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Bloomberry Resorts Corporation WED 14 FEB 2018

Potential land purchase to have minimal


impact on valuation
Land purchase to be positive long term. After two failed biddings for PAGCOR’s 16-hectare land
in Entertainment City, BLOOM has entered into negotiations with PAGCOR for the purchase of
the land. From a purely financial standpoint, BLOOM’s purchase of the land may look unattractive
BUY
given that they will only save around Php500 Mil in annual rent expense in exchange for Php37.23
TICKER: BLOOM
Bil (1.34% yield on investment). However, from a long-term investment point of view it makes a
lot of sense. First of all, it will secure the US$1.2 Bil investment BLOOM made on Solaire. Currently, FAIR VALUE: 14.60
BLOOM is the only integrated resort operator that doesn’t own its land which puts it at risk once CURRENT PRICE: 13.20
the lease contract expires. Second, with land prices in Entertainment City increasing at a rapid
UPSIDE: 10.61
pace, this may be BLOOM’s best chance to buy the land. Last year alone, land values in the Bay
City increased 26% y/y to Php250,000/sqm according to Leechiu Property Consultants.
SHARE PRICE MOVEMENT
Purchase to be funded through debt. If the purchase of the 16-hectare lot pushes through,
BLOOM’s management said that it will fund the purchase through debt. While the debt is sizeable, 140
it is manageable relative to BLOOM’s cash generating capability. In 2016, BLOOM generated
Php6.3 Bil in cash from operating activities. For 2017 and 2018, we estimate that the company 130

will generate Php13.3 Bil and Php16 Bil in operating cash flow respectively. If we assume that 120
BLOOM can generate Php15 Bil in cash from operating activities each year, it should be able to
repay the debt in three years. 110

Minimal impact on DCF-based valuation. The impact of the land purchase to our DCF-based 100

valuation of BLOOM is minimal compared to the potential impact to our net income estimates. 90
The purchase of the land will have a positive effect on BLOOM’s net present value of cashflows to
firm because rental payments will be eliminated. The increase in debt will also reduce BLOOM’s 80
WACC as the share of debt in its capital structure increases. This increases the value of BLOOM’s 14-Nov-17 14-Dec-17 14-Jan-18 14-Feb-18

discounted cash flow by 10.2% to Php195.9 Bil. However, net debt balance will increase by Php37 BLOOM PSEi
Bil to Php47.54 Bil. Lastly, we add the value of the land in Vertis North (Php1.2 Bil) and the 6
hectares out of the 16 hectare-lot that is still undeveloped (valued at Php15 Bil). The potential
impact to our DCF valuation is a 1.8% downside from current estimate of Php15.18 to Php14.91. ABSOLUTE PERFORMANCE

1M 3M YTD
FORECAST SUMMARY
BLOOM 16.81 26.20 21.10
Year to December 31 (Php Mil) 2014 2015 2016 2017E 2018E 2019E PSEi -3.48 1.53 -0.59
Revenues 24,037 25,040 30,387 37,149 40,425 41,640
% change y/y 95.6 4.2 21.4 22.3 8.8 3.0
EBITDA* 7,588 3,273 8,895 13,543 15,066 15,328
% change y/y 734.3 -56.9 171.8 52.2 11.2 1.7 MARKET DATA
EBITDA margin 31.6 13.1 29.3 36.5 37.3 36.8
EBIT* 4,770 (1,584) 4,040 8,987 10,510 10,772 Market Cap 145,222.66Mil
% change y/y - - - 122.4 17.0 2.5 Outstanding Shares 11,001.72Mil
EBIT margin 19.8 -6.3 13.3 24.2 26.0 25.9 52 Wk Range 7.09 - 13.78
Core net income 4,094 (3,662) 1,895 6,930 8,464 8,737
3Mo Ave Daily T/O 123.97Mil
% change y/y - - - 265.7 22.1 3.2
Net profit margin 17.0 -14.6 6.2 18.7 20.9 21.0
EPS (cents) 0.38 (0.31) 0.21 0.63 0.77 0.79
% change y/y -408.1 - - 197.8 22.3 3.2

RELATIVE VALUE
P/E (X) 34.8 - 63.1 21.2 17.3 16.8
EV/EBITDA 19.0 44.1 16.2 10.7 9.6 9.4
P/BV (X) 5.7 6.7 6.1 4.8 3.8 3.1 RICHARD LAÑEDA, CFA
ROE (%) 15.9 (15.5) 9.6 22.7 22.0 18.7 SENIOR RESEARCH MANAGER
Dividend Yield (%) 0.0 0.4 0.4 0.4 0.4 0.4 richard.laneda@colfinancial.com
*adjusted to reflect 15-25% license fee structure
so urce: B LOOM , COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
FIELD NOTES I BLOOM:POTENTIAL LAND PURCHASE TO HAVE MINIMAL IMPACT ON VALUATION

WED 14 FEB 2018

BLOOM in negotiations with PAGCOR for land purchase

After two failed biddings for PAGCOR’s 16-hectare land in Entertainment City, BLOOM has
entered into negotiations with PAGCOR for the purchase of the land. The subject land is where
BLOOM’s Solaire Resort and Casino is built upon. It is understandable that no other party is
interested in buying the lot for which the minimum asking price of is Php37.23 Bil because
BLOOM has the leasehold rights for the lots until 2033 and the annual rent is just around
Php500 Mil, which translates to a yield of around 1.34%.

Long term positive for BLOOM

From a purely financial standpoint, BLOOM’s purchase of the land may look unattractive given
that they will only save around Php500 Mil in annual rent expense in exchange for Php37.23 Bil
(1.34% yield on investment). However, from a long-term investment point of view it makes a lot
of sense. First of all, it will secure the US$1.2 Bil investment BLOOM made on Solaire. Currently,
BLOOM is the only integrated resort operator that doesn’t own its land which puts it at risk
once the lease contract expires. Second, with land prices in Entertainment City increasing at
a rapid pace, this may be BLOOM’s best chance to buy the land. Last year alone, land values in
the Bay City increased 26% y/y to Php250,000/sqm according to Leechiu Property Consultants.

Purchase to be funded through debt

If the purchase of the 16-hectare lot pushes through, BLOOM’s management said that it
will fund the purchase through debt. While the debt is sizeable, it is manageable relative
to BLOOM’s cash generating capability. In 2016, BLOOM generated Php6.3 Bil in cash from
operating activities. For 2017 and 2018, we estimate that the company will generate Php13.3
Bil and Php16 Bil in operating cash flow respectively. If we assume that BLOOM can generate
Php15 Bil in cash from operating activities each year, it should be able to repay the debt in
three years.

Negative impact to net income

If the transaction pushes through and BLOOM funds it through debt, it will have a negative
impact on net income. Assuming that BLOOM buys the land, we estimate that the company’s
EBITDA will improve by around 3% for 2018, 2019, and 2020 as they will no longer pay rent for
the land. However, we estimate that interest expense will increase by 75% in 2018 and 100% in
2019 and 2020, leading to a net income reduction of 15% for 2018, 20.5% for 2019, and 19.1%
for 2020.

COL Financial Group, Inc. 2


FIELD NOTES I BLOOM:POTENTIAL LAND PURCHASE TO HAVE MINIMAL IMPACT ON VALUATION

WED 14 FEB 2018

Exhibit 1: Potential changes in earnings forecast assuming purchase of lot

2018E 2019E 2020E


Current EBITDA 15,066 15,328 15,591
Potential new EBITDA 15,468 15,831 16,094
% change 2.7% 3.3% 3.2%

Current new income 8,464 8,373 9,005


Potential new net income 7,196 6,949 7,282
% change -15.0% -20.5% -19.1%

Source: COL estimates

Minimal impact on DCF-based valuation

The impact of the land purchase to our DCF-based valuation of BLOOM is minimal compared
to the potential impact to our net income estimates. The purchase of the land will have a
positive effect on BLOOM’s net present value of cashflows to firm because rental payments will
be eliminated. The increase in debt will also reduce BLOOM’s WACC as the share of debt in its
capital structure increases. This increases the value of BLOOM’s discounted cash flow by 10.2%
to Php195.9 Bil. However, net debt balance will increase by Php37 Bil to Php47.54 Bil. Lastly, we
add the value of the land in Vertis North (Php1.2 Bil) and the 6 hectares out of the 16 hectare-
lot that is still undeveloped (valued at Php15 Bil). The potential impact to our DCF valuation is
a 1.8% downside from current estimate of Php15.18 to Php14.91.

Exhibit 2. Potential impact to DCF based FV assuming purchase of lot


in PhpMil Current estimate Potential estimates after purchase
WACC 10.00% 9.48%
Discounted cash flow 177,871 195,861
Less: Net debt 10,426 47,536
Plus: Value of land 0 16,200
Total fair value 167,445 164,525
Shares outstanding 11,033 11,033
DCF FV per share (in Php) 15.18 14.91

Source: COL estimates

COL Financial Group, Inc. 3


FIELD NOTES I BLOOM:POTENTIAL LAND PURCHASE TO HAVE MINIMAL IMPACT ON VALUATION

WED 14 FEB 2018

Bloomberry Resorts INCOME STATEMENT (PHPMIL)

Corporation (BLOOM) Revenues


FY14
24,037
FY15
25,040
FY16
30,387
FY17E
37,149
FY18E
40,425
FY19E
41,640
% Growth 95.6% 4.2% 21.4% 22.3% 8.8% 3.0%
COMPANY BACKGROUND Adjusted EBITDA 7,588 3,273 8,895 13,543 15,066 15,328
Bloomberry Resorts Corporation develops % Growth 734.3% -56.9% 171.8% 52.2% 11.2% 1.7%
Adjusted Operating Profit 4,770 (1,584) 4,040 8,987 10,510 10,772
tourist facilities, casino entertainment, and
% Growth -522.3% -133.2% -355.1% 122.4% 17.0% 2.5%
hotel and amusement-themed projects. Interest Expense (761) (2,167) (2,223) (2,223) (2,223) (2,223)
Bloomberry Resorts Corporation owns Other Income/(Expense) 63 376 506 155 178 188
and operates Solaire Resort and Casino Net Income 4,072 (3,364) 2,357 6,930 8,464 8,737
which is one of the four license holders in % Growth -409.7% -182.6% -170.1% 194.0% 22.1% 3.2%
Entertainments City. Solaire is currently the EPS 0.38 (0.31) 0.21 0.63 0.77 0.79
% Growth -408.1% -179.8% -169.1% 197.8% 22.3% 3.2%
leading integrated resort in the Philippines.
Bloomberry also owns and operates Jeju Sun BALANCE SHEET (IN PHPMIL)
Hotel and Casino in Jeju, Korea.
FY14 FY15 FY16 FY17E FY18E FY19E
Cash & Equivalents 19,171 14,496 14,326 18,400 22,439 31,189
REVENUE BREAKDOWN Receivables 4,088 2,814 2,958 4,174 4,542 4,679
Other Current Assets 925 930 1,233 1,294 1,359 1,427
2% Restricted cash - net of
2,273 32,695 35,675 37,459 39,332 41,298
current
PPE andportion
Investment
6% 2%
Properties 40,471 49,323 64,064 74,256 84,422 94,327
6%
2% Other Non-Current Assets 751 2,631 2,256 2,366 2,482 2,603
6% Total Assets
Payables and other current 67,678 70,734 67,515 69,774 71,158 77,029
liabilities 8,190 11,324 8,771 9,648 10,613 11,674
ST Debts 1,994 2,947 1,714 7,510 3,392 7,360
Other Current Liabilities 958 1.0 1.0 1.0 1.0 1.0
LT Debts 30,614 33,858 32,112 21,316 17,924 10,564
Other Non-Current
242 808 772 787 802 818
Liabilities
92% 92% Total Liabilities 41,999 48,937 43,370 39,262 32,732 30,418
Total Equity 25,679 21,797 24,144 30,512 38,425 46,611
92%
Total Liabilities & Equity 67,678 70,734 67,515 69,774 71,158 77,029
Hotel, food and beverage Gaming Retail and others
Hotel, food and beverage Gaming Retail and othersBVPS 2.3 2.0 2.2 2.8 3.5 4.2
e Gaming Retail and others
CASHFLOW STATEMENT (IN PHPMIL)
FY14 FY15 FY16 FY17E FY18E FY19E
Pretax Income 6,482 (1,543) 3,982 6,928 8,476 8,749
Depreciation & Amortization 2,818 4,856 4,855 4,556 4,556 4,556
Other Non-Cash Exp (Gains) 788 2,526 (233) - - -
Interest Expense (Income) 676 2,090 2,179 2,068 2,046 2,035
Decrease (Increase) in Working Cap (1,314) 1,826 (3,001) (387) 547 873
Operating Cash Flow 8,129 6,896 6,353 13,311 15,791 16,389
Capex (10,794) (8,833) (1,481) (1,352) (1,352) (1,352)
Decrease (Increase) in other investments (3,355) (3,703) 158 (110) (116) (121)
Investing Cash Flow (14,148) (12,536) (1,322) (1,463) (1,468) (1,474)
Proceeds (Payment) Debts 14,907 3,988 (3,283) (5,000) (7,510) (3,392)
Net proceeds from issuance of capital stock 5,662 0 0 0 0 0
Interest Paid (1,278) (2,162) (2,109) (2,223) (2,223) (2,223)
Others (103) (741) (46) (551) (551) (551)
Financing Cash Flow 19,189 1,085 (5,437) (7,774) (10,284) (6,166)
Change in Cash 13,063 (4,676) (170) 4,075 4,039 8,750

COL Financial Group, Inc. 4


FIELD NOTES I BLOOM:POTENTIAL LAND PURCHASE TO HAVE MINIMAL IMPACT ON VALUATION

WED 14 FEB 2018

INVESTMENT THESIS: RATIOS

Beneficiary of growing gaming sector FY14 FY15 FY16 FY17E FY18E FY19E
EBITDA Margin (%) 31.6% 13.1% 29.3% 36.5% 37.3% 36.8%
The local gaming sector is still in a growth
OPM (%) 19.8% -6.3% 13.3% 24.2% 26.0% 25.9%
phase and Bloomberry, the operator of Solaire NPM (%) 16.9% -13.4% 7.8% 18.7% 20.9% 21.0%
Resort and Casino, is a main beneficiary of Times Interest Earned (X) 6.3 -0.7 1.8 4.0 4.7 4.8
the trend. Solaire Resort and Casino is one of Current Ratio (X) 2.17 1.28 1.77 1.39 2.02 1.96
four integrated resorts in Entertainment City Net D/E Ratio (X) 0.52 1.03 0.81 0.34 -0.03 -0.28
and once all four are completed, Philippines Days Receivable 62.1 41.0 35.5 41.0 41.0 41.0
Asset T/O (%) 0.4 0.4 0.5 0.5 0.6 0.5
will make a better case as a regional gaming
ROAE (%) 19.5% -14.2% 10.3% 25.4% 24.6% 20.6%
destination, which will benefit all operators.

MAJOR CORPORATE DEVELOPMENTS (5-YEARS)


Leader in the Philippine gaming sector
Bloomberry is the leader in the Philippine Acquisition of 92% of Golden & Luxusy Co. Ltd., a hotel and casino operator in Jeju
12/31/2015
gaming sector as Solaire has the most gross Island
gaming revenues (GGR) among the four
integrated resorts. In 2016, the GGR of Solaire
accounted for 44% of total GGR of integrated
resorts.

KEY RATIOS (IN PHPMIL)

COL Financial Group, Inc. 5


FIELD NOTES I BLOOM:POTENTIAL LAND PURCHASE TO HAVE MINIMAL IMPACT ON VALUATION

WED 14 FEB 2018

Valuation RELATIVE VALUATION


EV/EBITDA EBTIDA growth
Methodology 2017E 2018E 2017E 2018E
Bloomberry Resorts 11.6 10.4 52.2% 11.2%
Resorts World Manila 13.5 12.8 -5.5% 5.4%
Melco Resorts Philippines 8.4 8.0 35.6% 5.1%
Wynn Macau 19.4 15.6 116.0% 24.2%
Sands China 19.4 16.4 23.4% 18.8%
MGM China 22.8 16.3 6.6% 39.5%
Galaxy Entertainment 19.4 16.8 37.8% 15.2%
Melco Resorts 10.9 9.8 26.0% 11.6%
Genting Malaysia 13.5 10.4 -62.2% 6.2%
Crown Resorts 10.7 10.1 -1.5% 8.1%
Star Entertainment 10.3 9.6 -1.5% 8.1%
Industry Average 14.8 12.6 17.5% 14.2%
Industry Median 13.5 11.6 15.0% 9.9%

VALUATION ASSUMPTIONS

DCF Valuation
Risk Premium 5.0%
Risk Free Rate 5.0%
Beta 1.0
Cost of Equity 10.0%
Cost of Debt 7.0%
Tax Rate 0.0%
WACC 10.0%
Terminal Growth Rate 2.0%

PV (2017E-2025E) in Php Mil 88,559


PV of Terminal Value 89,312
Enterprise Value 177,871
Net Debt -10,426
Equity Value 167,445
O/S 11,033
FV Estimate 15.2

Relative Valuation
Target EV/EBITDA 11
2017 EBITDA in Php Mil 15,066
Target EV 165,731
Net Debt -10,426
Equity Value 155,305
FV Estimate per share 14.08

COL Financial Group, Inc. 6


FIELD NOTES I BLOOM:POTENTIAL LAND PURCHASE TO HAVE MINIMAL IMPACT ON VALUATION

WED 14 FEB 2018

IMPORTANT RATING DEFINITIONS


BUY
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
12 months.

HOLD
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 in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
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 said information 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 prior 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 and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA


VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA


DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG


RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com

KYLE JEMMRIC VELASCO JOHN MARTIN LUCIANO


RESEARCH ANALYST RESEARCH ANALYST
kyle.velasco@colfinancial.com john.luciano@colfinancial.com

COL FINANCIAL GROUP, INC.


2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7