Fil-Estate Land (LND - P1.32) + Philippine Stock Exchange (PSE - P850.0)
For the past few days, I have received numerous emails asking me about LND and PSE. Just to be fair to all my readers, here is my take on the 2 stocks (again):
Fil-Estate Land
LND together with C&P Homes (CMP - P4.05) are my top picks in the property sector. I always believe that big money is made when there is a paradigm shift in the fundamentals of the company. For CMP, it is a continuing saga and we should likely see the share price trade near P10.0 as the new entity - Vista Land; prepares to do a follow-on offering.
For LND, I do believe that my near term target of P1.70 is already a given. When I wrote my arguments for LND, (please read ... Casino Royale) last January, my thesis is that LND owns valuable land-bank which it can use as equity in pursuing new projects. At that time, LND was trading at P0.80 or roughly 33% of its book value. My back-of-the-envelope computation is for LND to trade at 50% book value or roughly P1.70 per share.
However, things have improved. LND entered into a partnership with Megaworld to develop its property in Nasugbu, Batangas. On top of this, Megaworld was given warrants to purchase 1bn new shares of LND at P1.25 per share. Also, LND issued P500m convertible bonds to LIM Asia to fund its existing projects. So clearly, LND has a properly funded "move forward" plan that should bring it out of its dormant state. I guess, beyond the projections on how much revenue the new projects will deliver, I do believe that in the next 3-6 months, LND should approximate its revised book value of P2.65/share. Here's why?
1.) LND is out of the bankruptcy scenario. This means that we can already value its asset at face value - P1.0 of asset is now equivalent to P1.0.
2.) The "Sobrepena discount" is still factored in even if LND trades at book value. Note that most property companies trade at multiples to book value. So, I guess, at 1x book value, there is still sufficient discount in the valuation.
3.) On the other hand, we have the "Megaworld" premium. Since Megaworld is taking over the Twin Lakes project, this asset should be valued at a premium.
4.) Money is flowing into the property sector. The recent tie-up with Megaworld will put LND in a better position to ride the bull.
Just like the C&P Homes story, LND is crafting its own turnaround saga. I am betting that there are more chapters to come. CMP rose from P1.50 to P4.25 in a span of 5 months. So based on that analogy, LND still has a lot of room to catch-up. Beyond the property sector, we also saw Benpres (BPC - P5.10) rose 5-folds on the back of a recovery story. So, as I like to emphasize, the writings are clearly on the wall.
Philippine Stock Exchange
PSE is another stock that gained a lot of attention in the past few days. I have always like PSE as a proxy to the bull market. Note that PSE has beaten the PSEi Index by more than 20-folds. PSE has risen 486% compared to the 24.7% increase in the PSEi Index.
There are two things driving the stock right now.
First, earnings. I guess, with the market trading at an average of P6.0bn per day compared to the P1.5bn average in 2006, earnings will beat even the most optimistic estimates. On top of that, there are more mega-IPOs, follow-on offerings and mergers to come. To my mind, the P34.5bn raised so far in 2007 is "peanuts" compared to the coming deals. Vista Land alone, is looking to raise P25.0bn in 2H07. Initially, I was looking at P500m net income for PSE, but based on current trends, PSE can easily make P750m.
Second, the m&a trend. Recently, the Tokyo Stock Exchange (TSE) bought a 5% stake in Singapore Stock Exchange (SGX) for US$300m. I am betting that there are more deals to come and PSE will definitely be in the watch-list. Globally, shares of listed stock exchanges are breaking new highs.
So I do believe that my initial target of P1,000.0 is already a given. The target is based on P500m net income valued at 30x PER. So, based on a revised net income target of P750m for 2007, PSE, can potentially trade at P1,500.0. To put things in perspective, the market value of PSE in dollar terms is US$277m. It is hardly enough to buy a 5% stake in SGX. Clearly, there is room for upside, even if PSE is a "dog" amongst the exchanges in the region.
To read my past article on PSE, please go to Hidden Gem
Fil-Estate Land
LND together with C&P Homes (CMP - P4.05) are my top picks in the property sector. I always believe that big money is made when there is a paradigm shift in the fundamentals of the company. For CMP, it is a continuing saga and we should likely see the share price trade near P10.0 as the new entity - Vista Land; prepares to do a follow-on offering.
For LND, I do believe that my near term target of P1.70 is already a given. When I wrote my arguments for LND, (please read ... Casino Royale) last January, my thesis is that LND owns valuable land-bank which it can use as equity in pursuing new projects. At that time, LND was trading at P0.80 or roughly 33% of its book value. My back-of-the-envelope computation is for LND to trade at 50% book value or roughly P1.70 per share.
However, things have improved. LND entered into a partnership with Megaworld to develop its property in Nasugbu, Batangas. On top of this, Megaworld was given warrants to purchase 1bn new shares of LND at P1.25 per share. Also, LND issued P500m convertible bonds to LIM Asia to fund its existing projects. So clearly, LND has a properly funded "move forward" plan that should bring it out of its dormant state. I guess, beyond the projections on how much revenue the new projects will deliver, I do believe that in the next 3-6 months, LND should approximate its revised book value of P2.65/share. Here's why?
1.) LND is out of the bankruptcy scenario. This means that we can already value its asset at face value - P1.0 of asset is now equivalent to P1.0.
2.) The "Sobrepena discount" is still factored in even if LND trades at book value. Note that most property companies trade at multiples to book value. So, I guess, at 1x book value, there is still sufficient discount in the valuation.
3.) On the other hand, we have the "Megaworld" premium. Since Megaworld is taking over the Twin Lakes project, this asset should be valued at a premium.
4.) Money is flowing into the property sector. The recent tie-up with Megaworld will put LND in a better position to ride the bull.
Just like the C&P Homes story, LND is crafting its own turnaround saga. I am betting that there are more chapters to come. CMP rose from P1.50 to P4.25 in a span of 5 months. So based on that analogy, LND still has a lot of room to catch-up. Beyond the property sector, we also saw Benpres (BPC - P5.10) rose 5-folds on the back of a recovery story. So, as I like to emphasize, the writings are clearly on the wall.
Philippine Stock Exchange
PSE is another stock that gained a lot of attention in the past few days. I have always like PSE as a proxy to the bull market. Note that PSE has beaten the PSEi Index by more than 20-folds. PSE has risen 486% compared to the 24.7% increase in the PSEi Index.
There are two things driving the stock right now.
First, earnings. I guess, with the market trading at an average of P6.0bn per day compared to the P1.5bn average in 2006, earnings will beat even the most optimistic estimates. On top of that, there are more mega-IPOs, follow-on offerings and mergers to come. To my mind, the P34.5bn raised so far in 2007 is "peanuts" compared to the coming deals. Vista Land alone, is looking to raise P25.0bn in 2H07. Initially, I was looking at P500m net income for PSE, but based on current trends, PSE can easily make P750m.
Second, the m&a trend. Recently, the Tokyo Stock Exchange (TSE) bought a 5% stake in Singapore Stock Exchange (SGX) for US$300m. I am betting that there are more deals to come and PSE will definitely be in the watch-list. Globally, shares of listed stock exchanges are breaking new highs.
So I do believe that my initial target of P1,000.0 is already a given. The target is based on P500m net income valued at 30x PER. So, based on a revised net income target of P750m for 2007, PSE, can potentially trade at P1,500.0. To put things in perspective, the market value of PSE in dollar terms is US$277m. It is hardly enough to buy a 5% stake in SGX. Clearly, there is room for upside, even if PSE is a "dog" amongst the exchanges in the region.
To read my past article on PSE, please go to Hidden Gem
posted by jack galt at
5:05 PM
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