Sunday, September 16, 2012

Spotlight: Waterfront Philippines, Inc (WPI)

Business Overview

Waterfront Philippines, Inc is an investment holding company which focuses into hotel, leisure, and tourism businesses.  WPI is now also known as the largest Filipino hotel chain in the country.  Hotel properties are mainly located in the three central business districts: Manila, Cebu and Davao.  WPI has a Central Reservations System, which makes it the only integrated network of hotels in the country.

Penthouse Suite at Waterfront Cebu

Subsidiaries

1. Waterfront Cebu City Casino Hotel, Inc. (WCCCHI) - has an entertainment block, hotel block and a convention center.
2. Waterfront Mactan Casino Hotel, Inc. (WMCHI) - located right across Mactan-Cebu International airport.  Possible phase II development in the future.  Cebu City is the only South East Asian city that offers casino facilities to transients while waiting for their flights.
3. Waterfront Insular Hotel Davao, Inc. (98%)
4. Waterfront Promotions Limited -marketing arm for international marketing and promotions 
5. Waterfront Entertainment Corporation - country's first ever integrated hotel reservations and booking system.
6. Mayo Bonanza, Inc. - operation and management of amusement, entertainment and recreation businesses.
7. Grand Ilocandia Resort Development Incorporated (54%) - for disposal
8. ACESITE (Phils.) Hotel Corporation (59%)- principal property is the Manila Pavilion Hotel, which houses Casino Filipino (owned and operated by PAGCOR); publicly listed (ACE)
9. Waterfront Food Concepts, Inc. - pastry business catering to member hotels and other coffee businesses.
10. Waterfront Management Corporation - G-Hotel Manila, located at Roxas Blvd, Malate, Manila
11. W Citigyms and Wellness, Inc. - gym subsidiary currently available at WCCCHI.  Possible opening of gyms in other member hotels.

Significant Shareholder/s

William Gatchalian
1.) The Wellex Group, Inc  (45.757%) - Publicly listed holdings company (WIN) which is owned and managed by the Gatchalians.  The family is known for the "Plastic City" and being a political dynasty in Valenzuela City.  Other known subsidiaries are: PHES, FPI and ACE.
2.) Kenneth Gatchalian - He is the company president and sits on the board along with his mother (Dee Hua Gatchalian) and aunt (Elvira Ting).  He is the 2nd (out of 4) son of "Plastic King", William Gatchalian.

Outstanding Debts

The company has a history of defaulting on its debts.  Until now, loans under SSS and ICBC amounting to around Php400M each are still being negotiated for re-scheduling.  These loans are placed on the current liabilities part of the company's balance sheets.

Quick Numbers

Fundamentals



Book Value of Equity (1H 2012): ~Php3.86B
Outstanding Shares: ~2.5B

BV/share: Php 1.55


Debt Ratio (Long term): 23%
Beta: 0.6
Cost of Capital: 8.9%


Net Income:  

2012 (1H):  Php 45M (Other expenses which get reflected at the end of the year may reduce this further)      
2011:  Php -2.4M    
2010: Php -52M  
2009: Php -167M    


time-weighted average NI: -9.6M


Assuming conservative long-term growth (3% yearly), fair value for the company based on earnings (DCF analysis) would be around:

Fair Value/share: Php1.8

Although Average Net Income of the company has been in the negative, cash flows are still actually positive when we add back the amount reserved for Depreciation costs. 


Latest price as of 9/14/2012 is 0.45.  This gives us around 300% upside assuming market price approaches fair value.


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Technicals


The 1 year historical chart shows the important resistances once the stock's prices would break its current trading range [ 0.43 - .475 ].  The short term moving average, 20MA, has now started to be more bullish over the long term MAs.  However, lagging indicators still show weak momentum.  


Analysis

WPI has been one of those undervalued companies in terms of its book value and earnings growth potential.  However, there is some sort of reputation among "Gatchi stocks" that veer away investors.  The company shows conservative growth in earnings; however, it still is crawling with its past debts. This remains to be a sleeper stock waiting to be awakened by rather more interesting news.  This is good for RANGE TRADING, for now.


References: Financial Statements of WPI (2Q 2012 & AR 2011)
                    www.wellex.com.ph

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