Is Now The Time To Buy Belle Corporation (BEL)?

php-ph (45)in #philippines • 4 years ago (edited)

In the fiscal year 2019, BEL has incurred a net profit of 2.923 Billion compared to the prior year’s net income of 3.225 Billion down by 9.35%.

The major loss contributors are Pacific Online Systems Corporation (LOTO) a public listed company, BEL’s subsidiary, Premium Leisure Corporation (PLC) also a public listed company, which owned 50.1% of all issued shares in LOTO as of December 31, 2019.

The LOTO’s shortfall consists of 53% of its equipment rental and instant ticket sales, while 37% of its distribution and commission income due to the PCSO Lottery stoppage operations last year. BEL owned 78.7% shares of PLC.

BEL’s owned 100% subsidiary, Premium Leisure & Amusement, Inc. (PLAI) also behind 7% revenue from its resort and casino operations.

The BEL’s real estate sales down by 27% in 2019 and may continue to fall in 2020 as their properties heavily concentrated location in Tagaytay and Batangas were affected by the recent eruption of Taal volcano.

The only operation that contributed gains of 269% from the prior year is PLAI’s lease from the City of Dream Manila and 15% of revenue from property management.

Below is the quantitative and qualitative fundamental analysis to help decide to invest or not in this equity.

BEL Valuation 200324 1.PNG

BEL Valuation 200324 2.PNG

BEL Valuation 200324 3.PNG

DCF 2019 6.5.PNG

DCF 2019 5.5.PNG

It’s worth noting that the discounted cash flow (DCF) rate was computed at 6.5% and 5.5% respectively. Why?

The Philippine central bank lowered its benchmark interest rate by 50bps to 3.25% on Thursday (19-Mar-2020), surprising markets that had forecast a smaller 25bps and bringing borrowing costs to the lowest level since May 2018, in an attempt to soften the economic fallout from the COVID-19 in which I referred to as WUHAN-400 pandemic. The interest rates on the overnight lending and deposit facilities were also reduced to 3.75% and 2.75% respectively. The board also approved a temporary reduction in the term spread on rediscounting loans relative to the overnight lending rate to zero.

In my first DCF graph used rate at 6.5% which doubled the current Philippines interest rate at 3.25% as an industry standard. The other DCF used rate at 5.5%, which doubled the anticipated interest rate of 2.75. Philippine policymakers expected to cut further 50bps interest rate soonest as a potential material shock on WUHAN-400 plague that affected almost all businesses.

CONCLUSION: BEL failed in my overall asset valuation. The outcome of WUHAN-400 contagion will affect BEL’s income forecast, and the depressed market share price from its peak at 7.10 on 24-Apr-2013 to the deepest price at 1.00 on 19-Mar-2020 so far is a huge down by 86.92%. With the WUHAN-400 vast contamination, it may take a long while to recover. I’m expected the price to be revisited the lowest on 28-Oct-2008 at 0.52.

If that happens, I highly recommend investing all-in considering that this equity is heavily invested by our government pension funds, SSS owned 370,469,140 shares a 3.79% of BEL's total outstanding shares, while GSIS owned 117,774,541 shares a 1.21% respectively as of December 31, 2019.

DISCLAIMER: I'm not a Certified Financial Planner. Published herein is my personal opinion and should not be construed as a recommendation, an offer, or solicitation for the subscription, purchase or sale of this security.

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