Weekend notes: Property - the next big play, Peso to hit new highs
Property - the next big play
Property stocks are set to take center stage. After mining, the property sector staged the biggest comeback since the market hit bottom last August 17. The PSE property index rose by 27% compared to the 24% increase in the PSEi Index. On the other hand, the mining index rose by 66.3% during the same period.
Mining stocks rose on the back of the decision of the U.S. Federal Reserve (US Fed) to cut rates by 50 basis points to 4.75%. The move led to a weaker US Dollar which boosted the value of gold and other base metals. Analysts term this as "asset reflation". In other words, prices of assets are moving inversely proportional to the value of US Dollar.
The "asset reflation" that we saw in the mining sector should spillover to the property sector as well. Real estate assets are no different from gold and other base metals. Real estate values will also move inversely proportional to the value of US Dollar. The Hong Kong market reached new highs in the past month on the back of an expected property revaluation. The Hang Seng Index (HSI) is heavy on property counters.
Hong Kong is viewed as the proxy for the property sector in the region. In other words, the "property revaluation" will eventually spillover to the rest of the region. Hong Kong essentially triggered the property bull-run in the early 90s.
Locally, the crucial event to watch out is how the bidding for the remaining lots in Fort Bonifacio pans out. The government is set to bid out 1.2-hectare lot in Fort Bonifacio Global City for a minimum bid price of P160k per square meter. Already, 8 bidders have signified interest. My gut feel is that the bid will likely surprise on the upside.
In 1996, lots in Global City sold for P168,000.0 or US$6,350.0; based on P26.5:US$1.0. Fast forward to 2007, the P160,000.0 is equivalent to US$3,550.0 at current exchange rate. So, in effect, the asking price is still 44% below what it was 10 years ago. To approximate the value paid in 1996, price per square meter should go up to P292,000.0. This leaves a lot of room for upside.
I have written a lot about the upcoming property boom. However, the most compelling argument is that property prices are nowhere near the levels we saw in 1996 despite that fact that per-capita income has doubled to US$1,400 while the PSEi index has climbed back to the 1997 levels. Everything else equal, property values should follow.
As mentioned, Fil-Estate (LND-P1.22) is my top-pick. The expected property revaluation will further enhance the value of LND considering that it owns close to 3,000 hectares of landbank. Based on its current market capitalization of P3.5bn, the implied value of its landbank is just P1,166.0 per square meter. This is way "too cheap" considering the prospects of asset revaluation and an ongoing turnaround plan. To date, LND has arranged close to P2.5bn worth of financing to complete its various projects.
I am also looking closely at SM Dev't Corporation (SMDC - P4.30). From the looks of it, the SM group will likely consolidate all its property and tourism ventures under SMDC. After successfully merging Equitable PCI Bank with Banco de Oro (BDO - P56.0) in 2007, it would not be a surprise to see SM Group make a major move in 2008 to restructure its property and tourism assets under one listed vehicle. Already, Henry Sy has mentioned that the next big thing for the country is tourism. Simply put it, follow where the billions are going.
Peso to hit new highs
A leading investment bank has predicted that the P/US$ rate will hit P42.0 to US$1.0 by end of the year.
The best gauge on where the P/US$ rate is heading is to look at the movement of Philippine Long Distance Telephone Co. (TEL - P2,950.0). TEL, the largest Philippine company by market capitalization, is a proxy for foreign funds flow.PLDT rose by 30% since it hit bottom last August 17. Typically, the P/US$ rate captures 60% of the movement of TEL shares. So base on this, the P/US$ will likely appreciate by 18% from its recent low of P47.00 to US$1.0, to around P40.0.
TEL is the only PSEi component stock that made new highs after the market rout. There is no material change in the fundamentals of PLDT. The move merely reflects a looming Price Earnings Ratio (PER) expansion. TEL is currently trading at 16x PER to 12/07 earnings - its highest level in more than 5 years. So most likely, other PSEi component stocks will follow.
For comments, you can send me an email at jack.galt888@gmail.com
Property stocks are set to take center stage. After mining, the property sector staged the biggest comeback since the market hit bottom last August 17. The PSE property index rose by 27% compared to the 24% increase in the PSEi Index. On the other hand, the mining index rose by 66.3% during the same period.
Mining stocks rose on the back of the decision of the U.S. Federal Reserve (US Fed) to cut rates by 50 basis points to 4.75%. The move led to a weaker US Dollar which boosted the value of gold and other base metals. Analysts term this as "asset reflation". In other words, prices of assets are moving inversely proportional to the value of US Dollar.
The "asset reflation" that we saw in the mining sector should spillover to the property sector as well. Real estate assets are no different from gold and other base metals. Real estate values will also move inversely proportional to the value of US Dollar. The Hong Kong market reached new highs in the past month on the back of an expected property revaluation. The Hang Seng Index (HSI) is heavy on property counters.
Hong Kong is viewed as the proxy for the property sector in the region. In other words, the "property revaluation" will eventually spillover to the rest of the region. Hong Kong essentially triggered the property bull-run in the early 90s.
Locally, the crucial event to watch out is how the bidding for the remaining lots in Fort Bonifacio pans out. The government is set to bid out 1.2-hectare lot in Fort Bonifacio Global City for a minimum bid price of P160k per square meter. Already, 8 bidders have signified interest. My gut feel is that the bid will likely surprise on the upside.
In 1996, lots in Global City sold for P168,000.0 or US$6,350.0; based on P26.5:US$1.0. Fast forward to 2007, the P160,000.0 is equivalent to US$3,550.0 at current exchange rate. So, in effect, the asking price is still 44% below what it was 10 years ago. To approximate the value paid in 1996, price per square meter should go up to P292,000.0. This leaves a lot of room for upside.
I have written a lot about the upcoming property boom. However, the most compelling argument is that property prices are nowhere near the levels we saw in 1996 despite that fact that per-capita income has doubled to US$1,400 while the PSEi index has climbed back to the 1997 levels. Everything else equal, property values should follow.
As mentioned, Fil-Estate (LND-P1.22) is my top-pick. The expected property revaluation will further enhance the value of LND considering that it owns close to 3,000 hectares of landbank. Based on its current market capitalization of P3.5bn, the implied value of its landbank is just P1,166.0 per square meter. This is way "too cheap" considering the prospects of asset revaluation and an ongoing turnaround plan. To date, LND has arranged close to P2.5bn worth of financing to complete its various projects.
I am also looking closely at SM Dev't Corporation (SMDC - P4.30). From the looks of it, the SM group will likely consolidate all its property and tourism ventures under SMDC. After successfully merging Equitable PCI Bank with Banco de Oro (BDO - P56.0) in 2007, it would not be a surprise to see SM Group make a major move in 2008 to restructure its property and tourism assets under one listed vehicle. Already, Henry Sy has mentioned that the next big thing for the country is tourism. Simply put it, follow where the billions are going.
Peso to hit new highs
A leading investment bank has predicted that the P/US$ rate will hit P42.0 to US$1.0 by end of the year.
The best gauge on where the P/US$ rate is heading is to look at the movement of Philippine Long Distance Telephone Co. (TEL - P2,950.0). TEL, the largest Philippine company by market capitalization, is a proxy for foreign funds flow.PLDT rose by 30% since it hit bottom last August 17. Typically, the P/US$ rate captures 60% of the movement of TEL shares. So base on this, the P/US$ will likely appreciate by 18% from its recent low of P47.00 to US$1.0, to around P40.0.
TEL is the only PSEi component stock that made new highs after the market rout. There is no material change in the fundamentals of PLDT. The move merely reflects a looming Price Earnings Ratio (PER) expansion. TEL is currently trading at 16x PER to 12/07 earnings - its highest level in more than 5 years. So most likely, other PSEi component stocks will follow.
For comments, you can send me an email at jack.galt888@gmail.com
posted by jack galt at
8:50 PM
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