Bloomberry Resorts Corporation: Place your bets - COL Financial

WEDNESDAY, 17 JULY 2013

Bloomberry Resorts Corporation: Place your bets •

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Upgrading to BUY with FV estimate of Php15.40. We are upgrading our recommendation on Bloomberry from HOLD to BUY as the recent sell off has made valuations of the stock very attractive. Shares of BLOOM are currently down 37.44% from its peak of Php16.88 which was hit in March 5, 2013, 11 days before the opening of BLOOM’s Solaire. We believe that investors sold down shares of BLOOM given uncertainty on whether Solaire would live up to the hype in terms of revenue and income performance. Although 2Q13 results are not yet available, we believe that there is more upside than downside based on BLOOM’s current price. Although we reduced our FV estimate for BLOOM to Php15.40 as we realigned our EBITDA margin assumption to reflect higher share of VIP revenues, potential capital appreciation potential remains substantial at 45.8%. Gaming market growing with capacity. We continue to believe that the Philippine gaming market is still in its infancy and that the market will continue to grow as more casinos are put up. We saw this with the opening of Resorts World Manila and we are seeing it again with Solaire. Based on our talks with Travellers and Bloomberry, it is clear that the gaming market is growing in line with capacity.

SHARE DATA

BUY

Rating Ticker Fair Value (Php) Current Price Upside (%)

BLOOM 15.40 10.56 45.83

SHARE PRICE MOVEMENT 120 110 100 90 80

Slots and VIP doing well. Although it did not disclose revenue numbers, management said that it is quite happy with the slots segment, as it has been driving revenue growth of its mass segment. Meanwhile, management said that the VIP segment currently contributes more than half of Blooberry’s revenues and that it is pleased with the performance of the segment so far. Bulk of its VIP players is from China. So far, BLOOM has signed eight junket operators, five of which have fixed rooms in Solaire. Raising revenue and income forecast for FY13. We are raising our revenues and income forecast for BLOOM this year. According to management, it is seeing a consistent month on month improvement in operating results since it opened in March. Our new revenue forecast for BLOOM is Php18.05 Bil, up 14.7% from our previous forecast of Php15.74 Bil. The increase in our EBITDA forecast is slower at 13.6% as we assumed a lower EBITDA margin of 26.9% versus our previous forecast of 27.2%. We forecast income to reach Php2.7 Bil, 17.4% higher than our previous forecast of Php2.3 Bil. The increase was largely driven by the upward revision in our revenue forecast. Forecast Summary (PhpMil)

Year to December 31 (Php Bil) Revenues % change y/y EBITDA % change y/y EBITDA margin EBIT % change y/y EBIT margin Net profits % change y/y Net profit margin EPS (cents) % change y/y

2013E 18,045 N/A 4,863 N/A 26.9% 3,822 N/A 21.2% 2,685 N/A 14.9% 0.25 N/A

2014E 37,132 105.8% 10,090 107.5% 27.2% 8,646 126.2% 23.3% 6,993 160.5% 18.8% 0.66 160.5%

2015E 48,256 30.0% 12,980 28.6% 26.9% 11,151 29.0% 23.1% 9,427 34.8% 19.5% 0.89 34.8%

2016E 57,154 18.4% 15,466 19.2% 27.1% 13,253 18.8% 23.2% 11,475 21.7% 20.1% 1.08 21.7%

RELATIVE VALUE P/E (X) P/BV (X) ROE (%)

41.7 5.7 14.6%

16.0 4.2 30.1%

11.9 3.1 30.0%

9.7 2.3 27.4%

Source: BLOOM

70 60 17-Apr-13

17-May-13 BLOOM

17-Jun-13 PSEi

ABSOLUTE PERFORMANCE

BLOOM

PSEi

1M -2.94 3.94

3M -22.92 -3.81

YTD -20.00 13.36

MARKET DATA Market Cap Outstanding Shares 52 Wk Range 3Mo Ave Daily T/O

111,828.30Mil 10,589.80Mil 8.36 - 16.88 125.94Mil

RICHARD LAÑEDA, CFA r i c h a r d . l a n e d a @ co l fi n a n ci a l .co m

PHILIPPINE EQUITY RESEARCH

Upgrading to BUY with FV estimate of Php15.40 We are upgrading our recommendation on Bloomberry from HOLD to BUY as the recent sell off has made valuations of the stock very attractive. Shares of BLOOM are currently down 37.44% from its peak of Php16.88 which was hit in March 5, 2013, 11 days before the opening of BLOOM’s Solaire. We believe that investors sold down shares of BLOOM given uncertainty on whether Solaire would live up to the hype in terms of revenue and income performance. Although 2Q13 results are not yet available, we believe that there is more upside than downside based on BLOOM’s current price. Although we reduced our FV estimate for BLOOM to Php15.40 as we realigned our EBITDA margin assumption to reflect higher share of VIP revenues, potential capital appreciation potential remains substantial at 45.8%.

Gaming market growing with capacity We continue to believe that the Philippine gaming market is still in its infancy and that the market will continue to grow as more casinos are put up. We saw this with the opening of Resorts World Manila and we are seeing it again with Solaire. Based on our talks with Travellers and Bloomberry, it is clear that the gaming market is growing in line with capacity. Resorts World Manila said it did not experience any cannibalization from the opening of Solaire. Gaming revenues were up 54% in 1Q13 and management said that the trend is still up in the second quarter. At the same time, Bloomberry continues to see month on month improvement in foot traffic and revenues. This year we forecast gaming revenues from PAGCOR, Resorts World Manila, and Solaire to reach Php82.1 Bil from Php58.32 Bil last year. A large part of the growth will come from Solaire, which we forecast to generate Php17.3 Bil in gaming revenues. The Php82.1 Bil gaming revenues we are projecting still does not include revenues from other private casino operators like Midas and Thunderbird Resorts, implying that the overall pie is bigger.

Exhibit 1: Philippine gaming market trend

140 120

Php Bil

100 80 60 40 20 0 2015E

2014E

2013E

2012E

2011

2010

Travellers

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

PAGCOR

Bloomberry

Source: PAGCOR, Travellers, COL estimates

Wednesday, 17 July 2013

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Foot traffic: Only way is up Solaire currently sees around 12,000 visitors per day during weekdays and 16,000 visitors per day during the weekends. Although this is a lot lower than Resort World Manila’s (RWM) daily average of 20,000 visitors, we believe that 12,000 to 16,000 visitors is good considering that Solaire is currently a pure gaming facility, which means that all visitors are likely to play. (Recall that RWM also has a mall and a performing arts theater) Also, Solaire has only been open for three and a half months. We believe foot traffic will continue to grow as Solaire gains more recognition through marketing and other efforts to support its mass market segment.

Slots and VIP doing well Although it did not disclose revenue numbers, management said that it is quite happy with the slots segment, as it has been driving revenue growth of its mass segment. The strength of the slots segment is offsetting the more challenging performance of the mass tables segment. Meanwhile, management said that the VIP segment currently contributes more than half of Blooberry’s revenues and that it is pleased with the performance of the segment so far. Bulk of its VIP players is from China. So far, BLOOM has signed eight junket operators, five of which have fixed rooms in Solaire. Bloomberry has yet to tap other Asian and North American countries.

Raising revenue and income forecast for FY13 We are raising our revenues and income forecast for BLOOM this year. According to management, it is seeing a consistent month on month improvement in operating results since it opened in March. Recall that Bloomberry reported gross gaming revenues of Php495 Mil or Php33 Mil per day in the first 15 days of its operations (which is also the last 15 days of 1Q13). Under our previous forecast, gross gaming revenues would have to improve by 60% to Php53 Mil per day to reach our 2013 full year revenue assumption of Php15.1 Bil. We believe Solarie will do better much better given that the second half of the year is a seasonally stronger period. Revenues should also improve as operations ramp up. Our new revenue forecast for BLOOM is Php18.05 Bil, up 14.7% from our previous forecast of Php15.74 Bil. The increase in our EBITDA forecast is slower at 13.6% as we assumed a lower EBITDA margin of 26.9% versus our previous forecast of 27.2%. We reduced our EBITDA margin assumption due to the bigger contribution of lower-margin VIP revenues. We forecast income to reach Php2.7 Bil, 17.4% higher than our previous forecast of Php2.3 Bil. The increase was largely driven by the upward revision in our revenue forecast.

Exhibit 2: Changes in FY13 forecast

in Php Mil Revenues

Old

New

% change

15,736

18,045

14.7%

EBITDA

4,282

4,863

13.6%

Net income

2,289

2,685

17.3%

Source: COL estimates


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Forecast tempered, FV estimate trimmed down to Php15.40 We are lowering our DCF-based FV estimate from Php17.40 to Php15.40 as we reduced our long term EBITDA margin assumption from 31.8% to 27.2%. We believe that Solaire will continue to get majority of its revenues from the lower-margin VIP segment which should lead to a lower EBITDA margin. In our previous forecast, we assumed that revenues would be split equally between mass market and VIP segment. For the purposes of comparison, Travellers’ revenue base is equally split between mass market and VIP segment and its EBITDA margin in FY12 was 30.4% Despite the downward adjustment in our fair value estimate, we remain positive on BLOOM as we believe that the current price of Php10.52 does not reflect the potential earnings growth of the company. Shares of Bloomberry are trading at a FY14 P/E of 15.9X and a FY14 EV/EBITDA of 11.81X. Valuations may seem demanding but it is justified by its strong growth potential in the next three years. We forecast net income to grow at a CAGR of 62.3% from FY13 until FY16.


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Investment Rating Definitions

BUY

HOLD

SELL

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 twelve months.

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 inline or underperform the market in the next six to twelve months.

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

Important Disclaimers 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 it 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 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 ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

2401-B East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City, 1605 Philippines Tel: +632 636-5411


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Fax: +632 635-4632

COMPANY UPDATE

Website: http://www.colfinancial.com

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