Philippine Stock Market Research

VLL is the Least-Affected Property Stock on a BPO Contraction

March 27, 2017

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VLL’s earnings from the BPO sector is only at low single-digits compared to other major property firms’ around 20-40% exposure.  US President Trump’s protectionist policies can adversely affect the BPO sector in the event that he counters US firms’ moves to put up BPOs in the Philippines.

VLL focuses on low-cost to affordable housing which directly addresses the deficit in the segment of 462,160 homes nationwide.  VLL is notably one of the major provincial residential developers in the country.

VLL is also expanding its Starmalls space by almost 50% from 701,220 sqm in 2016 to 1.04 mn sqm in 2018.  This drives earnings until 2019 when full-year operations are recognized.  VLL is conservatively maintaining an 80:20 malls to BPO space ratio.

Increasing earnings will ease VLL’s high leverage position, while its focus on selling existing real estate inventory strengthens cash-flow further.  Converting US dollar loans to long term peso loans likewise minimizes forex and interest rate risks.

VLL is both an earnings and asset play.  Our target price for VLL is the average of its NAV representing assets and fair value representing earnings.  VLL is trading at a discount to most of its major valuations including its Estimated Liquidation Value (ELV).  VLL likewise pays prudent cash dividends with acceptable yields of more than 2%.

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