16
Rating AP Securities, Inc. (formerly Angping & Associates Securities, Inc.) BUY Property Company Ticker 24 November 2016 8990 Holdings, Inc. HOUSE Theodore T. Tan Research Analyst +632 848 2915 local 147 [email protected] Jerrie Mae Hyvi P. Respicio Research Assistant +632 848 2915 local 147 [email protected] Initiating Report Time To Buy A House November 23 Stock Price P 6.95 Target Price P 11.47 Return Potential 65% Market Cap P 39 Bn 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 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 2012- 2030, 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. 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%. 12-month Price Performance 1m 6m 12m Absolute -4.49% -8.71% -2.37% PSEi -10.08% -6.99% -2.15% Stock Data Sector Property 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 86 96 106 116 HOUSE PM PCOMP 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 well- established 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.

Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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Page 1: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

Rating

AP Securities, Inc. (formerly Angping & Associates Securities, Inc.) BUY

Property Company Ticker 24 November 2016

8990 Holdings, Inc. HOUSE Theodore T. Tan Research Analyst +632 848 2915 local 147 [email protected]

Jerrie Mae Hyvi P. Respicio Research Assistant +632 848 2915 local 147 [email protected]

Initiating Report

Time To Buy A House

November 23 Stock Price

P 6.95 Target Price

P 11.47 Return Potential

65% Market Cap

P 39 Bn

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

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 2012-

2030, 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.

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%.

12-month Price Performance

1m 6m 12m

Absolute -4.49% -8.71% -2.37%

PSEi -10.08% -6.99% -2.15%

Stock Data

Sector Property

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

86

96

106

116

HOUSE PM PCOMP

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 well-established 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.

Page 2: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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

Source: Housing Industry Road Map of the Philippines: 2012-2030

(1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

-

200,000

400,000

600,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

New Surplus/(Deficit) Total Demand Total Supply

Page 3: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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

Source: UN World Population Prospects

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Can't Afford Socialized Economic

Low Cost Mid End High End

Page 4: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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)

Source: Philippine Statistics Authority, Company Data

55..33%% CAVITE

Units Delivered: 4,396

Subdivisions: 5

55..33%%

55..99%%

44..88%%

77..99%%

88..33%%** 33..33%%

88..33%%

* Growth in Western Visayas was used. No data yet for the newly-created Negros Island Region

CEBU

Units Delivered: 16,302

Subdivisions: 15

DAVAO

Units Delivered: 12,867

Subdivisions: 10

LAPU - LAPU

Units Delivered: 0

Subdivisions: 0

GENERAL SANTOS

Units Delivered: 280

Subdivisions: 0

ILOILO

Units Delivered: 2,972

Subdivisions: 2

NCR

Units Delivered: 316

Subdivisions: 0

BACOLOD

Units Delivered: 0

Subdivisions: 0

BULACAN

Units Delivered: 0

Subdivisions: 0

PAMPANGA

Units Delivered: 4,486

Subdivisions: 2

66..66%%

44..88%%

Page 5: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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.

Most of the housing requirements come from the socialized, economic, and low-

cost 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.

Exhibit 4: New Housing Need (2012-2030)

Market Segment Price Range Surplus/ (Deficit) Units Needed % of Total

Needed 2001-2011 2012-2030

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

Total Need (3,919,566) 6,226,940 100.0%

Source: The Philippine Housing Industry Roadmap: 2012-2030

Page 6: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

8990 Holdings, Inc. Investment Highlights

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 173.6 13,635 13,422

Total Need 547.5 109,818 128,884

Source: Company Data

Exhibit 5. Future Housing Needs vs HOUSE Production

Source: The Philippine Housing Industry Roadmap: 2012-2030, Company Data

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Total Economic Housing Need HOUSE Production

Page 7: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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 Location Total Area (in sqm)

Land Annapolis, Greenhills 1,000

Land Sumulong Highway, Antipolo 140,029

Land & Building Panghulo Ave. Malabon 16,232

Land National Highway, Tagaytay 69,599

Land Gov. Pascual Ave, Malabon 29,391

Land Meycauayan, Bulacan 11,508

Land Richdale Subdivision 25,272

Land Goldendale Village 35,118

Source: Company Data

Page 8: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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%.

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 2009-2012

DECA Region Number of

Families Average Income

Average Expenditure

Number of Families

Average Income

Average Expenditure

NCR 4.2% 14.6% 19.8% 18.5% 6.5% 5.1%

III ‐ Central Luzon 6.2% 11.7% 10.7% 17.7% 17.4% 12.0%

IVA ‐ CALABARZON 6.9% 18.5% 14.1% 28.1% 14.4% 14.2%

VI ‐ Western Visayas 6.0% 22.7% 23.4% 10.5% 26.7% 13.8%

VII ‐ Central Visayas 6.3% 27.3% 22.8% 14.8% 13.7% 8.0% XI ‐ Davao Region 5.1% 22.9% 22.8% 21.9% 17.4% 9.9%

XII ‐ SOCCSKSARGEN 6.9% 34.9% 37.6% 23.3% 5.8% 6.1% Average Growth 5.9% 21.8% 21.6% 19.3% 14.6% 9.9%

Source: National Statistics Office, Family Income and Expenditure Survey

Exhibit 8: Gross Regional Domestic Product

Region % Contribution

(2015)

Growth

„12-„13 „13-„14 „14-„15

NCR 36.4 9.1 5.9 6.6 IVA 17.3 6.7 5.1 5.9 III 9.1 4.3 9.3 5.3 VII 6.3 7.4 7.8 4.8 VI 4.0 4.1 5.2 8.3 XII 3.8 8.4 6.2 3.3 X 3.7 5.6 7.1 5.5 I 3.1 7.7 6.4 5.0

XIII 2.7 7.8 9.4 4.2 VIII 2.2 5.7 (2.4) 3.9 IX 2.0 4.3 6.6 7.2 V 2.0 9.4 4.3 8.4 II 1.8 6.6 7.2 3.7

CAR 1.8 6.0 3.3 3.7 IVB 1.6 1.7 8.3 1.7 XI 1.3 6.8 9.3 7.9

ARMM 0.7 3.6 3.0 (0.8)

Source: Philippines Statistics Authority

Page 9: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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 11: Breakdown of Households per Region Exhibit 12: Population Growth per Region

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).

Exhibit 10: Projected Households in Highly Urbanized Cities (HUC)

13.6%

1.75%

0.93%

0.84%

0.71%

0.64%

0.58%

0.47%

0.45%

0.43%

Source: Housing and Urban Development Coordinating Council

NCR

DAVAO CITY

CEBU CITY

ZAMBOANGA CITY

CAGAYAN DE ORO CITY

GENERAL SANTOS CITY

BACOLOD CITY

ANGELES CITY

LAPU-LAPU CITY

ILOILO CITY

0%

1%

1%

2%

2%

3%

3%

CA

R

RE

GIO

N I

RE

GIO

N II

RE

GIO

N III

RE

GIO

N IV

A

RE

GIO

N IV

B

RE

GIO

N V

RE

GIO

N V

I

RE

GIO

N V

II

NIR

RE

GIO

N V

III

RE

GIO

N IX

RE

GIO

N X

RE

GIO

N X

RE

GIO

N X

I

RE

GIO

N X

III

IVA

III

V

IVIIARMM

VIII

XII

VI

X

II

XI

IVBIX

XIII NIRCAR

Page 10: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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.

Page 11: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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 Exhibit 14: Breakdown of Operating Expenses

Source: Company Data Source: Company Data

2013 2014 2015

HOUSE 40.8% 43.2% 40.1%

VLL 25.3% 25.8% 26.3%

FLI 31.3% 28.7% 29.5%

20%25%30%35%40%45%

HOUSE VLL FLI

35.7% 37.2% 49.0%5.9%

18.1%13.3%

58.4% 44.7% 37.8%

0%

20%

40%

60%

80%

100%

HOUSE VLL FLI

Marketing and Selling

Salaries, Wages and Employee Benefits

Other operating expenses

Page 12: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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

EPS 0.60 0.67 0.91 1.15

Growth Rates

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%

Source: Company Data, APS Forecast

Turnaround in Operating Cash Flow

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.

Exhibit 16: Operating Cash Flow

Source: Company Data, APS Forecast

(5,000)(4,000)(3,000)(2,000)(1,000)

-1,000 2,000 3,000 4,000 5,000 6,000

2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F

Page 13: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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.

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 2015A 2016F 2017F

Cash & Equivalents 605 600 545 735

Inventories 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

Total Equity 14,889 17,343 20,960 25,420

BVPS 2.70 3.14 3.80 4.61

Source: Company Data, APS Forecast

Exhibit 17: HDMF Take-Out

Source: Company Data, APS Forecast

-

20,000

40,000

60,000

80,000

100,000

2016F 2017F 2018F 2019F 2020F 2021F

Trade Receivables HDMF Take-Out

Page 14: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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 Exhibit 20: Dividend Yields of Comparable Companies

Year Type Dividend

Per Share Dividend Payout

Dividend Yield

2016F 2017F

Company Dividend

Yield Dividend

Ratio Dividend

Yield Dividend

Ratio

2013

---------- Back-door Listing ---------- HOUSE 3.6% 26.7% 4.2% 26.7%

FLI 3.5% 26.6% 4.0% 26.6%

2014 Special Cash 0.05 12.6% 6.7%

VLL 2.3% 19.2% 2.6% 19.2%

2015 Regular

Cash 0.23 38.4% 3.2% ALI 1.6% 34.0% 1.8% 34.0%

MEG 1.4% 14.5% 1.6% 14.5%

2016 Regular

Cash 0.25 37.0% 3.6% RLC 1.4% 22.5% 1.6% 22.5%

SMPH 0.9% 26.9% 1.0% 26.9%

Source: Company Data 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

Source: Company Data, APS Forecast

0%

2%

4%

6%

8%

2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F

Page 15: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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%

Equity Beta 1.00

Risk Premium 6.25%

Cost of Equity 9.88%

Capital Structure 54%

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 [%] 65.0%

Source: Company Data, APS Research

Page 16: Rating BUY 8990 Holdings, Inc. HOUSE · 8990 Holdings, Inc. (HOUSE) presents a BUY rating with a target price of P11.47/share. As regional growth expands outside Metro Manila, the

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