Discovery World Corporation IPO

The Discovery World Corporation is a resort and upscale real estate developer which owns the world class Discovery Shores Boracay, Discovery Country Suites in Tagaytay, and the Discovery Primea condominium in Ayala Ave, please read some of the articles and my comments below.

DISCLAIMER: The author does not guarantee the accuracy of the information, nor does this serve as a buying recommendation. The author is not a registered financial planner or business professional. The author is a fellow retail investor. Prospective investors should use their own discretion in their investments and if necessary should ask the assistance of an investment professional. Stock market investing is subject to internal and external risk factors that may result in substantial loss.

Please read about Mr. Mangun's (PSE Trader, US Stockbroker) insight on IPOs in this article published in the newspaper last week:

http://www.businessmirror.com.ph/index.php/en/news/opinion/22415-what-to-do-about-initial-public-offerings

This is the official prospectus for prospective investors in the Discovery World common shares:

http://www.discovery.com.ph/files/Discovery-World-Corporation-Prospectus.pdf

Summary (important points):

Offer shares: 168,000,000 shares with a par value of P1.00 being offered to the public for P3.28 per share.

These 168,000,000 shares represent 26.84% of the outstanding shares after the offer.

After the completion of the IPO, there will be 626,000,000 common shares outstanding.

The net proceeds from the offer will be used for:

[a] the acquisition of Discovery Fleet Corporation and Palawan Cove Corporation

[b] debt retirement

[c] working capital purposes

On July 22, 2013, the Board of Directors of the Company approved its dividend policy wherein it shall distribute to its shareholders as dividends at least 10% of company's net income for the previous fiscal year.

Sept. 27, 2013, the Company has acquired a 67% stake in Euro-Pacific Resorts Inc. which operates Club Paradise in Coron Palawan.

Summary of Financial Information

Revenues Net Income Outstanding Shares Earnings Per Share

[2010] P308,640,000 P38,030,000 626,000,000 P0.06

[2011] P347,780,000 P62,640,000 626,000,000 P0.10

[2012] P366,000,000 P21,220,000 626,000,000 P0.03

P/E Ratio

[2010] 55

[2011] 33

[2012] 109

Equity [Book Value] % increase in equity Outstanding Shares Book Value per Share

[2010] P422,870,000 626,000,000 P0.676

[2011] P462,560,000 9.39% 626,000,000 P0.74

[2012] P548,550,000 18.59% 626,000,000 P0.88

[2013] P578,901,111* 5.53% P1.26

[2013] P1,095,356,917** 89.21% 626,000,000 P1.75

*as of June 30, 2013 as stated in p.58 of the official prospectus

**pro-forma net-tangible book value after the IPO

(increase in tangible assets reflecting the P516,455,806.9 proceeds from the sale of the stock in the IPO, and addition of 168,000,000 shares from the offer)

Price to Book Value

[2010] 4.85

[2011] 4.43

[2012] 3.73

[2013] 2.60*

[2013] 1.87**

For more information about book value / equity valuation, look here:

http://pilifinance.blogspot.com/2013/09/how-to-value-stocks-basic-ie-asset.html

"Dilution" p.58 from official prospectus

Here is the Capitalization Structure from the official prospectus:

COMMENTARY:

From an investment (in contrast to a trading) point of view, my opinion is that the price is too expensive for the value of the company judging from its owned properties, and net income.

The estimated P/E Ratio is above 100 for year 2012 after the shares have been added from the offer.

Remember that the offer price is P3.28 and the book value or equity or "net worth" is only P1.75, including the proceeds from the IPO. That is a premium of P1.53 above the tangible assets of the business.

This does not mean that the price will not go up once the company is listed in the exchange.

For me, the price is too high at the moment. But if you believe in the company's management, that they can successfully sustain and increase profits and expand the value of the business in the long run, you may buy this company. Or else you can just wait for a lower price in the market after the IPO.