunities given the massive demand, HOUSE launched 14 projects in 2016, with a total of 75,608 units in the pipeline, which is valued at around P 66.95 Bn.
HOUSE to Maintain a Rolling Inventory of Land Bank As of 9M2016, the Company has a land bank of 548 hectares, on which the Company expects to build 109,818 units with an estimated value of P 128.88 Bn. With their total existing pipeline of 182,984 housing units, the Company can easily cover their target production of 123,667 units from 2016 to 2021, an implied 20.0% increase in units per year.
Exhibit 6: Land Bank (as of 9M2016) Location
Hectares
No. of Units
Value (Php Bn)
North Luzon
-
-
-
NCR
72.3
50,603
77,361
South Luzon
-
-
-
Visayas
301.6
45,580
38,061
Mindanao Total Need
173.6 547.5
13,635 109,818
13,422 128,884
Source: Company Data
8990 Holdings, Inc.
Investment Highlights
Recently, HOUSE bought into property firm Primex Corporation (PRMX) through a private placement. After buying a total of 45.00 Mn shares at P 4.00/share, the Company will get 2.8% of the latter. Due to this, HOUSE will have access to PRMX‟s Meycauayan property, while the others remain open for future developments as shown in Exhibit 7. With HOUSE‟s mass housing expertise, the Company can tap into and develop PRMX‟s significant land bank. Moving forward, HOUSE aims to maintain a rolling inventory land bank of around 500 ha. Since the Company mostly offers economic housing projects, of which competitive location is not of primary importance like those of premium developers, a limited land bank should be easier to address as the company continues to grow. For the foreseeable future, its existing pipeline of projects should continue to support revenue growth. Exhibit 7: PRMX Investment Properties Particular Land Land
Location Annapolis, Greenhills
Total Area (in sqm) 1,000
Sumulong Highway, Antipolo
140,029
Panghulo Ave. Malabon
16,232
Land
National Highway, Tagaytay
69,599
Land
Gov. Pascual Ave, Malabon
29,391
Land Land
Meycauayan, Bulacan Richdale Subdivision
11,508 25,272
Land
Goldendale Village
35,118
Land & Building
Source: Company Data
8990 Holdings, Inc.
Investment Highlights
DECA Nation to Benefit from Regional Growth Strategically Located Projects HOUSE has strategically located its DECA projects in regions (highlighted in blue) where there is high demand. Six out of its seven DECA regions were consistently the top six contributors to GRDP in the past three years. Moreover, average growth recorded in DECA regions is at 6.7%.
Exhibit 8: Gross Regional Domestic Product % Contribution Region (2015) „12-„13 NCR 36.4 9.1 IVA 17.3 6.7 III 9.1 4.3 VII 6.3 7.4 VI 4.0 4.1 XII 3.8 8.4 X 3.7 5.6 I 3.1 7.7 XIII 2.7 7.8 VIII 2.2 5.7 IX 2.0 4.3 V 2.0 9.4 II 1.8 6.6 CAR 1.8 6.0 IVB 1.6 1.7 XI 1.3 6.8 ARMM 0.7 3.6
Growth „13-„14 5.9 5.1 9.3 7.8 5.2 6.2 7.1 6.4 9.4 (2.4) 6.6 4.3 7.2 3.3 8.3 9.3 3.0
„14-„15 6.6 5.9 5.3 4.8 8.3 3.3 5.5 5.0 4.2 3.9 7.2 8.4 3.7 3.7 1.7 7.9 (0.8)
Source: Philippines Statistics Authority
With increasing income brought about by a burgeoning economy, demand for goods and services, such as housing, also tends to increase in the said regions (Exhibit 9).
Exhibit 9: Projected Households and Housing Need (in Mn) 2006-2009 Number of Average Average DECA Region Families Income Expenditure NCR 4.2% 14.6% 19.8% 6.2% 11.7% 10.7% III ‐ Central Luzon IVA ‐ CALABARZON 6.9% 18.5% 14.1% VI ‐ Western Visayas 6.0% 22.7% 23.4% VII ‐ Central Visayas 6.3% 27.3% 22.8% XI ‐ Davao Region 5.1% 22.9% 22.8% XII ‐ SOCCSKSARGEN 6.9% 34.9% 37.6% Average Growth 5.9% 21.8% 21.6% Source: National Statistics Office, Family Income and Expenditure Survey
Number of Families 18.5% 17.7% 28.1% 10.5% 14.8% 21.9% 23.3% 19.3%
2009-2012 Average Income 6.5% 17.4% 14.4% 26.7% 13.7% 17.4% 5.8% 14.6%
Average Expenditure 5.1% 12.0% 14.2% 13.8% 8.0% 9.9% 6.1% 9.9%
8990 Holdings, Inc.
Investment Highlights
Exhibits 10 and 11 show the projected increase in households per highly urbanized cities and other regions/areas, respectively. Hence, the increase in the number of housing needs per region.
Exhibit 10: Projected Households in Highly Urbanized Cities (HUC) NCR
13.6%
DAVAO CITY
1.75%
CEBU CITY
0.93%
ZAMBOANGA CITY
0.84%
CAGAYAN DE ORO CITY
0.71%
GENERAL SANTOS CITY
0.64%
BACOLOD CITY
0.58%
ANGELES CITY
0.47%
LAPU-LAPU CITY
0.45%
ILOILO CITY
0.43%
Source: Housing and Urban Development Coordinating Council
Exhibit 11: Breakdown of Households per Region
Exhibit 12: Population Growth per Region 3%
XIII NIRCAR IX
3%
IVA
IVB
2%
XI
2%
II
1% 1%
X
III
XII
V VIII ARMM
VII
0% CAR REGION I REGION II REGION III REGION IVA REGION IVB REGION V REGION VI REGION VII NIR REGION VIII REGION IX REGION X REGION X REGION XI REGION XIII
VI
I
Source: Housing and Urban Development Coordinating Council
Source: Housing and Urban Development Coordinating Council
HOUSE has already established a solid market in key urbanized cities such as Davao, Cebu, General Santos, Bacolod, Angeles, Lapu-Lapu, and Iloilo City. With this, the Company should benefit from an ever growing population. NCR has remained the most populated among highly urbanized cities with a total of 5.0 Mn projected households this year. Following are key cities in Visayas and Mindanao (Exhibit 10). Moreover, the Company recently expanded towards specific areas such as Regions IVA (Cavite), III (Bulacan), VII (Lapu-Lapu), and NIR (Bacolod), where population is expected to grow faster (Exhibit 11).
8990 Holdings, Inc.
Investment Highlights
Riding on Regional Growth Aside from the key cities touched upon, economic growth is expected to continue especially in the VisMin regions under the new administration. President Duterte aims to invigorate these regions and spur growth through increased infrastructure spending. Some of the 17 infra projects the government targets to bid out until 2017 are the operations, maintenance, and development of the airports in Davao, Bacolod, and Iloilo, along with the Davao Sasa Port modernization project. As such, regional growth with the help of better infrastructure should lead to a boost in businesses within the aforementioned regions. From 2013 to 2015, apart from the NCR, growth in Regions XI and XII of Mindanao are among the top five fastest in terms of gross value added in real estate, renting and business activities. Again, HOUSE has a long-standing presence in these areas and should be one of the companies that stand to benefit going forward.
8990 Holdings, Inc.
Financial Analysis
Financial Analysis Superior Margins HOUSE‟s margins are superior compared to its peers. Its pre-cast technology provides a cost advantage that often enables the company to achieve a target gross margin of around 60.0%. However, in 2015, rising costs in developing projects (specifically mid-rise and high-rise condominiums) and higher prices of cement and steel caused the Company to record lower margins of 55.0% in 2015 from 63.3% in 2013. These 2015 figures put HOUSE at par with its competition. Through economies of scale, HOUSE plans to add an additional 13,440 units to its existing capacity. Moreover, the Company aims to reach a 50:30:20 ratio on its revenues from its subdivision segment, mid-rise and high-rise condominium units to sustain overall gross profit margin. Meanwhile, HOUSE maintained its advantage over its peers in terms of net profit margin. Aside from ample CTS income, which is 32.5% of the Company‟s total net income in 2015, the Company also benefits from the minimal wages given to its management and employees. In comparison, only 5.9% of HOUSE‟s total operating expenses are spent on salaries and employment benefits versus 13.3% and 18.1% of FLI and VLL, respectively. As per management, Company executives do not receive monthly income and instead are compensated through dividends. This minimizes agency cost that can drag Company‟s overall performance. Hence, this keeps net profit margins at a three year average of 41.6% (versus FLI at 29.8% and VLL at 25.8%)
Exhibit 13: Net Profit Margin Comparables 45% 40% 35% 30% 25% 20%
Exhibit 14: Breakdown of Operating Expenses
2013
2014
2015
HOUSE
40.8%
43.2%
40.1%
VLL
25.3%
25.8%
26.3%
FLI
31.3%
28.7%
29.5%
100% 80% 60% 40% 20% 0%
58.4% 5.9% 35.7% HOUSE
44.7% 18.1%
37.8% 13.3%
37.2%
49.0%
VLL
FLI
Marketing and Selling Salaries, Wages and Employee Benefits
HOUSE Source: Company Data
VLL
FLI
Other operating expenses Source: Company Data
8990 Holdings, Inc.
Financial Analysis
As such, following the Company‟s target of 60.0% gross profit margin and 40.0% net profit margin, the 41% increase in unit volume this year can lead to ~P 12.10 Bn and ~P 4.55 Bn in revenues and net income, respectively.
Exhibit 15: Income Statement Highlights (Php Mn) 2014A
2015A
2016F
2017F
Total Revenues
7,657
9,280
12,102
14,841
Gross Profit
4,528
5,105
7,261
8,905
EBITDA
3,247
3,478
5,064
6,361
Net Income
3,309
3,724
4,997
6,371
0.60
0.67
0.91
1.15
Revenue Growth
45.4%
21.2%
30.4%
22.6%
EBITDA Growth
37.1%
7.1%
45.6%
25.6%
Net Income Growth
51.5%
12.5%
34.2%
27.5%
EPS Growth
51.5%
12.5%
34.2%
27.5%
EPS Growth Rates
Source: Company Data, APS Forecast
Turnaround in Operating Cash Flow Exhibit 16: Operating Cash Flow 6,000 5,000 4,000 3,000 2,000 1,000 (1,000) (2,000) (3,000) (4,000) (5,000)
2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F
Source: Company Data, APS Forecast
In addition to expected higher net income for the next five years, a significant decrease in installment receivables should lead to a turnaround in HOUSE‟s operating cash flow.
8990 Holdings, Inc.
Financial Analysis
One of the exit mechanisms for HOUSE‟s CTS receivables is through Home Development Fund (HDMF) take out. Under this program, PAG-IBIG accredits developers that will pre-process applications of PAG-IBIG members to purchase lot, house and lot, or condominium units. The government agency will, then, fund the purchase of unit that meets the program‟s criteria. With the Company‟s comprehensive financing scheme, comparable to HDMF, HOUSE is capable of transferring P 2.42 Bn worth of receivables in 2015, 35.3% up from P 1.79 Bn in 2014. For 2016, the Company expects P 6.0 Bn worth of receivables to be directly taken out. And for every year thereafter, HOUSE targets to transfer 50% of its receivables.
Exhibit 17: HDMF Take-Out 100,000 80,000 60,000 40,000 20,000 2016F
2017F
2018F
Trade Receivables
2019F
2020F
2021F
HDMF Take-Out
Source: Company Data, APS Forecast
As a result, the Company has sufficient cash, hovering at an average of P 8.46 Bn in the next six years, to finance its pipeline of projects (Exhibit 18).
Exhibit 18: Balance Sheet Highlights (Php Mn) 2014A Cash & Equivalents Inventories
2015A
2016F
2017F
605
600
545
735
3,078
5,092
5,378
6,596
Installment Receivables
14,113
18,767
18,825
24,117
Total Assets
27,147
36,077
43,412
52,654
ST Liabilities
2,381
1,981
2,956
4,481
LT Liabilities
6,453
12,862
14,324
17,125
Total Liabilities
6,870
13,387
14,855
17,655
14,889
17,343
20,960
25,420
2.70
3.14
3.80
4.61
Total Equity BVPS Source: Company Data, APS Forecast
8990 Holdings, Inc.
Financial Analysis
Emerging Dividend Player Since its listing in 2013, the Company has consistently distributed cash dividends to its shareholders under its dividend policy. Despite having negative cash flow up till recently, the company was able to offer an average of 3.4% yield in 2015 and 2016F. HOUSE‟s 2016F dividend yield of 3.6% is the highest among its direct comparables FLI (3.5%) and VLL (2.3%) as well as other big property players, having an average yield of 1.3%. Looking ahead, as income is expected to increase in the coming years and a turnaround is expected in its operating cash flow, the Company is in a strong position to consistently distribute cash dividends (Exhibit 21).
Exhibit 19: Cash Dividends Year
Dividend Per Share
Type
Exhibit 20: Dividend Yields of Comparable Companies Dividend Payout
2016F
Dividend Yield Company
2013 2014 2015 2016
HOUSE FLI
---------- Back-door Listing ----------
Special Cash Regular Cash Regular Cash
VLL 0.05
12.6%
6.7%
0.23
38.4%
3.2%
0.25
37.0%
3.6%
ALI MEG RLC SMPH
Source: Company Data
2017F
Dividend Yield 3.6% 3.5% 2.3%
Dividend Ratio 26.7% 26.6% 19.2%
Dividend Yield 4.2% 4.0% 2.6%
Dividend Ratio 26.7% 26.6% 19.2%
1.6% 1.4% 1.4% 0.9%
34.0% 14.5% 22.5% 26.9%
1.8% 1.6% 1.6% 1.0%
34.0% 14.5% 22.5% 26.9%
Source: Bloomberg-compiled data
From P 9.28 Bn in 2015, the Company targets its revenues to reach P 24.00 Bn by 2020, with an average of 21.2% increase annually. With 30% average dividend payout ratio for the past three years, cash dividends can reach up to P 0.35 per share in 2017F, a 5.0% yield based on the previous close of P 6.95 per share. Exhibit 21: Forecasted Dividend Yield 8% 6% 4% 2% 0% 2013
2014
2015
2016F 2017F 2018F 2019F 2020F 2021F
Source: Company Data, APS Forecast
8990 Holdings, Inc.
Valuation
Valuation and Recommendation While the company expects rapid urbanization in the Philippines, HOUSE has gained a head start by already establishing its market presence in key cities outside the Metro. Moreover, the Company is also strategically expanding to regions with higher needs of housing. With the Company‟s aggressive expansion and sustained margins, HOUSE is rate a BUY rating with a target price of P 11.15/share. As of the last closing price of P 6.95 (23 November 2016), our TP represents an upside of 65.0%. This translates to a 7.7x implied 2016F PER and 1.8x 2016F PBV. Exhibit 22: WACC Assumptions WACC
6.79%
Pre-tax Cost of Debt
4.60%
Tax Rate
9.69%
Post-tax Cost of Debt
4.15%
Risk-free Rate
3.63% 1.00
Equity Beta Risk Premium
6.25%
Cost of Equity
9.88% 54%
Capital Structure Source: Company Data, APS Research
Exhibit 23: Valuation NPV
[Php]
84,571,719,110
Net Financial Debt
[Php]
21,288,873,472
Equity value
[Php]
63,282,845,638
Outstanding shares
#
5,517,990,720
Equity value/share
[Php]
11.47
Last Traded Price
[Php]
6.95
Upside Source: Company Data, APS Research
[%]
65.0%
8990 Holdings, Inc.
STOCK RATING
BUY
HOLD
SELL
BUY. Anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.
HOLD. Anticipates stock will trade at or near current price and generally in line with leading market averages due to perceived absence of strong dynamics that would cause volatility either to upside or downside, and/or will perform less well than higher rated companies within its peer group.
SELL. Anticipates stock will depreciate 10% or more in price within the next 12 months due to fundamental weakness perceived in company or for valuation reasons, or are expected to perform significantly worse than equities within its peer group.
This publication and the contents hereof are intended for information purposes of selected individuals only, and may be subject to change without further notice. The information contained in this report is obtained from sources we believe to be reliable. Neither AP Securities, Inc. nor its affiliates nor any of its directors and employees, represent nor warrant the accuracy or completeness of the contents hereof or as to the existence of other facts which might be significant, and will not accept any responsibility or liability or whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor the contents hereof, constitute or are to be construed as an offer or solicitation of an offer to buy or sell securities. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee and may also not necessarily reflect those of AP Securities, Inc.‟s opinion or advice. AP Securities, Inc. may have positions or may be materially interested in any of the securities mentioned in this document. Copyright © AP Securities, Inc. Research 2016
AP Securities, Inc.
BUY
(formerly Angping & Associates Securities, Inc.)
Property Company
8990 Holdings, Inc.
Ticker
24 November 2016
HOUSE
Theodore T. Tan
Jerrie Mae Hyvi P. Respicio
Research Analyst +632 848 2915 local 147 [email protected]
Initiating Report
Time To Buy A House
Research Assistant +632 848 2915 local 147 [email protected]
November 23 Stock Price
Target Price
Return Potential
Market Cap
P 6.95
P 11.47
65%
P 39 Bn
Aggressive Expansion to Drive Growth The housing backlog remains largely unmet and is estimated to reach 5.5 Mn by year-end. Of the total projected housing needs from 20122030, which is around 6.23 Mn units, the economic housing segment accounts for 41.6%. This shows a more than adequate demand for mass housing projects. 8990 Holdings, Inc. (HOUSE), as one of the leading mass housing developers in the Philippines has taken advantage of these growth opportunities by launching 14 projects in 2016, totaling 75,608 units, valued at ~P 66.95 Bn. In addition, the Company has a land bank of 548 ha, on which the Company expects to build 109,818 units with an estimated value of P 128.88 Bn.
DECA Nation to Benefit from Regional Growth HOUSE has built its self-styled "DECA Nation" in the growing regions
outside Metro Manila. The Company has strategically established its market presence in these expanding regions, banking on growing population, income, and demand for goods and services, such as housing. With its good brand following in Visayas and Mindanao, the Company delivered a total of 32,421 units in VisMin, as of December 2015. Currently, the Company is aggressively expanding its footprint in Luzon with 22,124 units is in its pipeline for 2016. More so, continued economic growth is expected in the Visayas and Mindanao regions under the current administration‟s bid to invigorate areas outside the nation‟s capital. With the Company's strong record and brand acceptance in aforementioned regions, HOUSE will be one of the companies that should benefit from faster regional domestic growth.
Initial coverage on 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the Company’s wellestablished businesses in Visayas and Mindanao should benefit from the anticipated growth. The Company’s aggressive stance and sustainable margins provides an edge to its competition.
12-month Price Performance 116
106
96
86 HOUSE PM
Absolute PSEi
PCOMP
1m
6m
12m
-4.49%
-8.71%
-2.37%
-10.08%
-6.99%
-2.15%
Emerging Dividend Player Under its dividend policy, the Company has consistently distributed cash dividends to its shareholders. For 2015 and 2016F, HOUSE distributed dividends with an average yield of 3.4%. HOUSE‟s 2016F dividend yield of 3.6% is the highest among its direct comparables FLI (3.5%) and VLL (2.3%), as well as other big property players, having an average yield of 1.3%.
Stock Data Property
Sector Ave. Value Traded (last 30 days)
Pm
1.18
12m high/low
P
8.34 / 6.41
PER FY 2016F
x
7.7
PBV FY 2016F
x
1.8
AP Securities, Inc. This research report was prepared by the APS Research Department. The opinions contained in this report are those of APS Research Department. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
8990 Holdings, Inc.
Industry Overview
Industry Overview
Rising Need for Houses Alongside the Philippines‟ economic expansion, with GDP hovering between 6.0%-7.0% since 2012, population has also increased dramatically. Philippine population, measured by the number of families in the Family Income and Expenditure Survey of National Statistics Office, grew 16.1% in 2009-2012 compared to 6.0% in 2006-2009. Based on the study of Subdivision and Housing Developers Association (SHDA) and Center for Research and Communication of University of Asia & Pacific entitled “The Housing Industry Road Map of the Philippines: 2012-2030”, UN World Population Prospects showed that the average increase in the number of Philippine households from 2001-2015 stands at 333,537 per year. Likewise, housing needs are seen to grow hand-in-hand with the number of households in the succeeding years. Despite the growing demand for housing, the average supply of houses in the Philippines for the past 15 years has stayed below 200,000 units per year. This has led to a housing supply deficit. Cumulatively, the housing backlog as of 2015 reached 4.7 Mn housing units, and is estimated to reach up to 5.5 Mn by year-end (Exhibit 1).
Exhibit 1: Current Housing Backlog in the Philippines 600,000 400,000 200,000 (200,000)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(400,000) (600,000) (800,000) (1,000,000) New Surplus/(Deficit) Source: Housing Industry Road Map of the Philippines: 2012-2030
Total Demand
Total Supply
8990 Holdings, Inc.
Industry Overview
Using the same projected households in the succeeding years, a total of about 10.1 Mn housing units are needed to eradicate housing backlog in the Philippines.
Exhibit 2. Future Housing Needs 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 -
Can't Afford
Socialized
Economic
Low Cost
Mid End
High End
Source: UN World Population Prospects
8990 Holdings, Inc.
Investment Highlights
Investment Highlights
The DECA Nation 8990 Holdings, Inc. (HOUSE PM) is one of the leading mass housing developer in the Philippines. Under its DECA Homes and Urban DECA Homes brands, the Company caters to economic housing of single attached units and medium-rise condominium units, respectively. HOUSE has also ventured into high-rise condominium projects called Urban DECA Towers. The Company‟s DECA brand is already present in 10 cities nationwide as HOUSE builds its so-called “DECA Nation” (Exhibit 3).
Exhibit 3: GRDP Growth Rates in DECA Nation (Project Sites)
5.3%
5.9% CAVITE
PAMPANGA Units Delivered: 4,486
Units Delivered: 4,396
Subdivisions: 2
Subdivisions: 5
4.8% 5.3% BULACAN
CEBU Units Delivered: 16,302
Units Delivered: 0
Subdivisions: 15
4.8%
Subdivisions: 0
6.6% NCR
LAPU - LAPU Units Delivered: 0
Units Delivered: 316
Subdivisions: 0
Subdivisions: 0
8.3%
7.9% DAVAO
ILOILO Units Delivered: 12,867 Units Delivered: 2,972 Subdivisions: 10 Subdivisions: 2
8.3%*
BACOLOD Units Delivered: 0 Subdivisions: 0
* Growth in Western Visayas was used. No data yet for the newly-created Negros Island Region
Source: Philippine Statistics Authority, Company Data
3.3% GENERAL SANTOS Units Delivered: 280 Subdivisions: 0
8990 Holdings, Inc.
Investment Highlights
The Company has established a strong record and good brand acceptance in the Visayas and Mindanao, more particularly in Iloilo, Cebu City, Davao, and General Santos. In 2006, the Company expanded its footprint in Luzon, with its first subdivision in Angeles, Pampanga. The Company, then, launched another DECA Homes project in CALABARZON Region (Cavite) and its first DECA Tower in Metro Manila (EDSA). This year, the two latest additions to its DECA Nation are to be located in Bacolod and Bulacan.
Aggressive Expansion to Drive Growth Growth Opportunities in Underserved Market Amid the current mismatch between supply and demand in the property industry, HOUSE has focused on supplying affordable housing units to the underserved market. In the past two years, a slowdown in sales-take up was recorded in the residential segment, specifically in the condominium market, on increasing supply albeit with fewer takers. In contrast, housing backlog remained high with 4.7 Mn initial housing needs, as of 2015. This disconnect has led to a deficit that requires attention.
Exhibit 4: New Housing Need (2012-2030) Market Segment
Price Range
Surplus/ (Deficit)
Units Needed
2001-2011
2012-2030
% of Total Needed
Can't Afford/Needs Subsidy
P 400k and Below
(832,046)
1,449,854
23.3%
Socialized Housing
P 400k and Below
(663,283)
1,582,497
25.4%
Economic Housing
P 400k – P1.25 Mn
(1,962,077)
2,588,897
41.6%
Low-Cost Housing
P 1.25 Mn – P 3.00 Mn
(462,160)
605,692
9.7%
Mid-Cost Housing
P 3.00 Mn – P 6.00 Mn
250,403
No Need
High-End Housing
P 6.00 Mn and Above
224,011
No Need
(3,919,566)
6,226,940
Total Need
100.0%
Source: The Philippine Housing Industry Roadmap: 2012-2030
Most of the housing requirements come from the socialized, economic, and lowcost segments. Affordable housing developers remain few and the backlog continues to increase. Given that the economic housing segment accounts for 41.6% of the total need from 2012-2030, there is more than adequate demand for mass housing projects, such as HOUSE‟s units which are priced from P 400,000 to P 1,250,000. In total, regarding the whole market, around 10.1 Mn houses are needed in order for the backlog to be completely addressed and served. For the foreseeable future this translates to an estimated average of 264,805 units needed per year in terms of economic housing. HOUSE has a present production target of 12,454 housing units in 2016 which only accounts for 4.7% of the total segment‟s need. This solidifies the company‟s growth prospects moving forward as demand remains largely unmet.
8990 Holdings, Inc.
Investment Highlights
Exhibit 5. Future Housing Needs vs HOUSE Production 700,000 600,000 500,000 400,000 300,000 200,000 100,000 -
Total
Economic Housing Need
HOUSE Production
Source: The Philippine Housing Industry Roadmap: 2012-2030, Company Data
To take advantage of the growth opportunities given the massive demand, HOUSE launched 14 projects in 2016, with a total of 75,608 units in the pipeline, which is valued at around P 66.95 Bn.
HOUSE to Maintain a Rolling Inventory of Land Bank As of 9M2016, the Company has a land bank of 548 hectares, on which the Company expects to build 109,818 units with an estimated value of P 128.88 Bn. With their total existing pipeline of 182,984 housing units, the Company can easily cover their target production of 123,667 units from 2016 to 2021, an implied 20.0% increase in units per year.
Exhibit 6: Land Bank (as of 9M2016) Location
Hectares
No. of Units
Value (Php Bn)
North Luzon
-
-
-
NCR
72.3
50,603
77,361
South Luzon
-
-
-
Visayas
301.6
45,580
38,061
Mindanao Total Need
173.6 547.5
13,635 109,818
13,422 128,884
Source: Company Data
8990 Holdings, Inc.
Investment Highlights
Recently, HOUSE bought into property firm Primex Corporation (PRMX) through a private placement. After buying a total of 45.00 Mn shares at P 4.00/share, the Company will get 2.8% of the latter. Due to this, HOUSE will have access to PRMX‟s Meycauayan property, while the others remain open for future developments as shown in Exhibit 7. With HOUSE‟s mass housing expertise, the Company can tap into and develop PRMX‟s significant land bank. Moving forward, HOUSE aims to maintain a rolling inventory land bank of around 500 ha. Since the Company mostly offers economic housing projects, of which competitive location is not of primary importance like those of premium developers, a limited land bank should be easier to address as the company continues to grow. For the foreseeable future, its existing pipeline of projects should continue to support revenue growth. Exhibit 7: PRMX Investment Properties Particular Land Land
Location Annapolis, Greenhills
Total Area (in sqm) 1,000
Sumulong Highway, Antipolo
140,029
Panghulo Ave. Malabon
16,232
Land
National Highway, Tagaytay
69,599
Land
Gov. Pascual Ave, Malabon
29,391
Land Land
Meycauayan, Bulacan Richdale Subdivision
11,508 25,272
Land
Goldendale Village
35,118
Land & Building
Source: Company Data
8990 Holdings, Inc.
Investment Highlights
DECA Nation to Benefit from Regional Growth Strategically Located Projects HOUSE has strategically located its DECA projects in regions (highlighted in blue) where there is high demand. Six out of its seven DECA regions were consistently the top six contributors to GRDP in the past three years. Moreover, average growth recorded in DECA regions is at 6.7%.
Exhibit 8: Gross Regional Domestic Product % Contribution Region (2015) „12-„13 NCR 36.4 9.1 IVA 17.3 6.7 III 9.1 4.3 VII 6.3 7.4 VI 4.0 4.1 XII 3.8 8.4 X 3.7 5.6 I 3.1 7.7 XIII 2.7 7.8 VIII 2.2 5.7 IX 2.0 4.3 V 2.0 9.4 II 1.8 6.6 CAR 1.8 6.0 IVB 1.6 1.7 XI 1.3 6.8 ARMM 0.7 3.6
Growth „13-„14 5.9 5.1 9.3 7.8 5.2 6.2 7.1 6.4 9.4 (2.4) 6.6 4.3 7.2 3.3 8.3 9.3 3.0
„14-„15 6.6 5.9 5.3 4.8 8.3 3.3 5.5 5.0 4.2 3.9 7.2 8.4 3.7 3.7 1.7 7.9 (0.8)
Source: Philippines Statistics Authority
With increasing income brought about by a burgeoning economy, demand for goods and services, such as housing, also tends to increase in the said regions (Exhibit 9).
Exhibit 9: Projected Households and Housing Need (in Mn) 2006-2009 Number of Average Average DECA Region Families Income Expenditure NCR 4.2% 14.6% 19.8% 6.2% 11.7% 10.7% III ‐ Central Luzon IVA ‐ CALABARZON 6.9% 18.5% 14.1% VI ‐ Western Visayas 6.0% 22.7% 23.4% VII ‐ Central Visayas 6.3% 27.3% 22.8% XI ‐ Davao Region 5.1% 22.9% 22.8% XII ‐ SOCCSKSARGEN 6.9% 34.9% 37.6% Average Growth 5.9% 21.8% 21.6% Source: National Statistics Office, Family Income and Expenditure Survey
Number of Families 18.5% 17.7% 28.1% 10.5% 14.8% 21.9% 23.3% 19.3%
2009-2012 Average Income 6.5% 17.4% 14.4% 26.7% 13.7% 17.4% 5.8% 14.6%
Average Expenditure 5.1% 12.0% 14.2% 13.8% 8.0% 9.9% 6.1% 9.9%
8990 Holdings, Inc.
Investment Highlights
Exhibits 10 and 11 show the projected increase in households per highly urbanized cities and other regions/areas, respectively. Hence, the increase in the number of housing needs per region.
Exhibit 10: Projected Households in Highly Urbanized Cities (HUC) NCR
13.6%
DAVAO CITY
1.75%
CEBU CITY
0.93%
ZAMBOANGA CITY
0.84%
CAGAYAN DE ORO CITY
0.71%
GENERAL SANTOS CITY
0.64%
BACOLOD CITY
0.58%
ANGELES CITY
0.47%
LAPU-LAPU CITY
0.45%
ILOILO CITY
0.43%
Source: Housing and Urban Development Coordinating Council
Exhibit 11: Breakdown of Households per Region
Exhibit 12: Population Growth per Region 3%
XIII NIRCAR IX
3%
IVA
IVB
2%
XI
2%
II
1% 1%
X
III
XII
V VIII ARMM
VII
0% CAR REGION I REGION II REGION III REGION IVA REGION IVB REGION V REGION VI REGION VII NIR REGION VIII REGION IX REGION X REGION X REGION XI REGION XIII
VI
I
Source: Housing and Urban Development Coordinating Council
Source: Housing and Urban Development Coordinating Council
HOUSE has already established a solid market in key urbanized cities such as Davao, Cebu, General Santos, Bacolod, Angeles, Lapu-Lapu, and Iloilo City. With this, the Company should benefit from an ever growing population. NCR has remained the most populated among highly urbanized cities with a total of 5.0 Mn projected households this year. Following are key cities in Visayas and Mindanao (Exhibit 10). Moreover, the Company recently expanded towards specific areas such as Regions IVA (Cavite), III (Bulacan), VII (Lapu-Lapu), and NIR (Bacolod), where population is expected to grow faster (Exhibit 11).
8990 Holdings, Inc.
Investment Highlights
Riding on Regional Growth Aside from the key cities touched upon, economic growth is expected to continue especially in the VisMin regions under the new administration. President Duterte aims to invigorate these regions and spur growth through increased infrastructure spending. Some of the 17 infra projects the government targets to bid out until 2017 are the operations, maintenance, and development of the airports in Davao, Bacolod, and Iloilo, along with the Davao Sasa Port modernization project. As such, regional growth with the help of better infrastructure should lead to a boost in businesses within the aforementioned regions. From 2013 to 2015, apart from the NCR, growth in Regions XI and XII of Mindanao are among the top five fastest in terms of gross value added in real estate, renting and business activities. Again, HOUSE has a long-standing presence in these areas and should be one of the companies that stand to benefit going forward.
8990 Holdings, Inc.
Financial Analysis
Financial Analysis Superior Margins HOUSE‟s margins are superior compared to its peers. Its pre-cast technology provides a cost advantage that often enables the company to achieve a target gross margin of around 60.0%. However, in 2015, rising costs in developing projects (specifically mid-rise and high-rise condominiums) and higher prices of cement and steel caused the Company to record lower margins of 55.0% in 2015 from 63.3% in 2013. These 2015 figures put HOUSE at par with its competition. Through economies of scale, HOUSE plans to add an additional 13,440 units to its existing capacity. Moreover, the Company aims to reach a 50:30:20 ratio on its revenues from its subdivision segment, mid-rise and high-rise condominium units to sustain overall gross profit margin. Meanwhile, HOUSE maintained its advantage over its peers in terms of net profit margin. Aside from ample CTS income, which is 32.5% of the Company‟s total net income in 2015, the Company also benefits from the minimal wages given to its management and employees. In comparison, only 5.9% of HOUSE‟s total operating expenses are spent on salaries and employment benefits versus 13.3% and 18.1% of FLI and VLL, respectively. As per management, Company executives do not receive monthly income and instead are compensated through dividends. This minimizes agency cost that can drag Company‟s overall performance. Hence, this keeps net profit margins at a three year average of 41.6% (versus FLI at 29.8% and VLL at 25.8%)
Exhibit 13: Net Profit Margin Comparables 45% 40% 35% 30% 25% 20%
Exhibit 14: Breakdown of Operating Expenses
2013
2014
2015
HOUSE
40.8%
43.2%
40.1%
VLL
25.3%
25.8%
26.3%
FLI
31.3%
28.7%
29.5%
100% 80% 60% 40% 20% 0%
58.4% 5.9% 35.7% HOUSE
44.7% 18.1%
37.8% 13.3%
37.2%
49.0%
VLL
FLI
Marketing and Selling Salaries, Wages and Employee Benefits
HOUSE Source: Company Data
VLL
FLI
Other operating expenses Source: Company Data
8990 Holdings, Inc.
Financial Analysis
As such, following the Company‟s target of 60.0% gross profit margin and 40.0% net profit margin, the 41% increase in unit volume this year can lead to ~P 12.10 Bn and ~P 4.55 Bn in revenues and net income, respectively.
Exhibit 15: Income Statement Highlights (Php Mn) 2014A
2015A
2016F
2017F
Total Revenues
7,657
9,280
12,102
14,841
Gross Profit
4,528
5,105
7,261
8,905
EBITDA
3,247
3,478
5,064
6,361
Net Income
3,309
3,724
4,997
6,371
0.60
0.67
0.91
1.15
Revenue Growth
45.4%
21.2%
30.4%
22.6%
EBITDA Growth
37.1%
7.1%
45.6%
25.6%
Net Income Growth
51.5%
12.5%
34.2%
27.5%
EPS Growth
51.5%
12.5%
34.2%
27.5%
EPS Growth Rates
Source: Company Data, APS Forecast
Turnaround in Operating Cash Flow Exhibit 16: Operating Cash Flow 6,000 5,000 4,000 3,000 2,000 1,000 (1,000) (2,000) (3,000) (4,000) (5,000)
2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F
Source: Company Data, APS Forecast
In addition to expected higher net income for the next five years, a significant decrease in installment receivables should lead to a turnaround in HOUSE‟s operating cash flow.
8990 Holdings, Inc.
Financial Analysis
One of the exit mechanisms for HOUSE‟s CTS receivables is through Home Development Fund (HDMF) take out. Under this program, PAG-IBIG accredits developers that will pre-process applications of PAG-IBIG members to purchase lot, house and lot, or condominium units. The government agency will, then, fund the purchase of unit that meets the program‟s criteria. With the Company‟s comprehensive financing scheme, comparable to HDMF, HOUSE is capable of transferring P 2.42 Bn worth of receivables in 2015, 35.3% up from P 1.79 Bn in 2014. For 2016, the Company expects P 6.0 Bn worth of receivables to be directly taken out. And for every year thereafter, HOUSE targets to transfer 50% of its receivables.
Exhibit 17: HDMF Take-Out 100,000 80,000 60,000 40,000 20,000 2016F
2017F
2018F
Trade Receivables
2019F
2020F
2021F
HDMF Take-Out
Source: Company Data, APS Forecast
As a result, the Company has sufficient cash, hovering at an average of P 8.46 Bn in the next six years, to finance its pipeline of projects (Exhibit 18).
Exhibit 18: Balance Sheet Highlights (Php Mn) 2014A Cash & Equivalents Inventories
2015A
2016F
2017F
605
600
545
735
3,078
5,092
5,378
6,596
Installment Receivables
14,113
18,767
18,825
24,117
Total Assets
27,147
36,077
43,412
52,654
ST Liabilities
2,381
1,981
2,956
4,481
LT Liabilities
6,453
12,862
14,324
17,125
Total Liabilities
6,870
13,387
14,855
17,655
14,889
17,343
20,960
25,420
2.70
3.14
3.80
4.61
Total Equity BVPS Source: Company Data, APS Forecast
8990 Holdings, Inc.
Financial Analysis
Emerging Dividend Player Since its listing in 2013, the Company has consistently distributed cash dividends to its shareholders under its dividend policy. Despite having negative cash flow up till recently, the company was able to offer an average of 3.4% yield in 2015 and 2016F. HOUSE‟s 2016F dividend yield of 3.6% is the highest among its direct comparables FLI (3.5%) and VLL (2.3%) as well as other big property players, having an average yield of 1.3%. Looking ahead, as income is expected to increase in the coming years and a turnaround is expected in its operating cash flow, the Company is in a strong position to consistently distribute cash dividends (Exhibit 21).
Exhibit 19: Cash Dividends Year
Dividend Per Share
Type
Exhibit 20: Dividend Yields of Comparable Companies Dividend Payout
2016F
Dividend Yield Company
2013 2014 2015 2016
HOUSE FLI
---------- Back-door Listing ----------
Special Cash Regular Cash Regular Cash
VLL 0.05
12.6%
6.7%
0.23
38.4%
3.2%
0.25
37.0%
3.6%
ALI MEG RLC SMPH
Source: Company Data
2017F
Dividend Yield 3.6% 3.5% 2.3%
Dividend Ratio 26.7% 26.6% 19.2%
Dividend Yield 4.2% 4.0% 2.6%
Dividend Ratio 26.7% 26.6% 19.2%
1.6% 1.4% 1.4% 0.9%
34.0% 14.5% 22.5% 26.9%
1.8% 1.6% 1.6% 1.0%
34.0% 14.5% 22.5% 26.9%
Source: Bloomberg-compiled data
From P 9.28 Bn in 2015, the Company targets its revenues to reach P 24.00 Bn by 2020, with an average of 21.2% increase annually. With 30% average dividend payout ratio for the past three years, cash dividends can reach up to P 0.35 per share in 2017F, a 5.0% yield based on the previous close of P 6.95 per share. Exhibit 21: Forecasted Dividend Yield 8% 6% 4% 2% 0% 2013
2014
2015
2016F 2017F 2018F 2019F 2020F 2021F
Source: Company Data, APS Forecast
8990 Holdings, Inc.
Valuation
Valuation and Recommendation While the company expects rapid urbanization in the Philippines, HOUSE has gained a head start by already establishing its market presence in key cities outside the Metro. Moreover, the Company is also strategically expanding to regions with higher needs of housing. With the Company‟s aggressive expansion and sustained margins, HOUSE is rate a BUY rating with a target price of P 11.15/share. As of the last closing price of P 6.95 (23 November 2016), our TP represents an upside of 65.0%. This translates to a 7.7x implied 2016F PER and 1.8x 2016F PBV. Exhibit 22: WACC Assumptions WACC
6.79%
Pre-tax Cost of Debt
4.60%
Tax Rate
9.69%
Post-tax Cost of Debt
4.15%
Risk-free Rate
3.63% 1.00
Equity Beta Risk Premium
6.25%
Cost of Equity
9.88% 54%
Capital Structure Source: Company Data, APS Research
Exhibit 23: Valuation NPV
[Php]
84,571,719,110
Net Financial Debt
[Php]
21,288,873,472
Equity value
[Php]
63,282,845,638
Outstanding shares
#
5,517,990,720
Equity value/share
[Php]
11.47
Last Traded Price
[Php]
6.95
Upside Source: Company Data, APS Research
[%]
65.0%
8990 Holdings, Inc.
STOCK RATING
BUY
HOLD
SELL
BUY. Anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.
HOLD. Anticipates stock will trade at or near current price and generally in line with leading market averages due to perceived absence of strong dynamics that would cause volatility either to upside or downside, and/or will perform less well than higher rated companies within its peer group.
SELL. Anticipates stock will depreciate 10% or more in price within the next 12 months due to fundamental weakness perceived in company or for valuation reasons, or are expected to perform significantly worse than equities within its peer group.
This publication and the contents hereof are intended for information purposes of selected individuals only, and may be subject to change without further notice. The information contained in this report is obtained from sources we believe to be reliable. Neither AP Securities, Inc. nor its affiliates nor any of its directors and employees, represent nor warrant the accuracy or completeness of the contents hereof or as to the existence of other facts which might be significant, and will not accept any responsibility or liability or whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor the contents hereof, constitute or are to be construed as an offer or solicitation of an offer to buy or sell securities. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee and may also not necessarily reflect those of AP Securities, Inc.‟s opinion or advice. AP Securities, Inc. may have positions or may be materially interested in any of the securities mentioned in this document. Copyright © AP Securities, Inc. Research 2016
