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will generate Php13.3 Bil and Php16 Bil in operating cash flow respectively. If we assume that 120
BLOOM can generate Php15 Bil in cash from operating activities each year, it should be able to
repay the debt in three years. 110
Minimal impact on DCF-based valuation. The impact of the land purchase to our DCF-based 100
valuation of BLOOM is minimal compared to the potential impact to our net income estimates. 90
The purchase of the land will have a positive effect on BLOOM’s net present value of cashflows to
firm because rental payments will be eliminated. The increase in debt will also reduce BLOOM’s 80
WACC as the share of debt in its capital structure increases. This increases the value of BLOOM’s 14-Nov-17 14-Dec-17 14-Jan-18 14-Feb-18
discounted cash flow by 10.2% to Php195.9 Bil. However, net debt balance will increase by Php37 BLOOM PSEi
Bil to Php47.54 Bil. Lastly, we add the value of the land in Vertis North (Php1.2 Bil) and the 6
hectares out of the 16 hectare-lot that is still undeveloped (valued at Php15 Bil). The potential
impact to our DCF valuation is a 1.8% downside from current estimate of Php15.18 to Php14.91. ABSOLUTE PERFORMANCE
1M 3M YTD
FORECAST SUMMARY
BLOOM 16.81 26.20 21.10
Year to December 31 (Php Mil) 2014 2015 2016 2017E 2018E 2019E PSEi -3.48 1.53 -0.59
Revenues 24,037 25,040 30,387 37,149 40,425 41,640
% change y/y 95.6 4.2 21.4 22.3 8.8 3.0
EBITDA* 7,588 3,273 8,895 13,543 15,066 15,328
% change y/y 734.3 -56.9 171.8 52.2 11.2 1.7 MARKET DATA
EBITDA margin 31.6 13.1 29.3 36.5 37.3 36.8
EBIT* 4,770 (1,584) 4,040 8,987 10,510 10,772 Market Cap 145,222.66Mil
% change y/y - - - 122.4 17.0 2.5 Outstanding Shares 11,001.72Mil
EBIT margin 19.8 -6.3 13.3 24.2 26.0 25.9 52 Wk Range 7.09 - 13.78
Core net income 4,094 (3,662) 1,895 6,930 8,464 8,737
3Mo Ave Daily T/O 123.97Mil
% change y/y - - - 265.7 22.1 3.2
Net profit margin 17.0 -14.6 6.2 18.7 20.9 21.0
EPS (cents) 0.38 (0.31) 0.21 0.63 0.77 0.79
% change y/y -408.1 - - 197.8 22.3 3.2
RELATIVE VALUE
P/E (X) 34.8 - 63.1 21.2 17.3 16.8
EV/EBITDA 19.0 44.1 16.2 10.7 9.6 9.4
P/BV (X) 5.7 6.7 6.1 4.8 3.8 3.1 RICHARD LAÑEDA, CFA
ROE (%) 15.9 (15.5) 9.6 22.7 22.0 18.7 SENIOR RESEARCH MANAGER
Dividend Yield (%) 0.0 0.4 0.4 0.4 0.4 0.4 richard.laneda@colfinancial.com
*adjusted to reflect 15-25% license fee structure
so urce: B LOOM , COL estimates
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FIELD NOTES I BLOOM:POTENTIAL LAND PURCHASE TO HAVE MINIMAL IMPACT ON VALUATION
After two failed biddings for PAGCOR’s 16-hectare land in Entertainment City, BLOOM has
entered into negotiations with PAGCOR for the purchase of the land. The subject land is where
BLOOM’s Solaire Resort and Casino is built upon. It is understandable that no other party is
interested in buying the lot for which the minimum asking price of is Php37.23 Bil because
BLOOM has the leasehold rights for the lots until 2033 and the annual rent is just around
Php500 Mil, which translates to a yield of around 1.34%.
From a purely financial standpoint, BLOOM’s purchase of the land may look unattractive given
that they will only save around Php500 Mil in annual rent expense in exchange for Php37.23 Bil
(1.34% yield on investment). However, from a long-term investment point of view it makes a lot
of sense. First of all, it will secure the US$1.2 Bil investment BLOOM made on Solaire. Currently,
BLOOM is the only integrated resort operator that doesn’t own its land which puts it at risk
once the lease contract expires. Second, with land prices in Entertainment City increasing at
a rapid pace, this may be BLOOM’s best chance to buy the land. Last year alone, land values in
the Bay City increased 26% y/y to Php250,000/sqm according to Leechiu Property Consultants.
If the purchase of the 16-hectare lot pushes through, BLOOM’s management said that it
will fund the purchase through debt. While the debt is sizeable, it is manageable relative
to BLOOM’s cash generating capability. In 2016, BLOOM generated Php6.3 Bil in cash from
operating activities. For 2017 and 2018, we estimate that the company will generate Php13.3
Bil and Php16 Bil in operating cash flow respectively. If we assume that BLOOM can generate
Php15 Bil in cash from operating activities each year, it should be able to repay the debt in
three years.
If the transaction pushes through and BLOOM funds it through debt, it will have a negative
impact on net income. Assuming that BLOOM buys the land, we estimate that the company’s
EBITDA will improve by around 3% for 2018, 2019, and 2020 as they will no longer pay rent for
the land. However, we estimate that interest expense will increase by 75% in 2018 and 100% in
2019 and 2020, leading to a net income reduction of 15% for 2018, 20.5% for 2019, and 19.1%
for 2020.
The impact of the land purchase to our DCF-based valuation of BLOOM is minimal compared
to the potential impact to our net income estimates. The purchase of the land will have a
positive effect on BLOOM’s net present value of cashflows to firm because rental payments will
be eliminated. The increase in debt will also reduce BLOOM’s WACC as the share of debt in its
capital structure increases. This increases the value of BLOOM’s discounted cash flow by 10.2%
to Php195.9 Bil. However, net debt balance will increase by Php37 Bil to Php47.54 Bil. Lastly, we
add the value of the land in Vertis North (Php1.2 Bil) and the 6 hectares out of the 16 hectare-
lot that is still undeveloped (valued at Php15 Bil). The potential impact to our DCF valuation is
a 1.8% downside from current estimate of Php15.18 to Php14.91.
Beneficiary of growing gaming sector FY14 FY15 FY16 FY17E FY18E FY19E
EBITDA Margin (%) 31.6% 13.1% 29.3% 36.5% 37.3% 36.8%
The local gaming sector is still in a growth
OPM (%) 19.8% -6.3% 13.3% 24.2% 26.0% 25.9%
phase and Bloomberry, the operator of Solaire NPM (%) 16.9% -13.4% 7.8% 18.7% 20.9% 21.0%
Resort and Casino, is a main beneficiary of Times Interest Earned (X) 6.3 -0.7 1.8 4.0 4.7 4.8
the trend. Solaire Resort and Casino is one of Current Ratio (X) 2.17 1.28 1.77 1.39 2.02 1.96
four integrated resorts in Entertainment City Net D/E Ratio (X) 0.52 1.03 0.81 0.34 -0.03 -0.28
and once all four are completed, Philippines Days Receivable 62.1 41.0 35.5 41.0 41.0 41.0
Asset T/O (%) 0.4 0.4 0.5 0.5 0.6 0.5
will make a better case as a regional gaming
ROAE (%) 19.5% -14.2% 10.3% 25.4% 24.6% 20.6%
destination, which will benefit all operators.
VALUATION ASSUMPTIONS
DCF Valuation
Risk Premium 5.0%
Risk Free Rate 5.0%
Beta 1.0
Cost of Equity 10.0%
Cost of Debt 7.0%
Tax Rate 0.0%
WACC 10.0%
Terminal Growth Rate 2.0%
Relative Valuation
Target EV/EBITDA 11
2017 EBITDA in Php Mil 15,066
Target EV 165,731
Net Debt -10,426
Equity Value 155,305
FV Estimate per share 14.08
HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.
SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.
IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.