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Worth a second look
We believe value has emerged in the property sector after its heavy
battering on macro concerns. Corporates appear now to be on a
better financial footing to weather the storm. We recommend an
Overweight stance with Megaworld and Ayala Land as top picks.
Key recommendations & forecasts
Reuters
Year end
Recom
Price
Target
price
EPS
1fcst
PE
1fcst
Ayala Land¹ ALI.PS Dec 2008 Buy P9.80 P19.00 0.38 25.6
Filinvest Land¹ FLI.PS Dec 2008 Buy P1.00 P2.80 0.07 13.6
Megaworld¹ MEG.PS Dec 2008 Buy P2.04 P4.70 0.20 10.4
Robinsons Land¹ RLC.PS Sep 2008 Buy P10.50 P20.00 0.91 11.5
SM Prime¹ SMPH.PS Dec 2008 Buy P7.20 P8.70 0.53 13.7
Vista Land¹ VLL.PS Dec 2008 Buy P3.05 P7.50 0.39 7.9
1. Normalised EPS - Post-goodwill amortisation and pre-exceptional items
Source: Company data, ABN AMRO forecasts
Weighed down by macro concerns
Property counters have been sold down on the back of growing macro concerns that
could impact housing demand. Foremost among these concerns are: 1) a potential
slowdown in sales to overseas Filipinos, especially those in the US; 2) rising inflation,
which could eat up disposable income; and, 3) upward pressure on interest rates,
which could hurt affordability. While these concerns look valid, we believe mitigating
factors could address them, minimising their effect on sector performance.
Corporates are now in better financial positions to weather the storm
We believe most property stocks are on a better financial footing to weather an
economic storm. The sector is undergeared,as most players managed to take
advantage of the recent run-up in the capital markets to raise cash to fund their
planned expansions and development programmes. They have also built a
comfortable level of unbooked sales, which should provide a stream of income over
the next two to three years.
Reinforcing market leadership
As competition within the sector continues to heat up, especially with the entry of
new players, we believe the major property companies we cover are still in the best
position to reinforce their dominance in their respective markets. We believe they can
count on good track records, strong industry reputations, healthy balance sheets and
attractive land banks to sustain their growth going forward.
Bargains abound, with Megaworld as our top pick
With share prices down 25-50% ytd, we believe value has emerged in the sector,
prompting us to recommend an Overweight position. The property stocks we cover
now trade at steep discounts to our DCF-based NAV estimates. We like Megaworld
(TP P4.70) and Vista Land (TP P7.50) for undemanding earnings multiples despite
strong growth prospects. We also favour Ayala Land (TP P19.00) and Filinvest Land
(TP P2.80) as both trade at the trough of their asset valuations, which seem to ignore
the potential value of their large land banks.
Produced by: ABN AMRO
Asia Securities
(Philippines) Inc
Philippines Composite: 2727.70
BBG AP Real Estate: 261.03
Overweight
Sector relative to market
Sector performance
(1M) (3M) (12M)
Absolute 12.6 -9.4 0.3
Absolute % 5.1 -3.5 0.1
Rel market % 14.9 14.2 20.3
Source: Bloomberg
www.abnamroresearch.com
Analyst
Carolle Kabigting
Philippines
+63 2 867 7825
carolle.kabigting@ph.abnamro.com
18th Floor, The LKG Tower, 6801 Ayala Avenue, Makati City, Manila 1200, Philippines
Contents
R E A L E S T A T E 7 M A Y 2 0 0 8 2
C O M P A N Y U N I V E R S E D A T A S H E E T
Investment snapshot 3
I N V E S T M E N T V I E W
Picking up some bargains 5
Property counters have been sold down heavily due to macro worries. We think
such concerns are already in the price and good value has emerged in the sector.
It might be time to pick up some bargains.
Back on the value screen 5
I N D U S T R Y D Y N A M I C S
Meeting interim challenges 8
While beset by a number of challenges that could weigh on performance, we
believe the property sector in general has some inherent strengths that should
help it weather the potential economic storm.
Facing some challenges in the interim 8
M A C R O D Y N A M I C S
Getting support from the macro 15
In our view, there are a number of underlying macroeconomic fundamentals that
should provide further support for the property sector even during hard times.
More positives remain 15
C O M P A N Y D Y N A M I C S
Competitive profile 18
We expect the major property developers to reinforce their industry standing even
with heightened competition given good track records, comfortable land banks
and healthier balance sheets. Overweight.
How they stack up 18
C O M P A N Y P R O F I L E S
Company profiles 21
Ayala Land 22
Filinvest Land 26
Megaworld Corp 31
Robinsons Land Corporation 36
SM Prime 40
Vista Land & Lifescapes 45
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