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

Wake Me Up at PSEi 3000

A little market speculation for you guys at PiliFinance.. By speculation, we mean predicting market upswings, downturns, predicting the market in general. We reiterate that speculation conditions are different from prescribed investment levels, and for speculative purposes only.

Here is a spot view of the Philippine Composite Index or Philippine stock market index since 2000, courtesy of COLFinancial.com.

If my Fibonacci measurements are correct, we can see that the last bull run from 2003 to 2008 dropped to 76.4% level before it started the climb for the next bull run of 2008-present day. 

IF the general market will continue to drop from present day levels to a bear market, judging from the previous Fibonacci measurements of the previous bull run, the bottom will be at the 3000 level, equivalent to 76.4% drop of the previous bull market.

Other possible bounce points are at the popular 38.2% and 61.8% levels or 5,300 and 4,000 levels respectively.

How to Value Stocks (Basic) i.e. using Balance Sheet / Asset Values

Basic Concepts and Easy Step-by-Step Process of Common Stock Valuation by Balance Sheet Analysis

BASIC CONCEPTS (You may skip to the Step-by-step Process below if you wish)

In order to value stocks, we must first know what buying a stock means. A stock is a portion of a business, which is represented as a share of a corporation. A corporation is the legal entity of the business. Therefore, when you buy stocks for investment, you buy a portion of a business and you should view it as such. That is the underlying principle of fundamental investing; looking into business behind the stock. This is in contrast to, for example, trading or technical analysis where the focus of buying and selling is the price of the stock and the patterns it creates, among other things.

How do we make sense of all of this to buy stocks?

Well, we must first
(1) attempt to value the business as a whole, (2) then divide that figure by the number of shares or stock available (outstanding). This will give as an intelligently estimated purchase price PER SHARE of the business.

The most basic form of valuing a business is by looking how much the owners actually spent/invested in the business. For example the utensils, chairs, the ovens, stove, building, land the owners bought before starting a restaurant. These things used in the business are called business ASSETS. These items are listed in the BALANCE SHEET in the corporate FINANCIAL STATEMENTS. These financial statements are released annually or quarterly (every 3 months), and available for free download at the PSE Website.

If there are assets, there are also LIABILITIES which are "utang" or loans or other people's money used in the business.

So looking at how much was actually spent to buy stuff for the business, we will get an idea how much it should be sold if the owner decides to sell his business, or incidentally, if you want to buy his stock.

In calculating how much the stock is worth or BOOK VALUE in the balance sheet, we must:
*Subtract the Liabilities (loans/utang) from the owner's equity/Assets (stuff used in the business, including cash etc.)

EQUITY is another term for the word OWNERSHIP. So in business, owner's equity is the owner's own contribution to the business from his own pocket.

Thus we arrive at the basic formula:

ASSETS - LIABILITIES = Net Asset Value / Book value of business / Owner's Equity

Next step, you simply divide this resulting number by the number of shares available or outstanding shares to get the PER SHARE Price or Per share book valuation of the business/stock.

Step-by-Step Guide
(Images courtesy to PSE, Inc.)

1) Go to PSE website at www.pse.com.ph
2) In the top right corner type in the stock quote of the stock you want to value. Example "CPG" for Century Properties Group.

3) Take note of the number of outstanding shares.

4) Click the Corporate Disclosures tab

5) Download the latest annual report or quarterly report. I suggest annual report because these are comprehensive results for the entire year. These reports contain the financial statements for the period.

6) Find the Balance Sheet part of the Financial Statement.
Subtract Total Liabilities from Total Assets (as described in our concepts above)
(Example taken from CPG, courtesy of Century Properties Group)
ASSETS (total in red box)

MINUS
LIABILITIES (total in red box)

EQUALS
Book Value or Owner's Equity.

This Book Value / Equity Amount is what the owners actually own and invested in the business.


7) To get the PER SHARE amount, simply DIVIDE this number by the number of shares outstanding from Step 3.

You can use this number as a reference or rough guide how much a stock might really be worth. This number is in PESOS, so you can directly compare it to the price of the stock in the market.

(Sometimes, I use the equity minus equity of non-controlling interests)

P.S.

You can also compare this big number (Total Equity, not the per share basis) to the market capitalization, to see how much the market is valuing the entire business as compared to the owner's equity.

 VERSUS 

We see in this example that Market Capitalization (market price x number of shares) is larger than actual owner's equity. This means the market is paying P11 billion for P8 billion worth of business assets.


YOU'RE DONE! Of course Book Value is just one of many ways to value a business and it is also one of the basic. Stay tuned for PART 2, to value stocks using other methods using data such as earnings multiple or P/E.

Thanks for reading, please share to your friends.

Stock Investing: Filinvest Land Inc. (FLI) quick valuations/ financials based on 2012 Annual Report

Disclaimer:

The author is not a certified securities/financial analyst. The figures contained herein may or may not be accurate, only obtained through the best of my knowledge. This is not a buy recommendation.  Buy at your own risk. Consult with your securities dealer / financial advisor.

Limitations:

-net income, EPS figures used as stated, non-recurring not excluded

-no investigation of statement of cash flows, cash flow from operating activities are negative 2011-2012

-no computation for current asset values, current ratio, and net current asset values

-no computation for year-on-year growth, return on equity,

Qualitative Aspects:

I like that Filinvest land has a diverse portfolio of land assets around Metro Manila. Personally, I like their Filinvest City in Muntinlupa as I always see their project "The Levels" growing taller by the day. I also like how they planned out Filinvest City. (Image not my own, courtesy to Filinvest)

I have also learned of a property they've developed in the mountains surrounding Metro Manila. In other countries, properties with sweeping views of the city usually demand a high price. I have also read that leisure properties are expected to gain popularity in the future as people are able to move away from the cities because of improvements in technology, and still make a living. The baby boomers in the US have also started to retire, and they say these people will start to look for retirement homes / leisure properties they can live in.

Of course these are just my personal views, and making predictions in future trends of land values are speculative. 

Note:

Those in red ink are my actual price valuations. You may buy below that price/those prices depending on your preference, how conservative you are/risk appetite. The higher the price the lesser the margin of safety.

Those in blue ink are averages which may, or may not be used as a guide to gauge future values.

Book Value/Total Equity: P 45,878,645,000

Shares Outstanding: 24,249,759,506 shares

-“In 2012 and 2011, there was no issuance of additional common shares.” –Note 26, page 58

-There were no changes in number of outstanding shares from 2010-2012, note 26, page 58

Book Value Per Share of Common: P 1.89

Less Preferred Stock

Has preferred stock worth P 80,000,000 of (8,000,000,000 shares par P 0.01)

-“As the dividend rate is yet to be determined by the BOD, there were no dividends in arrears on preferred shares as of Dec 31 2012, 2011 and 2010.” –Note 26, page 58

-Basing on the Dividend Declaration on note 26 and Consolidated Statements of Changes in Equity, the preferreds did not receive any dividend, only the common. This was determined by calculating the dividend per share times shares outstanding, and the total dividend for the common matched the figure of the aggregate dividend expense, leaving no room for preferred dividend.

Book Value/Total Equity of Common Net of Preferreds at Par: P 45,798,645,000

Book Value Per Share of Common Net of Preferreds at Par: P 1.888623

Net cash position:

Date	Net Cash Position
2012	Negative
2011	Negative

Current Ratio:

Date	Current Ratio (Current Assets: Current Liabilities)
2012	?

Net Current Asset Value Per Share:

Date	NCAVPS
2012	?

Earnings:

Date	Net Income	Earnings Per Share
2013
2012	3,431,436,000	0.14
2011	2,942,087,000	0.12
2010	2,952,359,000	0.12
2009	2,018,200,000	0.08
2008	1,867,000,000	0.08
2007	1,704,390,000	0.07

Average 5 year earnings per share: P 0.11

Stock Valuation Based on arbitrary Earnings Multiple: (Earningsx10) = P 1.10

                                                                                (Earningsx5) = P 0.55

Dividend Terms:

-Cash dividend payment ratio of 20% of its consolidated net income for the preceding year

Dividends from Fiscal Year	Dividends	As Percentage of Earnings Per Share
2012	0.048	34%
2011	0.047	39%
2010	0.039	32%
2009	0.033	41%

Dividend History:

-In the financial statements, they added the regular and special dividends to get the per share basis

Date	Cash Dividend	Stock Dividend
2013	0.048	-
2012	0.047	-
2011	0.039	-
2010	0.033	-

Average Dividend (4 years): 0.042

Price to Dividend Ratio (Average):

Stock Valuation based on arbitrary Dividend Multiple: (AverageDividendx10) = P 0.42

                                                                                (AverageDividendx5) = P 0.21

Sources:

PSE website, stock quote “FLI”

Filinvest Land Inc. Financial Statements/Annual Report 2012