There has been rumor going on about SUN being the backdoor vehicle for Alliance Global Inc. (AGI)’s 46% owned Travellers International Hotel (Travellers, the Company).
Travellers source of revenue is Resorts World Manila (RWM). RWM is in partnership with Malaysia-based Genting Group which Travellers signed an agreement in August 2008. RWM is an integrated leisure and lifestyle complex which combines hospitality, entertainment, shopping and gaming. It is strategically located within Newport City, adjacent to the Villamor golf course and is across Ninoy Aquino International Airport-Terminal 3.
RWM has the following performance for 2012:
The growth of net profit since RWM started commercial operations is high double digits:
RWM expansion plans include a new convention center, additional rooms for the five-star Marriott Hotel Manila and seven-star Maxims Hotel. Two new hotel brands (Hilton and Sheraton) are also to be introduced by 2016. All in addition to the already existing 342-room Marriott Hotel Manila, 172-all-suites Maxims Hotel, and 712-room budget hotel Remington. Travellers will develop its second integrated tourism resort project, Resorts World Bayshore.
Resorts World Bayshore is set to rise in an approximately 30.5 hectare property in Philippine Amusement and Gaming Corporation (PAGCOR)’s Entertainment City Manila. The first phase is expected to be completed in 2016 and will include one luxury and one five-star hotel, a shopping mall, residential towers, gaming area, and a 3,000-seater Grand Opera house. Travellers received the first Provisional License from PAGCOR in June 2008.
Valuing Travellers will be of two phases, one is the current business and the other is the future value that Resorts World Bayshore can contribute to the Company.
Phase one: Valuing the current business of Travellers
Since we lack much information about the financials of the business (i.e. cash flows) and there are no immediate comparable companies yet for RWM. We can apply a PE multiple of 10x for RWM’s current business which means a value of P68.4 billion (P6.84 x 10).
Phase two: Valuing the future cash inflows of Travellers
In order to value Travellers future expansion, Resorts World Bayshore, we may take Belle Corporation (BEL)’s Belle Grande as a model. The Vice Chairman of BEL expects to generate P1.5 billion from rent generated by their project. That said, we can conservatively use the figures for a discounted cash flow (DCF) model until the life of the license in 2033 and the weighted average cost of capital (WACC) as the discount rate. We can then arrive at a value of P19.9 billion for Traveller’s future business.
You may complain that the 1.5 billion is too conservative considering that RWM is currently generating P6.8 billion of income. My opinion is let’s just leave it that way to provide buffer for any unnecessary surprises.
We now have a value for Travellers at P88.3 billion (P68.4 billion + 19.9 billion).
Since we are analysing a backdoor situation, let’s consider the possible dilution of shares. Currently SUN has 2.25 billion shares, assuming that the dilution will cause the outstanding shares to double to 4.5 billion shares, we can have a value per share for SUN at P19.62 (P88.3 billion / 4.5 billion shares).
SUN is a very speculative situation where non-occurrence of the backdoor event will cause an investment to go down substantially considering that SUN only has a BV of P.05 and very small revenue stream generating an income of P.002 per share for 2012. SUN last traded at P.77 the level of the price already discounting some of the speculation and a downside risk of 93% (P.77 to P.05).
Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.