New Townships And Integrated Resorts Will Create Opportunities

Key Takeaways

• Megaworld's new township launches and Travellers' resort projects suggest potential revenue growth in real estate and hospitality due to increased tourist footfall.
  
• Emperador's expansion in low-price and premium whiskey segments aims to capture a wider consumer base and achieve higher margins despite core business challenges.
  
• Rising costs, FX volatility, and increased debt are impacting Alliance Global Group's subsidiaries, pressuring margins and potentially harming future earnings.

Catalysts

Engages in real estate development, tourism-entertainment and gaming, food and beverage, quick-service restaurant, and integrated tourism and infrastructure development businesses in the Philippines and internationally.

• Megaworld's promise to launch 2-3 new townships in 2025 signifies potential revenue growth from real estate development and increased sales in the residential, office, and retail segments.
  
• Emperador's expansion into the low-price segment with new product launches like Fundador Super Special and Club Emperador aims to capture a broader consumer base, which could potentially lead to an increase in revenues and improved brandy sales volumes.
  
• Travellers' development projects, such as the Narra Palm Hotel and Villa, and plans for new integrated resorts like Westside City and Mactan, indicate potential growth in non-gaming and gaming revenues, with the increase in tourist footfall potentially boosting net margins.
  
• Emperador's focus on premium and super-premium whiskey segments, particularly in China and other Asian markets, positions it to achieve higher margins due to premium pricing and could counterbalance challenges in the core business.
  
• The company's continued investment in CapEx across its subsidiaries, including plans for real estate, hospitality, QSR, and spirits, along with the ₱9 billion share buyback program, suggests potential for increased earnings and improved shareholder value through higher EPS.

Alliance Global Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Alliance Global Group's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.2% today to 10.3% in 3 years time.
• Analysts expect earnings to reach ₱22.3 billion (and earnings per share of ₱2.48) by about July 2029, up from ₱17.5 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 4.8x on those 2029 earnings, up from 4.1x today. This future PE is lower than the current PE for the PH Industrials industry at 5.6x.
• Analysts expect the number of shares outstanding to decline by 0.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.82%, as per the Simply Wall St company report.

Risks

• Rising input costs, advertising, promotions, and depreciation charges have adversely impacted Emperador and Golden Arches, leading to declining profits, which could pressure future net margins.
  
• FX volatility has caused significant unrealized losses for AGI's subsidiaries like Megaworld, reducing quarterly and annual profits and affecting overall earnings.
  
• AGI's consolidated debt increased by 13% to ₱250 billion, raising their debt-to-equity ratio and potentially higher interest expenses, which could strain net income margins.
  
• Despite higher revenues, Travellers International struggled with rising financial and depreciation charges, resulting in reduced profitability and a loss contribution, which could harm overall earnings.
  
• Emperador's whiskey segment experienced volatility due to global macroeconomic challenges, impacting revenue and contributing to a 27% decline in net income, risking future Earnings potential.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₱8.77 for Alliance Global Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱12.0, and the most bearish reporting a price target of just ₱5.3.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be ₱217.2 billion, earnings will come to ₱22.3 billion, and it would be trading on a PE ratio of 4.8x, assuming you use a discount rate of 12.8%.
• Given the current share price of ₱8.2, the analyst price target of ₱8.77 is 6.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.