Fundamental Stock Investing: Shang Properties, Inc. (SHNG) and Valuations

Disclaimer: The author is not in any way related to or representative of the following companies. The author does not take responsibility for the accuracy of the information and sources of information are given reference. The purpose of this is to filter, review and comprehend the available data that might be useful to common stock investors. This article is not a buy recommendation, but rather an analysis by the author for his own personal use, simply shared in this blog so that it may be read by others of with the same interests.

Sector: Real Estate

Qualitative Aspects:
       On a personal note, I chose Shang Properties because it is a well-known and well-established real estate luxury brand not only here in the country but also overseas. I like real estate companies because it is something I understand. The capitalization structure of Shang Properties is also not that complicated. The company has only common shares, and no preferred shares coming next to senior securities or bonds/debt.
       I like the situation of their main property in EDSA Crossing station, which is near all the central business districts Ortigas, Global City and Makati. It is right beside the busy Shaw Boulevard MRT station, and a lot of high-rise condominiums are being built around it, not to mention the company's own condominiums above the property.
       I also come and visit the mall when I can. The new East Wing looks like one of those malls that can be found in Singapore or Hong Kong, very clean and well built. There are already a number of shops. But it is easy to notice that the new mall is vastly empty, a stark contrast to the adjoining SM Megamall a few blocks away. Perhaps, because it is still new and not all the shops have opened.

      The new Shangri-La Hotel in the Fort will surely gain attention once it opens next year in 2014, and price of the stock along with it. The old Makati Shangri-La hotel is still held in high regard despite of the building getting old / depreciated so I'm guessing the new one will be treated just as well.
     The risks I see come from overbuilding of condos and saturation of the real estate market. A worldwide or local economic downturn may also affect the purchasing power and sentiment of prospective buyers. There is also the factor of competition. There are so many companies offering condos one after another and competition is stiff. The only real winning factor for Shang Properties are their locations, the brand and the attractiveness of their projects. Sales must be monitored closely. The company has also borrowed a lot in the last 5 years, and they may come short with working capital in if sales are not sustained. They have little recurring income from rentals and from the cinema, and majority of income are from condominium sales.

The price of the stock has already doubled in 2 years, and it is up to us prospective buyers to get the best price we can. Although the stock sells at 0.80 below book value, dividends are not that big at 3% a year, so I would recommend to wait for a cheaper price in this area.

Here's the price movement since 1991 to present:
Here's the price movement in the last 2 years:

                                                    

Properties of issuer and subsidiaries:
- 8.6 hectare land in Ortigas Center
Improvements:
- Carpark building, gross floor area 23,625 sqm. and 681 slots

- Shangri-La Plaza Mall (EDSA Cor. Shaw Blvd., 136,552 sqm. through 100% owned subsidiary, Shangri-La Plaza Corporation)

- The St. Francis at Shangri-La (through 100% owned subsidiary Shang Properties Realty Corporation) 98% of the units have been sold to date according to p.10 the 2012 annual report.

- One Shangri-La Place (mixed-use development through 100% owned subsidiary Shang Properties Realty Corporation) The project is at least worth P 2.5 billion pesos, the amount that has been contributed by Shang Properties Inc. to its subsidiary to partially fund the project according to p.6 of the 2012 annual report. Estimated cost is P 12.5 Billion according to PSE circular 1505-2012. The twin-tower project will have 1,300 residential units, 150 shops and restaurants in a 6-level Shangri-La Mall expansion.

Other:

- 15,120 sqm land in Bonifacio Global City, Taguig through Shang Global City Properties, Inc. 100% owned by Shang Global City Holdings, Inc., which is 100% owned, in turn, of Shang Properties, Inc.

- The Enterprise Center, Ayala Avenue, Makati (through 52.90% owned KSA Realty Corporation)

- Asian Plaza 1 Residential Condominium, Gil Puyat Ave., Makati City (through 100% owned Shang Property Developers, Inc.) purchased for P 615 million in March 2011.

- 60-Storey Shangri-La Hotel at The Fort in Bonifacio Global City is mentioned in press release in PSE circular 1505-2012. It will have 577 guestrooms, 97 hotel residences and 96 residential condominiums for sale. It is being built at a cost of P 18 Billion. After a shareholder's agreement in June 2008, 100% issuer owned Shang Fort Bonifacio Holdings, Inc. has reduced its stake in Fort Bonifacio Shangri-La Hotel, Inc. to 40%. Thus, Shang Fort Bonifacio Holdings, Inc. will have an equity of roughly P 7.2 Billion in the project.

UPDATE AS OF April 30, 2014

-Shang Properties Inc. subsidiary Shang Global City Holdings Inc. and Shang Fort Bonifacio Holdings Inc. have agreed to acquire Alphaland Development Inc.'s 20% equity in Shang Global City Properties Inc. and Fort Bonifacio Shangri-La Hotel respectively, increasing their stake to 60%.

-Shang Salcedo Place, Makati. A 65-storey residential project will have over 700 residential units at an estimated cost of P 5 Billion


A rough estimate of SOME of the projects listed above will already amount to: P 25.315 Billion (not excluding debt and liabilities)

Leaseholds/Rental Contracts:

- Lease to Edsa Shangri-La Hotel and Resorts, Inc. (an affiliate company)  portion of the 8.6 hectare land in Ortigas, for 25 years starting August 28, 1992 up to August 28, 2017.

Securities:

- Common shares only
- Outstanding shares as of September 2013:          4,764,056,287

Financial Statements:


TODAY's Price (9/12/2013):              P3.39
Sources: 2011, 2012 Annual Report:

Equity (Total Assets - Total Liabilities):

Year	Equity Attributable to Holders of the Parent	Book Value Per Share/Equity Per share
2013 **from unaudited 2nd Quarter Report ended June 2013	P 20,788,777,753	P 4.36
2012	P 20,248,490,990	P 4.25
2011	P 18,992,130,049	P 3.98
2010	P 18,659,005,830	P 3.92

VALUATION: You may buy below P4.25, or book value per share

Earnings:
Revenues come from condominium sales, rental income and cinemas.

YEAR	REVENUES	NET EARNINGS	EARNINGS PER SHARE as reported
2013
2012	4,599,905,549	1,895,381,995	0.346
2011	2,477,438,532	1,362,002,414	0.222
2010	2,420,693,237	1,285,594,293	0.210
2009	3,510,132,408	1,502,027,391	0.246
2008	3,575,470,000	879,800,000	0.185

5 Year Average Earnings Per Share: 0.2418
VALUATION: Arbitrary multiple (10x) Average Earnings = P 2.418

Dividends:
The company issues dividends 2 times a year, usually holders before March and September. The combined figures are below.

FROM FISCAL YEAR	CASH DIVIDEND PER SHARE	Per Annum Rate to Today’s Price
2013	0.11	3.24% p.a.
2012	0.082	2.42% p.a.
2011	0.07352	2.17% p.a.
2010	0.09	2.65% p.a.
2009	0.061	1.80% p.a.

5 Year Dividend Average: 0.083304
VALUATION: Arbitrary multiple (10x) average dividend = P 0.83 centavos

Liabilities/Debt:

Year	Bank Loans	Total Liabilities
2013
2012	P 3,543,452,381	P 12,790,622,363
2011	P 3,931,990,473	P 12,653,474,698
2010	P 4,303,419,046	P 12,311,003,682

Maturing Bank Loans:

-November 2006, KSA Corporation (52.90% owned by issuer) obtained P 1.6 Billion in 28 equal quarterly payments until January 2014.
-June 2007, Shangri-La Plaza Corporation obtained a unsecured 7-year loan of P 900 Million in 28 equal quarterly payments until June 2014.
-February 2008, the Parent Company obtained a unsecured 10-year loan of P 3.5 Billion in 24 equal quarterly installments until February 2018.
-July 2012, the company obtained another 10-year loan of P 5 Billion in 24 equal quarterly installments, secured by a negative pledge on all present and future assets of the company. This will mature in July 2022.


Interest Coverage:

YEAR	INTEREST PAYMENTS FOR THE YEAR	NET INCOME	COVERAGE (Number of times interest earned)
2013
2012	806,985,711	1,895,381,995	3.35 times earned
2011	369,485,716	1,362,002,414	4.69 times earned
2010	369,485,716	1,285,594,293	4.48 times earned

Financial Ratios:

Current Ratio / Working Capital Ratio (Current Assets / Current Liabilities)
Benjamin Graham recommends a current ratio of greater than 2.

YEAR	Current Ratio
2013
2012	2.08 Current Assets : 1 Current Liability
2011	2.11 Current Assets : 1 Current Liability
2010	2.70 Current Assets : 1 Current Liability

Net Profit Margin

YEAR	Net Profit Margin (Net Profit/Revenues x 100%)
2013
2012	41.20%
2011	54.98%
2010	53.11%
2009	42.79%
2008	24.61%

Debt to Equity Ratio:

YEAR	% of DEBT
2013
2012	35.56%
2011	36.74%
2010	36.46%

Return on Equity:

YEAR	Return on Equity (Net Income/Equity)
2013
2012	8.18%
2011	6.25%
2010	5.99%

-Net Current Asset Value (Total Current Assets - Total Liabilities) and Cash Asset Values are negative.

Sources:
SHNG 2011 and 2012 Annual and Quarterly Reports, Corporate Disclosures at the PSE website
http://balikbayanmag.com/shang-properties-builds-three-massive-projects/
http://business.inquirer.net/66139/shang-properties-sees-p6b-sales-from-makati-project
http://business.inquirer.net/16815/shang-properties-to-spend-p12b-for-ortigas-project
http://business.inquirer.net/45749/kuok-group-beefing-up-investments-in-philippines

Chart taken from BPITrade
Various photos from Google, credits to their respective owners

QUARTERLY REPORTS

QUARTER               EQUITY (YTD)     REVENUES (Q)       NET INCOME (Q)            EPS (YTD)

2013 Q3             P 24,138,186,447          P 1,797,357,762       P 606,824,826        P 0.301

QUARTER Per Share Figures

                          BOOK VALUE PER SHARE (YTD)

2013 Q3            P 5.07