The rise in interest rates brought about by high inflation and weak peso has caused the Philippine Stock Exchange (PSE) Property Index to lose as much as 20 percent from its high in January.
Although inflation seems to have topped out recently while the peso began to strengthen back to 52-level, there are no clear signs yet when the general market will recover despite the current rallies.
Market sentiment should begin to improve once interest rates start to go down in the coming weeks.
In a market environment like this where direction is still uncertain, there are always opportunities for value investing.
Value investing happens when investors select stocks that they perceive to have fallen below their fundamental value.
The property sector has been one of the most beaten stocks during this market downtrend. Let us review the property stocks that have lost the most value since January.
For purposes of screening in identifying potential value stocks, let us only select property companies that generate net income of at least Php1 billion and minimum return on equity of 10 percent.
Here are the five worst-performing property stocks every investor in the stock market should know and where you can possibly pick them up:
Year-to-date loss: 77 percent
Starmalls, Inc (PSE:STR) is majority owned and controlled by the Villar family through Vista Land and Lifescapes, Inc (PSE:VLL), which is also listed at the PSE.
STR operates nine malls under the brands of Vista Malls and Starmalls and three BPO commercial centers located in key cities and municipalities in the country with over 800,000 square meters of leasable spaces.
The company is currently constructing more commercial centers in Taguig City, Las Piñas City, Cavite, Davao, Naga and Cagayan de Oro, which will be completed and operational in the next two years.
STR’s net earnings have been growing by a compounded rate of seven percent per annum from Php1.5 billion in 2013 to Php2.0 billion in 2017 on the back of aggressive revenue growth.
This year, STR reported that its nine-month net earnings grew by 17 percent to Php1.8 billion from Php1.5 billion in the same period last year as revenues increased by 12 percent to Php4.6 billion.
The stock of STR has fallen by 77 percent to a 52-week low at Php4.05 per share after it reached an all-time high record this year at Php32 per share on speculations that the company will join the bidding for the country's third telecommunications company.
STR is currently trading at 15x price-to-earnings ratio, which is at par with the market average. Current support is at Php3.70 but further weakness should see the stock holding at Php1.80 per share.
2. DoubleDragon Properties
Year-to-date loss: 52 percent
DoubleDragon Properties (PSE: DD) has slowly transitioned its business model from a property development business to a recurring revenue-based company over the last two years.
More than three years ago, when DD was listed in the stock exchange, the capital it raised was only Php1 billion. At that time, Injap Sia, the company’s co-founder, estimated that he will need Php40 billion to build a chain of community malls all over the country.
Through a series of fundraising activities and aggressive expansion over the years, Sia has built the assets that he has promised to deliver.
With over 40-percent completion of his target one million square meters of leasable spaces, the recurring revenues of DD today has reached over Php2.0 billion based on its latest nine-month earnings report, which increased its net income by 10.4 percent to Php1.5 billion.
The stock of DD has been on a downtrend since June 2016 after it peaked at Php80 per share. The emerging growth in income from its leasing business should enable the stock to recover in the future.
3. Belle Corporation
Year-to-date loss: 42 percent
Belle Corporation (PSE: BEL) is in the business of property development with significant interests in gaming and hospitality.
BEL is known as the developer of Tagaytay Highlands in the late 1990s. It has developed several property projects and condominiums around the highlands area in Tagaytay and Batangas.
BEL is also the co-licensee and lessor of “City of Dreams Manila,” which is located in PAGCOR’s Entertainment City near the Mall of Asia Complex.
About 32 percent of BEL’s revenues come from its gaming revenue share, 25 percent from interest income from finance lease and 28 percent from lottery equipment rental and ticket sales.
BEL’s revenues have been growing by an average of 11 percent per year from Php5.3 billion in 2015 to Php8.0 billion in 2017. This translates to 17 percent annual increase in net income to Php2.8 billion last year.
This year, BEL reported that its net income grew only by 1.1 percent to Php2.2 billion on four-percent increase in total revenues of Php4.9 billion.
The stock of BEL has immediate historical support at Php2.01 per share. Further weakness may bring the stock to Php1.80.
4. D.M. Wenceslao and Associates
Year-to-date loss: 26 percent
D.M. Wenceslao and Associates (PSE: DMW) is in the business of real estate that comprises land sales and leasing, commercial building leasing, property development and residential unit sales.
The company owns one of the largest land holdings in Metro Manila, majority of which is in Aseana City, which is strategically located next to PAGCOR’s Entertainment City and SM Mall of Asia Complex.
Total revenues have been growing by an average of 35 percent per year from Php1.6 billion in 2015 to Php3 billion in 2017.
A bulk of its current revenues, about 49 percent, comes from its leasing business from land and commercial properties, which has been growing by an average of 11 percent per year while 35 percent comes from land sales.
This year, DMW reported that its revenue mix has changed with its leasing business dominating a bigger share at 83 percent of the total with land sales contributing almost nothing.
Because of this, total revenues for the first nine months of the year declined by 30 percent to Php1.8 billion. Net income, however, increased by 3.6 percent to Php1.5 billion due to other income.
Since its IPO last June, the stock has lost more than one-third of its value from Php12 initial public offering price to Php7.60 per share.
DMW has promising growth potentials in the future given its ability to add value by developing its huge landbank in Aseana using its IPO proceeds and growing rental revenues from its leasing business.
5. Cebu Landmasters
Year-to-date loss: 18 percent
Cebu Landmasters (PSE:CLI) is one of the top real estate developers in the Visayas-Mindanao region. It is the leading homegrown developer in Cebu with an 11-percent market share in terms of condominium supply in Metro Cebu that is second only to Ayala Land, which has 17 percent share.
Last year, CLI’s revenues grew by 66 percent to Php3.9 billion from Php2.4 billion in 2016, which increased its net income by 65 percent to Php1.3 billion.
This year, CLI reported that its nine-month revenues have increased by 33 percent to Php3.7 billion from Php2.8 billion last year while net income grew by 27 percent to Php1.2 billion.
CLI is probably one of the cheapest property stocks in the market with Price-to-Earnings ratio of only 4.5x. The stock is trading at 23 percent below its IPO price at Php5.00.
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice email@example.com or follow him on Twitter @henryong888