Philippine Estates Corporation is engaged in the real estate business and is owned by Gatchalian family.
SNAPSHOT
# of shares outstanding: | 1,445,549,830 |
Current Price: | .72 |
Stockholders’ Equity | 1,004,109,830 |
Price to Book Value Ratio | 1.03 |
FINANCIAL RESULTS
2011 | 2010 | 2009 | 2008 | 2007 | |
Real Estate Sales | 34.1M | 30.8M | 74.9M | 97M | 172.4M |
COGS | 20.3M | 18.5M | 34.7M | 63.2M | |
Gross Profit % | 40% | 40% | 54% | 35% | |
Realized Gross Profit | 8.7M | 9.7M | 38.6M | 47.5M | |
Operating Expenses | 30.4M | 37.2M | 42.2M | 43.5M | |
Net Income/(Loss) | (3.8 M) | (8.7M) | (40.3M) | (1.7M) | 450K |
EPS | (.0026) | (.006) | (.0279) | (.0012) | .0003 |
Book Value | 1,015M | 1,019M | 1,027.5M | 1,068M | 1,069.5M |
Book Value Per Share | .70 | .70 | .71 | .74 | .74 |
P/E Ratio | (88.54) | (12.58) | (3.77) | (130.01) | (994.21) |
Stock Price | .233 | .076 | .105 | .15 | .31 |
Price to Book Value Ratio | .33 | .1078 | .1477 | .2031 | .42 |
The Bad
In year 2009, the company recognized an impairment loss of 52.1M for its related party transactions.
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| http://www.flickr.com/photos/24844796@N02/2768306386 |
Sales have been declining for the past five years. Obviously PHES needs a catalyst to save its deteriorating financial condition. The financial results for the past years never looked good.
A fledgling company with almost no material revenue to speak of cannot be measured using the P/E ratio determine the value of this company. P/E ratio must only be used when the JV with Ayala has materialized and operations start to move. Until then, we will use the Price to Book Value of this company to establish the target price which is very useful for an asset heavy company like PHES.
The Trade and Other Receivables have a past due of over 121 days worth 152 million pesos. That’s a lot of money and is a worrying sign of the capability of the company to collect its receivables effectively and efficiently.
The Good
The good thing about real estate companies is that they have high gross margin percentage. PHES gross margin is 40% which is good enough compared to other real estate companies.
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| http://www.flickr.com/photos/8414198@N04/3776284108 |
If the JV with Ayala will be signed and push through, it could be the start of something good for the Company.
Price to Book Value Ratio is almost the same at 1.03 times. Ideal ratio is 1 or less so that we can maximize on the potential of its land inventories which are carried in the books on cost or NRV (whichever is lower) a conservative approach.
The land inventories and advances to related parties carry potential upside for the company. Any JV with the premier developers can unlock its potential and move from being a penny stock to a midcap stock. Its large tracts of land are positioned in primed areas of various locations, thus big developers who wants to penetrate that particular location may want to form a business with PHES.
Operating expenses of 30 million per year can easily be covered by the current installment contract receivables and the marginal sales it generates from its projects and properties.
The computation
I just checked the market price of industrial lot in Valenzuela City and I found out that 10,000 pesos per sqm is the average. However, since the purpose of the JV with ALI is to develop residential and commercial units in Plastic City, the price per sqm should go up. Add to that that Ayala units commands a premium in the market compared to other developers.
Avida Land Towers in Paranaque sells from 61,000 pesos per sqm to 80,000 pesos per sqm. We are taking 30% off from the market price since Valenzuela is not at the heart of Metro Manila. Part of the 32.7 hectares will be used for roads, pavements, common areas, playgrounds, etc., thus we will remove 30% from the 32.7 hectares.
Valenzuela Market Price - 61,000x70% = 42,700 pesos
Fair Value - 32.7 hectares x 10,000 sqm x 70% x 42,700 = 9,774,030,000 pesos
Ayala Land@60% =5,864,418,000 pesos
PHES@40% = 3,909,612,000 pesos
Future Book Value - 3,909,612,000/1,445,549,830 = 2.70
The Strategy
Target price for the 32.7 hectares Valenzuela property at 42,700 per sqm is 2.70 pesos conservatively. It is worth noting that this 2.70 shall be spread over the period from which the JV will run to. We shall review this target price once more details will come up in the future.
Other raw lands and projects are not yet included in the computation.
Technically, the support price of PHES is .63. The buying range is from .63 to .67 as long as the JV story is intact.
If the JV with ALI will not materialize, then it’s selling time because the price may go back to where it started before at .20 ranges. Go back again in PHES if it goes to .2 ranges and then wait for another JV story.
Warning: PHES is a small cap company and is not for the faint hearted.
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