TUESDAY, 24 JUNE 2014
Bloomberry Resorts Corporation:
Upgrading to BUY due to stronger earnings
and more attractive valuations
We are raising our revenue and net income forecast to reflect the stronger than expected earnings
growth that BLOOM exhibited in the first quarter. We are also raising our FV estimate from Php11.20 to
Php12.62 to reflect the earnings revision. Given the recent correction in BLOOM’s share price and the
increase in our earnings and fair value estimates, we are upgrading our recommendation on the stock
from HOLD to BUY.
•
•
•
VIP segment driving growth. Growth of Solaire has been greatly driven by its VIP segment.
Despite being in operations for only 13 months, BLOOM has successfully positioned itself as a
premium gaming destination allowing it to gain significant traction in attracting foreign and local VIP
players. In 1Q14, drop volume of the VIP segment grew 23.1% q/q and VIP revenues accounted
for 52% of gaming revenues, as compared to around 40% in FY13. Driven by the growth of the VIP
segment, we estimate that BLOOM has gained a gaming market share of around 27% in 1Q14.
Raising EBITDA and income forecast. We are raising our earnings forecast for 2014 and 2015
after factoring in the better than expected results in 1Q14. Revenues were slightly better than
expected but EBITDA and net income beat our estimates by a wide margin. We raised our EBITDA
margin assumption from 25% to 33% for FY14 and from 25.7% to 32.8% for FY15. We also reduced
our interest expense estimates from Php1.26 Bil to Php445 Mil in FY14 and from Php1.64 Bil to
Php490 Mil in FY15 as BLOOM capitalized a bigger part of interest expense. In 1Q14, BLOOM’s
interest expense was just Php64.7 Mil, a fraction of our previous full year forecast.
Raising FV to Php12.62, upgrading to BUY. We are raising our fair value estimate from Php11.20
to Php12.62 as a result of the increase in our EBITDA forecast. Our FV estimate is based on
the average of our DCF-based FV estimate of Php14.87 and relative valuation based fair value
estimate of Php10.37. Our DCF based fair value estimate assumes a WACC rate of 8.4% and
a terminal growth rate of 3%, while our relative valuation multiple based FV estimate uses on a
target EV/EBITDA of 14.5X, at par with the multiple that we used in valuing RWM. Given the recent
correction in BLOOM’s share price and the increase in our earnings and fair value estimates, we are
upgrading our recommendation on the stock from HOLD to BUY.
Revenues
% change y/y
EBITDA
% change y/y
EBITDA margin
EBIT
% change y/y
EBIT margin
Net profits
% change y/y
Net profit margin
EPS (cents)
% change y/y
2013
2014E
2015E
2016E
12,290
22,646
28,771
33,122
N/A
84.3%
27.0%
15.1%
1,065
7,570
9,446
10,551
N/A
611.1%
24.8%
11.7%
8.7%
33.4%
32.8%
31.9%
(975)
5,469
6,565
7,670
N/A
-661.1%
20.0%
16.8%
-7.9%
24.1%
22.8%
23.2%
(1,315)
4,875
5,865
6,924
N/A
N/A
20.3%
18.1%
-10.7%
21.5%
20.4%
20.9%
(0.02)
0.44
0.53
0.65
N/A
N/A
20.6%
22.7%
(454.4)
24.4
20.2
16.5
RELATIVE VALUE
P/E (X)
P/BV (X)
6.8
5.3
4.2
3.3
EV/EBITEDA
119.5
16.8
13.5
12.1
ROE (%)
-7.8%
25.4%
24.1%
22.6%
source: BLOOM
BUY
Rating
Ticker
Fair Value (Php)
Current Price
Upside (%)
BLOOM
12.62
10.76
17.29
SHARE PRICE MOVEMENT
130
120
110
100
90
80
24-Mar-14
24-Apr-14
BLOOM
24-May-14
24-Jun-14
PSEi
ABSOLUTE PERFORMANCE
BLOOM
PSEi
1M
-8.66
-0.53
3M
9.68
5.85
YTD
24.97
15.03
MARKET DATA
FORECAST SUMMARY
Year to December 31 (Php Bil)
SHARE DATA
Market Cap
Outstanding Shares
52 Wk Range
3Mo Ave Daily T/O
113,946.25Mil
10,589.80Mil
8.28 - 12.52
72.84Mil
Richard Lañeda, CFA
[email protected]
PHILIPPINE EQUITY RESEARCH
Off to a great start
Bloomberry started the year strong with a stellar 1Q14 performance that beat COL and consensus
estimates. Bloomberry posted a record quarterly profit of Php1.46 Bil during 1QFY14 on the back
of strong gaming revenues which grew 38.4% q/q to Php5.7 Bil. This was driven by a 23.1%
improvement in VIP drop volume and 16.3% growth in slots drop volume. Volume from mass tables
was flat. Blended hold rate was also better compared to 4Q13, which further boosted revenues. The
strong revenues resulted in a huge operating leverage that boosted EBITDA to Php2.1 Bil and net
income to Php1.46 Bi. EBITDA margin in the first quarter reached 35.8%, significantly higher than
our assumption of 25% for the year. This shows that Solaire can operate at a high level of efficiency
after just 13 months of operations.
VIP segment driving growth
Growth of Solaire has been greatly driven by its VIP segment. Despite being in operations for only
13 months, BLOOM has successfully positioned itself as a premium gaming destination allowing it to
gain significant traction in attracting foreign and local VIP players. In 1Q14, drop volume of the VIP
segment grew 23.1% q/q and VIP revenues accounted for 52% of gaming revenues, as compared to
around 40% in FY13. Driven by the growth of the VIP segment, we estimate that BLOOM has gained
a gaming market share of around 27% in 1Q14.
Phase 1A to complete product offerings and add capacity
Solaire’s expansion dubbed as Phase 1A is scheduled for completion in 4Q14. It will complete the
product offerings of Solaire as an integrated resort and also add more tables and slot machines.
Phase 1A will have a 1,700-seat theater, 50-70 retail stores, a night club, a karaoke bar, and a
spa. This will make Solaire a more family-friendly place and thus improve foot traffic in the area. In
addition, Solaire will add 65 VIP gaming tables and 223 slot machines. This will bring Solaire’s total
gaming capacity to 180 VIP tables, 180 mass tables, and 1,623 electronic gaming machines, mostly
slot machines. The expansion will help Solaire sustain the growth of its gaming revenues, especially
in the VIP segment where the company has been making strides.
BLOOM recognized that the opening of City of Dreams Manila may increase competition in the
Entertainment City but Phase 1A will help keep its market share. It will also create scale that will
make Philippines a gaming destination and thus help the growth of the overall gaming sector which
is still small at this point.
TUESDAY, 24 JUNE 2014
BLOOM
I
COMPANY UPDATE
page 2
PHILIPPINE EQUITY RESEARCH
Raising EBITDA and income forecast
We are raising our earnings forecast for 2014 and 2015 after factoring in the better than expected
results in 1Q14. Revenues were slightly better than expected but EBITDA and net income beat our
estimates by a wide margin. We raised our EBITDA margin assumption from 25% to 33% for FY14
and from 25.7% to 32.8% for FY15. We also reduced our interest expense estimates from Php1.26
Bil to Php445 Mil in FY14 and from Php1.64 Bil to Php490 Mil in FY15 as BLOOM capitalized a
bigger part of interest expense. In 1Q14, BLOOM’s interest expense was just Php64.7 Mil, a fraction
of our previous full year forecast.
As a result of the higher EBITDA and lower interest expense assumptions, our net income forecast
increased by 153% for FY14 and 111% for FY15.
Exhibit 1. Summary of changes in forecast
2014E
2015E
in Php Mil
Old
New
% change
Old
New
%
change
Revenues
21,634
22,646
5%
28,297
28,771
2%
EBITDA
5,402
7,570
40%
7,274
9,446
30%
Net income
1,930
4,875
153%
2,783
5,865
111%
Source: COL estimates
Raising FV to Php12.62, upgrading to BUY
We are raising our fair value estimate from Php11.20 to Php12.62 as a result of the increase in
our EBITDA forecast. Our FV estimate is based on the average of our DCF-based FV estimate of
Php14.87 and relative valuation based fair value estimate of Php10.37. Our DCF based fair value
estimate assumes a WACC rate of 8.4% and a terminal growth rate of 3%, while our relative valuation
multiple based FV estimate uses on a target EV/EBITDA of 14.5X, at par with the multiple that we
used in valuing RWM.
BLOOM’s share price corrected recently after shooting up by as much as 25.8% last April in light of
its stronger than expected first quarter earnings results. Coupled with the increase in our fair value
estimate, valuations have become attractive with the stock providing a significant upside potential to
our FV estimate. We therefore upgrade our recommendation on BLOOM to BUY.
TUESDAY, 24 JUNE 2014
BLOOM
I
COMPANY UPDATE
page 3
PHILIPPINE EQUITY RESEARCH
Investment Rating Definitions
BUY
HOLD
SELL
Stocks that have a BUY rating have attractive
fundamentals and valuations, based on
our analysis. We expect the share price
to outperform the market in the next six to
twelve months.
Stocks that have a HOLD rating have either
1.) attractive fundamentals but expensive
valuations; 2.) attractive valuations but
near term earnings outlook might be poor
or vulnerable to numerous risks. Given the
said factors, the share price of the stock may
perform merely inline or underperform the
market in the next six to twelve months.
We dislike both the valuations and
fundamentals of stocks with a SELL rating.
We expect the share price to underperform in
the next six to twelve months.
Important Disclaimers
Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment risks, including the possible loss of the principal amount
invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and it may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a
security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of
securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.
2401-B East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City, 1605 Philippines
Tel: +632 636-5411
TUESDAY, 24 JUNE 2014
BLOOM
I
Fax: +632 635-4632
COMPANY UPDATE
Website: http://www.colfinancial.com
page 4