STOCK REPORT

May 23, 2016

Recommendation HOLD
If you’re still thinking of riding on DoubleDragon Properties' (DD) ascent, it might be a
little bit too late for that, as the stock skyrocketed to P49.00/share, from its
P2.00/share debut price. Prime provincial locations for CityMall sites;
Equity partners with JFC and SM;
This is the kind of Bull Run that kept DD within the radar of both fund-managers & Existing tenant contracts with prominent
retail investors alike, trumping the market yet again. + brands;
But besides hinting on the combined expertise of Edgar Sia of Mang Inasal & Tony Outstanding price action;
Tan Caktiong of Jollibee, RCDC sees very limited fundamental basis for the unabated Strong recurring base, moving forward;
price appreciation.
Debt-extensive, reaching debt ratio limits;
From a financial point-of-view, DD is currently an interim company - moving from one Asset expansion financed by short-term
business model to another. DD has been clear on its 100 CityMalls by 2020 growth debt;
plans, and will completely change it from a residential investment shell into a steady Negative working capital (2015);
cash-generating retailer.
- Need to raise equity soon;
Delayed schedule for CityMall construction;
But that's still 4 years into the future.
Low occupancy rate;
As early as 2014, issues have been raised, beginning with the difficulty in securing
CityMalls funding concerns;
locations, quickly followed by several construction delays vis-a-viz the aggressive roll-
out schedule.

From the balance sheet, both short & long-term debt ballooned to fuel the pipeline,
Company Description
but debt ratio turned cause for alarm. Project financing for the subsequent malls is
now a cause for concern, as it would appear DD has exceeded tapping the debt
market.

However, by end-1Q16, Seven (7) CityMalls have been commercially operational,

indicating the possibility that the management have found their footing. The DoubleDragon Properties (DD) is a 50/50 joint venture between
subsequent quarters will be crucial for DD, to show to investors its capacity to support Injap investments Inc of Edgar Sia III and Honeystar Holdings by
such high growth plans. And given the back-log in mall completion, 2016 will be a Tony Tan Caktiong.
basis year for investors on DD's will to follow-through.
Before the JV, DD served as the real estate development arm of
Injap Inv., originally established to hold the Si family’s private real
This is RCDC's initial coverage on the firm, with a fairly bullish outlook long-term – estate investments located in Iloilo City.
that is to say, 2018 and beyond. But on the near-term horizon, RCDC is raising
caution. On stock valuation, indicators are nearing overbought regions. Our RNAV The firm turned public in 2014, and now targets to accumulate
on the firm also does not reflect the current valuation of the stock, as it is also 1mn sq m of leasable space by 2020, via its brand CityMalls.
undergoing a transition phase entering into the mall business. Stock Data
Last Price PHP48.40
Therefore, RCDC is calling a HOLD on the firm for the time being, in anticipation of
the completion of the malls & increase in leasable portfolio. RCDC shall remain Performance (YTD) 2.51%
active on monitoring the stock, and will update fair value estimates upon stability in 52-week range P9.11 – P49.50
the business model. Beta 1.05
Updates, Disclosures & News Outstanding Shares 2,229.73mn
Market Capitalization PHP107,918.3mn
DoubleDragon Properties (DD) held on to continuous strong momentum, with Free Float Level 25.64%
+ a 21.8% growth in profits to P43.7mn for 1Q16. This is coming from a 33% Par Value 0.10
increase in revenue at P308.3mn. Sector Property
Real Estate Sales from the interim residential projects (WH Taft Residences & Subsector Property
+ SkySuites Tower) hiked earnings contributions to P241mn, while Rental Major stakeholders
Honeystar Hldgs 37.0%
receipts shoot 25x at P45.6mn, from the commercial operations of CityMalls. Injap Investment 37.0%
Fiscal Year 31-Dec
Total expenses also rose 31% to P238mn, but margins were mostly Initiating
- unscathed, sliding down by only an inch to 14.16% in 1Q16, from previous Previous Rating N/A
Coverage
15%.
Board of Directors
To date, DD secured 47 CityMall prime commercial sites across the country,
+ with 7 already operational with 96% occupancy rate. The company is
Chairman of the Board Edgar J. Sia III
simultaneously completing additional 23 CityMalls targeted by end-2016. Co-Chairman Tony Tan Caktiong
Ferdinand J. Sia
Total land bank stood at 61.6 ha by end-quarter, which DD aims to convert Director Rizza Marie Joy J. Sia
- into 67.1 ha of leasable space - equivalent to 2/3 of the targeted 1mn sq m William Tan Untiong
leasable space by 2020. Joseph Tanbuntiong
Gary P. Cheng
Independent Directors
+ Total resources reached 13% to P31.5bn for the period, with P224bn
classified as investment properties intended for lease.
Vicente S. Perez, Jr.

RCDC Research
Rens Cruz
+ Last March, DD was granted Permit-to-Sell by SEC, for the subscriptions to
preferred shares worth P10bn. rvcruz@reginacapital.com

Page 1 of 7 Your Private Broker.

 ANALYSIS & RECOMMENDATION

CityMalls Update
Revenue breakdown  CITYMALLS METRIC:
Number of Malls x 100
Ave. lot size ha 1.2
Ave. GLA sq m 7,000
Ave land cost Php/sq m 10,000
Ave. construction cost Php/mall 28mn
Ave. rental rate P/sq m/mo 750.00
Rental escalation % PA 5%
Est. Yield on cost 12% 12%

 CONSTRUCTION SCHEDULE
Target Actual Diff.
2015 25 7 -18
2016 25 23 -2
2017 20 30 +10
2018 15 25 +10
2019 10 10 -
2020 5 5 -
Total 100 100
 Between IPO in 2014 and the roll-out of the first tranche of
CityMalls, DD dwelled with interim projects in the transition  Construction delays in 2015 and 2016 will add pressure to DD
period to buoy earnings. to simultaneously build more malls, or move its 2020 target –
 This would explain the almost 80% allotment on residential with repercussions from investors.
sales, while other sources barely accounted for a substantial  Funding concerns: For the full year 2015, Assets went up by
part. 49.9% on a year-to-year basis, even if Equity only increased
by 10.0% in the period. This means that Asset expansion was
 RCDC estimates a revamp in the earnings mix of DD coming
financed significantly by liabilities (+78.9%). Short term notes
into 2016, with Real Estate Sales seen to drop to 23.8% from
payable shoot up by P4.4bn in 2015, while long-term debt
the 77.2% high in 2013. This is due to the fact that DD no
added another P4bn.
longer develops residential projects for sale and the remaining
inventories are continuously being sold.  RCDC thinks this kind of project financing is not sustainable,
as DD is already within 70% of its debt ratio limit. DD would
 Rental income is expected to begin picking up in 2016, as require some sort of equity raising initiative, but the issue of
more leasable spaces are added to the portfolio. Besides the dilution is another problem altogether.
7 City Malls already in operation, DD pipelined +23 to be
completed by year-end. 2017E and 2018E rental receipt are Profitability
projected to expand exponentially, jumping to almost 65% to
70% of the mix. Profitability since 2012
 Gains on the changes in fair valuation of property will shoot 1,600.00
+22.7% on 2016E, as the result of several factors: the
continuous securing of prime locations for new CityMalls,
smaller base coming from 2015, and the multiplier effect to 1,200.00
market pricing of land upon the development of a commercial
center like CityMall in the area.
In Pmn

800.00
Interim Projects
(In sq m) Land Leasable
CityMall sites (32x) Commercial 377,097 225,915 400.00
DD Meridian Park Mixed-use 47,474 280,000
Jollibee Tower Commercial - 47,909
Dragon8 Mall Comm/Retail 5,972 9,758 -
Skysuite Tower Comm/Office 2,812 4,763 2013 2014 2015 2016E
Others - - 1,632 EBIT EBITDA Net Income
TOTAL 433,355 569,977  As per the company’s performance, DD displayed extraordinary
growth, starting from the exceptional 125.9% profit CAGR since
 Even for the Interim projects, DD was able to secure recurring 2013, and 11.0% year-on-year increase.
base income from office and retail units. Better than the one-off  On all fronts, DD’s figures were nothing short of aggressive. EBIT
earnings of selling residential units. registered 136.9% CAGR since 2013, while EBITDA with 135.1%.
 Coming from a small capital base, with smaller and low-key
portfolio, DD efficiently cashed in on this opportunity to reach off-
the-mark ratios.
 As per 2016E, RCDC estimate profit to expand by as much as
60% on a year-on-year basis, assuming mall roll-out will continue
without material changes, and schedule will not be altered.
Page 2 of 7 Your Private Broker.
 KEY RATIOS & LIMLINGAN FINANCIAL MODEL©

Key Financial Data 2015

Ratios 2012 2013 2014 2015 2016E in PhP billions
Ave. Total Assets 23,141
Return on Equity - - 24.8% 20.3% 21.8%
Earnings per share - - 0.25 0.25 0.43 Ave. Total Debt 14,903
Profit Margin - - 32.8% 32.3% 38.9% Ave. Total Equity 8,237
Asset Turnover - - 0.09 0.07 0.08 Net Income After Tax1 623
Return on Assets - - 3.0% 2.2% 3.1% Interest Expense 114
Assets to Equity - - 2.4 3.2 4.8 Asset Income2 737
774 Altman’s Z-Score - - 1.6 1.9 2.9 Debt/Equity Ratio 1.81
Price to Earnings - - 30.1 97.3 110.9 Cost of Debt 0.77%
Price to Book Value - - 7.5 19.8 24.2 1
Does not include Comprehensive Income
2
Graham Multiplier - - 224.3 1,922.0 2,683.0 Asset Income = NIAT + Interest Expensed
Book Value per share - - 1.01 1.23 2.00
Dividend Yield - - - - - Limlingan Financial Model©
ROE = ROA + D/E * (ROA - Cost of Debt)
 Most performance indicator of DD remained within its historical range, as the LFM Inputs 2015
company neither registered earnings boom nor revenue slump since listing in 2014.
The management decision to shift the business focus into the retail and recurring Return on Assets3 3.19%
income base would not reflect into the financials significantly until beginning of Debt/Equity Ratio 1.81
2017.
Cost of Debt 0.77%
 As per the current year, Returns of Assets and Equity (ROE & ROA) and Asset ROA - CD 2.42%
Turnover remained stable. Altman score within the “grey” area.
Return on Equity 7.56%
 Meanwhile, margins in the near-term are expected to improve, even amid expected
aggressive roll-out of malls, partly from the contract of JFC as anchor tenants.
Near-term, RCDC sees this to ease a bit of costing on marketing & leasehold rights Case 1: Improve Efficiency by 20%
as tenants hold strong brand recall with nationwide appeal. Return on Assets3 3.82%
 However, market-price indicators were substantially skewed, considering that in Debt/Equity Ratio 1.81
less than 2 years the stock prices skyrocketed from P2.00/share at IPO to
P48.75/share (at press time). EPS doubled to 0.43, P/E exploded to 110.9, book Cost of Debt 0.77%
value jumped to 24.5 from 7.0. ROA - CD 3.06%
Return on Equity 9.35%
Sales to Inventories of Diversified Property Firms
Case 2: Increase Leverage by 20%
Ratios 2011 2012 2013 2014 2015
ALI 1.74 1.34 3.17 2.04 2.09 Return on Assets3 3.19%
CPG 2.33 5.53 2.35 1.54 0.96 Debt/Equity Ratio 2.17
DD - - - 1.44 0.29 Cost of Debt 0.77%
ELI 0.14 0.15 0.15 0.27 0.24
ROA - CD 2.42%
FLI 0.25 0.46 0.44 0.54 0.58
Return on Equity 8.44%
GERI 0.09 0.19 0.38
HOUSE - 2.87 3.18 3.36 3.00
Case 3: Cut Debt Cost by 20%
MEG 2.53 0.93 0.74 0.70 0.48
RLC 0.70 0.48 0.48 0.47 0.42 Return on Assets3 3.19%
1
SMPH - - 7.04 3.63 2.93 Debt/Equity 1.81
VLL 1.08 1.10 1.36 1.41 1.37 Cost of Debt 0.61%
1SMPH used to be an independent property arm of the SM group, but was folded into

SMDC beginning 2014. ROA - CD 2.57%

Return on Equity 7.84%
 DD was originally incorporated as the real estate investment firm of the Sia family, Highlighted items denote changed inputs
based in Iloilo. Prior to its grand 5-year plan of 100 CityMalls, DD developed 3
In this model, ROA is computed as:
several low-cost housing & horizontal projects. That would explain the relatively low ROA = Asset Income / Ave. Total Assets
Sales-to-Inventories ratio, as the company is simply completing the dispatch of the
remaining residential units-for-sale.

Page 3 of 7 Your Private Broker.

 REGINA-NERI ISOQUANT MODEL©

Leverage vs. Profitability

FINANCIAL PERFORMANCE  DD remains one of the most profitable property firm
within the sector, with equity returns of as high as 25%
(2014), almost double the industry-median of 13.7%.
28%  DD is also a highly leveraged company, where 2016E is
RETURN ON EQUITY

seen to exceed industry average, at 5.0x A/E.

25% 2014  Assets displayed substantial expansion, but only via the
2016E addition of debt. This makes DD already in the bounds
22%
of its debt ratio limit. Equity raising might be imminent,
19%
I 2015 IV but that raises the concern of dilution.
 High profitability on a high leverage makes DD a high
16% return, high financial risk firm, as compared to both the
Exchange and the property sector.
13%
II III  The solid gridlines represent the 3-year Asset to Equity
10% and ROE averages of companies in the Exchange,
1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 while the dotted lines represent the aggregate property
ASSET TO EQUITY industry.
Legend:
I - Higher Returns, IV - Higher Returns,
Lower Financial Risk Higher Financial Risk
VALUATION ISOQUANTS
1 II - Lower Returns, III - Lower Returns,
30% DD Lower Financial Risk Higher Financial Risk
Property
RETURN ON EQUITY

2014
20x Sector
Perception vs. Profitability
25%
 DD’s valuation jumped off the roof since listing in 2014,
soaring as high as 110x P/E (2016E). This is given the
10x
20% 2016E last trading price of P48.25/share as of press time,
2015 exploding to 23x its IPO price of P2.00/share in April.
2x 4x
 DD is an outlier to the industry, going at about 20x its
15%
2014
IV book value, when peers are doing between 2x to 4x
their respective book values only.
2015 2013
10% 2016E
III  The extreme valuation vis-a-viz high profitability still
makes it a fairly valued stock against the Exchange.
10 20 30 40 50 60 70 80 90 100 110
 Isoquant lines (2,4,10 and 20) represent Price to Book
PRICE TO EARNINGS values, while gridlines represent the average P/E and
ROE of companies in the PSEi in the last 3 years.
Legend:
I – Undervalued
OPERATING ISOQUANTS IV – Fairly valued
(Bargain)
40%
DD II – Fairly valued
III – Overpriced
2016E (Underperforming)
36% Property Sector
PROFIT MARGIN

2014
32% 2015 5% 6% Efficiency vs. Profitability
 The small base operation of DD contained expenses
28% 2014 almost to a minimum, shooting margins up to as high
as 30% (2016E).
24% 2015  However, the firm has been historically slow at
2% 3% 2013 converting assets to revenue, with only about 0.05 to
20% 0.10 asset turnovers, while peers are going at 0.20 to
0.25 A T/O.
0.05 0.10 0.15 0.20 0.25
 Asset returns on DD is also minimal, playing around
ASSET TURNOVER
2% to 3%, while the aggregate property industry
(combination of residential & commercial projects)
settled at 5% to 6% ROA.

Page 4 of 7 Your Private Broker.

 TECHNICAL ANALYSIS

Daily chart as of May 20, 2016

 Short-term outlook for DD now turns bearish, as
closing prices continue to trade flat, near resistance.
Selling pressure is building up that will keep it from
rallying further.
 Falling RSI while in overbought region indicates
decline in momentum, while other leading indicators
shows weakness as well.
 Next support is seen at 20-D MA, currently at P42.25,
followed by 50-D MA at P39.00.
 Take Profits

DD vs PSEi
Source: www.bloomberg.com

Page 5 of 7 Your Private Broker.

 GLOSSARY

Expected Performance
Recommendation Guide
in 6-12 months
The stock is a bargain relative to the PSEi or its peers; the stock has significant
BUY long-term upside
Projected Gain > 10%

Neutral; the company’s fundamentals are good, but interested buyers should
HOLD wait and consider buying other stocks with better upside.
+/- 10%

Take profits or cut losses; the stock does not have much upside so investors
SELL should close their position and look for bargains.
Projected Loss > 10%

Financial Ratios
Return on Equity
Earnings per share
Profit Margin
Asset Turnover
Return on Assets
Asset to Equity
Altman’s Z-Score
Price to Earnings
Price to Book
Graham Multiplier
Book Value per share
Dividend Yield
Shows how much profit a company generates with the money its shareholders have invested.
The portion of a company’s profits allocated to each outstanding share of common stock.
Measures how much earnings a company actually keeps after expenses.
The amount of sales generated for every peso of assets
Reflects a company’s efficiency at using its assets to generate earnings.
Shows the company’s financial leverage. It is an indicator of the overall financial stability of a company.
An indicator of a firm’s financial stability; It calculates the odds that a company will become bankrupt.
If: Z > 3.0, Safe Zone; 1.80 < Z < 3.0, “Grey” Zone;
Z < 1.80, Distress Zone (high likelihood of bankruptcy)
Reflects how much investors are willing to pay per dollar of earnings.
Reflects how many times book value investors are willing to pay for a share of the company.
P/E Ratio x P/B Ratio; Benjamin Graham prefers companies that have a Graham Multiplier below 22.5
A per share estimation of the minimum value of a company’s equity.
Shows how much a company pays out in dividends relative to its share price.

Technical Analysis Term/s

Potential retracement of a security’s original move in price. It uses horizontal lines to indicate key areas
Fibonacci Retracement
of support or resistance (23.6%, 38.2%, 50%, 61.8% and 100%).

Limlingan Model: ROE = ROA + D/E * (ROA – CD)

Can be used to undertake the following financial

Basic Assumptions: analyses: CEO
ROE = Return on Equity  Pinpoint areas of weak and strong financial Maximize ROE for its shareholders
ROA = Return on Assets* management
D/E = Debt to Equity  Answers ‘what if’ in terms of the impact of the
CD = Cost of Debt ROE
COO CFO
 Prepare financial plans which start with the
If ROA > CD, then ROE > ROA Improve ROE Improve ROE by
ROE targets and end with specific, financial
If ROA < CD, then ROE < ROA through operational maximizing debt
targets such as maintaining operating
efficiency or ROA (reduce leverage or
expenses and leverage
cost of debt)
 Better assign areas of responsibilities to
*using Asset Income financial officers
 Create ‘equity centers’ where general
managers have both asset and debt
management responsibilities

Disclaimer: The material contained in this publication is for information purposes only. It is not to be reproduced or copied or made available to
others. Under no circumstances it is to be considered as an offer to sell or a solicitation to buy any security. While the information herein is from
sources we believe reliable, we do not represent that it is accurate or complete and it should not be relied upon as such. In addition, we shall not be
responsible for amending, correcting or updating any information or opinions contained herein. Some of the views expressed in this report are not
necessarily opinions of Regina Capital Development Corporation.

Page 6 of 7 Your Private Broker.

 CONTACT US

HEAD OFFICE
Suite 806, Tower I, PSE Plaza
Ayala Ave., Ayala Triangle,
Makati City, Metro Manila

Backroom (+63) 2 848 5482 to 84

Fax (+63) 2 848 5482

Trading Floor (+63) 2 891 9413 to 17

Available from 9:30 am to 12:00 pm, and 1:30 to 3:30 pm only.

www.reginacapital.com
rcdc@reginacapital.com

LOCATIONS WITHIN METRO MANILA

PASIG GREENHILLS
Unit 1242 Megaplaza Building, 512-B Tower 2 Lee Gardens
ADB Ave. cor. Garnet St., Condominium, Lee St. cor. Shaw
Ortigas Center, Pasig City Blvd., Mandaluyong City

(+63) 2 584 0951 (+63) 2 584 0951 and 661 6508

Manuel Luis Zialcita, Branch Head Giok Hon Gotua, Branch Head
mzialcita@reginacapital.com ggotua@reginacapital.com

OUTSIDE METRO MANILA

ILOILO CAGAYAN DE ORO BAGUIO
2F B&C Square Bldg., Iznart St., GF Wadhu’s Bldg., JR Borja St., Unit 701 Jose De Leon Center,
Iloilo City Cagayan de Oro City Session Rd., Baguio City

(+63) 33 336 8140 (+63) 8822 721 617 (+63) 74 446 9338

Joseph Kuan Ken, Branch Head Romero Geroy, Jr., Branch Head Rowena Tabanda, Branch Head
Iloilo@reginacapital.com cdo@reginacapital.com baguio@reginacapital.com

Page 7 of 7 Your Private Broker.