FLI – Get to know Filinvest Land, Inc. and its prospects

Filinvest Land, Inc. (FLI) is one of the leading real estate developers in the Philippines.  It is engaged mainly in residential developments and in investments in rental properties for office and retail  use.

Revenue Stream

As of year-end 2016 FLI derived its revenue as follows:

Real Estate Sales from sales of residential units from its development – 14.3 Billion (80%)

Rents from its investment in office buildings and retail/mall properties – 3.4 Billion (20%).

Residential developments of the company covers the varying income segments of the Filipinos.  FLI’s Futura Homes offers value-for-money communities while its Spatial series offers affordable mid-rise condominium units (condos) for the low-income segment.  The mid-income segment is being catered through the Studio series of condos and the Oasis resort-style enclaves.  Filinvest Premiere offers luxury residences and premium leisure developments suited for the most discriminating tastes of the affluent segment.

Its investments in commercial retail properties is mainly anchored on the Festival Supermall in Filinvest City in Alabang (South Metro Manila) while its investments in office properties include the Northgate Cyberzone a business process outsourcing (BPO) Park also in Filinvest City. Filinvest City is owned and developed by Filinvest Alabang Inc. which is a 20% owned-affiliate of FLI. Rentals from investment properties provide steady recurring revenue and cash flows for FLI.

Growth Strategy

FLI has been acquiring large track of raw land for development into a sprawling mix-use townscape that features work-live-play environment. Master-planned townscapes allow FLI to sell residential units and at the same time invests in the retail and office rental properties. It has been noted that FLI has been increasing its investments in rental properties – retail and office. As of 3Q 2017, its investment properties has grown to 41.3 Billion from 38 Billion as of year-end 2016. Rental revenue as of 3Q 2017 now accounts 30% of the total revenue up 10% from year-end 2016.


FLI has a strong operating cash flows which as of 3Q 2017 amounts to 5 Billion Pesos. The strong cash flow generation from operations can be attributed to its disciplined costs management of its developments and investments. For the period up to 3Q 2017 it was able to generate a gross profit of 50% of its revenue. It generates a net income before tax 0.32 Pesos for every 1 Peso of revenue.

Although investments in rental properties takes a lot of resources to build, FLI has able to tap the capital/debt markets for funding for those investments. The predictable and recurring revenue and cash flows from the investment properties can very well cover repayment of debts. Residential developments of FLI are self-funding through pre-selling and project financing. The availability of funding avenue strengthens the balance sheet of FLI.

Funding for acquisition and/or development of assets are available to FLI. Assets acquired/or developed provide returns greater than their funding costs, thus, value accretive to stockholders. As of this writing FLI is trading at a dividend yield of 2.40%.


FLI is controlled by Filinvest Development Corporation (FDC) which owns 59.4% of its outstanding common stocks. FDC is controlled by the Gotianun family. Aside from real estate development, FDC has investments in banking through East West Banking Corporation, sugar through Pacific Sugar Holdings Corporation, and power generation through FDC Utilities, Inc.

Of the 40.6% owned by the public, around 13% is held by institutional investors the biggest of which is Invesco Asset Management Ltd. holding around 5.05% of the total outstanding shares.


EMP – Valuation Growth on Premiumization and Buy-back

On January 19, 2018 EMP closed at 7.97, just -5.12% below its 52-week high of 8.40 set on July 11, 2017.  We believed EMP can still go higher that its 52-week high of 8.40.  Following is a discussion on why we believe EMP can soar beyond its recent high.

The “premiumization” strategy of EMP will bear fruits in this TRAIN regime.  TRAIN imposes a new excise tax of 12 Pesos per liter on drinks using high-fructose corn syrup.  This affected the major beverage companies like Coke and Pepsi.  In reaction, Coke and Pepsi will reformulate their beverages to utilize local sugar.  This, we believe, will increase the demand for local sugar, thus, increasing local sugar prices. To take advantage of this sugar boom, sugar millers will have to make their plant more efficient.  That means they will extract more sugar from the production leaving little molasses for the production of ethanol.  Short supply in ethanol will cause its prices to increase.

While we project that TRAIN law will make ethanol in short supply another law is projected to shore demand for ethanol. The Biofuels Act of 2006 mandates the blending of locally-produced bio-ethanol into fuels.  The demand from fuel companies will further fuel the rise of the prices of ethanol.

How this will result to the positive impact of the “premiummization” of EMP?  EMP domestically is mainly competing on liquor companies utilizing ethanol as raw materials. Those ethanol-based liquors are generally cheaper than EMP’s “premium” products. Those ethanol-based liquor products will have to increase their prices.  The price increases of the ethanol-based products will make the EMP’s “premium” product price competitive.  We see a switch by the consumers to EMP’s “premium” product.

As of year-end of 2016, revenue fell by 6.02% yet revenue increased 10.54%.  This means margin is improving.  In 2018, we see volume growth and revenue growth from the switch. We see no factors that can cause an increase in the costs of EMP so we believe margin will be sustained.  Revenue growth with a sustained high profit margin will result to a much more improve bottomline of EMP.

Another factor that will shore up the valuation of EMP, is its buy-back program.  EMP maybe committed to buy-back up to 480 Million of its shares, but so far as of December 29, 2017 only 45.2 Million shares have been bought-back from the market.  Of the total 5 Billion Pesos appropriated for the buy-back, only 0.32 Billion has been spent purchasing its own shares.  Further exercise by EMP of the buy-back is expected to increase the stock price of EMP.

We believe EMP at below 8.0 is a good buy.

TEL – A Culture of Under-Investment in Telco Capabilities

TEL (PLDT) has for quite sometime has hovered at around 1,450 – 1,500 level. This is despite frequent press releases by the company of good news about it. It is imminent that TEL will still have to go down.

The woes at TEL can be traced back to its culture. When First Pacific took over TEL from Antonio “Tonyboy” Cojuangco, Manuel V. Pangilinan (MVP), the present TEL CEO, was criticising TEL’s previous management group as like the “government.” It was said that the first order of business of the previous management was the capital expenditure/capex rather than advertising and creating a brand. It was like a government because in the government it is usually capital projects that is being sought first by the politicians. There is a culture of entitlements among politicians in government.

MVP then change its culture and increased its advertising budget then relegated the capex to a lesser priority. At that time there was an explosion in the usage of mobile data then limited to SMS and ringtones and mobile calls. It was a bonanza for TEL. MVP then stepped-up the dividend pay-out ratio of TEL. From 2007 t0 2013 pay-out ratio was 100% of “core earnings,” before slowing it down to 90% in 2014.

First Pacific at the time of its TEL take-over was also reeling the effects of the “Asian Currency Crisis.” First Pacific executives in Hong Kong tried to sell its TEL stake to the Gokongwei Group behind the back of MVP. MVP fought back and vowed that TEL will be the saviour of First Pacific.

True to his words, MVP made TEL profitable, thanks to the SMS addicted Filipinos, and repatriated most of the profits of TEL to First Pacific. The cash flows from the dividend pay-out of TEL reinvigorated the then diminished First Pacific. MVP was made the CEO of First Pacific. At that time, it was boasted that marketing savviness was the key to the profitability and that it had killed the “government-like” culture of capital expenditure first in TEL. This will come to haunt back MVP and TEL.

The killing of the “government-like” culture of capital expenditure firsts in TEL led to under-investments in the capabilities of TEL. The under-investments allowed TEL to pay-out most of its earnings to its stockholders, the largest of which is the First Pacific Company. Technological innovations and disruptions fueled the demand for more data capability out of telcos. Because TEL under-invested in its capabilities it was not able to satisfy it customers. No matter how savvy its advertising and branding is, customers can’t just be appeased by TEL’s lack of capability to satisfy customer demands.

At the outset of LTE, TEL failed to immediately expand its capability to LTE. Instead it bought a telco, Digitel, with also less capabilities. It bought Digitel only to pare down the number of towers it owns because many became redundant. The Gokongweis sold out Digitel because it was capital intensive and that it may not have the resources to compete and transition it to a more digital telco.

Because most of the profits TEL had earned during the good years was paid-out as dividend, it has now to dig deep on its resources to fund its transformation. It is now reaching on its MERALCO stake to fund its capex.

Most of TEL’s investments have already been sold out to fund its capex to date. As of end of 3Q 2017, the only significant investments left are MediaQuest PDRs with a carrying value of 13.16 Billion and Rocket Internet with a carrying value of 12.74 Billion. MediaQuest spans newspapers (Business Word, Philippine Star), radio broadcasting, TV Broadcasting (ABC 5), and pay-TV (Cignal). TEL has planned to spend 50 Billion for capex in 2018. TEL may need more than that amount in the future as demand for data has been increasing year to year as people, homes, and enterprises adopts internet of things. TEL may have to sell also MediaQuest and Rocket Internet stakes to fund further its capex in the coming years. This is why we recommend that you sell.

Proceeds from asset divestments may not enough to fund further its capital expenditures to make its capabilities at par with the best in the world (a capability which the government and its customer demands from them). So TEL may have to reduce further its dividend pay-out. Its dividend pay-out stands at 60% from 100% in 2013 and 90% in 2014. As dividend from TEL get smaller, market might react to maintain the dividend yield of TEL which is currently at 6.41%. This means, market will have to price TEL also lower. So if you are holding it now, it it is time to cut your losses and sell.