Arthaland Corporation (PSE: ALCO)

Arthaland Corporation (the Company, ALCO) is a property developer for residential, commercial, and leisure projects.  ALCO’s flagship project is Arya Residences which is constructed within their Lot 4-1 property in BGC. Arya Residences is a 2-tower high-rise residential development and the first LEED registered residential condominium in the Philippines. [1] The Company started excavation work for Araya Residences on August 2010 and substructure works in January 2011. The expected handover for Tower 1 is first quarter of 2014.

As of July 2012, Tower 1 was already 70% sold prompting the start of excavation work for the Tower 2.[2]

ALCO’s land properties are the following:

ALCO1

ALCO’s most valuable property is their Lot 5-5 in BCG which is located in front of the lot where the future Philippine Stock Exchange headquarters will be constructed. [3] [4]

Management

ALCO’s CEO, Ms. Angela de Villa-Lacson began working in ALCO in March 2008. She was the vice president head of the Ayala Land, Inc (ALI) residential buildings group until 2005 and was transferred as head in innovation and design in 2006 to 2007.[5]

On April 26, 2011, [6] ALCO disclosed that CPG (Century Pacific Group) Holdings, Inc. acquired 33% [7] interest of the Company through purchase of shares from AO Capital and through subscription of shares for P.25 per share. Allowing Ricardo S. Po, Sr. become a Vice Chairman and his two sons Messrs. Christopher T. Po and Ricardo T. Po, Jr. directors of the Company.

Another noteworthy event in ALCO is the addition of Ponciano S. Carreon, Jr. as CFO of the Company. Mr. Carreon was an Assistant Vice President for Controllership for SM Development Corporation (SMDC) hinting his in-depth understanding in the real estate development industry.


Comments:

Other than valuable land properties and experienced management team, what attracted me to the Company is its cheap valuation (trading below book and low PE ratio) and sale of a subsidiary.

ALCO started recognizing revenue in 2012 even though the pre-sale started in 2011. This happens because of the accounting method all real estate companies employ in recognizing revenues: percentage of completion method.

To illustrate:

In 2011, Juan pays ALCO P1 M for 1 unit in Arya Residences that is not yet constructed.

For the year ended December 31, 2011, ALCO will not recognize any revenue as they had not started constructing Juan’s unit.

In 2012, ALCO began constructing Juan’s unit and is 30% complete as of December 31, 2012.

For the year ended December 31, 2012, ALCO will recognize P300,000 (P1M x 30%) revenue for the sale of 1 unit to Juan.

As of the third quarter of 2012, ALCO recognized P900 M revenue and earnings of 64 million suggesting a profit margin of 7%. Assuming that ALCO’s revenue will reach P1.3 billion as of the end of 2012, we can expect an EPS of P.017 [(P1.3B x 7% profit margin) / 5.3 billion shares] or a PE ratio of 12x assuming a price per share of P0.20.

On December 21, 2012, ALCO sold their 100% interest in Irmo, Inc. (Irmo) [8] which has an equity of only P250,000 for P345,800,000. Additional information states that Irmo, Inc. owns lot 7-1 in BCG [9] which is mortgaged for P300 M has a cost of P173.2 million according to ALCO’s Sec 17-A 2010 filings.

The details above will lead us to two assumptions:

  1. The P345.8 M does not include the payment of P300M loan.
  2. The P345.8 M includes the payment of P300M loan.

ALCO2

Other than the huge one time gain, what is most appealing in this business development is the extinguishment of the P300 M liability that is costing the company 6.85% annually and its effect in ALCO’s book value.

More information regarding the Company’s level of completion can be located here:

http://www.skyscrapercity.com/showthread.php?t=943098&page=19

 

Disadvantage in investing in ALCO:

Low liquidity

Source:

  1. What is LEED, http://aryaresidences.com.ph/index.php/home/leed
  2. Arthaland to develop 400-hectare property north of Metro Manila, http://www.interaksyon.com/business/37293/arthaland-to-develop-400-hectare-property-north-of-metro-manila
  3. BGC Lot 5-5, http://www.arthaland.net/properties/bgc-lot-5-5
  4. PSE earmarks P1B share in new building in Bonifacio Global City, http://business.inquirer.net/99143/pse-earmarks-p1b-share-in-new-building-in-bonifacio-global-city
  5. Ayala Land, Inc. Annual reports, http://ir.ayalaland.com.ph/
  6. Board approval of subscription and acquisition by CPG Holdings, Inc. of ALCO shares, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3073_ALCO.pdf
  7. Ownership structure before and after acquisition of ALCO shares by CPG Holdings, Inc., http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3177_ALCO.pdf
  8. Completion of sale of shareholdings in Irmo, Inc. to Future State My Space, Inc., http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-9273_ALCO.pdf
  9. Additional information re: sale of sahreholdings in Irmo Inc. to Future State My Space, Inc., http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-9381_ALCO.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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One thought on “Arthaland Corporation (PSE: ALCO)

  1. Pingback: Update on ALCO | Fundamental Enthusiast

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