At a Glance:

  • The Company plans to use the proceeds of IPO in funding land acquisitions and debt repayment
  • CLI’s IPO at P5.00 could be undervalued with a potential upside of 63.65% assuming the market will value CLI based on its earnings potential and a downside of 38.99% assuming the market will value CLI at its book value

In detail:

Cebu LandMasters, Inc. (CLI) will have an initial public offering of 430 million new common shares and 75 million existing common shares at a price of P5 per common share, an updated price from P6.56 in its preliminary prospectus.1

CLI, incorporated on September 2003, is the leading homegrown developer in Cebu that offers diverse range of real estate products consisting of residential, commercial, hospitality, industrial, and mixed-use to high-end, mid-market, economic, and socialized housing segments of the market.2 The Company’s project mix measured in terms of total sales value is illustrated below.

CLI believes that its market share, as presented below, is bound to grow since its projects are selling at a higher velocity compared to its competitors.

On July 1, 2016, the Company underwent Corporate Reorganization in preparation for the offer. By October 24 in the same year, SEC approved these restructurings:3

  1. Increase of Authorized Capital Stock (ACS) from P1.0 billion to P2.5 billion
  2. Increase in common shares from 9.0 million to 2.4 billion
  3. Increase in preferred shares from 1.0 million to 1.0 billion
  4. Decrease in par value of common shares and preferred shares, both from P100.0 to P1.0 and P0.1, respectively

In August 2016, CLI Premier Hotels Int’l Inc. (CPH) and Cebu LandMasters Property Management Inc. were incorporated and are wholly owned subsidiaries of CLI in which both has not yet commenced its business operations.4 CPH was established to take charge of CLI’s future hotel developments.

Out of the increase in the ACS, A B Soberano Holdings Corp. (ABS) subscribed to 400 million shares of the CLI. On November 22, 2016, ABS purchased 225 million common shares from each of Ma. Rosario B. Soberano and Jose R. Soberano III, bringing its total shareholdings to 985,823,200 common shares or a 76.78% stake in the Company. ABS then transferred one share each to independent directors Messrs. Jesus N. Alcordo and Rufino Luis Manotok, and Ms. Ma. Aurora D. Geotina-Garcia.5

Below is CLI’s corporate structure:

* As of the date of the Prospectus, Mr. Jose R. Soberano, III has executed a Deed of Assignment in favor of CLI for his shares in Magspeak, but the BIR Certificate of Registration of the shares is still being processed. Magspeak plans to develop a 30-hectare outdoor leisure park and conference center to be launched in 2017 in Mt. Manunggal.

In line with its regional expansion, CLI announced its arrival in Davao City. The Company has partnered with Yuson Commercial Investments, Inc. to develop three major projects over the next five years. It has also formed a joint venture with the Borromeo Bros. Estate Inc. to develop a prime 3,000 square meters property in the Cebu Business Park that will rise a Grade-A office development called Latitude Corporate Center.6

The board members of CLI namely, Jose R. Soberano III, Ma. Rosario B. Soberano, and Jose Franco B. Soberano also occupy key executive positions in CLI’s subsidiaries, joint venture companies, and associates.

Below are the major shareholders of CLI before and after IPO:7

Jose R. Soberano III completed the Advanced Management Development Program in Real Estate from the Harvard University Graduate School in 2015. He previously worked for the Ayala Group of Companies and has more than 20 years of experience in real estate development. Rufino Luis Manotok, and Ma. Aurora D Geotina-Garcia are independent directors elected on February 2, 2017.8

Given the current geographic concentration of the CLI’s real estate, results of operations would suffer if the residential housing and land development industry in Cebu markets decline. CLI has expansion plans and strategies in VisMin regions Davao, Bacolod, Iloilo, Dumaguete, Cagayan de Oro, and Bohol but CLI is a new player in the said regions and is susceptible to failures in the implementation of its business expansion plans and strategies. 9

There is a heightened competition among local and national players where CLI is operating and expanding, competition for the acquisition of land for new projects could adversely affect the business. CLI’s future growth and development are dependent, in part, on its ability to acquire or enter into agreements to develop additional tracts of land suitable for planned real estate projects.10

Business Development:

As part of CLI’s expansion in VisMin regions, a large part of the net proceeds from the primary offer will be used for the following:

CLI also intends to partially repay its short-term loans with Philippine National Bank (PNB), China Bank Corporation (China Bank), and Metropolitan Bank and Trust Company (Metrobank) in 2nd half of 2017. The P200 million revolving credit line from PNB that CLI incurred in July 2016 was used to augment working capital and to finance the development of Mivesa Garden Residences (Phase 1 and 2).

Analysis:

Below is a comparison of CLI against other listed real estate developer in Cebu:

Considering the ROE and Profit Margin of the Company, the Company appears to be comparable to ALI. An ROE of 45.66% means that for every P1 that CLI invests, the company generates P0.45 centavos. An assumption for this trend to continue largely depends on the ability of CLI to obtain the land that they are planning to acquire.

CLI’s value can range to as high as P11.51 to as low as P3.11 in terms of earnings or an average of P8.18 while a range of as high as P5.20 to as low as P0.90 is possible in valuing CLI in terms of book value or an average of P3.05.

At an IPO price of P5.00, CLI’s IPO could be undervalued with a potential upside of 63.65% assuming the market will value CLI based on its earnings potential and a downside of 38.99% assuming the market will value CLI at its book value.

Disclosure: All that we say is not a recommendation to BUY or SELL but treat our blog as a tool to aid you in your investment decision making.

Position: I do not own any shares mentioned above but may consider to take position on CLI in the future.

Source:

  1. Cebu LandMasters Inc. sets price of IPO at P5 per share, https://goo.gl/awkpBi
  2. CLI 2016 Audited Financial Statements, Corporate Information, page 1, https://goo.gl/9mywaJ
  3. CLI Preliminary Prospectus Dated April 18, 2017, Corporate Reorganization, page 83, https://goo.gl/yB2v5b
  4. CLI Company Description, https://goo.gl/kQMWSH
  5. CLI Preliminary Prospectus Dated April 18, 2017, Corporate Reorganization, page 83, https://goo.gl/yB2v5b
  6. CLI 2016 Audited Financial Statements, Corporate Information – Significant Milestones, page 2, https://goo.gl/9mywaJ
  7. CLI Preliminary Prospectus Dated April 18, 2017, Principal and Selling Shareholders, page 53, https://goo.gl/yB2v5b
  8. CLI Preliminary Prospectus Dated April 18, 2017, Risk Factors, page 27, https://goo.gl/yB2v5b
  9. CLI Preliminary Prospectus Dated April 18, 2017, Risk Factors, page 24, https://goo.gl/yB2v5b
  10. CLI Preliminary Prospectus Dated April 18, 2017, Board of Directors and Senior Management, page 128, https://goo.gl/yB2v5b

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