Sector Outlook: Property

We take a look at the financial data for five of the most popular listed Property stocks in PSE - DoubleDragon Properties (DD), Ayala Land, Inc (ALI), Megaworld Corporation (MEG), Vista Land & Lifescapes (VLL) and Century Properties Group (CPG).

Balance Sheet

As expected, ALI holds the largest assets for this group, as it is almost twice as big as its next competition, MEG. What was really glaring here is how small the other companies are.

Income Statement

The SM Group Merger

Last May 31, the board of directors of SM Investment Corp (SMIC) SM Prime Holdins, Inc. (SM Prime) announced the merger of its property holdings.

SM Development Corp and Highlands Prime Inc. will be acquired by SM Prime via share swap. SM Land and SM Prime will then be merged, with SM Prime as the surviving entity.

According to reports, the consolidation will bring the market capitalization of SM Prime, the surviving entity, to around P591 billion. The move allows SM Prime to surpass Ayala Land as the biggest listed property firm.

from rappler.com

Effect on Stocks

Based on May 30 closing prices, one SMDC share is valued at .405 SMPH share. Given that the offer price is at .472, there is a potential upside of .067 or 16.5%.

One HP share is valued at .135 of SMPH share based on last trading price. At an offer price of .135, the potential upside is .0022 or 2%.

What will Happen?

Given the bearish condition of the stocks market, we still believe that the merger news is too big to ignore. SMDC offers the best upside among the three listed companies and it will likely rise come opening bell. Even if it goes back at 8.50 and assuming SMPH are unchanged at 19.50, it will still give an upside of 8.28%.    
 

Vista Land & Lifescapes, Inc. (VLL)

Company Profile:

Vista Land & Lifescapes, Inc. (VLL) was incorporated on February 28, 2007 as an investment holding company. VLL and its subsidiaries harness more than 30 years of professional expertise in residential real estate development. The Company's projects include master-planned developments and stand-alone residential subdivisions which offer lots and/or housing units to customers in the low-cost (which includes socialized housing), affordable, middle-income and high-end market segments.

VLL operates through five distinct business units:

Brittany caters to the high-end market segment in Mega Manila, offering luxury houses in master-planned communities, priced at P9 million and above.

Crown Asia caters to the middle market housing segment in Mega Manila, primarily offering houses priced between P3.5 million to P9 million.

Camella Homes services the low-cost housing segment and affordable housing segment, priced up to P3.5 million.

Communities Philippines offers residential properties outside the Mega Manila area in the low-cost, affordable and middle market segments.

Vista Residences, Inc. caters to the development and selling of residential high-rise condominium projects across the Philippines.

Income and Operations

VLL reported a net income increase of 24% from P3.528 billion in 2011 to P4.375 billion in 2012. All its property segments' revenues increased, except for Crown Asia which decreased by 8%. Its gross margin increased to 53.96% from 51.08% in 2011, indicative that its brands could command higher pricing without hurting sales volume.

Stocks Valuation

VLL stocks are currently trading at P10x PE. If you purchased the stock by the end of 2011, your investment have already grown by 188%.

 What's to Like?

Vista Land simply dominates the housing segment in the country. Its well-established "Camella" brand and its emerging presence in the region are the company's present and future. VLL have also continued to find a way to increase its gross margin, possibly from managing its expenses. It posted lower provision for income tax reduced by their deferred payments.  

Why Get Cautious?

Unlike other listed property companies, VLL does not have a recurring rental income on their portfolio. The vertical segment of their company is also lagging behind other developers. This becomes a major concern especially when consumers tend to move in the city. It also makes them more susceptible to economic downturns similar to the property melt down they have experienced in the 90's.

Buffett Recommends...

Vista Land and Lifescapes prides itself of sound financial management backed by the family of businessman and Senator Manny Villar. While their leadership in their field and high reputation are good intangibles, I believe there are other companies that provide higher returns for our intelligent investors.