Philippines Property

See important disclosures, including any required research certifications, beginning on page 54

Philippines Real Estate

Investment thesis: We initiate on the Philippines Property sector with a

Positive rating amid an improved residential outlook, aggressive rental

expansion, and a healthy leasing environment, which we see driving an

aggregate core earnings CAGR across our coverage of 13.2% for 2017-

20E. Our top sector picks are Ayala Land and Vista Land as we think their

strong brand equity and proven track records will help to sustain their

attractive long-term prospects.

We believe that optimism in the residential property market will persist

through 2018, as we see the drivers that allowed pre-sales to exceed

expectations in 2017 remaining intact, including: 1) a resurgence in

confidence among locals amid the government’s commitment to accelerate

infra development and improve the business climate, 2) the development of

new economic centres beyond Makati and Bonifacio Global City (BGC),

leading to new employment opportunities and fresh residential demand,

and 3) a strong expat market, including demand from Chinese nationals.

Meanwhile, developers continue to pursue their aggressive leasing

expansion plans. We see office-space demand being supported by healthy

Business Processing and Outsourcing (BPO) industry growth, especially

from the expansion of existing locators, sustained momentum of Philippine

offshore gaming companies (POGOs) for at least the next 12 months, and

increased entrepreneurial activity as the Philippine economy expands. We

believe that concerns over the impact of Artificial Intelligence on office-

space demand are overdone. We expect that higher-value jobs created by

the adoption of new technologies will require office space larger than that of

low-value roles and also exceed the job losses resulting from automation.

We raise our 2018-19E EPS forecast for ALI by 7-8% on the back of better-

than-expected pre-sales over the past 5 quarters. We also lift our 2019-20E

EPS forecasts for FLI by 0.4-1.2% as we update its office pipeline.

Catalysts: Accelerated infrastructure development, regulations supportive

of BPOs and POGOs, and industry liberalisation creating office demand.

Valuation: We roll-over our valuations to average 2018-19E NAV per share

and re-affirm our Buy (1) ratings on Vista Land, Megaworld and Filinvest

Land. We also upgrade our ratings on Ayala Land to Buy (1) from

Outperform (2) and SM Prime to Hold (3) from Underperform (4) following

the recent market sell-off. Most of our covered stocks are trading at

discounts considerably wider than their historical averages despite better-

than-expected pre-sales and growing recurring income contribution.

Risks: A sharp increase in interest rates, delays in project construction,

restrictive regulations on BPOs and POGOs, and slowdown in remittances.

25 June 2018

Philippines Property

Initiation: sustained momentum in the residential

segment boosting rental expansion

We see sustained confidence among property buyers amid increased visibility on infrastructure development and robust economic growth

We think concerns over office-space demand relating to a BPO slowdown and automation are overdone.

We initiate with a Positive call; top picks are Ayala Land and Vista Land, given their strong brand equity and track records

Key stock calls

Source: Daiwa forecasts

Micaela Abaquita(63) 2 7373021

[email protected]

New Prev.

Ayala Land (ALI PM)

Rating Buy Outperform

Target 50.00 49.00

Upside p 33.2%

Vista Land & Lifescapes (VLL PM)

Rating Buy Buy

Target 8.30 8.00

Upside p 27.9%

Megaworld (MEG PM)

Rating Buy Buy

Target 5.50 5.30

Upside p 23.6%

Filinvest Land (FLI PM)

Rating Buy Buy

Target 2.20 2.15

Upside p 41.9%

SM Prime (SMPH PM)

Rating Hold Underperform

Target 34.00 34.00

Upside p 2.3%

2

Philippines Property: 25 June 2018

How do we justify our view?

Growth outlook Valuation Earnings revisions

Growth outlook Philippines Property: 2017-20E core net income CAGR (%)

We forecast for core aggregate net earnings of the

Philippines property companies under our coverage to

expand at a 2017-20E CAGR of 13.2%, driven by 12.0%

residential revenue and 14.1% rental revenue CAGRs over

the same period. We see healthy property demand

sustained by continued confidence among local buyers

amid rising incomes and increasing visibility of

infrastructure development. Meanwhile, we see rental

revenue growth, aided by developers’ continued expansion

of mall and office space, especially as they build new

mixed-use communities in new growth areas within and

outside of Metro Manila.

Source: Companies, Daiwa Note: Core net income attributable to equity holders of the parent

Valuation Philippines Property: discount to NAV

Property companies under our coverage trade at varying

discounts to NAV with companies that have a higher share

of recurrent income, and therefore more earnings visibility,

trading at the narrower end of the spectrum (ie, SM Prime),

while companies with large landbanks, especially in more

rural areas, trading at a wider discount to NAV (ie, Vista

Land and Filinvest Land). With the exception of SM Prime,

which we find expensive at the current share price, we

think property companies are currently undervalued and

should trade closer to their 5-year historical averages on

the back of an improved residential outlook and growing

contribution of recurrent income.

Source: Daiwa

Earnings revisions Philippines Property: 12-month EPS revisions

The street has upgraded its EPS estimates for property

companies under our coverage by 1.2% to 4.6% for 2018,

with the exception of Filinvest Land, which saw a 6.2%

average downgrade as a result of a change in payment

scheme that lengthens downpayment terms and therefore

the time before revenue recognition. The upgrades were

largely due to an improvement in the residential outlook

following better-than-expected pre-sales since 4Q16. Ayala

Land, Megaworld and Vista Land have the highest upward

revisions at about 4.5% for 2018.

Source: Bloomberg

21.0

10.7

18.0

14.0 13.6

16.917.4

13.915.0

9.6

13.1 13.7

0

5

10

15

20

25

Ayala Land Filinvest Land Megaworld SM Prime Vista Land Aggregate

2018 2017-20E

(% )

39 72 59 17 61

20

60

50

15

50

0

10

20

30

40

50

60

70

80

Ayala Land Filinvest Land Megaworld SM Prime Vista Land

Discount to NAV Target discount to NAV

4.5

-6.2

4.5

1.2

4.62.4

-7.1

4.32.7

-1.1

11.8

-1.3 -0.5

-9.1

0.8

(15)

(10)

(5)

0

5

10

15


2018 2019 2020

3


Sector stocks: key indicators

Source: Bloomberg, Daiwa forecasts, share prices as of 22 June 2018.

Philippine Property: aggregate pre-sales Philippine Property: aggregate launches

Source: Companies, Daiwa Note: Limited to property companies under coverage


Philippine Property: office gross leasable area (‘000 sqm) Philippine Property: mall gross leasable area (‘000 sqm)



Share

Company Name Stock code Price New Prev. New Prev. % chg New Prev. % chg New Prev. % chg

Ayala Land ALI PM 37.55 Buy Outperform 50.00 49.00 2.0% 2.071 1.937 6.9% 2.416 2.262 6.8%

Filinvest Land FLI PM 1.55 Buy Buy 2.20 2.15 2.3% 0.260 0.259 0.1% 0.313 0.312 0.4%

Megaworld MEG PM 4.45 Buy Buy 5.50 5.30 3.8% 0.466 0.466 0.0% 0.532 0.532 0.0%

SM Prime SMPH PM 33.25 Hold Underperform 34.00 34.00 0.0% 1.088 1.088 0.0% 1.173 1.173 0.0%

Vista Land & Lifescapes VLL PM 6.49 Buy Buy 8.30 8.00 3.8% 0.779 0.779 0.0% 0.894 0.894 0.0%

Rating Target price (local curr.) FY1

EPS (local curr.)

FY2

247 261 270 315 334

18.8

5.7

3.4

16.6

6.3

0

2

4

6

8

10

12

14

16

18

20

0

50

100

150

200

250

300

350

400

2014 2015 2016 2017 18E

Aggregate (PHP bn) YoY growth (%)

213 204 153 241 264

8.0

-4.3-24.8

57.0

9.5

(30)

(20)

(10)

0

10

20

30

40

50

60

70

(100)

(50)

0

50

100

150

200

250

300

2014 2015 2016 2017 18E

Aggregate (PHP bn) YoY growth (%)

447 500 553 591 709 921 990 1,098 1,321166 200 208 275

348348

561684

684

432 509 621737

8511,010

1,2181,351

1,508

9797

124207

207

287

287

287

368

070

7080

115

147

155

155

155

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E


1,168 1,251 1,298 1,396 1,602 1,806 2,088 2,550 2,883134 134 136 141 151 239300

361361

166 170 170 236 273318

383420

5243,026 3,185 3,287

3,6473,871

4,0354,292

4,4874,681

0169 200

228359

445658

723788

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E


4


Table of contents

Executive summary .................................................................................................. 5

Residential: resurgence in confidence ................................................................... 7

Metro Manila: resilient residential market ...........................................................................7

Provincial expansion: opportunities abound ..................................................................... 14

Offices: concerns overdone ...................................................................................19

Business Process Outsourcing ........................................................................................ 19

Offshore gaming companies ............................................................................................ 23

Traditional office space .................................................................................................... 23

Positive on the office sector ............................................................................................. 23

Good earnings growth outlook ..............................................................................25

Valuation and risks ..................................................................................................30

Top picks ......................................................................................................................... 30

Risks to our Positive sector view ...................................................................................... 31

Company Section

Ayala Land ....................................................................................................................... 32

Vista Land & Lifescapes .................................................................................................. 36

Megaworld ....................................................................................................................... 40

Filinvest Land .................................................................................................................. 44

SM Prime ......................................................................................................................... 48

5


Executive summary

We initiate coverage on the Philippines Property sector with a Positive rating. Our Positive

view of the sector is reflected in our aggregate core earnings forecast CAGR of 13.2% over

2017-20E, driven by a 12.1% CAGR in residential revenue and 14.1% CAGR in rental

revenue over the same 3-year period.

Residential: The residential pre-sales of developers under our coverage exceeded our

expectations in 2017 with pre-sales rising by a combined YoY growth of 17%, driven by: 1)

an overall resurgence in confidence among locals amid the government’s commitment to

accelerate infrastructure development and improve the business climate, 2) a robust

expatriate market, especially from Chinese nationals employed by offshore gaming

companies, and 3) the development of new business centres beyond Makati and BGC,

leading to new employment opportunities and fresh residential demand in these new

locations.

We believe overall confidence will persist throughout 2018. President Rodrigo Duterte’s

strong political will has enabled the relatively speedy passage of the first package of a tax

reform bill and approvals of key infrastructure projects. While we recognise that the

implementation of these projects comes with execution risks, we think significant progress,

especially if the pace is unprecedented, should sustain optimism among buyers,

particularly in emerging CBDs that benefit from infrastructure projects. Stable mortgage

rates (due to abundant liquidity in the system), despite the observed uptick in corporate

bond rates, should also help support property demand, especially in the middle-income

and affordable segments.

With accelerating take-up growth amid lower inventory levels, we have more confidence

that developers will hike launches this year, supporting pre-sales and residential revenues

over 2018-19.

Office: We remain comfortable with the office sector in the next 12 months as we expect

the BPO sector to continue to post healthy growth, especially from the expansion of

existing locations; offshore gaming to continue its momentum; and entrepreneurial activity

to strengthen along with economic expansion in the Philippines. Despite our forecasted

uptick in vacancy (to 6% in 2018/19 from 5.3% in 2017), we are not overly concerned as

we do not believe this projected increase will result in a decline in rents. Historically, we

have observed such rental reversion either when vacancy spikes by 4% on a year-on-year

basis, such as in 1998 and 2009, or when vacancy is sustained over 9% as in 1999 to

2003, within which vacancy reached a high of 17% in 2001. We note that these periods are

accompanied by sluggish economic growth – something we do not expect for the

Philippines in the medium term given a sound macroeconomic backdrop. Hence, we find

the increase in vacancy more a timing issue, as the completions take some time to be

absorbed, rather than signs of a fundamental imbalance.

Additionally, we think concern on the impact of Artificial Intelligence on office-space

demand is overdone. We think the adoption of new technologies will be gradual, rather

than abrupt. Moreover, the IT-BPO Association of the Philippines expects additional jobs

(mid and high-value functions) created by the adoption of new technologies to exceed job

losses (low-skilled functions) resulting from automation. Additionally, higher-value functions

require larger office space than low-skilled functions (due to the nature of the work, ie,

game developers or animators would require several monitors compared to contact service

workers who simply require a phone), potentially offsetting the impact of low-value job cuts

on office-space demand, in our view.

We see aggregate net

income of developers

under our coverage

growing by a 13% 2017-

20E CAGR

We see overall

confidence persisting in

2018 as 2017 drivers

remain intact

Lower inventory levels

will likely encourage

developers to hike

launches, in our view

We do not see rental

reversion despite an

uptick in vacancies

Automation should

create more middle and

high-value jobs that

require more office

space

6


Valuation and top picks: In this report, we roll-over our NAV-based valuations for all

property companies under our coverage to the 2018-19E average.

We raise our TP for Ayala Land to PHP50 (from PHP49) as the impact of the roll-over is

tempered by our expectation of delays in the completion of some of its leasing

properties. We upgrade our rating to Buy (1) from Outperform (2). On our estimates,

Ayala Land has the highest earnings CAGR over 2017-20E thanks to its prime,

diversified landbank, strong brand equity and track record in estate development,

aggressive leasing expansion and a management committed to achieving its PHP40bn

2020 goal in attributable net income.

We lift our TP for Vista Land to PHP8.3 from PHP8.0 and re-affirm our Buy (1) call as

the company continues to book healthy end-user-oriented residential sales and to build

its track record in mall operations.

We raise our TP for Megaworld to PHP5.5 from PHP5.3. With accelerating residential

sales and healthy rental revenue expansion, we reiterate our Buy (1) call on Megaworld.

We raise Filinvest Land’s TP to PHP2.20 (from PHP2.15). We increase our applied

discount to 60% (from 55%) as we expect the risk of prolonged revenue recognition

from the now longer downpayment terms to weigh on its share price. We re-affirm our

Buy (1) call on the back of strong potential land value accretion and a growing recurring

income base.

Our TP for SM Prime remains unchanged at PHP34 after we roll-over valuation and

factor in a higher cap rate amid rising interest rates. However, the recent market-wide

sell-off has increased potential upside and we upgrade our rating to Hold (3) from

Underperform (4). We highlight that the Manila Bay reclamation project dilutes the

recurring income story of SM Prime, on which its historical narrow discount to NAV has

been predicated.

While we have Buy (1) recommendations on most property names under our coverage

given an improved residential outlook and strong leasing expansion, our top picks include

Ayala Land and Vista Land, as we are most comfortable with the long-term prospects of

these companies as we believe their strong brand equity and track records in building

estates (for Ayala Land) and residential communities (for Vista Land) will help them

perform better than peers amid varying market conditions. Both companies have strong

residential and rental growth relative to comparative peers. Moreover, based on our

estimates, Ayala Land has the highest earnings CAGR while Vista Land has the highest

NAV CAGR over 2017-20E.

We like ALI and VLL the

most given strong brand

and track records in

execution

7


Residential: resurgence in confidence

Metro Manila: resilient residential market

The low interest rate environment in the Philippines over the past 8 years has fuelled

robust growth in the residential real estate market beginning in 2009. Since then, concerns

of oversupply and a peaking property market have frequently beset the investing market.

Despite this, the sector has proven resilient, moving in an upward trajectory, albeit non-

linearly.

Average Philippine mortgage rates

Mortgage rates have

remained stable

despite the recent

uptick in corporate

bond rates

Source: Various banks, Ayala Land

A brief history

2009-12: Metro Manila condominium boom

Due to scarcity of land in Metro Manila, especially in established business districts,

condominiums have become the pre-dominant format, particularly in recent years.

Metro Manila condominium unit take-up posted a 23% CAGR over 2009-12, following

consecutive interest rate cuts since 2009. This was accompanied by a 22% CAGR in

launches over the same period as developers turned aggressive in order to take

advantage of the favourable macro environment.

Metro Manila pre-sales Metro Manila launches

Source: Colliers

Source: Colliers

2013-15: Unit take-up declines Pre-sales growth inevitably slowed, and with launches exceeding take-up from 2009-13,

residential inventory in Metro Manila rose, prompting concerns of an oversupply. In an

effort to manage inventory and bring stock down to a healthier level, many developers

tempered their launches and take-up declined.

5.5%

8.0%9.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

5-Year 10-Year 15-Year

22.4

38.1

48.2 42.6

39.6 39.6

32.6

40.9

52.6

(5)

5

15

25

35

45

55

65

75

2009 2010 2011 2012 2013 2014 2015 2016 2017

Pre-sales ('000 units)

33.4

52.4

59.0 60.7

53.5

36.9 34.4

30.2 34.0

(5)

5

15

25

35

45

55

65

75

2009 2010 2011 2012 2013 2014 2015 2016 2017

Launches ('000 un it s)

The Metro Manila

property market has

moved in an upward

trajectory over the past 8

years, albeit non-linearly

8


Metro Manila condominium market: launches and pre-sales

Launches exceeded

take-up from 2009-

2013

Source: Colliers


Source: Colliers

Source: Colliers

Big listed developers coped with the challenging Metro Manila condominium supply

situation differently, with some faring better than others, depending on the location of their

projects and the strength of their brand. Among listed developers, Ayala Land, Megaworld,

DMCI Homes (DMC PM, not rated) and SM Prime’s SM Development Corp (SMDC PM,

not rated), have among the biggest exposures in the Metro Manila condominium space.

SMDC’s projects in the Manila Bay area benefited significantly from the establishment of

BPO hubs and the opening of casinos within the Entertainment City complex. These

developments enhanced the investment proposition of many condominium projects in

the area and it supported its 30% CAGR over the 3-year period. Note that this is gross

of cancellations as residential revenues remained flat from 2012-15.

Ayala Land and Megaworld have the highest exposures in Makati and Fort Bonifacio,

where most of the residential condominium developments have been. As a result of the

rising inventory levels in these major CBDs, both companies started cutting launches in

2014 and 2015, respectively.

In our view, Ayala Land weathered through the supply situation better, managing to post

an 11% growth in 2014 and a 3% annual growth in 2015 and 2016, despite reduced

launches – thanks to strong brand equity in the upscale and high-end market. Ayala

Land Premiere supported pre-sales growth as the company sold ultra-high-end

condominiums at record-high prices. In 2016, the company launched the first phase of

Park Central, which saw an average selling price of PHP296,000/sqm during the year.

The ultra-luxury project saw strong take-up with 48% sold within the first month of its

launch – a testament to Ayala Land’s strong standing in the high-end market.

Meanwhile, Megaworld’s pre-sales remained virtually flat from 2014-16 at PHP85-87bn,

as the pre-sales of Megaworld’s stand-alone brand were virtually unchanged during the

period. Pre-sales even declined by 16% YoY in 9M16 before rebounding significantly in

33.4

52.4 59.0 60.7

53.5

36.9 34.4 30.2

34.0

22.4

38.1

48.2 42.6 39.6 39.6

32.6

40.9

52.6

0

10

20

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013 2014 2015 2016 2017

Launches ('000 units) Pre-sales ('000 units)

22.4

38.1

48.2 42.6

39.6 39.6

32.6

40.9

52.6

(5)

5

15

25

35

45

55

65

75

2009 2010 2011 2012 2013 2014 2015 2016 2017


33.4

52.4

59.0 60.7

53.5

36.9 34.4 30.2

34.0

(5)

5

15

25

35

45

55

65

75

2009 2010 2011 2012 2013 2014 2015 2016 2017

Launches ('000 units)

Some developers fared

better than others during

the challenging

residential market

SMDC managed to post

strong growth – thanks

to its exposure in the

Manila Bay area, where

casinos began opening

ALI fared better than

MEG, in our view, as it

gained market share

9


4Q16 – a development that came as a surprise to the developer – and closed the year

with pre-sales flat.

2017: Pre-sales growth amid renewed confidence In 2016 we saw a marked rebound in pre-sales, which for the first time in at least 7 years

exceeded launches. The recovery persisted in 2017 with full-year take-up rising by 29%

YoY to 52,600 units (from 42,000 units in 2016). This is higher than the 34,000 units

launched in the same period.

Metro Manila condominium market: launches and pre-sales

Unit take-up exceeded

launches markedly in

2016 and 2017

Source: Colliers


Source: Colliers

Source: Colliers

The pre-sales growth figures of Ayala Land, Megaworld and SM Prime (firms with

significant residential exposures to the Metro Manila residential market) reflect the robust

take-up in 2017. These companies registered 13%, 21% and 21% YoY pre-sales growth in

2017 as they benefited from the aforementioned drivers.

Based on our discussions with developers, property consultants and real estate sales

agents, the expansion can be attributed to an overall resurgence in confidence on the back

of the following:

Optimism on the country’s economic prospects amid the government’s commitment to

accelerate infrastructure development and improve the business climate. This has

renewed confidence among wealthy Filipinos that property, especially in prime CBDs

Makati and BGC, is an attractive store of value with strong potential capital appreciation.

These buyers are not necessarily speculative buyers looking for a quick profit, but have

excess cash and are looking to diversify their investments. This is especially common in

the high-end segments where buyers are less sensitive to price and even yields.

33.4

52.4

59.0 60.7

53.5

36.9 34.4

30.2 34.0

22.4

38.1

48.2

42.6 39.6 39.6

32.6

40.9

52.6

0

10

20

30

40

50

60

70

2009 2010 2011 2012 2013 2014 2015 2016 2017

Launches ('000 units) Pre-sales ('000 units)

22.4

38.1

48.2 42.6 39.6 39.6

32.6

40.9

52.6

(5)

5

15

25

35

45

55

65

75

85

95

2009 2010 2011 2012 2013 2014 2015 2016 2017


33.4

52.4 59.0 60.7

53.5

36.9 34.4 30.2

34.0

(5)

5

15

25

35

45

55

65

75

85

95

2009 2010 2011 2012 2013 2014 2015 2016 2017

Launches ('000 units)

Pre-sales rose by 27%

over 2015-17

The rebound in pre-sales

is reflected in the take-

up of developers with

significant Metro Manila

condominium exposure

Rising confidence amid

increased visibility of

infrastructure

development which has

encouraged property

purchases

10


According to real estate agents we’ve spoken to, the high-end property (for sale) market

remains locals-driven and many of these property buyers pay via equity (rather than

debt), hence they have holding power and care more about long-term appreciation of

value and exposure to prime CBDs over current yields and making a quick profit. The

scarcity of land in these areas also prevents some of their clients from selling property in

the secondary market on concerns that they may not be able to find another available

property within the CBDs to purchase. This unique psyche, along with strong purchasing

power of this market, has kept the upscale and luxury segments healthy, in our view.

Emerging business centres within Metro Manila, such as newer townships in Taguig

(Arca South), Quezon City (Vertis North), and Manila Bay (Aseana City) have also

boosted the Metro Manila Market. These townships bring employment opportunities

beyond Makati and BGC, thereby creating fresh residential demand in these areas.

Planned infrastructure projects enhance the attractiveness of these sites as well.

Given lower land costs in these emerging business districts, residential condominiums

are more affordable vs. Makati and BGC. The larger unit sizes have also become

popular among young couples and those starting families.

The establishment of BPOs and retail space as anchors of these townships also

enhances the value proposition of residential properties as investment vehicles, in our

view.

The expatriate market continues to fuel property demand. While real estate agents have

noted higher overall interest from various nationalities, the surge in demand from

Chinese nationals has been remarkable and unprecedented. This comes amid the

country’s improved relations with China and the establishment of several online gaming

companies after the government legalised and regulated the industry.

Some offshore gaming companies have been buying condominium units to house its

employees, many of whom are Chinese nationals. Apart from demand from the offshore

gaming companies, Chinese nationals residing in China have also been buying

properties for investment. According to sales channel head for Ayala Land’s Alveo

brand, because of demand from Chinese nationals, projects that previously had slower

sales take-up were fully sold in 2017.

Apart from property for sale, the expatriate market continues to be a ready source of

leasing demand, especially in the high-end segments. In the past, expats more

commonly rented large units as they tended to bring their families to the country.

Recently brokers have observed demand even for 1-bedroom units.

Sustained optimism in 2018 We think the Metro Manila residential real estate market continues to be healthy.

According to the Metro Manila residential real estate price index (RREPI) tracked by the

Bangko Sentral ng Pilipinas (BSP), housing prices in Metro Manila rose at a 4.6% YoY

CAGR over 2015-17. In 4Q17, the RREPI rose by 8.8% YoY, driven by a 15% YoY

increase in condominium prices. We believe the surge in prices in the Manila Bay area

contributed to this. Prior to 4Q17, the Metro Manila RREPI posted YoY growth that

ranged between 0.2% and 4.6% in the past 8 quarters.

Residential price increases are generally inflation-aligned, except for upscale and high-

end properties, especially in major CBDs, which are able to command high-single-digit

YoY annual growth.

A lot of wealthy local

buyers seem to care

more about long-term

capital appreciation

rather than rental yields

or a quick profit

POGOs seek housing for

their Chinese employees

More expats are now

leasing 1-bedroom units

as well

New office-anchored

townships bring new

employment

opportunities and

residential demand

A strong expatriate

market, especially from

Chinese nationals, has

boosted property

demand

The Metro Manila RREPI

has risen by a healthy

4.6% CAGR over 2015-17

11


Metro Manila: residential real estate price index Metro Manila: residential real estate price index YoY growth

Source: Bangko Sentral ng Pilipinas Note: Residential real estate price index

Source: Bangko Sentral ng Pilipinas Note: YoY growth

Inventory declined to more manageable levels especially after take-up exceeded

launches in 2016-17.

In its latest report, Colliers reported that a record 12,750 units (+12% YoY) are expected

to be completed in Metro Manila in 2018 with the bulk located in Fort Bonifacio (50%)

and the Manila Bay area (31%). We think, however, construction delays will continue to

move the scheduled openings of some condominium projects likely by 1-2 years, easing

the actual additions to inventory.

Metro Manila condominium supply (units)

Colliers expects 12,750

units to come on

stream in 2018

Source: Colliers

Metro Manila: 18E condominium supply breakdown, by location Metro Manila: 18E additional condominium supply, by location

Source: Colliers

Source: Colliers

High levels of supply have caused rental yields to decline in major CBDs, especially in

recent quarters. Nonetheless, because these will remain important economic hubs,

along with the country’s robust economic growth, the capital appreciation potential of

property units continues to make them attractive investment vehicles, in our view.

30

50

70

90

110

130

150

170

2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

All Types of Housing Unit Single Detached/Attached House

Townhouse Condominium Unit

(30)

(20)

(10)

0

10

20

30

2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

All Types of Housing Unit Single Detached/Attached House

Townhouse Condominium Unit

91,200107,300

120,050135,910 139,010

16,100

12,750

15,8603,100

8,200

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2017 18E 19E 20E 21E

Existing Metro Manila supply Additional supply

Alabang3.8%

Araneta Center3.7%

Eastwood City7.1%

Fort Bonifacio28.5%

Makati CBD

21.0%

Manila Bay Area17.1%

Ortigas Center15.0%

Rockwell Center3.8%

18E split

Alabang5.1%

Araneta Center2.4%

Eastwood City0.0%

Fort Bonifacio52.5%

Makati CBD2.9%

Manila Bay Area

30.6%

Ortigas Center3.8%

Rockwell Center2.7% 18E split

Inventory levels have

eased

12


Metro Manila average rental yields

Rental yields have

been declining

Source: Colliers Note: Colliers re-stated their capital value numbers in 4Q16, resulting in a sharp drop historically

We believe overall confidence will persist throughout 2018. President Rodrigo Duterte’s

strong political will has enabled the relatively speedy passage of a first package of the

tax reform bill and approvals of key infrastructure projects. While we recognise that the

implementation of these projects comes with execution risks, we think significant

progress, especially if the pace is unprecedented, should sustain optimism among

buyers, especially in emerging CBDs that benefit from infrastructure projects.

Despite the hike in interest rates and the increase in corporate bond rates observed

over the past 6 months, mortgage rates have remained stable, likely due to abundant

liquidity in the system. This should continue to support lending, especially in the

affordable and middle income segments.

The positive trend persisted in 1Q18 with aggregate pre-sales of property companies

under our coverage rising by 26% YoY.

1Q18 pre-sales (PHPbn) and YoY growth

1Q18 aggregate pre-

sales of covered

property firms grew to

PHP126bn, +26% YoY

Source: Companies

Metro Manila will continue to be a key market despite many developers’ widespread efforts

to diversify geographically. This is because the capital continues to command higher prices

and contributes a significant share of pre-sales and revenue value-wise.

Scale advantage With accelerating take-up growth amid lower inventory levels, we have more confidence

that Ayala Land and Megaworld will hike their launches this year, supporting pre-sales and

residential revenues for at least the next two years.

Our on-the-ground discussions give us confidence in the high-end and upscale segments

as we believe drivers remain intact. Buyers in this segment are also generally less price-

sensitive and have higher credit quality and purchasing power. Moreover, yields in the

high-end space have declined less than more affordable counterparts in recent quarters,

given the high purchasing power of its tenant base.

0

1

2

3

4

5

6

7

8

9

10

2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17

Makati CBD Rockwell Bonifacio Global City

31.5

18.67

42.7

14.818.1

16

6

63

20

12

0

10

20

30

40

50

60

70

0

5

10

15

20

25

30

35

40

45


1Q18 YoY growth (%)

We see ALI and MEG

hiking launches

We are positive on the

high-end segment given

strong purchasing

power and credit quality

In our view, progress on

infrastructure projects

will sustain optimism

among property buyers

Mortgage rates have

remained low and have

been stable despite the

uptick in corporate bond

rates

13


We think that if there is a segment to be cautious on, it would be the affordable and middle

income market given most of the supply is in this segment. Additionally, more developers,

such as Ayala Land and Robinsons Land (RLC PM, not rated), and private-equity firms are

launching dormitories. This poses a threat to the affordable/middle income segment

condominium projects, especially studios and 1-bedroom units as they compete for the

same tenant base (ie, young professionals, fresh graduates and BPO employees). In our

view, dormitories will continue to be well-received as they offer an affordable housing

alternative for BPO employees and young professionals amid worsening Metro Manila

traffic. Improving tourist arrivals should help mitigate this risk as these units are made

available for short-term rent such as through AirBnB.

Ayala Land’s The Flats (Artist’s rendition) Ayala Land’s The Flats (Artist’s rendition)

Source: Company

Source: Company

Despite record supply potentially coming on stream this year, we believe the larger

developers have the advantage as their projects are in prime locations and have stronger

brand equity compared to smaller developers. This should further support sustained pre-

sales growth of Ayala Land and Megaworld, amid sustained optimism in the property

market.

Dormitories pose a

threat to the middle

income and affordable

leasing market

14


Provincial expansion: opportunities abound

While the National Capital Region (NCR) continues to account for the biggest share of

GDP contribution, other regions have been growing faster than the national GDP growth. In

2017, the regions that posted growth higher than the average include the Cordillera

Administrative Region, the Davao Region, Western Visayas, Central Luzon and

Calabarzon.

Annual average household income CAGR (%)

Other regions have

been growing at a

faster pace than NCR

Source: Philippine Statistics Authority

Major developers are capitalising on rising incomes in the provinces, especially with land in

Metro Manila becoming increasingly scarce and expensive. The steady rise in remittances,

emergence of BPO hubs in provinces and growth in tourism have been among the key

drivers of economic progress in the provinces. We see the same drivers continuing to

support rural economic growth, especially amid the current government’s commitment to

accelerate countryside development.

Moreover, the government’s initiatives to strengthen ties with other Asian countries have

resulted in funding for various infrastructure projects. Earlier in April 2018, a loan

agreement with China for the construction of the Chico River Pump Irrigation was sealed.

The Department of Finance also announced the signing of a USD79m grant for at least

four projects undertaken by the Philippine government with China, including a feasibility

study for the Davao City Expressway project.

3.9 3.1

5.3

6.7

4.9

3.2

7.4

4.9 3.8

4.6

5.9 5.5 5.2

8.4

4.9

3.2 2.3

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Beyond Metro Manila,

other cities are

experiencing fast growth

Developers have been

expanding to other

regions where incomes

are rising

The government has

taken steps towards

improving infrastructure

in the countryside

15


The Metro Manila spillover effect: Calabarzon and Central Luzon

Map of Calabarzon and Central Luzon relative to Metro Manila

Central Luzon and

Calabarzon are regions

directly north and south

of Metro Manila,

respectively

Source: Google maps, Daiwa

Calabarzon is a region south of Metro Manila. It has benefitted from a growth spillover

effect given its proximity to the capital, bolstering its residents’ incomes. The region, which

comprises Cavite, Laguna, Batangas, Rizal and Quezon has the second-highest GDP

contribution at 17%. Cavite and Laguna have become popular sites for manufacturing and

high-tech industries. These cities house several economic development zones as well.

Calabarzon statistics

Indicator

Cities and provinces: Cavite, Laguna, Batangas, Rizal, Quezon

Land size: 16,560 sq. km

Population: 14.41 m (2015)

GDP 1,456,088 (2017)

GDP contribution to PH 17%

Major sources of livelihood Agriculture, aquaculture, industrial estates

Source: Philippine Statistics Authority

Given relatively high salaries compared to other provinces, many developers have

expanded to the Calabarzon region. Ayala Land’s Nuvali, which started development in

2009, is among the most successful townships in the area. Vista Land has also launched

the 700-lot Vista City while Megaworld has introduced Maple Grove, a 140-hectare

industrial estate in Cavite. Ayala Land has further broadened its presence with the

development of its 700-hectare Vermosa in Cavite.

Sales for both commercial and residential lots located in areas even further south from

Makati have also been brisk. According to Ayala Land, a phase of its Vermosa

development was sold-out within 7 hours of launch. Megaworld echoed a similar trend.

According to the company, the initial 360 prime commercial lots in Maple Grove were 80%

sold (250 lots) just 45 days after launch.

Meanwhile, directly north of Metro Manila is Central Luzon, a region comprising of

Bulacan, Tarlac, Pampanga, to name some of the local provinces.

Calabarzon is benefitting

from economic spill-over

effects given its

proximity to the capital

Commercial and

residential sales

performance in the area

has been strong,

especially in 2017

16


Central Luzon statistics

Key indicator

Cities and provinces: Zambales, Bataan, Bulacan, Pampanga, Tarlac, Nueva Ecija, Aurora

Land size: 2,201,463 ha

Population: 11,22 m (2015)

GDP 844,709 (2017)

GDP contribution to PH 10%

Major sources of livelihood Agriculture, hunting, forestry, and fisheries (~17% of economy in 2013)

Source: CEIC, Daiwa

With the government launching more infrastructure projects in the region, the same spill-

over effect may accelerate developments in Central Luzon. The following are among the

major infrastructure projects and developments planned for the area:

PNR North Railway: The PNR North Railway is a commuter railway connecting Manila

and Clark. According to the Department of Transport (DOTr), the first phase of the PNR

North Railway (PNR North 1), which spans a 38-km line running from Tutuban in Manila

to Malolos, Bulacan, is expected to commence construction in 2018.

The second phase (PNR North 2), which was approved by the National Economic

Development Authority (NEDA) Board on 28 June 2017, involves a 69.5km commuter

line and airport express railway connecting Malolos, Bulacan to Clark Airport and New

Clark City.

Clark Airport Expansion: The NEDA Board has also approved the Clark International

Airport Expansion Project. The expansion involves construction of a new terminal able

to accommodate 8m passengers annually. This is expected to be completed by 2019.

Presently, the existing terminal has a capacity of 4m passengers.

The government has begun inviting interested parties to bid for the projects, which

involves the engineering and procurement, and construction of airport facilities and a

new passenger terminal. Meanwhile, the government is planning to auction the

operations and management of the airport within the year.

New Manila International Airport: The PHP653.63bn unsolicited proposal was initiated

by San Miguel Corporation. The project involves the construction, operation and

maintenance of a new airport spanning a 2,500-hectare property in Bulacan. The project

covers 50 years and is seen to have an initial annual capacity of 100 million passengers

– three times that of the Ninoy Aquino International Airport (NAIA).

The project has been approved by the National Economic Development Authority

(NEDA) Board in April 2018 and will now be subject to a Swiss Challenge, wherein other

private firms will be invited to make a competing bid, which the original proponent can

choose to match to win the project.

New Clark City (formerly Clark Green City) is a 9,450ha development, envisioned by the

government to be the country’s first smart, green and sustainable metropolis, making it

arguably the government’s most ambitious township project to date. Located 120km

north of Metro Manila and 90km from Subic Bay Freeport, it aims to decongest Metro

Manila, where traffic has worsened over the years. The project is spearheaded by the

state-owned Bases Conversion and Development Authority (BCDA), the same body

behind the highly successful Bonifacio Global City (BGC).

Central Luzon can

potentially benefit from

spill-over effects as well

A number of major

infrastructure projects

will benefit Central

Luzon

17


New Clark City (Artist’s rendition) PNR Railway (Artist’s rendition)

Source: Business Conversions and Development Authority (BCDA) Source: Build.gov.ph

With the pipeline of infrastructure projects to improve the accessibility of Central Luzon,

developers are establishing CBDs in Bulacan and Pampanga. Ayala Land is developing

the 98-ha Altaraza in Bulacan and the 1,125-ha Alviera in Pampanga, while Megaworld has

launched the Capital Town in Pampanga. Filinvest Land is also developing the first phase

of New Clark City.

Select townships being developed outside Metro Manila

Township project Developer Location Region Launch Size (ha)

Nuvali Ayala Land Laguna Luzon ex-NCR 1990 2,240

Altaraza Town Center Ayala Land Bulacan Luzon ex-NCR 2014 98

Alviera Ayala Land Pampanga Luzon ex-NCR 2014 1,025

Vermosa Ayala Land Cavite Luzon ex-NCR 2015 700

Southwoods City Megaworld Cavite and Laguna Luzon ex-NCR 2015 561

Suntrust Ecotown Megaworld Cavite Luzon ex-NCR 2015 350

Capital Town Megaworld Pampanga Luzon ex-NCR 2016 36

Maple Grove Megaworld Cavite Luzon ex-NCR 2016 140

Evo City Ayala Land Cavite Luzon ex-NCR 2017 200

Source: Companies

ALI and MEG have

launched townships in

the region

18


Urbanisation outside Manila: the township formula

Developers are broadening their geographic footprints by developing townships, especially

in more urbanised provinces. In the past decade, major developers have launched mixed-

use communities in next-wave cities, particularly Cebu, Iloilo, Bacolod, Cagayan de Oro

and Davao, to name a few. Many of their townships have been anchored on BPOs.

Select townships being developed outside Metro Manila

Township project Developer Location Region Launch Size (ha)

Atria Park District Ayala Land Iloilo Visayas 2010 21

Capitol Central Ayala Land Bacolod City Visayas 2010 9

City di Mare Filinvest Land Cebu City Visayas 2011 50

Upper East Megaworld Bacolod City Visayas 2011 34

Cebu Park District Ayala Land Cebu City Visayas 2013 50

Gatewalk Central Ayala Land Mandaue Visayas 2014 18

Mactan Newtown Megaworld Cebu Visayas 2014 29

Iloilo Business Park Megaworld Iloilo Visayas 2015 72

Boracay Newcoast Megaworld Boracay Visayas 2015 150

SM Seaside City SM Prime Cebu Visayas 2015 30

Mactan Seagrove Ayala Land Cebu City Visayas 2016 14

North Hill Gateway Megaworld Bacolod City Visayas 2016 53

North Point Ayala Land Talisay City, Cebu Visayas 2017 215

Sicogon Island Ayala Land Iloilo Visayas 2018 1,160

Lio Ayala Land El Nido Visayas 2018 325

Abreeza Ayala Land Davao City Mindanao 2013 10

Azuela Cove Ayala Land Davao City Mindanao 2015 25

Davao Park District Ayala Land Davao City Mindanao 2015 11

Centrio Ayala Land Cagayan De Oro Mindanao 2016 3

Source: Companies

Reaching out to farther provinces

Infrastructure development has allowed developers such as Vista Land and Filinvest Land

to expand further into even more rural areas where house and lot remains the preferred

residential format.

Vista Land, which has the broadest geographic footprint among listed companies, has a

presence in 133 cities and municipalities and 46 provinces as of end-2017, higher than 99

and 37, respectively in 2016. For these companies, strong pre-sales in recent quarters was

driven by Overseas Filipino Worker (OFW) deployment and remittances and increased

visibility of infrastructure development. The OFW market is significant to Vista Land’s end-

user oriented products given their aspiration to own a home for their family and higher-

than-average incomes.

Vista Land: nationwide presence Filinvest Land: nationwide presence

Source: Company

Source: Googlemaps, Daiwa

Property companies are

supporting urbanisation

in next-wave cities with

their BPO-anchored

townships

Vista Land and Filinvest

Land are launching

residential community

projects in rural areas

19


Offices: concerns overdone

Metro Manila office space has been driven by two decades of a BPO industry boom.

However, in 2017, regulatory uncertainties following rhetoric on US protectionist policies,

potential alterations in BPO fiscal incentives as well as delays in Philippine Economic Zone

Authority (PEZA) accreditation of properties have prompted many BPO companies to

assume a wait-and-see stance. This resulted into significantly lower BPO-driven office

leasing transactions in 2017. Despite this, Colliers reported that Metro Manila office

vacancy eased to 5.3% at end-2017 from 5.7% in 3Q17 as office-space demand from

Philippine offshore gaming companies (POGOs) and traditional companies surged, picking

up the slack from lower BPO demand during the year. POGOs and traditional companies

accounted for 75% of the 870,000 sq m of office GLA transacted in 2017 (from 41% in

2016).

Metro Manila: office transactions breakdown (%)

Office transactions

have become more

diversified

Source: Colliers

In this section, we discuss the drivers of office-space demand, namely BPOs, POGOs and

traditional companies, as well as the issues surrounding them.

Business Process Outsourcing

Regulatory uncertainty caused a slowdown in BPO office demand

The BPO industry has grown significantly over the past two decades. Today, the

Philippines is a leading IT-BPM (business process management) service provider,

especially in voice-related services, thanks to competitive pricing and a young service-

oriented population proficient in the English language.

Philippines: BPO positioning

Proficiency in the

English language,

affinity to western

culture and service

orientation are among

the Filipino

characteristics that have

supported BPO growth

Source: IT & Business Process Association (IBPAP), Daiwa

219

18

38

16

28

32

40

31

9

3523

0

20

40

60

80

100

120

2016 2017 1Q18

BPO (Voice) BPO (KPO) Non-BPO POGO

BPOs have driven Metro

Manila office-space

demand for the past two

decades

20


Over 2010-16, BPO revenue expanded by a 17% CAGR (to USD22.9bn in 2016), while

employment rose by a 14% CAGR (to 1.15m full-time employees or FTEs in 2016). The

rapid expansion of the industry has come with large office-space requirements, with many

developers earlier reporting the need to accelerate the construction of buildings to

accommodate demand. Frost and Sullivan estimated the office space rentable by BPOs at

6.5m sq m as of 2016.

Philippines: BPO revenue and full-time employee (FTE)

BPO revenue and FTE

have expanded by 17%

and 14%, respectively

over 2010-16

Source: IT-Business Process Association of the Philippines (IBPAP)

However, in 2017, Colliers reported a 53% decline in BPO-related office leasing

transactions as new companies waited on the sidelines for more regulatory clarity following

President Donald Trump’s protectionist pronouncements and talks on the removal of fiscal

incentives that may affect the industry. These have been further aggravated by delays in

the Philippine Economic Zone Authority (PEZA) accreditation of properties where BPOs

can locate to avail fiscal incentives.

This year, we see BPO demand for office space recovering as regulatory uncertainty eases.

First, according to the IT-Business Process Association of the Philippines (IBPAP), President

Trump has clarified that protectionist measures eyed by the US will likely apply to the

manufacturing sector rather than the services sector. Second, the Department of Finance

clarified that the “Tax Reform for Acceleration and Inclusion Act (TRAIN) does not affect the

current zero-rating of sales to goods and services to PEZA locators” (ie, those who have

opened shops in PEZA-accredited areas). In other words, PEZA locators will continue to enjoy

a VAT zero rating. Finally, 4Q17 saw acceleration in PEZA proclamations by the government.

The improved pace of accreditations should encourage BPO expansion, in our view.

We have already seen this recovery in 1Q18 data with BPOs accounting for 46% of office

leasing transactions in Metro Manila from 25% in 2017.

The IBPAP forecasts BPO revenue to rise by a 9.22% CAGR and the industry’s number of

FTEs to expand at a CAGR of 7.8% from 2016-22. The slower growth projection considers

the base effect of a maturing sector and the potential impact of technology on the industry.

The impact of technology

Beyond the short-term impact on BPO demand from regulatory uncertainty prompted by

recent rhetoric, we examine the impact of technological advances on the industry

landscape longer-term.

Automation is seen displacing low-value-adding and clerical functions such as data entry,

basic customer services (information provision, identity verification and profiling), simple

transaction-based financial services and other tasks that require minimal creative thinking

and autonomy. This has especially been a concern given the predominance of contact

centre workers in the Philippines. Based on a 2016 survey conducted by Frost and Sullivan

among IT-BPM operators in the country (as cited in the IT-BPM roadmap of the

Philippines), 45.8% of the IT-BPM workforce is employed in low-skilled functions, 39.4% in

mid-skilled jobs and 14.7% are involved in high-skilled roles.

272 355 445 527 640 777 858 958 1,044 1,146 1,250 1,359 1,467 1,577 1,689 1,800

4.46.3

8.3 8.911.0

13.215.8

18.020.5

22.924.5

27.129.8

32.635.5 38.9

(1)

4

9

14

19

24

29

34

39

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

FTE ('000) Revenues (USD mn)

In 2017, regulatory

uncertainty resulted in

lower BPO-related

transactions; we see

BPO transactions

recovering in 2018

The share of BPO

transactions has

increased in 1Q18

The IBPAP expects

revenue and FTEs

to rise by 9% and 8%

respectively, over

2016-22E

The predominance of

contact centres in the

Philippines has

prompted concerns that

job cuts from

automation would hurt

office-space demand

21


IBPAP estimates a 40% to 60% probability that one in three low-skilled tasks will be

automated by 2020. The probability is seen rising to 70% to 80% by 2022, as

receptiveness and openness improves upon growing evidence of successful adoption of

new technology over time.

Probability of job replacement due to automation

Probability of automation by 2020 Probability of automation by 2022

Low-skilled 40-60% for 1 out of 3 70-80% for 1 out of 3

Medium-skilled

40-60% for 1 out of 6

High-skilled

15-25% for 1 out of 20

Source: Frost and Sullivan estimates, IT-Business Process Association of the Philippines (IBPAP)

More sophisticated forms of automation are also seen affecting some middle- and high-

level tasks, albeit to a lesser degree within the same time frame. IBPAP estimates a 40%

to 60% probability that one out of six middle-level functions will be automated by 2020 and

a 15% to 20% likelihood for high-value roles. Tasks that are likely to be automated include

medical transcription, basic contact services and transactional mid- and back-office

processes.

At the same time, IBPAP sees the growth of technology-enabling services paving the way

for more opportunities for higher-value tasks. For example, the application of new

technology in healthcare may increase demand for clinical data analysis and remote care.

IBPAP sees mid-skilled tasks and high-skilled functions rising at a 12.2% and 19.1% 2016-

22 CAGR respectively – much faster than the 3-6% CAGR seen for low-skilled tasks over

the same period.

Overall, IBPAP expects the additional jobs created by the adoption of new technologies to

exceed the job losses resulting from automation. Specifically, the group estimates that

388,000 mid-skilled workers and 309,000 high-skilled jobs will be added from end 2016

through 2019 – significantly more than the 43,000 job cuts expected for low-skilled workers

over the same period. This results in a forecast of a net FTE addition of 654k jobs to 1.8m

FTEs by 2022.

Moreover, high-value functions require larger office space than lower-value functions. For

example, animators and gaming developers may require at least two monitors and

therefore a larger desk space compared to contact workers that only require a smaller

desk for a single monitor and/or a phone.

Automation is seen to

displace low-value

functions

Tasks likely to be

automated include

medical transcription,

basic contact services,

and transactional back-

office support

However, automation will

also create higher-value

functions, which require

larger office space

22


BPO employment projections

Overall, IBPAP sees job

creation exceeding the

job losses from

automation

Source: IT-Business Process Association of the Philippines (IBPAP), Frost and Sullivan

Philippines: BPO revenue Philippines: BPO FTE (‘000)



The key therefore is the timely upskilling of existing manpower and variety of mid-career

entrants while the industry gradually adopts new technologies, so that there will be an

adequate talent pool to fill more mid- and high-skilled roles.

Because rank-and-file and basic entry-level jobs dominated IT-BPM employment demand

in previous years, BPO companies have been less concerned about undergraduate

degrees as long as candidates display proficiency in speaking English, basic computer use

and interest in joining the industry. They then offer extensive training post-hire. The

adoption of new technology, however, is seen increasing the demand for more specialised

degrees relevant to areas such as data analysis and proficiency in new animation

software, to name some key areas.

Ultimately, the sector and the government’s ability to close the IT-BPM employment gap

through collaboration with the academe will be critical in ensuring the industry’s growth.

For its part, BPO companies, which have seen the potential impact of technological

advances, have started upskilling its employees as early as five years ago.

12.820.4

4.7

7.6

3.0

5.7

2.4

5

0.0

0.20

0

10

20

30

40

50

2016E 2022E

Contact center and BPO Global In-house centers

Health information management Information technology outsourcing

Animation and game development

751

1,186

149

188

123

207

118

210

9

9

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2016E 2022E

Contact center and BPO Global In-house centers

Health information management Information technology outsourcing

Animation and game development

Need for timely re-

skilling and upskilling of

workers

Large BPO companies

have long started re-

skilling and upskilling

their talent pool

23


Offshore gaming companies

Demand for office space from POGOs surged to 312,000sq m GLA in 2017 (from 80,000sq

m GLA in 2016), according to data from Colliers. Demand has been accelerating as half of

these transactions occurred in 4Q17. Several property brokers and developers have

observed the remarkable growth in demand from these companies. Most of these

companies are locating in the Manila Bay area, close to Entertainment City where rental

prices remain competitive. Some have also chosen to be located in less prime areas such

as Alabang and Circuit Makati. The surge in demand comes amid a supportive regulatory

environment as well as President Duterte’s improved relationship with China.

Based on our discussions with office property brokers, because landlords recognise that

POGOs are relatively higher risk, they tend to require more stringent lease terms, such as

an additional two years to the standard lease duration, 10% higher rent and higher deposit

requirements. With an abundant amount of cash, the POGOs do not seem to have any

problem with these terms.

We think strong demand from POGOs will continue this year, as we see regulation

remaining supportive of the industry. It is difficult to say whether the offshore gaming

industry will be as sustainable as BPOs have been longer term. Regulation remains in its

infancy and is expected to evolve. However, we believe that POGOs can grow steadily at

least within President Duterte’s administration, given his government’s more

accommodative approach towards the industry.

Listed developers under our coverage have taken advantage of the opportunity presented

by the surge in POGO office-space demand by offering work space and even dedicated

buildings in suitable areas. However, their expansion plans remain hinged on the BPO

industry’s expansion, rather than on POGOs given the uncertainty of POGO sustainability.

Traditional office space

Office-space demand has also received a boost from traditional companies, which have

flourished amid the Philippines’ economic expansion. Office-space demand has come from

conventional firms in the fields of finance, logistics and e-commerce as well as government

agencies. Existing companies have also been seen relocating to newer, more modern

buildings.

We see government plans to liberalise more industries, such as retail and trade, as well as

efforts to improve the business and investment climate encouraging office-space demand.

Recall that in 2014, the government allowed the full entry of foreign banks into the country.

Recently, the government has expressed plans to ease foreign ownership restrictions upon

review of its foreign investment negative list (an Executive Order that lists the industries in

which foreigners cannot have ownership, or are only allowed limited ownership). While the

government has not definitively identified sectors which will see more relaxed foreign

ownership rules, Socio Economic Planning Secretary Ernesto Pernia has mentioned that it

is eyeing retail, trade and public utilities. Apart from this, the Ease of Doing Business Act

and the Right Sizing the National Government Act are proposed legislations aimed at

reducing red tape and bureaucracy.

Timely passage and successful execution of these measures is likely to attract more

foreign investment and result in increased office-space demand.

Positive on the office sector

Overall, we forecast office vacancy to range between 4.8-6.3% from 2018-20, driven by

steady growth in BPO, POGO and traditional office-space demand over the period.

Property companies

have reported a surge in

office-space demand

from POGOs

We think POGOs will

continue their growth

momentum this year,

amid a supportive

regulatory environment

Developers are

capitalising on POGO

growth but anchor their

expansion plans on BPO

growth

Traditional companies

in areas of finance,

logistics and

e-commerce have also

boosted office-space

demand

24


Metro Manila: office demand and supply

We project Metro

Manila office vacancy

to range between 4.8%

and 6.3% from 2018-20

Source: Colliers, Daiwa estimates

Our projections are based on the following key assumptions, determined based on

discussions with developers, property consultants and the IBPAP:

An 8% 2017-20E CAGR based on IBPAP’s full-time employee growth estimates.

Metro Manila distribution of FTEs declining from 75% in 2017 to 73% by 2021.

Average space requirement per employee rising from 4.6 sq m in 2017 to 4.9 sq m by

2021, in line with increasing middle- and high-value functions.

5-7% growth in non-BPO office space demand – in line with expected GDP growth – to

capture growth of other industries.

We are Positive on the office sector as we expect the BPO sector to continue to post

healthy growth, offshore gaming to continue its momentum, and entrepreneurial activity to

strengthen along with the Philippines’ economic expansion. Despite our forecasted uptick

in vacancy rate, we are not overly concerned, as we do not believe this projected uptick

will result in a decline in rents. Historically, we have observed such rental reversion either

when vacancy spikes by 4% on a year-on-year basis such as in 1998 and 2009 or when

vacancy is sustained over 9% as in 1999 to 2003, within which vacancy reached a high of

17% in 2001. We note that these periods are accompanied by sluggish economic growth –

something we do not expect for the Philippines in the medium term given sound a

macroeconomic backdrop. Hence, we find the increase in vacancy more a timing issue, as

the completions take some time to be absorbed, rather than a fundamental imbalance.

Philippines: BPO FTE distribution (‘000)


9,191 10,189 10,981 11,816 12,525 9,705 10,682 11,713 12,586 13,155

5.3%

4.6%

6.3% 6.1%

4.8%

0%

1%

2%

3%

4%

5%

6%

7%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2017 2018E 2019E 2020E 2021E

Total office space demand ('000 sqm) Total office space supply ('000 sqm) Vacancy

788 873 941 1,014 1,086 1,161 1,236 1,301

256 273

309 345

381 416

454 499

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2015 2016 2017 2018E 2019E 2020E 2021E 2022E

National Capital Region Other Regions

We do not expect rental

reversion despite an

uptick in vacancy as we

see this to be a timing

issue rather than a long-

term fundamental

imbalance

25


Good earnings growth outlook

We forecast the companies under our coverage to achieve aggregate core attributable net

income growth of 15.0% YoY for 2018 and a CAGR of 13.2% over 2017-20E. In our view,

this growth will be driven by strong rental revenue growth, as these developers continue to

expand their malls and offices within their existing and developing townships across the

country. At the same time, steady pre-sales growth should secure healthy residential

revenue recognition over the next 3 years, in our view.

Philippines Property: real estate revenue CAGR Philippines Property: attributable net income CAGR

Source: Companies, Daiwa forecasts Source: Companies, Daiwa forecasts

Across our coverage, we look for Ayala Land to post the highest 2017-20E earnings

CAGR, at 17%, followed by Filinvest Land, at 14%.

Philippines Property: 2018 ranking by metric

Metric Company Remarks

Earnings growth leader Ayala Land Earnings growth of 21% YoY driven by residential (+21% YoY) and rental segments (+16% YoY).

Residential revenue growth leader Ayala Land Residential revenue growth of 21% YoY from its 7.6% 2015-17 pre-sales CAGR for revenue recognition and PHP137bn in unbooked revenue as of 1Q18.

Rental growth leader Filinvest Land Rental revenue growth of 34% YoY, followed by Megaworld with 21% growth YoY.

Highest share of rental revenue by period end SM Prime Highest share of recurring revenue at 65%, though this has declined as residential revenue outpaced recurring revenue in 2017.

Highest growth in share of recurring revenue Filinvest Land Rental revenue share to grow by 4pp, as rental revenue outpaces residential revenue due to both its aggressive leasing expansion and the now longer revenue recognition of its residential segment.

Highest NAV growth Vista Land Estimated YoY NAV growth of 11%.

Source: Daiwa

Philippines Property: 2018 ranking by metric


Core earnings growth 1 4 5 2 3

Operating revenue growth 1 3 5 4 2

Residential revenue growth 1 4 5 2 3

Rental revenue growth 4 1 3 5 2

Rental revenue share 4 3 2 1 5

Rental revenue share growth 4 1 2 5 2

NAV growth 2 5 3 4 1

Source: Daiwa

15.1

9.8 9.911.0 11.0

12.4

15.4

13.8

10.49.0

13.712.7

0

2

4

6

8

10

12

14

16

18


2013-17 2017-20E

(% )

21.0

10.7

18.0

14.0 13.6

16.917.4

13.915.0

9.6

13.1 13.7

0

5

10

15

20

25


2018 2017-20E

(% )

We forecast the property

companies under our

coverage to deliver a

13.2% core net income

CAGR over 2017-20E

26


Philippines Property: 2017-20E ranking by metric

Metric Company Remarks

Earnings growth leader Ayala Land Earnings CAGR of 17% over 2017-20E, driven by residential (14% CAGR for 2017-20E) and rental segments (19% CAGR for 2017-20E).

Residential revenue growth leader Ayala Land Residential revenue CAGR of 14% over 2017-20E as we expect pre-sales to grow by a 7.3% CAGR over 2017-20E and as construction of condominiums progresses.

Rental growth leader Filinvest Land Rental revenue CAGR of 30% over 2017-20E as the company opens an unprecedented amount of retail and office space.

Highest share of rental revenue by period end

SM Prime Highest share of recurring revenue, at 64% by 20E, though we expect this to be lower than the 67% for 2017, given a faster growth rate in the residential segment.

Highest growth in share of recurring revenue

Filinvest Land Rental revenue share forecast to grow by 12pp over the period on the back of an unprecedented level of mall and office GFA openings.

Highest NAV growth Vista Land We estimate a NAV CAGR of 11% over 2017-20E.

Source: Daiwa

Philippines Property: 2017-20E ranking by metric


Earnings growth 1 2 4 5 3

Operating revenue growth 1 2 4 5 3

Residential revenue growth 1 4 5 3 2

Rental revenue growth 3 1 4 5 2

Recurring revenue share 4 2 3 1 5

Recurring revenue share growth 4 1 2 5 3

NAV growth 3 3 2 5 1

Source: Daiwa estimates

Residential revenue

We forecast the aggregate residential revenue of the companies under our coverage to

expand by 16.0% YoY for 2018 and by a 12.0% CAGR over 2017-20E. We expect this

growth to be supported by the 10% pre-sales expansion achieved over 2015-17.

Philippines Property: residential revenue CAGR Philippines Property: residential revenue share of total


Source: Companies, Daiwa forecasts

In the residential space, we like Ayala Land and Vista Land the most, given strong brand

equity in their respective markets, diversified geographic landbank readily available for

residential development, and strong track records in residential communities, especially in

the provinces.

While SM Prime’s residential revenue has been recovering – thanks to better buyer quality,

especially of projects near sites of popular Philippine offshore gaming companies – it is

currently highly concentrated in affordable condominiums in the Manila Bay area. Although

the company is venturing into provincial house and lot projects, we believe there remains

execution risk, since SM Prime has no track record in these formats and Vista Land’s

Camella Homes is a strong player in this space.

As we see it, Filinvest Land is poised for accelerated rural development, given its presence

in areas outside Metro Manila and track record in provincial residential development.

However, the introduction of a new payment scheme that lengthens the downpayment

terms and thus sales booking threatens to weigh on its residential revenue until mid-2019,

despite healthy pre-sales growth.

20.5

7.4 7.1

18.1

12.0

15.914.4

7.66.6

11.8 12.1 12.0

0

5

10

15

20

25


2018 2017-20E

56

8477

35

87

58

73 7671

33

79

63

72

64 64

36

76

62

0

10

20

30

40

50

60

70

80

90

100


2013 2017 20E

We like ALI and VLL the

most in the residential

space

FLI looks well placed for

rural development, but

long revenue recognition

could be near-term drag

on growth

27


Philippines Property: residential segment

Description (+) (-)

Ayala Land Highly diversified in terms of residential formats (HRB, MRB, H&L) and income class exposure

Price leader; strong brand equity especially in the upscale and luxury segments

Construction delays from shortage of skilled labour threaten timely completion of projects

Filinvest Land Middle-income player with significant exposure in urban MRBs and provincial H&L

Significant exposure to the provinces New payment scheme lengthening downpayment terms seen to drag revenue recognition, in our view

Megaworld Best known for HRBs in Bonifacio Global City; has exposure in affordable and middle-income segments via its subsidiaries

Significant presence in major CBDs such as BGC where demand is sustainable; has nationwide landbank that should benefit the company longer term

Many of its mixed-use communities are in early phases of development and not as readily monetisable as those of some of its peers

SM Prime Middle-income player with significant exposure in Metro Manila MRBs and HRBs; venturing into provincial H&L

Strong presence in the Manila Bay area where prices have been rising due to strong property demand

Highly concentrated in middle-income condominiums, a space where competition is intense and threatened by the growing popularity of the dormitory format in our view; no track record in H&L

Vista Land

Present in all formats but best known for its middle-income house and lot Camella Homes; Half of residential revenue as of 2017 derived from the provinces

Strong brand equity (Camella) especially in provincial middle-income housing; experienced countryside residential development

Sensitive to OFW demand slowdown

Source: Daiwa

Rental revenue

Companies that have traditionally focused on residential projects have been embarking on

an aggressive leasing expansion programme, as they develop mixed-use communities in

new growth areas all over the Philippines. Developers like Filinvest Land and Ayala Land

have even established a 50-50 target split in residential recurring earnings by 2020.

Overall, we remain positive on the rental space. We expect aggregate rental revenue to

increase by a 14% CAGR over 2017-20E as we expect the developers under coverage to

expand their office and malls portfolio by CAGRs of 14% and 18%, respectively, over the

same period. Our aggregate property forecast is weighed down by our forecast for SM

Prime to see a 2017-20E rental revenue CAGR of 7.6% — slower than its historical growth

rate and our aggregate projection, given the large mall portfolio it has established over the

years. Excluding SM Prime, we forecast combined rental revenue to rise by a 21% CAGR

over 2017-20E.

Philippines Property: recurring revenue CAGR Philippines Property: recurring revenue share of total

Source: Daiwa forecasts Note: Includes malls, offices, hotels and property management

Source: Companies, Daiwa forecasts

Philippines Property: malls — gross leasable area (GLA ‘000 sq m)

Philippines Property: offices — gross leasable area (GLA ‘000 sq m)

Source: Company, Daiwa estimates

Source: Company, Daiwa estimates

16

34

20

9

28

14

19

30

19

8

21

14

0

5

10

15

20

25

30

35

40


2018 2017-20E

24

1620

65

6

33

25 2429

67

16

36

28

36 36

64

20

37

0

10

20

30

40

50

60

70

80


2013 2017 20E

1,168 1,251 1,298 1,396 1,602 1,806 2,088 2,550 2,883134 134 136 141 151 239300

361361

166 170 170 236 273318

383420

5243,026 3,185 3,287

3,6473,871

4,0354,292

4,4874,681

0169 200

228359

445658

723788

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E


447 500 553 591 709 921 990 1,098 1,321166 200 208 275

348348

561684

684

432 509 621737

8511,010

1,2181,351

1,508

9797

124207

207

287

287

287

368

070

7080

115

147

155

155

155

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E


Ex SMPH, we look for

aggregate rental revenue

to see a 2017-20E CAGR

of 21%

28


Across our Philippines Property coverage, we forecast Filinvest Land to post the highest

2017-20E CAGR in rental revenue, at 31%, as it expands its leasing portfolio at an

unprecedented pace. For 2018-20E, FLI plans to open 336k sq m of office GLA, more than

double the amount it completed over 2014-17. Given this strong expected rental

expansion, coupled with delayed revenue recognition of its residential projects, we foresee

FLI growing the share of its rental business the most among our coverage. By 2020, we

expect FLI’s leasing revenue to account for 37% of its total revenue, up from 24% as of

2017. Since the leasing business has a higher margin than the residential business, the

share of the recurring segments is potentially closer to its 50% target at the bottom line.

Meanwhile, we expect Ayala Land and Megaworld to expand their rental revenue by

c.19.5% apiece over 2017-20E. However, as we see Ayala Land’s residential projects

growing at a faster pace than Megaworld’s, we expect the former to grow the share of its

rental revenue (+2pp to 28%) by less than Megaworld (+7pp to 34%).

Philippines Property: rental segment

Description (+) (-)

Ayala Land Has exposure to malls, offices and hotels Prime landbank and solid track record in building estates make its developments attractive to various tenants; has become the go-to of upscale and high-end retails shops


Filinvest Land Growing its office portfolio more than retail Has created a BPO hub in Alabang and Cebu which continues to see strong locator demand

Lack of retail affiliates and established partnerships may make it difficult to secure retail tenants, especially when competition intensifies in a location.

Megaworld Has exposure to both offices and malls, but focuses on office space; long known as the largest BPO landlord

Longstanding relationship with BPO companies ensures healthy occupancy levels as these locators expand with MEG


SM Prime Primarily a mall operator but opportunistic on offices and hotels

Affiliate SM Retail provides SM Prime with equally established anchor tenants; malls tend to transform new rural areas into town centres

Revenue growth expected to slow given large base established over the years; provincial expansion may also result in lower mall revenue per GLA, in our view

Vista Land Focuses more on malls; opportunistic on office space

Malls are well-constructed, in our view; affiliate retail shops secure good tenant mix

Yet to improve marketing of its Starmalls, long known as a low-end mall

Source: Daiwa

Margins

Over the past 3 years, the earnings of our covered companies have received a boost from

higher overall margins which have resulted from the increased contribution of the leasing

segment, where margins are higher than for the residential business.

Due to the surge in new malls and office space planned for completion over the next 3

years, much of which had already been delayed, we believe that higher pre-operating

expenses (than if there were no new malls or offices) could offset the incremental margin

expansion resulting from the increased contribution of the higher-margin leasing segment.

As such, we expect margins to be more or less stable over 2017-20E.

We expect FLI to lead

the way in rental revenue

growth on the back of its

unprecedented office

and retail GLA

expansion

We expect ALI and

MEG’s rental revenue to

see a 19.5% CAGR for

2017-20E

We project margins to be

stable over 2017-20E

29


Net debt The developers’ general optimism on infrastructure development and aggressive rental

expansion has prompted record-high capital expenditure (aggregate spending recorded an

11.0% CAGR over 2013-17). Moreover, companies have announced record-high capex

budgets for this year.

As a result of this aggressive expansion, companies have geared up, with their aggregate

net gearing having risen from 0.43x in 2013 to 0.69x in 2017. We expect aggregate net

gearing to decline to 0.58x by 2020, as many investment projects ramp up occupancy and

contribute more to cash generation.

Philippines Property: debt (PHPbn) Philippines Property: net gearing (x)

Source: Companies, Daiwa estimates

Source: Companies, Daiwa estimates

75 102 125 131 160 174 174 174 1622636

40 4853 58 70 81 87

2029

3453

6175 85 98 100

81

106129

156164

194195 185 179

27

45

65

80

94104 109 114

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E


0.62 0.61

-0.03

0.47

0.360.43

0.890.80

0.42

0.57

0.82

0.69

0.49

1.00

0.410.51

0.86

0.58

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20


2013 2017 2020E

Capex spending saw an

11% CAGR over 2013-17

We look for net debt to

ease slightly to 0.58x by

2020E

30


Valuation and risks

Top picks

We initiate coverage of the Philippines Property sector with a Positive rating. Property

companies under our coverage trade at varying discounts to NAV. Companies with a

relatively high proportion of recurrent income and therefore more earnings visibility tend to

trade at relatively narrow discounts (ie, SM Prime), while those with large landbanks,

especially in more rural areas, trend to trade at relatively wide discounts (ie, Vista Land

and Filinvest Land).

Philippines Property: discount to NAV

Sector stocks are

trading at a wide range

of discounts to NAV

Source: Daiwa estimates

Philippines Property: valuations

PER (x) PBR (x) FNAV TP

Share price (PHP) 18F 19F 18F 19F (PHP) Discount (PHP) Rating

Ayala Land 37.6 18.1 15.5 2.9 2.6 62.0 20% 50.0 Buy

Vista Land 6.5 8.3 7.3 0.4 0.4 16.6 50% 8.3 Buy

Megaworld 4.5 9.5 8.4 0.9 0.9 11.0 50% 5.5 Buy

Filinvest Land 1.6 6.0 4.9 0.5 0.5 5.6 60% 2.2 Buy

SM Prime 33.3 30.6 28.3 2.9 2.7 40.1 15% 34.0 Underperform

Source: Daiwa estimates Note: share prices as at 22 June 2018

We have Buy (1) ratings on 4 of the 5 Philippines Property names under our coverage,

given the improved residential outlook and strong leasing expansion. The recent market-

wide sell-off has made valuations compelling in our view, especially amid a positive

property outlook.

Our top picks are Ayala Land and Vista Land. We are most comfortable with these

companies’ long-term prospects, as we believe their strong brand equity and track records

in building estates (for Ayala Land) and residential communities (for Vista Land) will help

them perform better than peers amid varying market conditions. Indeed, both companies

have strong residential and rental growth on our forecasts, relative to their peers.

Moreover, on our forecasts, Ayala Land offers the highest earnings CAGR over 2017-20E,

while Vista Land has the highest NAV CAGR over 2017-20E.

While we like the recurring income story of SM Prime, we consider the stock’s prevailing

valuation to be rich. Strong demand in the Manila Bay area has pushed property prices to

new highs, which has benefitted SM Prime’s residential sales and inflated the valuation of

the Manila Bay reclamation project, which is pending government approval. Inclusion of the

reclamation project in SM Prime’s NAV-based valuation increases non-recurring segments

as a proportion of NAV, which we believe argues for a higher-than-historical discount to

NAV, especially because the reclamation project is non-earnings accretive in the near to

mid-term and is potentially a drag on ROE.

39 72 59 17 61

20

60

50

15

50

0

10

20

30

40

50

60

70

80


Discount to NAV Target discount to NAV

We have a Positive

outlook on the sector

Our top picks are ALI

and VLL

We think the reclamation

project dilutes the

recurring income story

of SMPH, which we rate

at Hold (3)

31


Risks to our Positive sector view

A considerable hike in interest rates is the biggest risk. Such hikes could be mitigated

by a highly liquid banking system, however, which would continue to encourage

lending, mortgages included. This may involve lengthening tenors such that the

monthly amortisation remains affordable despite the higher interest rates.

Persistent delays in construction due to a shortage of skilled labour – an industry-wide

issue – would likewise push back the new revenue contribution from the delayed

projects and result in actual earnings underperforming initial expectations.

A sustained lack of regulatory clarity on relevant foreign and local policy affecting the

BPO sector, as well as the introduction of restrictive policies affecting both BPO and

offshore gaming are key risks, especially in the longer term.

A significant slowdown in OFW remittances, due to possible global labour issues, could

affect pre-sales, especially those of Vista Land and Filinvest Land.



What's new: We raise our 2018-19E EPS by 7% as we lift our 2018-19E

revenue by 11-12% on the back of Ayala Land’s (ALI) higher-than-expected

pre-sales and residential revenue in 2017. Meanwhile, the company continues

in its pursuit of expanding its rental portfolio, with 1.3m sq m of combined mall

and office space under construction as at end-2017. We forecast ALI to post a

net income CAGR of 17% over 2017-20, the highest among property names

under our coverage. With this, we see the company reaching its net income

target of PHP40bn by 2020.

What's the impact: ALI reported higher-than-expected pre-sales and

residential revenue growth in 2017 (+13% YoY in 2017 vs. our forecast of

-6%) and 1Q18 (+16% YoY, the fastest since 2013). We observed robust take-

up across brands that were driven locally, with sales to Filipino residents rising

by 23% YoY to PHP22.4bn (71% of total pre-sales).

Strong take-up has reduced inventory levels to 10 months’ worth as of 1Q18.

As this level is lower than its inventory target of 12-15 months, we believe ALI

will accelerate launches in the next three quarters to reach its launch target of

PHP100bn. Thanks to these positive developments, we raise our 2018

projections for launches to PHP97bn (from PHP92bn) and pre-sales to

PHP128bn (from PHP106bn). We see ALI’s residential revenue rising at a

CAGR of 14% over 2017-20E.

The strong performance of ALI’s residential segment will make it challenging to

achieve a 50:50 residential-recurring income split, especially with some leasing

projects delayed. We cut our 2018E rental revenue by 4% as some investment

properties initially scheduled to be completed in 2018 have been delayed to

2019-20. Hence, while we expect the share of recurring revenue to continue to

rise, we see a possibility of it reaching half of net income only beyond 2020.

Nonetheless, we forecast ALI recording a strong recurring income revenue

CAGR of 19% over 2017-20.

What we recommend: We raise our NAV-based TP to PHP50 (from PHP49)

after factoring in delays in the completion of some rental projects initially

scheduled to open in 2018 and rolling over our valuation to the average of

2018-19E NAV (from 2018E). ALI has the highest 2017-20E earnings growth

among property names under our coverage and we see the recent sell-off as

an opportunity to accumulate the stock. As such, we upgrade our rating to Buy

(1) from Outperform (2). Risk: sharp rise in mortgage rates.

How we differ: Our 2018-20E EPS are 6-7% above the consensus, likely as

we are more confident that it will achieve its PHP40bn net income target by

2020, thanks to a committed management team, prime landbank and strong

brand equity and track record.

25 June 2018

Ayal a Land

Upgrading: net income of PHP40bn by 2020 in sight

We raise our 2018-19E EPS by 7%

Our upgrades are led by stronger-than-expected pre-sales in 2017

Upgrading to Buy (1) from Outperform (2); raising TP to PHP50


Source: FactSet, Daiwa forecasts

Ayala Land (ALI PM)

Target price: PHP50.00 (from PHP49.00)

Share price (22 Jun): PHP37.55 | Up/downside: +33.2%


[email protected]

Forecast revisions (%)

Year to 31 Dec 18E 19E 20E

Revenue change 11.0 12.0 14.0

Net profit change 8.4 8.3 7.8

Core EPS (FD) change 6.9 6.8 6.3

94

98

102

106

110

36

39

42

45

48

Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Share price performance

Ayala Land (LHS)Relative to PCOMP Index (RHS)

(PHP) (%)

12-month range 37.05-47.50

Market cap (USDbn) 10.35

3m avg daily turnover (USDm) 7.77

Shares outstanding (m) 14,725

Major shareholder Ayala Corporation (68.8%)

Financial summary (PHP)


Revenue (m) 165,110 187,676 213,054

Operating profit (m) 55,269 62,171 69,401

Net profit (m) 30,623 35,736 40,966

Core EPS (fully-diluted) 2.071 2.416 2.770

EPS change (%) 21.0 16.7 14.6

Daiwa vs Cons. EPS (%) 6.7 7.3 5.6

PER (x) 18.1 15.5 13.6

Dividend yield (%) 1.6 1.8 2.1

DPS 0.590 0.689 0.790

PBR (x) 2.9 2.6 2.3

EV/EBITDA (x) 11.1 9.8 8.6

ROE (%) 17.4 17.8 18.0

33

Ayala Land (ALI PM): 25 June 2018



Growth outlook Ayala Land: attributable net income

We forecast ALI’s earnings to rise at a CAGR of 17%

over 2017-20, driven by the recurring segments (retail

and office leasing, and hotels and resorts operations);

we project these segments’ EBIT to increase at a 22%

CAGR over the same period, amid an aggressive

pipeline of investment properties, of which many are

already under construction. We forecast the residential

segment’s revenue to rise at a 14% CAGR over 2017-

20, supported by strong prior years’ (before 2017) pre-

sales and continued expansion outside of Metro Manila,

where housing demand remains robust.

Source: Company, Daiwa forecasts

Valuation Ayala Land: Historical PER

We arrive at our TP of PHP50 using the discounted NAV

approach. We value the company’s efficient attributable

raw landbank using our end-2018E market prices. We

use cap rates of 8-10% to value ALI’s malls, offices and

hotels. We applied a 20% discount to NAV, in line with its

past-5-year average, on the back of its prime landbank,

robust earnings growth prospects and strong corporate

governance.

We note that our TP implies an average 2018-19E PER

of ~22x, within 1SD of its past-5-year average of 23.5x.

We believe this is warranted given that ALI has the

fastest earnings growth forecast among property names

under our coverage.

Source: Bloomberg, Daiwa

Earnings revisions Ayala Land: 12-month consensus EPS revisions

For the past three years (2015-17), ALI’s full-year

earnings outperformed the consensus by 2-3%. In the

past 12 months, the Bloomberg consensus 2018-20E

EPS have been revised upwards by 2-12%. Currently,

our 2018-20E EPS are 6-7% above the consensus. With

strong 1Q18 pre-sales and earnings results, we expect

the consensus EPS to be upgraded.

We believe ALI will be able to achieve its 2020 target of

PHP40bn in net income attributable to equityholders of

the parent, as we think the company has the assets and

resources to achieve this target.

Source: Bloomberg, Daiwa

11.7 14.8 17.6 20.9 25.3 30.6 35.7 41.0

30

26

19 1921 21

1715

0

5

10

15

20

25

30

35

40

45

2013 2014 2015 2016 2017 2018E 2019E 2020E

Net income (PHP bn) YoY growth (%)

0

5

10

15

20

25

30

35

40

2/22

/201

2

5/22

/201

2

8/22

/201

2

11/2

2/20

12

2/22

/201

3

5/22

/201

3

8/22

/201

3

11/2

2/20

13

2/22

/201

4

5/22

/201

4

8/22

/201

4

11/2

2/20

14

2/22

/201

5

5/22

/201

5

8/22

/201

5

11/2

2/20

15

2/22

/201

6

5/22

/201

6

8/22

/201

6

11/2

2/20

16

-2SD -1SD AVERAGE

+2SD +1SD PER

1.85

2.172.35

1.93

2.23

2.63

4.5

2.4

11.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

18E 19E 20E

Previous New Change

34


Financial summary

Key assumptions

Profit and loss (PHPm)

Cash flow (PHPm)


Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Pre-sales growth (YoY%) 18 11 3 3 13 5 10 7

Launches (Pbn) 111 84 80 61 89 97 107 118

Mall GLA expansion ('000 sqm) 71 77 114 170 204 282 462 333

Office GLA expansion ('000 sqm) 80 53 50 103 212 69 108 223

Hotel rooms expansion (number) 683 534 161 162 83 646 1,173 1,325

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Property sales 41,398 54,986 67,765 77,728 96,387 116,517 129,957 144,691

Malls, Offices & Hotels 17,401 21,012 24,335 27,934 30,760 35,590 43,366 52,551

Other Revenue 20,042 17,017 13,366 17,049 11,361 13,004 14,353 15,812

Total Revenue 78,841 93,015 105,466 122,711 138,508 165,110 187,676 213,054

Other income 0 0 0 0 0 0 0 0

COGS (32,845) (40,712) (45,555) (50,896) (65,300) (78,407) (87,787) (98,365)

SG&A (21,025) (19,897) (21,302) (26,826) (24,716) (24,101) (29,406) (35,994)

Other op.expenses (3,898) (4,990) (5,070) (5,875) (5,180) (7,334) (8,312) (9,294)

Operating profit 21,072 27,416 33,539 39,114 43,312 55,269 62,171 69,401

Net-interest inc./(exp.) (3,081) (4,536) (5,331) (7,166) (7,438) (7,870) (7,522) (6,986)

Assoc/forex/extraord./others 968 977 (457) 716 2,116 299 541 851

Pre-tax profit 18,960 23,857 27,751 32,663 37,991 47,698 55,190 63,266

Tax (4,655) (6,142) (6,854) (8,232) (9,825) (12,336) (14,273) (16,362)

Min. int./pref. div./others (2,625) (2,974) (3,329) (3,586) (2,861) (4,740) (5,181) (5,939)

Net profit (reported) 11,680 14,741 17,568 20,846 25,305 30,623 35,736 40,966

Net profit (adjusted) 11,680 14,741 17,568 20,846 25,305 30,623 35,736 40,966

EPS (reported)(PHP) 0.840 1.047 1.205 1.429 1.719 2.080 2.427 2.783

EPS (adjusted)(PHP) 0.840 1.047 1.205 1.429 1.719 2.080 2.427 2.783

EPS (adjusted fully-diluted)(PHP) 0.840 1.047 1.205 1.429 1.711 2.071 2.416 2.770

DPS (PHP) 0.291 0.417 0.433 0.480 0.488 0.590 0.689 0.790

EBIT 21,072 27,416 33,539 39,114 43,312 55,269 62,171 69,401

EBITDA 24,970 32,406 38,609 44,989 48,492 62,603 70,483 78,695

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Profit before tax 18,960 23,857 27,751 32,663 37,991 47,698 55,190 63,266

Depreciation and amortisation 3,898 4,990 5,070 5,875 5,180 7,334 8,312 9,294

Tax paid (4,655) (6,142) (6,854) (8,232) (9,825) (12,336) (14,273) (16,362)

Change in working capital (4,164) 2,907 (2,221) (9,783) (2,713) 7,341 650 2,679

Other operational CF items (4,702) (10,892) (7,129) 10,599 (2,405) 903 (1,601) (4,543)

Cash flow from operations 9,336 14,720 16,616 31,123 28,228 50,940 48,278 54,334

Capex (29,124) (30,663) (34,779) (41,246) (23,913) (25,276) (24,394) (24,354)

Net (acquisitions)/disposals (2,192) (4,698) (7,982) (10,205) (5,229) (3,190) (4,127) (4,437)

Other investing CF items (11,035) 8,029 5,356 (1,445) (415) 3,657 743 3,063

Cash flow from investing (42,351) (27,332) (37,405) (52,895) (29,557) (24,808) (27,778) (25,728)

Change in debt 27,124 22,764 6,330 28,805 14,584 0 0 (12,341)

Net share issues/(repurchases) 10,336 396 16,221 490 387 0 0 0

Dividends paid (4,129) (5,933) (6,157) (7,061) (7,127) (8,625) (10,065) (11,538)

Other financing CF items (4,472) (3,904) (5,196) 1,355 (6,422) (8,336) (4,116) (3,082)

Cash flow from financing 28,859 13,323 11,199 23,589 1,422 (16,960) (14,181) (26,961)

Forex effect/others 0 0 0 0 0 0 0 0

Change in cash (4,156) 711 (9,590) 1,817 94 9,172 6,319 1,646

Free cash flow (19,788) (15,944) (18,163) (10,122) 4,315 25,665 23,884 29,980

35


Financial summary continued …

Balance sheet (PHPm)

Key ratios (%)


As at 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Cash & short-term investment 41,386 35,243 19,984 23,077 26,278 33,184 40,636 41,715

Inventory 43,572 48,179 59,247 66,728 62,192 77,922 86,911 96,767

Accounts receivable 42,849 58,574 64,961 97,468 98,311 101,528 111,880 123,549

Other current assets 19,319 23,638 22,012 23,740 31,779 30,109 35,343 39,531

Total current assets 147,127 165,634 166,204 211,012 218,561 242,743 274,770 301,561

Fixed assets 157,109 198,542 239,270 271,025 301,940 324,131 347,693 370,830

Goodwill & intangibles 0 0 0 0 0 0 0 0

Other non-current assets 21,238 24,768 36,868 54,395 53,491 53,268 53,981 55,005

Total assets 325,474 388,944 442,342 536,433 573,992 620,141 676,444 727,396

Short-term debt 15,949 21,369 19,294 29,431 24,217 17,644 29,985 21,644

Accounts payable 79,478 106,992 121,757 141,713 137,684 161,190 184,176 210,809

Other current liabilities 6,196 6,239 5,082 17,059 22,722 23,833 26,073 27,830

Total current liabilities 101,623 134,601 146,133 188,203 184,623 202,667 240,233 260,284

Long-term debt 85,953 103,296 111,702 130,370 150,169 156,741 144,400 140,400

Other non-current liabilities 25,800 29,052 34,681 45,177 46,937 46,937 48,937 50,506

Total liabilities 213,376 266,949 292,516 363,750 381,729 406,346 433,571 451,190

Share capital 15,480 15,497 16,002 16,019 16,032 16,032 16,032 16,032

Reserves/R.E./others 82,990 91,443 117,728 131,686 150,723 172,721 198,392 227,820

Shareholders' equity 98,470 106,940 133,731 147,705 166,755 188,753 214,424 243,852

Minority interests 13,628 15,056 16,095 24,978 25,509 25,043 28,449 32,353

Total equity & liabilities 325,474 388,944 442,342 536,433 573,992 620,141 676,444 727,396

EV 617,746 646,437 662,507 689,639 699,737 692,589 687,830 677,291

Net debt/(cash) 60,516 89,422 111,012 136,725 148,107 141,202 133,750 120,330

BVPS (PHP) 6.855 7.444 9.011 9.950 11.236 12.730 14.473 16.472

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Sales (YoY) 35.8 18.0 13.4 16.4 12.9 19.2 13.7 13.5

EBITDA (YoY) 33.4 29.8 19.1 16.5 7.8 29.1 12.6 11.7

Operating profit (YoY) 29.4 30.1 22.3 16.6 10.7 27.6 12.5 11.6

Net profit (YoY) 29.9 26.2 19.2 18.7 21.4 21.0 16.7 14.6

Core EPS (fully-diluted) (YoY) 24.5 24.7 15.1 18.6 19.8 21.0 16.7 14.6

Gross-profit margin 58.3 56.2 56.8 58.5 52.9 52.5 53.2 53.8

EBITDA margin 31.7 34.8 36.6 36.7 35.0 37.9 37.6 36.9

Operating-profit margin 26.7 29.5 31.8 31.9 31.3 33.5 33.1 32.6

Net profit margin 14.8 15.8 16.7 17.0 18.3 18.5 19.0 19.2

ROAE 13.2 14.5 14.8 15.0 16.2 17.4 17.8 18.0

ROAA 4.0 4.1 4.2 4.3 4.6 5.1 5.5 5.8

ROCE 11.0 11.9 12.7 12.8 12.4 14.6 15.4 16.2

ROIC 10.3 10.6 10.7 10.3 9.9 11.8 12.6 13.3

Net debt to equity 61.5 83.6 83.0 92.6 88.8 74.8 62.4 49.3

Effective tax rate 24.6 25.7 24.7 25.2 25.9 25.9 25.9 25.9

Accounts receivable (days) 129.6 150.4 175.5 183.7 214.0 216.4 194.3 182.8

Current ratio (x) 1.4 1.2 1.1 1.1 1.2 1.2 1.1 1.2

Net interest cover (x) 9.1 8.9 7.4 7.3 6.0 7.4 7.9 9.2

Net dividend payout 34.7 39.9 35.9 33.6 28.4 28.4 28.4 28.4

Free cash flow yield n.a. n.a. n.a. n.a. 0.8 4.6 4.3 5.4

Company profile

Ayala Land is the largest, most diversified and fully integrated real estate company in the

Philippines with interests in construction, residential development, retail and office leasing, hotels

and resort operations, and property management. These are integrated in large-scale, master-

planned communities, widely referred to as estates by the company. Ayala Land has a well-

established track record in estate development, having transformed the Makati CBD and Bonifacio

Global City from empty lots to bustling city centres. Presently, the company is developing 20

estates nationwide.



What's new: Looking to scale up its malls business, Vista Land (VLL)

targets to have 60 malls by 2020, up from 22 as at end-2017. We forecast

its recurring revenue to see a 21% CAGR over 2017-20E, contributing

3.4pp of our forecast 13.7% revenue CAGR over the same period. This

supplements our forecast for a 12% residential revenue CAGR over 2017-

20E, which in turn contributes 9.6pp of our revenue growth forecast. We

raise our target price to PHP8.3 (from PHP8.0) and reiterate our Buy (1)

rating.

What's the impact: Since its acquisition of Starmalls in 2015, VLL has

expanded its mall gross floor area (GFA) from 500k sq m in 2015 to 834k

sq m as at end-2017 (18% CAGR). In turn, its rental revenue more than

doubled from PHP2.2bn to PHP5.6bn (37% CAGR) in the same period.

VLL has set a 1.16m sq m mall GFA target for 2018 (up 325k sq m, or 39%

YoY), but has not provided information on its annual pipeline beyond 2018.

The company has indicated that these new malls will likely be within its

mixed-use townships or “communicities”. We assume 100k sq m of annual

retail GFA additions, though we acknowledge the company may well open

more than this. As highlighted in our initiation report, A Quality home and

mall builder (26 October 2017), following our on-the-ground checks, we

are generally impressed with the transformation of older Starmalls into

Vista malls, as well as the execution of the company’s mall operations.

The rental segment supplements healthy residential revenue growth, which

we see being supported by the record-high launches in 2017 and

aggressive expansion in provinces where end-user demand is robust.

What we recommend: We lift our TP to PHP8.3 after rolling over our NAV-

based valuation to the average of 2018-19E NAV (from 2018E) and re-

affirm our Buy (1) call. VLL is among our top picks in the sector, given its

strong brand equity in the end-user oriented middle-income market as well

as its solid track record in provincial home building, which we believe

positions it to benefit from the government’s commitment to accelerate

countryside development. Risks: considerable hike in interest rates and

significant demand slowdown from overseas Filipino workers (OFW).

How we differ: Our above-consensus target price reflects our confidence

in the company’s ability to grow its malls business strongly, which we see

contributing significantly to income and improving earnings visibility. VLL’s

rental segment continues to provide strong evidence of successful

expansion and, in our view, supports our view that the stock should trade at

its past-5-year discount-to-NAV of 50%, vs. its prevailing discount of 61%.

25 June 2018

Vista Land & Lifescapes

Scaling up its malls business

VLL is looking to add 38 malls from 2017 to 2020

Aggressive mall expansion supplements healthy residential growth

Lifting our TP to PHP8.3; Reiterating Buy (1) call



Vista Land & Lifescapes (VLL PM)





Revenue change - - -

Net profit change - - -

Core EPS (FD) change - - -

85

96

108

119

130

5.4

5.8

6.2

6.6

7.0



Vista Land (LHS)Relative to PCOMP Index (RHS)

(PHP) (%)

12-month range 5.55-6.99




Major shareholder Fine Properties Inc. (51.9%)



Revenue (m) 39,925 45,893 51,192


Net profit (m) 9,998 11,483 12,749


EPS change (%) 13.6 14.9 11.0

Daiwa vs Cons. EPS (%) (1.0) 0.9 (0.4)

PER (x) 8.3 7.3 6.5


DPS 0.141 0.160 0.183

PBR (x) 0.4 0.4 0.3

EV/EBITDA (x) 9.5 8.6 8.1

ROE (%) 11.6 12.1 12.1

https://asiaresearch.hk.daiwacm.com/DAIWA/external/download?q=18531fd422a3dfb0b8e6908b2b5c95c970dfe043e3v7xWgoT%2BkWVzQosOqa2GCMutmPDpPdfhyo1JlUJXCEPd%2B8Bob54REdJEBLRvwpFdj5vbTm6NCBbDxl45QKIitCVMERIMRtWr7g9OtqHwKn%2FpUGBjY0h829gjvUza1UumByOn8eJPzsVOpcjuE8o%2BFTr4US5nvr5T29l04tOWE2nNNSnH3DA1IP%2BX%2FvhyCqVUe8Sc%2B%2BMBNlieP%2BFxeeOXQ%3D%3D

https://asiaresearch.hk.daiwacm.com/DAIWA/external/download?q=18531fd422a3dfb0b8e6908b2b5c95c970dfe043e3v7xWgoT%2BkWVzQosOqa2GCMutmPDpPdfhyo1JlUJXCEPd%2B8Bob54REdJEBLRvwpFdj5vbTm6NCBbDxl45QKIitCVMERIMRtWr7g9OtqHwKn%2FpUGBjY0h829gjvUza1UumByOn8eJPzsVOpcjuE8o%2BFTr4US5nvr5T29l04tOWE2nNNSnH3DA1IP%2BX%2FvhyCqVUe8Sc%2B%2BMBNlieP%2BFxeeOXQ%3D%3D

37

Vista Land & Lifescapes (VLL PM): 25 June 2018



Growth outlook Vista Land: attributable net income

We forecast VLL’s net income attributable to equityholders

of the parent to rise by a 2017-20E CAGR of 13%, as we

project its revenue to rise by a 13.7% CAGR over the same

period. We look for its residential revenue to see a 12%

CAGR over 2017-20E as pre-sales grow steadily on the

back of healthy end-user demand and continued provincial

expansion. Meanwhile, we forecast its rental revenue to

rise by a faster 21% 3-year CAGR as the company

expands its leasing space from 1.16m sq m of GFA as of

2017 to 1.4m sq m of GFA by 2018. By 2019, we expect

rental revenues to account for 20% of

revenue, up from 16% in 2017.

Source: Company, Daiwa forecast

Valuation Vista Land: historical PER

Our PHP8.3 NAV-based target price is based on: 1) the

market prices of its raw, efficient landbank, 2) the NPV of

our estimated market value of its residential inventory, and

3) an 11% cap rate on EBITDA. We apply a 50% discount

to NAV, consistent with the stock’s past-5-year average

discount. We believe the shares should trade at a narrower

discount to NAV than their prevailing 61% discount, as

VLL’s malls segment provides strong evidence of

successful expansion and enhances its track record in mall

operations. At our TP, VLL would be trading at a 1-year

forward PER of 10x, consistent with its past-5-year

average PER.

Source: Bloomberg

Earnings revisions Vista Land: earnings revisions

The Bloomberg consensus has revised up its 2018E EPS

forecast for VLL by 4.6% over the past 12 months, on the

back of its upgraded launches in 2017, which doubled from

PHP30bn to PHP60bn.

Source: Bloomberg

6.2 7.0 7.9 8.8 10.0 11.5 12.7

19

14

1211

1415

11

0

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

2012 2013 2014 2015 2016 2017

Net income (PHP bn) YoY growth

0

2

4

6

8

10

12

14

16

Jun-

13

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Jun-

15

Sep

-15

Dec

-15

Mar

-16

Jun-

16

Sep

-16

Dec

-16

Mar

-17

Jun-

17

Sep

-17

Dec

-17

Mar

-18

Jun-

18

-2SD -1SD AVERAGE

+2SD +1SD PE

0.5

0.6

0.7

0.8

0.9

1.0

5.0

5.5

6.0

6.5

7.0

7.5

Jun-

17

Jul-1

7

Jul-1

7

Aug

-17

Sep

-17

Sep

-17

Oct

-17

Nov

-17

Nov

-17

Dec

-17

Jan-

18

Jan-

18

Feb

-18

Mar

-18

Apr

-18

Apr

-18

May

-18

Jun-

18

Price (LHS)

BEst Standard EPS, Adj+ 2018 (RHS)


38


Financial summary

Key assumptions


Cash flow (PHPm)


Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Pre-sales, PHP bn n.a. 51.7 56.7 57.8 64.5 73.0 81.0 90.7

Residential launches, PHP bn n.a. 26.6 40.4 26.2 60.2 51.2 48.6 48.6

Additional retail GLA, '000 sqm n.a. 31.1 27.8 130.7 86.5 213.0 65.0 65.0

Additional office GLA, '000 sqm n.a. 0.0 9.9 34.9 31.8 8.2 0.0 0.0

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Residential n.a. 23,081 25,212 25,668 28,138 31,504 35,384 39,600

Rental n.a. 1,527 2,246 4,375 5,625 7,187 9,090 10,008

Other Revenue n.a. 900 1,231 953 1,077 1,234 1,419 1,583

Total Revenue n.a. 25,508 28,690 30,996 34,840 39,925 45,893 51,192

Other income n.a. 0 0 0 0 0 0 0

COGS n.a. (11,032) (12,254) (12,321) (13,304) (14,894) (16,729) (18,724)

SG&A n.a. (4,371) (4,724) (4,541) (4,315) (5,053) (5,833) (6,503)

Other op.expenses n.a. (2,084) (2,168) (3,053) (3,766) (4,207) (4,811) (5,370)

Operating profit n.a. 8,021 9,543 11,080 13,455 15,771 18,519 20,594

Net-interest inc./(exp.) n.a. (964) (1,348) (1,372) (2,182) (2,950) (3,512) (3,933)

Assoc/forex/extraord./others n.a. (29) (7) (26) 0 0 0 0

Pre-tax profit n.a. 7,028 8,188 9,683 11,274 12,820 15,007 16,661

Tax n.a. (741) (1,001) (1,582) (2,211) (2,578) (3,243) (3,601)

Min. int./pref. div./others n.a. (130) (155) (193) (259) (245) (281) (312)

Net profit (reported) n.a. 6,156 7,032 7,907 8,804 9,998 11,483 12,749

Net profit (adjusted) n.a. 6,156 7,032 7,907 8,804 9,998 11,483 12,749

EPS (reported)(PHP) n.a. 0.721 0.622 0.676 0.686 0.779 0.894 0.993

EPS (adjusted)(PHP) n.a. 0.721 0.622 0.676 0.686 0.779 0.894 0.993

EPS (adjusted fully-diluted)(PHP) n.a. 0.721 0.622 0.676 0.686 0.779 0.894 0.993

DPS (PHP) n.a. 0.119 0.091 0.112 0.126 0.141 0.160 0.183

EBIT n.a. 8,021 9,543 11,080 13,455 15,771 18,519 20,594

EBITDA n.a. 8,702 10,309 12,078 14,722 17,114 20,038 22,292

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Profit before tax n.a. 7,028 8,188 9,683 11,274 12,820 15,007 16,661

Depreciation and amortisation n.a. 699 786 1,021 1,285 1,361 1,537 1,716

Tax paid n.a. (741) (1,001) (1,582) (2,211) (2,578) (3,243) (3,601)

Change in working capital n.a. (4,238) (6,012) (4,235) (11,256) (2,433) (7,355) (6,982)

Other operational CF items n.a. 3,017 (2,246) 1,366 4,192 (2,184) 1,447 2,011

Cash flow from operations n.a. 5,765 (285) 6,252 3,283 6,987 7,394 9,806

Capex n.a. (10,993) (15,329) (9,408) (12,047) (11,723) (11,746) (11,771)

Net (acquisitions)/disposals n.a. (10,363) (1,363) (6,199) 411 0 0 0

Other investing CF items n.a. 0 0 0 0 0 0 0

Cash flow from investing n.a. (21,356) (16,692) (15,607) (11,636) (11,723) (11,746) (11,771)

Change in debt n.a. 18,373 19,354 14,836 14,562 10,000 5,000 5,000

Net share issues/(repurchases) n.a. (30) (2,182) (160) (63) 0 0 0

Dividends paid n.a. (926) (1,235) (1,432) (1,616) (1,804) (2,049) (2,353)

Other financing CF items n.a. (935) 650 (1,151) (1,789) (2,774) (3,309) (3,709)

Cash flow from financing n.a. 16,482 16,588 12,092 11,093 5,422 (358) (1,062)

Forex effect/others n.a. (29) (7) (26) 0 0 0 0

Change in cash n.a. 862 (395) 2,712 2,739 685 (4,710) (3,028)

Free cash flow n.a. (5,228) (15,614) (3,156) (8,765) (4,736) (4,352) (1,965)

39




Key ratios (%)


As at 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Cash & short-term investment n.a. 10,820 8,140 12,358 26,465 27,150 22,440 19,412

Inventory n.a. 17,926 22,856 22,955 26,334 29,482 33,115 37,063

Accounts receivable n.a. 24,720 28,394 32,246 42,653 43,790 49,608 54,760

Other current assets n.a. 2,829 3,815 3,807 4,018 4,333 4,723 5,133

Total current assets n.a. 56,295 63,205 71,366 99,469 104,755 109,886 116,367

Fixed assets n.a. 42,050 55,342 63,374 73,353 83,733 93,960 104,033

Goodwill & intangibles n.a. 0 147 147 147 147 147 147

Other non-current assets n.a. 26,642 34,201 39,881 26,965 31,837 33,602 35,193

Total assets n.a. 124,988 152,895 174,768 199,935 220,472 237,596 255,742

Short-term debt n.a. 8,083 3,940 7,570 4,326 12,862 0 2,400

Accounts payable n.a. 7,558 11,208 11,400 13,275 14,994 16,993 18,994

Other current liabilities n.a. 3,475 3,309 2,831 3,700 4,149 4,637 5,162

Total current liabilities n.a. 19,117 18,457 21,801 21,301 32,005 21,630 26,556

Long-term debt n.a. 37,226 60,724 71,929 89,736 91,199 109,061 111,661

Other non-current liabilities n.a. 4,388 3,749 4,542 4,890 4,890 4,890 4,890

Total liabilities n.a. 60,730 82,930 98,273 115,927 128,095 135,581 143,108

Share capital n.a. 8,572 12,688 13,147 13,147 13,147 13,147 13,147

Reserves/R.E./others n.a. 52,940 54,399 61,803 69,093 77,286 86,721 97,116

Shareholders' equity n.a. 61,512 67,087 74,950 82,240 90,433 99,868 110,263

Minority interests n.a. 2,746 2,878 1,545 1,768 1,944 2,147 2,370

Total equity & liabilities n.a. 124,988 152,895 174,768 199,935 220,472 237,596 255,742

EV n.a. 120,563 142,729 152,015 152,692 162,183 172,097 180,348

Net debt/(cash) n.a. 34,489 56,523 67,142 67,597 76,911 86,622 94,649

BVPS (PHP) n.a. 7.200 10.799 12.650 13.881 15.264 16.857 18.612

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Sales (YoY) n.a. n.a. 12.5 8.0 12.4 14.6 14.9 11.5

EBITDA (YoY) n.a. n.a. 18.5 17.2 21.9 16.3 17.1 11.2

Operating profit (YoY) n.a. n.a. 19.0 16.1 21.4 17.2 17.4 11.2

Net profit (YoY) n.a. n.a. 14.2 12.4 11.3 13.6 14.9 11.0

Core EPS (fully-diluted) (YoY) n.a. n.a. (13.7) 8.7 1.4 13.6 14.9 11.0

Gross-profit margin n.a. 56.8 57.3 60.2 61.8 62.7 63.5 63.4

EBITDA margin n.a. 34.1 35.9 39.0 42.3 42.9 43.7 43.5

Operating-profit margin n.a. 31.4 33.3 35.7 38.6 39.5 40.4 40.2

Net profit margin n.a. 24.1 24.5 25.5 25.3 25.0 25.0 24.9

ROAE n.a. 20.0 10.9 11.1 11.2 11.6 12.1 12.1

ROAA n.a. 9.9 5.1 4.8 4.7 4.8 5.0 5.2

ROCE n.a. 14.6 7.8 7.6 8.1 8.4 9.1 9.4

ROIC n.a. 7.3 7.4 6.9 7.3 7.9 8.1 8.2

Net debt to equity n.a. 56.1 84.3 89.6 82.2 85.0 86.7 85.8

Effective tax rate n.a. 10.5 12.2 16.3 19.6 20.1 21.6 21.6

Accounts receivable (days) n.a. 176.9 337.9 357.0 392.3 395.1 371.4 372.1

Current ratio (x) n.a. 2.9 3.4 3.3 4.7 3.3 5.1 4.4

Net interest cover (x) n.a. 8.3 7.1 8.1 6.2 5.3 5.3 5.2

Net dividend payout n.a. 16.4 14.7 16.6 18.4 18.0 17.8 18.5

Free cash flow yield n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Company profile

Vista Land is a Philippine property developer well-known for its affordable and mid-market house

and lot developments under the Camella brand. It has one of the highest provincial exposure, with

over 50% of its residential real estate revenues outside of Metro Manila. Its recent acquisition of

Starmalls, provides a mall-driven recurring base, which it aims to grow aggressively in the coming

years.



What's new: We expect MEG’s improved residential outlook to further

boost its recurring income-driven earnings growth in 2018. Renewed

confidence among local property buyers and the proliferation of Philippine

offshore gaming operators (POGOs) that seek housing for its Chinese

employees have allowed Megaworld’s pre-sales to grow by 21% YoY and

63% YoY in 2017 and 1Q18, respectively. We raise our TP to PHP5.5 after

rolling over our valuation and reiterate our Buy (1) rating.

What's the impact: Megaworld upgraded its guidance on 2018 launches

to PHP80bn (from PHP60bn), which is more than double its launches in

2017 and the first meaningful rise in launches since 2013. The hike in

launches comes after the company posted record pre-sales of PHP105bn

in 2017 (+21% YoY), PHP43bn in 1Q18 (+63% YoY) and PHP73bn in

5M18, amid strong demand for commercial lots south of Metro Manila and

condominium units in McKinley (Taguig) and Cebu, where many POGOs

require housing for their employees. Robust pre-sales growth amid

tempered launches in previous years eased inventory levels to 11 months

as at end-1Q18 from a high of 2.2 years in 2015. With accelerating pre-

sales growth and increasing launches, we forecast Megaworld’s residential

revenue to rise at a 7% CAGR over 2017-20 (vs. 3% CAGR over 2015-17).

Meanwhile, the leasing business continues to be healthy, with occupancy

rates of its offices and malls at 96% and 94%, respectively, in 1Q18. Office

pre-leasing remains robust with office space for turnover in 2018/19/20

already 25%/40%/40% pre-leased, primarily led by existing BPO tenants

expanding operations in the country. Megaworld plans to increase its office

and mall GLA at 14% and 18% CAGR over 2017-20E, respectively.

What we recommend: We raise our NAV-based TP to PHP5.5 (from

PHP5.3) after rolling over our valuation to the average of 2018-19E NAV

(from 2018E). We note that at this TP, Megaworld trades at an implied

2018-19 average PER of 11.2x, broadly in line with its past-5-year average

of 10.3x. Led by accelerating residential sales and healthy rental revenue

expansion over 2017-20E, we reiterate our Buy (1) rating. Key risks: a

sharp rise in mortgage rates, and significant slowdown in Business

Processing and Outsourcing (BPO) firms and POGOs.

How we differ: Our 2018-20E EPS are 2-6% above the consensus, likely

as we have factored in Megaworld’s improved residential outlook for 2018

ahead of the street. Moreover, we believe concerns about the near-term

impact of a BPO slowdown and artificial intelligence on Megaworld’s office

space demand are overdone, given its prime landbank and long-standing

relationships with large BPO firms.

25 June 2018

Megaworld

Residential sales accelerate, robust rental income

Strong sales and lower inventory levels prompt a hike in launches

Healthy pre-leasing levels support office expansion

Raising TP to PHP5.5; reiterating our Buy (1) rating



Megaworld (MEG PM)




[email protected]






90

98

105

113

120

4.2

4.7

5.1

5.6

6.0



Megaworld (LHS)Relative to PCOMP Index (RHS)

(PHP) (%)





Major shareholder Alliance Global (43.7%)



Revenue (m) 54,179 60,573 65,811


Net profit (m) 15,073 17,211 19,444


EPS change (%) 18.0 14.2 13.0

Daiwa vs Cons. EPS (%) 4.6 5.8 2.1

PER (x) 9.6 8.4 7.4


DPS 0.063 0.072 0.081

PBR (x) 0.9 0.9 0.8

EV/EBITDA (x) 10.4 9.4 8.3

ROE (%) 10.4 10.8 11.1

41

Megaworld (MEG PM): 25 June 2018



Growth outlook Megaworld: core net income attributable to equityholders

We forecast Megaworld’s net profit to rise at a 15%

CAGR over 2017-20. Excluding the impact of the

PHP1.56bn impairment loss on financial assets in 2017,

we estimate its net income to rise at an 11% CAGR over

2017-20. We expect its leasing business to remain the

fastest growing segment (+19% 2017-20E CAGR) as

MEG plans to add 498k sq m of office GLA and 206k sq

m of retail space in the next 3 years.

Meanwhile, we project its residential revenue to rise at a

CAGR of 7% over 2017-20 vs. 3% CAGR over 2015-17,

as we expect strong property demand for its projects in

Calabarzon and townships with POGOs to persist this

year.


Valuation Megaworld: historical PER (x)

We arrive at our TP of PHP5.50 for Megaworld using the

discounted NAV approach. We applied a 50% discount

to our average 2018-19E NAV of PHP11.0 as we have

included the landbank of Megaworld’s subsidiaries, a

large portion of which is located in rural areas. This

information was only recently made available.

We note that at our TP, Megaworld would trade at a

11.2x 2018-19E average PER, broadly in line with its

past-5-year average PER of 10.3x.

Source: Bloomberg

Earnings revisions Megaworld: consensus EPS

Over the past 12 months, the Bloomberg consensus

2018-19E EPS have been upgraded by 4.5% and 4.2%,

respectively, likely led by improved residential revenue

outlook for 2018 after the company recorded better-

than-expected pre-sales in 2017.

Our 2018-20E EPS are 2-6% above the consensus,

likely as we are more positive on the company’s

residential outlook. Moreover, we believe concerns

about the near-term impact of a BPO slowdown and

artificial intelligence on Megaworld’s office space

demand are overdone, given its prime landbank and

long-standing relationships with large BPO firms.

Source: Bloomberg

7,412 8,553 8,604 11,070 12,329 14,193 15,047 17,185 19,418

15.4

0.6

28.7

11.4

15.1

6.0

14.213.0

0

5

10

15

20

25

30

35

0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015 2016 2017 2018E 2019E

Core net income (PHP bn) YoY growth (%)

0

2

4

6

8

10

12

14

16

18

20

Jun-

13

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Sep

-14

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-14

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-15

Jun-

15

Sep

-15

Dec

-15

Mar

-16

Jun-

16

Sep

-16

Dec

-16

Mar

-17

Jun-

17

Sep

-17

Dec

-17

Mar

-18

PER -2SD -1SD

AVERAGE +1SD +2SD

0.40

0.42

0.44

0.46

0.48

0.50

0.52

4.04.24.44.64.85.05.25.45.65.86.0

Jun-

17

Jul-1

7

Jul-1

7

Aug

-17

Sep

-17

Sep

-17

Oct

-17

Nov

-17

Nov

-17

Dec

-17

Jan-

18

Jan-

18

Feb

-18

Mar

-18

Apr

-18

Apr

-18

May

-18

Jun-

18

Price (LHS)



42


Financial summary

Key assumptions


Cash flow (PHPm)


Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Residential pre-sales (Pbn) 68.2 85.0 85.3 87.1 105.0 110.8 115.3 123.2

Residential project launches (Pbn) 20.8 71.9 35.4 18.7 39.1 59.8 65.8 72.4

Additional office GLA ('000 sqm) 77 112 116 114 159 209 133 157

Additional retail GLA ('000 sqm) 4 0 66 37 45 65 37 104

Additional hotel rooms 0 150 208 408 684 974 500 500

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Residential property sales 25,844 29,507 32,727 33,131 34,623 37,079 40,061 41,995

Rental revenues 6,038 7,071 8,730 10,012 11,830 14,140 16,991 19,630

Other Revenue 1,569 2,214 1,800 2,162 2,418 2,960 3,521 4,185

Total Revenue 33,451 38,792 43,257 45,304 48,871 54,179 60,573 65,811

Other income 0 0 0 0 0 0 0 0

COGS (16,884) (18,902) (19,950) (19,713) (19,659) (21,879) (23,433) (24,415)

SG&A (4,941) (6,560) (7,111) (7,548) (8,488) (9,476) (10,689) (11,899)



Net-interest inc./(exp.) 249 (331) (121) (247) (247) (440) (914) (832)

Assoc/forex/extraord./others 739 13,075 (746) (897) (1,355) 146 146 146

Pre-tax profit 11,606 24,704 13,888 15,228 17,101 20,176 23,035 26,020

Tax (2,571) (3,120) (3,285) (3,489) (3,793) (4,477) (5,112) (5,775)

Min. int./pref. div./others (64) (364) (389) (406) (536) (627) (712) (801)



EPS (reported)(PHP) 0.308 0.670 0.321 0.356 0.401 0.474 0.541 0.611

EPS (adjusted)(PHP) 0.308 0.670 0.321 0.356 0.401 0.474 0.541 0.611


DPS (PHP) 0.035 0.039 0.061 0.050 0.053 0.063 0.072 0.081

EBIT 10,618 11,960 14,755 16,372 18,704 20,470 23,804 26,706

EBITDA 11,575 13,260 16,104 17,859 20,534 22,635 26,262 29,307

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E


Depreciation and amortisation 957 1,300 1,349 1,487 1,831 2,165 2,458 2,602

Tax paid (2,571) (3,120) (3,285) (3,489) (3,793) (4,477) (5,112) (5,775)

Change in working capital (11,553) (23,353) (10,709) (13,165) (11,295) (8,110) (11,648) (8,603)

Other operational CF items 1,026 (12,454) (231) 5,862 (3,728) (3,447) (3,403) (2,306)

Cash flow from operations (535) (12,923) 1,013 5,922 117 6,308 5,330 11,938

Capex (10,101) (21,445) (17,945) (20,192) (17,744) (18,816) (15,816) (3,816)

Net (acquisitions)/disposals (5,755) 4,506 983 2,621 (898) (119) (119) (119)

Other investing CF items 1,230 13,180 402 291 260 146 146 146


Change in debt 8,572 4,911 19,065 8,581 13,718 10,024 12,982 2,482

Net share issues/(repurchases) 11,447 262 8 0 0 0 0 0

Dividends paid (1,030) (1,247) (1,936) (1,609) (1,722) (2,032) (2,321) (2,622)

Other financing CF items 1,589 6,251 (2,822) (794) 6,360 1,648 1,474 1,870

Cash flow from financing 20,578 10,177 14,315 6,178 18,356 9,639 12,135 1,730


Change in cash 5,416 (6,504) (1,231) (5,179) 91 (2,842) 1,677 9,879

Free cash flow (10,637) (34,368) (16,931) (14,269) (17,627) (12,508) (10,485) 8,122

43




Key ratios (%)


As at 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E


Inventory 35,110 56,908 61,467 62,659 64,778 70,515 76,814 80,863




Fixed assets 30,698 50,843 67,438 86,143 102,056 118,707 132,065 133,279



Total assets 173,882 221,040 251,685 278,743 310,533 336,899 369,043 392,957

Short-term debt 1,565 7,626 4,245 6,006 18,600 15,618 16,118 13,893




Long-term debt 27,062 25,912 48,358 55,178 56,302 69,307 81,790 86,497



Share capital 48,819 49,081 49,089 49,089 49,089 49,089 49,089 49,089





EV 137,918 164,132 184,843 201,721 219,653 234,517 248,120 243,334

Net debt/(cash) (3,383) 8,169 29,839 44,721 58,472 71,337 82,642 75,245

BVPS (PHP) 2.862 3.422 3.603 3.890 4.285 4.688 5.148 5.668

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Sales (YoY) 19.6 16.0 11.5 4.7 7.9 10.9 11.8 8.6

EBITDA (YoY) 31.3 14.6 21.4 10.9 15.0 10.2 16.0 11.6


Net profit (YoY) 22.9 136.5 (51.9) 10.9 12.7 18.0 14.2 13.0

Core EPS (fully-diluted) (YoY) 10.7 118.8 (52.1) 10.9 11.4 18.0 14.2 13.0


EBITDA margin 34.6 34.2 37.2 39.4 42.0 41.8 43.4 44.5



ROAE 11.0 20.9 9.0 9.4 9.7 10.4 10.8 11.1

ROAA 5.7 10.7 4.3 4.3 4.3 4.7 4.9 5.1

ROCE 9.2 8.2 8.4 8.4 8.5 8.2 8.6 8.8

ROIC 9.6 8.9 7.5 7.2 7.1 6.8 7.1 7.4

Net debt to equity n.a. 7.4 25.6 35.6 42.1 47.0 49.6 41.0



Current ratio (x) 3.8 3.1 3.6 3.4 2.7 2.9 3.1 3.5

Net interest cover (x) n.a. 36.1 122.3 66.3 75.6 46.5 26.0 32.1


Free cash flow yield n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5.6

Company profile

Megaworld is a major residential property developer and BPO operator, credited for pioneering the

first BPO-anchored mixed use complex, Eastwood City, in the 1990s. It aims to replicate this

success with the development of large-scale communities following the live-work-play concept.

While it continues to build residential projects, it has been aggressive in its push to build rental

income, especially in the office space. Together with its subsidiaries, Global Estates Resorts, Inc.,

Sun Trust Properties, Inc. and East Empire Land Holdings, the company is developing 22

townships covering 3,705 hectares of land nationwide.



What's new: We believe Filinvest Land (FLI) stands to benefit from

developments in the Clark area where it has 489 hectares of property. The

government has been fast-tracking the development of Clark as a new

economic hub to reduce congestion in Metro Manila. Among the projects that

we see benefiting the area are the Clark International Airport expansion,

Manila-Clark railway project and the New Clark City. We factor in FLI’s updated

office pipeline, especially in Clark, and raise our EPS forecasts by 0.1-1.2%

over 2018-20E. We widen our applied discount to NAV to 60% (from 50%) as

we think the risk of a prolonged residential drag from its now longer revenue

recognition (see our report: 1Q18 earnings: longer revenue recognition still a

drag) will weigh on the share price. These adjustments result in a TP of

PHP2.20 (from PHP2.15) after rolling over our valuation to the average of

2018-19E NAV (from 2018E). We reiterate our Buy (1) rating on the back of the

strong potential for land value accretion and its growing recurring income base.

What's the impact: Select key developments in the Clark area include:

The bidding process for the operations and maintenance (O&M) of the

Clark International Airport commenced in May. The O&M contract is

targeted to be awarded in August 2018.

The Clark International Airport expansion began construction in December

2017. It is due to open within 1H 2020.

Pre-construction work of phase 1 of the PNR-Clark Railway began in

January 2018. The project is targeted to be completed by 2020.

The government has announced plans to move several state agencies to

New Clark City. In line with this development, construction of the National

Government Administrative Center (NGAC) started in January 2018.

Phase 1A is expected to be completed by October 2019.

Filinvest Land has completed the masterplan for the projects and is currently

waiting for the government to finish the construction of access roads before it

begins development. It expects the necessary road networks to be ready by

2019. In our view, this property would be a meaningful source of revenue for

Filinvest Land in the medium to long term. Nearby, Filinvest Land is also re-

developing the 201-hectare former Clark Mimosa Leisure Estate in the Clark

Freeport Zone. We see the projects here contributing to Filinvest Land’s

earnings in the nearer term, given readily available infrastructure. These

include four office towers, two of which resulted into our revised forecasts.

What we recommend: With the 42% upside potential to our NAV-based TP of

PHP2.20, we re-affirm our Buy (1) call on Filinvest Land. Risks: sharp interest

rate hike, slowdown in Overseas Filipino Worker (OFW) remittances.

How we differ: Our 2019-20E EPS are 7-8% higher than consensus likely due

to our more positive outlook for the office segment.

25 June 2018

Filinves t Land

Unlocking land value

Key beneficiary of infrastructure progress in Clark

Plans to begin development of New Clark City phase 1 in 2019

Reaffirming our Buy (1) rating with new 12-month TP of PHP2.20



Filinvest Land (FLI PM)




[email protected]



Revenue change - 2.1 2.4

Net profit change 0.1 0.4 1.2

Core EPS (FD) change 0.1 0.4 1.2

90

99

108

116

125

1.5

1.7

1.9

2.0

2.2



Filinvest (LHS)Relative to PCOMP Index (RHS)

(PHP) (%)





Major shareholder Filinvest Development Corp. (59.4%)



Revenue (m) 20,688 24,387 26,740


Net profit (m) 6,294 7,597 8,403


EPS change (%) 10.7 20.7 10.6

Daiwa vs Cons. EPS (%) (1.0) 6.7 8.3

PER (x) 6.0 4.9 4.5


DPS 0.068 0.082 0.091

PBR (x) 0.5 0.5 0.5

EV/EBITDA (x) 11.8 10.1 9.7

ROE (%) 9.6 10.8 11.0

https://lzone.daiwa.co.jp/lzone/common/reportSummary?funcKbn=home&condition.reportId=2018051800064&condition.analystCd=&condition.tickerCd=&condition.exchangeCd=&model.tickerCd=&model.exchangeCd=&model.funcTarget=home&model.issueName=&model.tickerIssue=filinvest&model.periodFrom=20170622&model.periodTo=20180621&model.docType=1&model.order=1&model.radAscDesc=1&model.researchStaff=&model.regionCd=&model.countryCd=&model.sectorCd=&model.rating=&model.newRatingCdss=&model.ratingIpo=false&model.ratingNew=false&model.ratingUp=false&model.ratingDown=false&model.dispIssueName=&model.dispTickerIssue=&model.dispTickerCd=&model.dispDocType=&model.dispOrder=&model.dispAscDesc=&model.dispResearchStaff=&model.dispRegion=&model.dispCountry=&model.dispSector=&model.dispRating=None+Selected&model.dispIpo=&model.capfrom=&model.capto=&model.pageCurrent=1&date1=2017%2F06%2F22&date2=2018%2F06%2F21&__multiselect_model.countryCdss=&__multiselect_model.sectorCdss=

https://lzone.daiwa.co.jp/lzone/common/reportSummary?funcKbn=home&condition.reportId=2018051800064&condition.analystCd=&condition.tickerCd=&condition.exchangeCd=&model.tickerCd=&model.exchangeCd=&model.funcTarget=home&model.issueName=&model.tickerIssue=filinvest&model.periodFrom=20170622&model.periodTo=20180621&model.docType=1&model.order=1&model.radAscDesc=1&model.researchStaff=&model.regionCd=&model.countryCd=&model.sectorCd=&model.rating=&model.newRatingCdss=&model.ratingIpo=false&model.ratingNew=false&model.ratingUp=false&model.ratingDown=false&model.dispIssueName=&model.dispTickerIssue=&model.dispTickerCd=&model.dispDocType=&model.dispOrder=&model.dispAscDesc=&model.dispResearchStaff=&model.dispRegion=&model.dispCountry=&model.dispSector=&model.dispRating=None+Selected&model.dispIpo=&model.capfrom=&model.capto=&model.pageCurrent=1&date1=2017%2F06%2F22&date2=2018%2F06%2F21&__multiselect_model.countryCdss=&__multiselect_model.sectorCdss=

45

Filinvest Land (FLI PM): 25 June 2018



Growth outlook Filinvest Land: net income and YoY growth

We forecast Filinvest Land to realise a 2017-20E net

income CAGR of 14%, driven by a 30% CAGR in

recurring revenue, as we look for residential sales to rise

by a more modest 8% CAGR over the same period.

Filinvest Land is building its leasing assets at an

unprecedented pace. From 2018-20, the company

expects to complete 122k sq m of retail and 336k sq m

of office GLA – 18% and 139% more than the retail and

office space it completed from 2014-17, respectively.

Meanwhile, we expect residential revenue growth to

recover and accelerate after slowing down over 2014-17

(+1% CAGR). Recall that in 2017, it introduced a new

payment scheme that lengthened its downpayment

terms, and consequently its revenue recognition period.

We expect growth to normalise in 2019 as it books sales

made during the transition period.


Valuation Filinvest Land: PER (x)

We arrive at our 12-month TP of PHP2.20 using a

discounted NAV approach: 1) we value its raw, efficient

landbank using estimates of market values, 2) we use a

blended cap rate of 9% on the EBITDA of its rental

segment, and 3) we apply a 60% discount to our 2018-

19E average NAV/share estimate of PHP5.5. This

discount is in line with the stock’s past-5-year average.

We think FLI’s discount to NAV should narrow to its

historical discount on the back of improving earnings

visibility and rising land values in areas in which Filinvest

Land has significant landholdings.

We note that at our TP, the stock would trade at an 8.5x

2018E PER, in line with its past-5-year average multiple.

Source: Bloomberg

Earnings revisions Filinvest Land: consensus EPS revisions

We think the consensus EPS forecasts have been

revised down over the past 12 months due largely to the

company’s now longer residential revenue recognition

period following the longer downpayment terms

introduced in 2017.

We see this as a drag on residential revenue in 2018

(given the 12-18 month extension of the downpayment

terms) before sales made in 2017-18 are booked in

2019 and lead to an acceleration in revenue growth.

Source: Bloomberg

3.92 4.53 5.01 5.25 5.69 6.3 7.6 8.4

1416

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8

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21

11

0

5

10

15

20

25

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1

2

3

4

5

6

7

8

9

2013 2014 2015 2016 2017 2018E 2019E 2020E


4

5

6

7

8

9

10

11

12

13

Jun-

13

Sep

-13

Dec

-13

Mar

-14

Jun-

14

Sep

-14

Dec

-14

Mar

-15

Jun-

15

Sep

-15

Dec

-15

Mar

-16

Jun-

16

Sep

-16

Dec

-16

Mar

-17

Jun-

17

Sep

-17

Dec

-17

Mar

-18

-2SD -1SD AVERAGE

+2SD +1SD PER

0.23

0.25

0.27

0.29

0.31

0.33

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

Jun-

17

Jul-1

7

Jul-1

7

Aug

-17

Sep

-17

Sep

-17

Oct

-17

Nov

-17

Nov

-17

Dec

-17

Jan-

18

Feb

-18

Feb

-18

Mar

-18

Apr

-18

Apr

-18

May

-18

Jun-

18

Price (LHS)



46


Financial summary

Key assumptions


Cash flow (PHPm)


Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Residential project launches (PHP bn) 7.5 12.5 12.5 11.9 14.3 16.0 15.2 14.5

Residential pre-sales (PHP bn) 14.4 15.4 16.4 17.7 18.7 19.7 21.1 22.6

Additional retail GLA ('000 sqm) 0.0 1.8 4.8 10.5 88.1 61.0 61.2 0.0

Additional office GLA ('000 sqm) 34.5 7.4 67.5 73.2 0.0 212.6 123.6 0.0

share of real estate EBITDA (%) 73.6 74.6 73.9 68.1 61.6 56.2 49.1 47.9

share of rental EBITDA (%) 26.4 25.4 26.1 31.9 38.4 43.8 50.9 52.1

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Real estate sales 10,478 13,204 14,051 14,256 13,748 14,760 15,891 17,149

Rental services 2,034 2,264 2,953 3,384 4,415 5,928 8,495 9,591

Other Revenue 0 0 0 0 0 0 (0) 0

Total Revenue 12,513 15,468 17,003 17,640 18,163 20,688 24,387 26,740

Other income 0 0 0 0 0 0 0 0

COGS (6,337) (7,925) (8,438) (8,673) (8,530) (9,360) (10,492) (11,366)

SG&A (1,974) (2,223) (2,123) (2,395) (2,662) (2,922) (3,292) (3,548)

Other op.expenses (287) (426) (484) (506) (720) (864) (1,018) (1,171)


Net-interest inc./(exp.) 75 104 (75) (201) (127) (305) (421) (443)

Assoc/forex/extraord./others 755 680 491 989 1,171 937 959 984

Pre-tax profit 4,744 5,678 6,374 6,854 7,295 8,173 10,122 11,196

Tax (768) (1,074) (1,275) (1,504) (1,461) (1,715) (2,326) (2,573)




EPS (reported)(PHP) 0.162 0.187 0.207 0.216 0.234 0.260 0.313 0.347

EPS (adjusted)(PHP) 0.162 0.187 0.207 0.216 0.234 0.260 0.313 0.347


DPS (PHP) 0.048 0.050 0.056 0.061 0.061 0.068 0.082 0.091

EBIT 3,914 4,893 5,958 6,067 6,251 7,542 9,584 10,655

EBITDA 4,201 5,319 6,443 6,573 6,971 8,406 10,602 11,826

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E


Depreciation and amortisation 287 426 484 506 720 864 1,018 1,171

Tax paid (523) (395) (592) (563) (879) (652) (884) (978)

Change in working capital (2,337) (2,940) (2,834) (3,535) 3,065 (9,588) (7,382) (6,354)

Other operational CF items (246) (223) (88) 50 (119) 69 185 206

Cash flow from operations 1,925 2,546 3,344 3,313 10,083 (1,134) 3,058 5,241

Capex (5,874) (6,122) (5,481) (7,252) (8,714) (11,676) (9,369) (9,835)

Net (acquisitions)/disposals 7 (6) 5 (38) 0 0 0 0

Other investing CF items 80 96 11 155 61 383 259 259


Change in debt 10,530 4,255 7,416 5,542 4,855 12,000 11,100 6,300

Net share issues/(repurchases) 0 0 0 0 0 0 0 0

Dividends paid (1,164) (1,212) (1,365) (1,479) (1,487) (1,646) (1,986) (2,197)

Other financing CF items (1,279) (1,701) (1,642) (1,965) (2,095) (451) (597) (638)

Cash flow from financing 8,087 1,341 4,408 2,098 1,274 9,903 8,517 3,465


Change in cash 4,225 (2,145) 2,288 (1,723) 2,703 (2,524) 2,464 (870)

Free cash flow (3,948) (3,576) (2,136) (3,939) 1,368 (12,810) (6,311) (4,594)

47




Key ratios (%)


As at 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E


Inventory 24,427 24,239 25,239 25,906 33,456 35,918 38,671 41,731


Other current assets 356 465 455 597 1,128 1,193 1,393 1,520


Fixed assets 39,538 45,023 51,704 58,205 66,607 77,419 85,769 94,434

Goodwill & intangibles 4,567 4,567 4,567 4,567 4,567 4,567 4,567 4,567


Total assets 98,097 106,408 121,195 129,425 145,122 158,415 176,744 190,608

Short-term debt 2,284 6,209 6,855 5,724 6,661 8,900 8,700 6,000




Long-term debt 33,785 34,097 40,842 47,528 51,423 61,184 72,484 81,484



Share capital 24,551 24,551 24,551 24,551 24,551 24,551 24,551 24,551



Minority interests 353 135 271 255 255 274 297 322


EV 63,601 69,808 74,818 82,175 84,154 98,842 107,522 114,739

Net debt/(cash) 29,678 36,061 41,100 48,380 50,508 65,032 73,667 80,837

BVPS (PHP) 2.021 2.159 2.303 2.459 2.629 2.822 3.056 3.314

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Sales (YoY) 17.1 23.6 9.9 3.7 3.0 13.9 17.9 9.6

EBITDA (YoY) 14.8 26.6 21.1 2.0 6.1 20.6 26.1 11.5


Net profit (YoY) 14.2 15.7 10.5 4.7 8.3 10.7 20.7 10.6

Core EPS (fully-diluted) (YoY) 14.2 15.7 10.5 4.7 8.3 10.7 20.7 10.6


EBITDA margin 33.6 34.4 37.9 37.3 38.4 40.6 43.5 44.2



ROAE 8.3 9.0 9.3 9.2 9.3 9.6 10.8 11.0

ROAA 4.3 4.4 4.4 4.2 4.1 4.1 4.5 4.6

ROCE 5.0 5.5 6.1 5.6 5.3 5.8 6.5 6.6

ROIC 4.4 4.8 5.2 4.6 4.5 4.8 5.3 5.3




Current ratio (x) 3.3 2.2 2.1 2.4 2.2 2.2 2.4 2.7

Net interest cover (x) n.a. n.a. 79.0 30.2 49.1 24.7 22.8 24.1


Free cash flow yield n.a. n.a. n.a. n.a. 3.6 n.a. n.a. n.a.

Company profile

From being purely a house and lot residential developer, Filinvest Land has become a multi-product

property company with a presence in mid-rise and high-rise condominiums, as well as office and

retail leasing. The company is expanding provincially through townships and residential

communities (notably in Clark, Cebu and Davao) and aggressively building leasing assets in a bid

to reach a 50:50 residential/recurring mix by 2020.



What's new: In the past 2 years, the rapid growth in land value in the Manila

Bay area, home to several major casinos and many Philippine offshore gaming

operators (POGOs), reflects strong appetite for property in the area. SM Prime

has benefitted from this story through robust pre-sales and accelerating

revenue growth, as well as enhanced value of its 600ha reclamation project,

which is currently pending government approval. However, we believe these

factors also dilute its recurring income story, on which its narrow discount to

NAV is predicated. We maintain our TP of PHP34, but upgrade to Hold (3)

following the recent market sell-off.

What's the impact: Strong sales of its condominiums in Manila Bay, coupled

with lower cancellations, led SM Prime to record a 15% residential revenue

CAGR over 2015-17, faster than the flat growth it registered during 2012-15.

We see robust demand for property in the area continuing and expect SM

Prime’s residential revenue to rise at a 12% CAGR over 2017-20, contributing

3.9pp to our 9% revenue CAGR forecast over the period. While we welcome

the company’s diversification into house and lot formats in the provinces, we

expect Metro Manila, especially Manila Bay, to remain significant for SM

Prime’s revenue growth, given higher market prices in the area vs. the

provinces.

Meanwhile, we forecast SM Prime’s mall revenue to rise at an 8% CAGR over

2017-20, slower than the 11% CAGR posted during 2014-17, partly due to the

large base established over the years. The company has not provided

guidance on mall openings beyond 2018; hence, our estimates are based on

additional gross floor area (GFA) of 350,000 sq m, consistent with its average

annual additions in the past 5 years. We expect most of its new malls to be

located in the provincial areas, which remain underserved. As the mall

segment contributed 58% to SM Prime’s revenue in 2017, we estimate it to

account for 4.5pp of our 9% 2017-20E revenue CAGR.

What we recommend: We think the current share price fully factors in the

Manila Bay reclamation project and we see no further near-term upside once it

is approved. In our view, the inclusion of the reclamation project (c.27% of

NAV) dilutes SM Prime’s recurring income story. Also, we think the project is

not earnings-accretive in the near term and a potential drag on ROE. We roll

over our valuation to the average of 2018-19E NAV (from 2018E) and factor in

a higher cap rate amid rising interest rates. These adjustments result in our

NAV-based TP remaining unchanged at PHP34, but we upgrade to Hold (3)

from Underperform (4) following the recent market sell-off. Key risks: higher-

than-expected mall rollout, and approval of the Cebu reclamation project.

How we differ: Our 2019-20E EPS are 4-10% below the consensus, likely as

we are more conservative on SM Prime’s mall GFA rollout.

25 June 2018

SM Pri me

Recurring income story diluted

Manila Bay property demand boosts pre-sales, reclamation value

Residential revenue to grow faster than mall revenue over 2017-20E

Upgrading to Hold (3) rating and reiterating TP of PHP34



SM Prime (SMPH PM)




[email protected]






90

96

103

109

115

32

34

36

38

40



SM Prime (LHS)Relative to PCOMP Index (RHS)

(PHP) (%)

12-month range 32.35-39.70




Major shareholder SM Investments Corporation (49.7%)



Revenue (m) 101,773 110,046 117,774


Net profit (m) 31,428 33,889 36,292


EPS change (%) 14.0 7.8 7.1

Daiwa vs Cons. EPS (%) (0.0) (3.7) (9.8)

PER (x) 30.6 28.3 26.5


DPS 0.304 0.328 0.351

PBR (x) 2.9 2.7 2.5

EV/EBITDA (x) 20.0 18.7 17.5

ROE (%) 11.6 11.5 11.4

49




Growth outlook SM Prime: core attributable net income and YoY growth

We forecast SM Prime’s net profit to rise at a 10%

CAGR over 2017-20, led by: 1) steady expansion of its

mall segment (9% revenue CAGR), and 2) the continued

expansion of its residential segment (12% revenue

CAGR) from flat growth over 2012-15.

SM Prime aims to expand its mall segment through the

construction of new malls, expansion of existing malls

and acquisition of smaller malls. In the absence of

guidance beyond 2018, we assume an annual GFA

addition of 350,000 sq m, consistent with the average

additions in the past 5 years. Meanwhile, we expect

residential revenue growth to continue over 2017-20, led

by continued robust demand for its Manila Bay projects.


Valuation SM Prime: Historical PER

To arrive at our 12-month TP of PHP34, we applied a

15% discount to our average 2018-19E NAV, slightly

higher than the stock’s average past-3-year discount, as

the inclusion of the reclamation project increases the

share of non-recurring segments to NAV and dilutes its

recurring income story, on which its narrow discount to

NAV is predicated. Furthermore, we believe a premium

to NAV is undeserved, considering its history of capex

indiscipline, sub-par disclosures, and concentration and

execution risks related to its residential business.

At our TP, SM Prime trades at an implied forward 2018E

PER of 30x, 1SD above the stock’s past-5-year average

PER of 26.5x.

Source: Bloomberg

Earnings revisions SM Prime: consensus EPS

Over the past 12 months, the Bloomberg consensus

2018-19E EPS for SM Prime have been upgraded by

1.2-2.7%, likely due to better-than-expected pre-sales

and residential revenue in 2017.

Our 2019-20E EPS are 4-10% below the consensus,

likely as we are more conservative on SM Prime’s mall

GFA rollout.

Source: Bloomberg

15.4 17.7 34.0 22.8 27.2 31.4 33.9 36.3

-7

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19 168 7

(40)

(20)

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2013 2014 2015 2016 2017 2018E 2019E 2020E


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Jun-

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-15

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-2SD -1SD AVERAGE

+2SD +1SD PER (LHS)

0.95

1.00

1.05

1.10

1.15

1.20

1.25

3031323334353637383940

Jun-

17

Jul-1

7

Jul-1

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-17

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-17

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-17

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Dec

-17

Jan-

18

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Feb

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Mar

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Apr

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Apr

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Price (LHS)



50


Financial summary

Key assumptions


Cash flow (PHPm)


Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Residential project launches (Pbn) 31.8 17.6 35.6 35.0 38.5 39.2 38.5 39.7

Residential gross pre-sales (Pbn) 17.2 24.4 31.8 35.3 46.2 49.7 50.6 52.2

Additional malls GLA ('000 sqm) 159.0 190.8 359.1 224.7 434.1 257.1 194.3 194.3

Additional office GLA ('000 sqm) 0.0 27.5 82.7 0.0 79.8 0.0 0.0 81.1

Additional hotel rooms 0.0 0.0 154.0 347.0 0.0 0.0 0.0 0.0

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Mall 34,333 38,643 44,518 48,528 53,102 57,998 62,075 66,348

Residential 20,907 22,723 22,563 25,419 30,039 35,466 39,132 41,953

Other Revenue 4,555 4,875 4,430 5,869 7,780 8,308 8,839 9,473

Total Revenue 59,794 66,240 71,511 79,816 90,922 101,773 110,046 117,774

Other income 0 0 0 0 0 0 0 0

COGS (11,921) (12,257) (12,039) (13,117) (15,152) (17,725) (19,557) (20,967)

SG&A (11,437) (12,440) (13,449) (15,702) (17,247) (19,305) (20,875) (22,341)



Net-interest inc./(exp.) (2,994) (3,702) (2,765) (3,636) (4,631) (4,538) (4,712) (4,966)

Assoc/forex/extraord./others (431) (310) 6,237 (640) (50) 371 371 371

Pre-tax profit 20,710 23,674 34,911 30,989 35,948 40,973 44,181 47,314

Tax (3,984) (4,778) (6,018) (6,621) (7,823) (8,917) (9,615) (10,297)




EPS (reported)(PHP) 0.586 0.660 0.982 0.824 0.955 1.088 1.173 1.257

EPS (adjusted)(PHP) 0.586 0.660 0.982 0.824 0.955 1.088 1.173 1.257


DPS (PHP) 0.169 0.189 0.210 0.230 0.267 0.304 0.328 0.351

EBIT 24,136 27,687 31,439 35,265 40,629 45,140 48,522 51,909

EBITDA 30,116 34,266 38,406 43,079 49,588 54,888 59,032 63,182

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E


Depreciation and amortisation 5,981 6,580 6,967 7,814 8,959 9,748 10,510 11,273

Tax paid (4,116) (4,895) (5,486) (6,187) (7,608) (8,917) (9,615) (10,297)

Change in working capital (1,990) (21,922) 1,062 1,475 (5,365) (6,190) (4,522) (3,335)

Other operational CF items 3,234 3,572 (4,973) 3,790 4,999 3,755 3,320 3,829

Cash flow from operations 23,819 7,009 32,481 37,881 36,933 39,369 43,874 48,784

Capex (24,994) (35,669) (42,714) (30,714) (26,791) (36,309) (34,422) (32,969)

Net (acquisitions)/disposals (6,557) (268) (7,942) (331) (2,518) 0 0 0

Other investing CF items 143 5,826 (5,222) (2,721) (1,835) (1,865) (2,006) (2,159)


Change in debt 22,471 22,875 23,605 5,583 27,452 1,654 (10,322) (5,672)

Net share issues/(repurchases) 0 17,646 0 0 158 0 0 0

Dividends paid (5,021) (5,587) (6,442) (7,137) (8,278) (8,786) (9,474) (10,146)

Other financing CF items (4,049) (3,719) (2,500) (3,283) (4,333) (4,566) (4,713) (4,941)

Cash flow from financing 13,401 31,215 14,663 (4,837) 15,000 (11,698) (24,509) (20,759)


Change in cash 5,812 8,113 (8,734) (722) 20,789 (10,503) (17,063) (7,103)

Free cash flow (1,176) (28,659) (10,233) 7,167 10,142 3,060 9,452 15,815

51




Key ratios (%)


As at 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E


Inventory 6,103 7,579 8,165 7,788 8,733 10,216 11,272 12,085




Fixed assets 194,785 227,325 255,126 272,591 310,726 337,286 361,198 382,895



Total assets 335,584 388,840 434,966 465,560 538,418 570,200 588,627 613,663

Short-term debt 10,637 13,677 29,716 7,994 26,088 22,894 24,610 22,744


Other current liabilities 947 744 956 1,103 1,035 1,035 1,035 1,035


Long-term debt 95,676 115,606 125,952 156,384 167,509 172,357 160,319 156,513



Share capital 33,166 33,166 33,166 33,166 33,166 33,166 33,166 33,166





EV 1,034,562 1,049,724 1,069,818 1,078,874 1,087,436 1,098,070 1,103,174 1,102,842

Net debt/(cash) 77,132 92,394 128,313 137,593 147,854 160,010 166,752 168,183

BVPS (PHP) 7.266 8.096 8.641 9.413 10.530 11.451 12.444 13.507

Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E

Sales (YoY) 4.5 10.8 8.0 11.6 13.9 11.9 8.1 7.0

EBITDA (YoY) 10.7 13.8 12.1 12.2 15.1 10.7 7.5 7.0


Net profit (YoY) 0.4 13.0 53.9 (15.9) 15.8 14.0 7.8 7.1

Core EPS (fully-diluted) (YoY) 0.4 12.6 48.8 (16.0) 15.8 14.0 7.8 7.1


EBITDA margin 50.4 51.7 53.7 54.0 54.5 53.9 53.6 53.6



ROAE 10.5 10.2 13.8 10.7 11.2 11.6 11.5 11.4

ROAA 5.2 5.1 6.9 5.3 5.5 5.7 5.8 6.0

ROCE 9.6 9.2 8.9 9.1 9.5 9.6 9.9 10.3

ROIC 8.7 8.2 8.1 7.7 8.1 8.2 8.2 8.3




Current ratio (x) 1.3 1.7 1.4 2.1 1.6 1.6 1.4 1.3

Net interest cover (x) 8.1 7.5 11.4 9.7 8.8 9.9 10.3 10.5


Free cash flow yield n.a. n.a. n.a. 0.7 1.1 0.3 1.0 1.6

Company profile

SM Prime is the largest mall operator in the Philippines, having built 67 malls with an 8.0m sq m

gross floor area (GFA). Its malls and offices complement its retail business by boosting foot traffic in

its malls. The company's residential arm is presently concentrated in the Metro Manila

condominium market.

52


Daiwa’s Asia Pacific Research Directory

HONG KONG

Takashi FUJIKURA (852) 2848 4051 [email protected]

Regional Research Head

Jiro IOKIBE (852) 2773 8702 [email protected]

Co-head of Asia Pacific Research

John HETHERINGTON (852) 2773 8787 [email protected]

Co-head of Asia Pacific Research

Craig CORK (852) 2848 4463 [email protected]

Regional Head of Asia Pacific Product Management

Paul M. KITNEY (852) 2848 4947 [email protected]

Chief Strategist for Asia Pacific; Strategy (Regional)

Kevin LAI (852) 2848 4926 [email protected]

Chief Economist for Asia ex-Japan; Macro Economics (Regional)

Olivia XIA (852) 2773 8736 [email protected]

Macro Economics (Hong Kong/China)

Kelvin LAU (852) 2848 4467 [email protected]

Head of Automobiles; Transportation and Industrial (Hong Kong/China)

Jay LU (852) 2848 4970 [email protected]

Automobiles and Components (Hong Kong/China)

Leon QI (852) 2532 4381 [email protected]

Regional Head of Financials; Banking; Diversified financials; Insurance (Hong Kong/China)

Anson CHAN (852) 2532 4350 [email protected]

Consumer (Hong Kong/China)

Adrian CHAN (852) 2848 4427 [email protected]

Consumer (Hong Kong/China)

John CHOI (852) 2773 8730 [email protected]

Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap

Fiona LIANG (852) 2532 4341 [email protected]

Industrial (Hong Kong/China)

Dennis IP (852) 2848 4068 [email protected]

Regional Head of Power, Utilities, Renewable and Environment (PURE); PURE (Hong Kong/China)

Daniel YANG (852) 2848 4443 [email protected]

Power, Utilities, Renewable and Environment (PURE) – Solar and Nuclear (China)

Don LAU (852) 2848 4469 [email protected]

Power, Utilities, Renewable and Environment (PURE) – Utilities (Hong Kong)

Jonas KAN (852) 2848 4439 [email protected]

Head of Hong Kong and China Property

Cynthia CHAN (852) 2773 8243 [email protected]

Property (China)

Carlton LAI (852) 2532 4349 [email protected]

Small/Mid Cap (Hong Kong/China)

Michelle WANG (852) 2773 8842 [email protected]

Transportation (Hong Kong/China)

Fan LI (852) 2773 8741 [email protected]

Custom Products Group

PHILIPPINES

Renzo CANDANO (63) 2 737 3022 [email protected]

Consumer

Micaela ABAQUITA (63) 2 737 3021 [email protected]

Property

Gregg ILAG (63) 2 737 3023 [email protected]

Utilities; Energy

SOUTH KOREA

Sung Yop CHUNG (82) 2 787 9157 [email protected]

Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Shipbuilding; Steel

Mike OH (82) 2 787 9179 [email protected]

Banking; Capital Goods (Construction and Machinery)

Josh RHEE (82) 2 787 9124 [email protected]

Chemicals

Iris PARK (82) 2 787 9165 [email protected]

Consumer/Retail

SK KIM (82) 2 787 9173 [email protected]

IT/Electronics – Semiconductor/Display and Tech Hardware

Thomas Y KWON (82) 2 787 9181 [email protected]

Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Games

TAIWAN

Rick HSU (886) 2 8758 6261 [email protected]

Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional)

Nora HOU (886) 2 8758 6249 [email protected]

Banking; Diversified financials; Insurance

Steven TSENG (886) 2 8758 6252 [email protected]

IT/Technology Hardware (PC Hardware)

Kylie HUANG (886) 2 8758 6248 [email protected]

IT/Technology Hardware (Handsets and Components)

Helen CHIEN (886) 2 8758 6254 [email protected]

Small/Mid Cap

INDIA

Punit SRIVASTAVA (91) 22 6622 1013 [email protected]

Head of India Research; Strategy; Banking/Finance

Saurabh MEHTA (91) 22 6622 1009 [email protected]

Capital Goods; Utilities

SINGAPORE

Ramakrishna MARUVADA (65) 6228 6742 [email protected]

Head of Singapore Research; Telecommunications (China/ASEAN/India)

David LUM (65) 6228 6740 [email protected]

Banking; Property and REITs

Royston TAN (65) 6228 6745 [email protected]

Oil and Gas; Capital Goods

Jame OSMAN (65) 6228 6744 [email protected]

Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer (Singapore)

JAPAN

Yukino YAMADA (81) 3 5555 7295 [email protected]

Strategy (Regional)

53


Daiwa’s Offices

Office / Branch / Affiliate Address Tel Fax

DAIWA SECURITIES GROUP INC

HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661

Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726

Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129

Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

Daiwa Capital Markets America Inc. New York Head Office Financial Square, 32 Old Slip, New York, NY10005, U.S.A. (1) 212 612 7000 (1) 212 612 7100

Daiwa Capital Markets America Inc. San Francisco Branch 555 California Street, Suite 3360, San Francisco, CA 94104, U.S.A. (1) 415 955 8100 (1) 415 956 1935

Daiwa Capital Markets Europe Limited, London Head Office 5 King William Street, London EC4N 7AX, United Kingdom (44) 20 7597 8000 (44) 20 7597 8600

Daiwa Capital Markets Europe Limited, Frankfurt Branch Neue Mainzer Str. 1, 60311 Frankfurt/Main, Germany (49) 69 717 080 (49) 69 723 340

Daiwa Capital Markets Europe Limited, Paris Representative Office 17, rue de Surène 75008 Paris, France (33) 1 56 262 200 (33) 1 47 550 808

Daiwa Capital Markets Europe Limited, Geneva Branch 50 rue du Rhône, P.O.Box 3198, 1211 Geneva 3, Switzerland (41) 22 818 7400 (41) 22 818 7441

Daiwa Capital Markets Europe Limited, Moscow Representative Office

Midland Plaza 7th Floor, 10 Arbat Street, Moscow 119002, Russian Federation

(7) 495 641 3416 (7) 495 775 6238

Daiwa Capital Markets Europe Limited, Bahrain Branch 7th Floor, The Tower, Bahrain Commercial Complex, P.O. Box 30069, Manama, Bahrain

(973) 17 534 452 (973) 17 535 113

Daiwa Capital Markets Hong Kong Limited Level 28, One Pacific Place, 88 Queensway, Hong Kong (852) 2525 0121 (852) 2845 1621

Daiwa Capital Markets Singapore Limited 7 Straits View, Marina One East Tower, #16-05 & #16-06, Singapore 018936, Republic of Singapore

(65) 6387 8888 (65) 6282 8030

Daiwa Capital Markets Australia Limited Level 34, Rialto North Tower, 525 Collins Street, Melbourne, Victoria 3000, Australia

(61) 3 9916 1300 (61) 3 9916 1330

DBP-Daiwa Capital Markets Philippines, Inc 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village, Makati City, Republic of the Philippines

(632) 813 7344 (632) 848 0105

Daiwa-Cathay Capital Markets Co Ltd 14/F, 200, Keelung Road, Sec 1, Taipei, Taiwan, R.O.C. (886) 2 2723 9698 (886) 2 2345 3638

Daiwa Securities Capital Markets Korea Co., Ltd. 20 Fl.& 21Fl. One IFC, 10 Gukjegeumyung-Ro, Yeongdeungpo-gu, Seoul, Korea

(82) 2 787 9100 (82) 2 787 9191

Daiwa Securities Co. Ltd., Beijing Representative Office Room 301/302，Kerry Center，1 Guanghua Road，Chaoyang District，

Beijing 100020, People’s Republic of China

(86) 10 6500 6688 (86) 10 6500 3594

Daiwa (Shanghai) Corporate Strategic Advisory Co. Ltd. 44/F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong, Shanghai China 200120 , People’s Republic of China

(86) 21 3858 2000 (86) 21 3858 2111

Daiwa Securities Co. Ltd., Bangkok Representative Office 18th Floor, M Thai Tower, All Seasons Place, 87 Wireless Road,

Lumpini, Pathumwan, Bangkok 10330, Thailand (66) 2 252 5650 (66) 2 252 5665

Daiwa Capital Markets India Private Ltd 10th Floor, 3 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra East, Mumbai – 400051, India

(91) 22 6622 1000 (91) 22 6622 1019

Daiwa Securities Co. Ltd., Hanoi Representative Office Suite 405, Pacific Palace Building, 83B, Ly Thuong Kiet Street, Hoan Kiem Dist. Hanoi, Vietnam

(84) 4 3946 0460 (84) 4 3946 0461

DAIWA INSTITUTE OF RESEARCH LTD

HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603

MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

New York Research Center 11th Floor, Financial Square, 32 Old Slip, NY, NY 10005-3504, U.S.A. (1) 212 612 6100 (1) 212 612 8417

London Research Centre 3/F, 5 King William Street, London, EC4N 7AX, United Kingdom (44) 207 597 8000 (44) 207 597 8550

54


Important Disclosures and Disclaimer

This publication is produced by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, and distributed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates, except to the extent expressly provided herein. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Securities Group Inc. nor any of its respective parent, holding, subsidiaries or affiliates, nor any of its respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Securities Group Inc., and/or its affiliates nor any of its respective directors, officers, servants and employees except where the publication states otherwise. This research report is not to be relied upon by any person in making any investment decision or otherwise advising with respect to, or dealing in, the securities mentioned, as it does not take into account the specific investment objectives, financial situation and particular needs of any person.

Daiwa Securities Group Inc., its subsidiaries or affiliates, or its or their respective directors, officers and employees from time to time have trades as principals, or have positions in, or have other interests in the securities of the company under research including market making activities, derivatives in respect of such securities or may have also performed investment banking and other services for the issuer of such securities. Daiwa Securities Group Inc., its subsidiaries or affiliates do and seek to do business with the company(s) covered in this research report. Therefore, investors should be aware that a conflict of interest may exist. The following are additional disclosures. Ownership of Securities

For “Ownership of Securities” information, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Investment Banking Relationship

For “Investment Banking Relationship”, please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Japan Daiwa Securities Co. Ltd. and Daiwa Securities Group Inc.

Daiwa Securities Co. Ltd. is a subsidiary of Daiwa Securities Group Inc. Investment Banking Relationship

Within the preceding 12 months, the subsidiaries and/or affiliates of Daiwa Securities Group Inc. * has lead-managed public offerings and/or secondary offerings (excluding straight bonds) of the securities of the following companies: PT Totalindo Eka Persada Tbk (TOPS IJ), PT Integra Indocabinet Tbk (WOOD IJ), PT Buyung Putera Sembada (HOKI IJ), Cromwell European REIT (CERT_SP), Beijing Enterprises Water Group Ltd (371 HK), Mirae Asset Daewoo Co Ltd (006800 KS).

*Subsidiaries of Daiwa Securities Group Inc. for the purposes of this section shall mean any one or more of: Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司), Daiwa

Capital Markets Singapore Limited, Daiwa Capital Markets Australia Limited, Daiwa Capital Markets India Private Limited, Daiwa-Cathay Capital Markets Co., Ltd., Daiwa Securities Capital Markets Korea Co., Ltd. Hong Kong

This research is distributed in Hong Kong by Daiwa Capital Markets Hong Kong Limited (大和資本市場香港有限公司) (“DHK”) which is regulated by the Hong Kong Securities and Futures

Commission. Recipients of this research in Hong Kong may contact DHK in respect of any matter arising from or in connection with this research. Relevant Relationship (DHK) DHK may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage.

Singapore This research is distributed in Singapore by Daiwa Capital Markets Singapore Limited and it may only be distributed in Singapore to accredited investors, expert investors and institutional investors as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. By virtue of distribution to these category of investors, Daiwa Capital Markets Singapore Limited and its representatives are not required to comply with Section 36 of the Financial Advisers Act (Chapter 110) (Section 36 relates to disclosure of Daiwa Capital Markets Singapore Limited’s interest and/or its representative’s interest in securities). Recipients of this research in Singapore may contact Daiwa Capital Markets Singapore Limited in respect of any matter arising from or in connection with the research. Australia

This research is distributed in Australia by Daiwa Capital Markets Australia Limited and it may only be distributed in Australia to wholesale investors within the meaning of the Corporations Act. Recipients of this research in Australia may contact Daiwa Capital Markets Stockbroking Limited in respect of any matter arising from or in connection with the research. India This research is distributed in India to Institutional Clients only by Daiwa Capital Markets India Private Limited (Daiwa India) which is an intermediary registered with Securities & Exchange Board of India as a Stock Broker, Merchant Bank and Research Analyst. Daiwa India, its Research Analyst and their family members and its associates do not have any financial interest save as disclosed or other undisclosed material conflict of interest in the securities or derivatives of any companies under coverage. Daiwa India and its associates, may have received compensation for any products other than Investment Banking (as disclosed)or brokerage services from the subject company in this report or from any third party during the past 12 months. Daiwa India and its associates may have debt holdings in the subject company. For information on ownership of equity, please visit BlueMatrix disclosure Link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

There is no material disciplinary action against Daiwa India by any regulatory authority impacting equity research analysis activities as of the date of this report.

Associates of Daiwa India, registered with Indian regulators, include Daiwa Capital Markets Singapore Limited and Daiwa Portfolio Advisory (India) Private Limited. Taiwan

This research is solely for reference and not intended to provide tailored investment recommendations. This research is distributed in Taiwan by Daiwa-Cathay Capital Markets Co., Ltd. and it may only be distributed in Taiwan to specific customers who have signed recommendation contracts with Daiwa-Cathay Capital Markets Co., Ltd. and non-customers including (i) professional institutional investors, (ii) TWSE or TPEx listed companies, upstream and downstream vendors, and specialists that offer or seek advice, and (iii) potential customers with an actual need for business development in accordance with the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. Recipients of this research including non-customer recipients of this research shall not provide it to others or engage in any activities in connection with this research which may involve conflicts of interests. Neither Daiwa-Cathay Capital Markets Co., Ltd. nor its personnel who writes or reviews the research report has any conflict of interest in this research. Since Daiwa-Cathay Capital Markets Co., Ltd. does not operate brokerage trading business in foreign markets, this research is prepared on a “without recommendation” to any foreign securities basis and Daiwa-Cathay Capital Markets Co., Ltd. does not accept orders from customers to trade in such foreign securities that are without recommendation. Recipients of this research in Taiwan may contact Daiwa-Cathay Capital Markets Co., Ltd. in respect of any matter arising from or in connection with the research. Philippines This research is distributed in the Philippines by DBP-Daiwa Capital Markets Philippines, Inc. which is regulated by the Philippines Securities and Exchange Commission and the Phil ippines Stock Exchange, Inc. Recipients of this research in the Philippines may contact DBP-Daiwa Capital Markets Philippines, Inc. in respect of any matter arising from or in connection with the research. DBP-Daiwa Capital Markets Philippines, Inc. recommends that investors independently assess, with a professional advisor, the specific financial risks as well as the legal, regulatory, tax, accounting, and other consequences of a proposed transaction. DBP-Daiwa Capital Markets Philippines, Inc. may have positions or may be materially interested in the securities in any of the markets mentioned in the publication or may have performed other services for the issuers of such securities.

For relevant securities and trading rules please visit SEC and PSE links at http://www.sec.gov.ph and http://www.pse.com.ph/ respectively. Thailand

This research is distributed to only institutional investors in Thailand primarily by Thanachart Securities Public Company Limited (“TNS”).

This report is prepared by analysts who are employed by Daiwa Securities Group Inc. and/or its non-U.S. affiliates. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither TNS, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees accept any liability whatsoever for any direct or consequential loss arising from any use of this research or its contents.

The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable. However, TNS, Daiwa Securities Group Inc. nor any of their respective parent, holding, subsidiaries or affiliates, nor any of their respective directors, officers, servants and employees make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user.

TNS, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates, their respective directors, officers, servants and employees may have positions and financial interest in securities mentioned in this research. Thanachart Securities Public Company Limited, Daiwa Securities Group Inc., their respective parent, holding, subsidiaries or affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this research. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this research.

https://daiwa3.bluematrix.com/sellside/Disclosures.action



http://www.sec.gov.ph/

http://www.pse.com.ph/

55


United Kingdom This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available. Daiwa Capital Markets Europe Limited has in place organisational arrangements for the prevention and avoidance of conflicts of interest. Our conflict management policy is available at http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory. Germany This document is distributed in Germany by Daiwa Capital Markets Europe Limited, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany. Bahrain This research material is distributed in Bahrain by Daiwa Capital Markets Europe Limited, Bahrain Branch, regulated by The Central Bank of Bahrain and holds Investment Business Firm – Category 2 license and having its official place of business at the Bahrain World Trade Centre, South Tower, 7th floor, P.O. Box 30069, Manama, Kingdom of Bahrain. Tel No. +973 17534452 Fax No. +973 535113 United States

This research is distributed into the United States directly by Daiwa Capital Markets Hong Kong Limited and indirectly by Daiwa Capital Markets America Inc. (DCMA), a U.S. Securities and Exchange Commission registered broker-dealer and FINRA member firm, exclusively to “major U.S. institutional investors”, as defined under Rule 15a-6 promulgated under the U.S. Securities Exchange Act of 1934, as amended, and as interpreted by the staff of the U.S. Securities and Exchange Commission (SEC). This report is not an offer to sell or the solicitation of any offer to buy securities. U.S. customers wishing to effect transactions in any designated investment discussed in this report should do so through a qualified salesperson of DCMA. Non-U.S. customers wishing to effect transactions in any designated investment discussed in this report should contact a Daiwa entity in their local jurisdiction. The securities or other investment products discussed in this report may not be eligible for sale in some jurisdictions.

Analysts employed outside the U.S., as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. These analysts may not be associated persons of DCMA, and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

ADDITIONAL IMPORTANT DISCLOSURES CAN BE FOUND AT:


Ownership of Securities For “Ownership of Securities” information please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

Investment Banking Relationships For “Investment Banking Relationships” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action.

DCMA Market Making For “DCMA Market Making” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analyst is named on the report); and no part of the compensation of such analyst (or no part of the compensation of the firm if no individual analyst is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.

Disclosure of investment ratings

Rating Percentage of total

Buy* 68.4%

Hold** 21.2%

Sell*** 10.4%

Source: Daiwa

Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 31 March 2018. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law

(This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items.

In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction.

In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan.

For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements.

There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements.

There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us.

Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association

http://www.uk.daiwacm.com/about-us/corporate-governance-regulatory







Philippines Property

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