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Property Devt & InvtPhilippines

June 11, 2014





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Dominance in low cost housing
8990 Holdings is one of the largest low-cost housing developers in the
country. The company is well-positioned to take advantage of pent-up
mass housing demand using proprietary pre-cast construction
technology and an innovative financing programme.

Our DCF-based estimate of the
companys equity value using a
discount rate of 30% is PHP61.8bn,
resulting in a target price of
PHP11.20/share. We initiate our
coverage with an ADD rating.
Impressive financials
While it is a commonly-held belief
that low-cost housing businesses have
limited margins, 8990 proves that
there are exceptions. It has enjoyed
generous gross margins of more than
60%, while its net margins have been
in the 40% range over the past two
years. We expect earnings to grow at a
compounded rate of 38% from 2014
to 2016.
Demand outstrips supply
A study commissioned by Subdivision
Housing Developers Association
(SHDA) in 2012 estimates a housing
backlog of 6.3m by 2030. This study
cited that fears of an oversupply in the
lower-end of the market are mostly
unfounded as the low-cost, economic,
and socialised housing segments have
experienced a combined deficit of
3.1m units, while the middle to
upper-end of the market experienced
surplus production from 2001 to 2011.
Construction efficiency
8990 has invested heavily in
perfecting its proprietary pre-cast
technology, which allows the company
to complete a single-storey unit or a
town house in as little as eight-to-ten
days. This production method is not
only more efficient and durable than
comparable methods, but it is also
easily scalable, making construction
faster and capital returns quicker.
Affordability-driven
financing
The companys CTS Gold financing
programme was introduced in order
to serve the mass housing market.
This allows qualified customers to
move in immediately through a small
upfront payment of around 2% of the
purchase price and amortisation of
approximately PHP8,000/month.
Stringent credit and collection policies
have resulted in non- remediable
delinquencies standing at around
3.5% of the total portfolio.

8990 Holdings, Inc.
COMPANY NOTE
HOUSE PM / HOUSE.PS

Current PHP8.00

Market Cap Avg Daily Turnover Free Float Target PHP11.20
US$1,010m US$0.75m 34.2%
Prev. Target PHP
PHP44,144m PHP33.35m 5,518 m shares
Up/Downside 40.0%
Conviction| |

Sources: CIMB. COMPANY REPORTS

Notes from the Field



Edser TRINIDAD
T (63) 2 836 3933
E etrinidad@securitybank.com.ph
Romel LIBO-ON
T (63) 2 888 7103
E rliboon@securitybank.com.ph


Company Visit Expert Opinion
Channel Check Customer Views



Show Style "View Doc Map"





Our commitment to
provide affordable mass housing
under our Deca Homes brand
shall continue to be the principal
driving force of this growth.
Jesus Atencio, President and CEO




77.0
89.9
102.7
115.6
5.30
6.30
7.30
8.30
Price Close Relative to PCOMP (RHS)
Source: Bloomberg
20
40
60
Jun-13 Sep-13 Dec-13 Mar-14
V
o
l
m


Financial Summary
Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
Total Net Revenues (PHPm) 3,831 5,356 7,457 9,649 12,380
Operating EBITDA (PHPm) 1,703 2,235 3,194 4,135 5,306
Net Profit (PHPm) 1,704 2,184 3,555 4,529 5,726
Core EPS (PHP) 0.37 0.47 0.70 0.82 1.04
Core EPS Growth 288% 28% 49% 17% 26%
FD Core P/E (x) 21.85 17.06 11.45 9.75 7.71
DPS (PHP) 0.12 0.00 0.00 0.48 0.65
Dividend Yield 1.50% 0.00% 0.00% 6.02% 8.14%
EV/EBITDA (x) 23.86 19.83 12.54 10.36 8.54
P/FCFE (x) 154.2 NA 50.9 60.4 16.8
Net Gearing 86% 107% (4%) (7%) 6%
P/BV (x) 9.43 5.65 2.83 2.53 2.25
ROE 65.4% 41.4% 32.1% 27.4% 30.9%
% Change In Core EPS Estimates
CIMB/consensus EPS (x)


8.00
11.20
5.60 8.56
Target
52-week share price range
Current

SOURCE: CIMB, COMPANY REPORTS
8990 Holdings, Inc.

June 11, 2014




2




PEER COMPARISON

Research Coverage
Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside
8990 Holdings, Inc. HOUSE PM PH ADD 1,010 8.00 11.20 40.0%
Ayala Land Inc. ALI PM PH ADD 10,236 31.55 39.20 24.2%
Land And Houses LH TB TH REDUCE 3,148 10.20 8.74 -14.3%
Megaworld Corporation MEG PM PH ADD 3,340 4.56 5.20 14.0%
Metropolitan Land MTLA IJ ID ADD 269 420.0 550 31.0%
Pruksa Real Estate PS TB TH ADD 1,849 27.00 27.37 1.4%


0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Rolling P/BV (x)
8990 Holdings, Inc. Ayala Land Inc. Land And Houses
Megaworld Corporation Metropolitan Land Pruksa Real Estate


0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
12-month Forward Rolling FD P/E (x)
8990 Holdings, Inc. Ayala Land Inc. Land And Houses
Megaworld Corporation Metropolitan Land Pruksa Real Estate


0.0%
3.3%
6.7%
10.0%
13.3%
16.7%
20.0%
23.3%
26.7%
30.0%
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Peer Aggregate: P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)


0%
20%
40%
60%
80%
100%
0.0
5.0
10.0
15.0
20.0
25.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth
12-mth Fwd FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs)


Valuation
FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x)
Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15
8990 Holdings, Inc. 17.06 11.45 9.75 5.65 2.83 2.53 19.83 12.54 10.36
Ayala Land Inc. 38.05 28.86 25.25 4.54 4.13 3.76 27.47 20.16 17.25
Land And Houses 15.79 17.42 16.11 3.05 2.99 2.87 12.45 12.26 11.18
Megaworld Corporation 17.45 16.39 13.33 1.60 1.47 1.33 14.80 15.26 12.42
Metropolitan Land 13.69 12.78 10.15 1.85 1.65 1.45 11.18 9.35 7.44
Pruksa Real Estate 10.34 10.75 8.88 2.41 2.10 1.78 5.73 5.92 5.05


Growth and Returns
FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield
Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15
8990 Holdings, Inc. 28.1% 49.0% 17.4% 41.4% 32.1% 27.4% 0.00% 0.00% 6.02%
Ayala Land Inc. 23.5% 31.9% 14.3% 12.8% 15.0% 15.6% 0.89% 1.31% 1.75%
Land And Houses 15.0% -9.4% 8.2% 20.1% 19.0% 20.0% 5.07% 5.05% 5.46%
Megaworld Corporation 3.5% 6.4% 23.0% 10.8% 9.8% 10.5% 0.78% 0.68% 0.77%
Metropolitan Land 14.2% 7.1% 25.9% 14.4% 13.7% 15.2% 1.28% 1.52% 1.62%
Pruksa Real Estate 48.6% -3.8% 21.1% 25.8% 20.8% 21.7% 2.66% 2.84% 2.84%

SOURCE: CIMB, COMPANY REPORTS
Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends.
NPAT/EPS values for calculations and valuations are based on recurring and normalised values for GAAP and IFRS accounting standard companies respectively.
8990 Holdings, Inc.

June 11, 2014




3

Net revenues are expected to
grow at a rate of 32.2% in the
next three years.
Dividend policy is set at a
minimum of 50% of the
previous years unrestricted
retained earnings.


Share price info
Share px perf. (%) 1M 3M 12M
Relative 20.9 17.8 10.4
Absolute 20.3 22.1 14.3
Major shareholders % held
IHoldings, Inc. 32.6
Kwantlen Development Corp. 15.5
Januarius Resources Realty Corp. 8.6


0.0%
7.0%
14.0%
21.0%
28.0%
35.0%
42.0%
49.0%
56.0%
63.0%
70.0%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)


0%
50%
100%
150%
200%
250%
300%
350%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
12-mth Fwd FD Core P/E vs FD Core EPS
Growth
12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)


Profit & Loss
(PHPm) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
Total Net Revenues 3,831 5,356 7,457 9,649 12,380
Gross Profit 2,382 3,389 4,698 6,079 7,799
Operating EBITDA 1,703 2,235 3,194 4,135 5,306
Depreciation And Amortisation (15) (23) (25) (34) (45)
Operating EBIT 1,688 2,212 3,169 4,101 5,262
Financial Income/(Expense) (216) (406) (257) (282) (472)
Pretax Income/(Loss) from Assoc. 0 0 19 35 30
Non-Operating Income/(Expense) 282 636 1,043 1,209 1,582
Profit Before Tax (pre-EI) 1,754 2,442 3,975 5,063 6,402
Exceptional Items
Pre-tax Profit 1,754 2,442 3,975 5,063 6,402
Taxation (49) (258) (420) (535) (676)
Exceptional Income - post-tax
Profit After Tax 1,704 2,184 3,555 4,529 5,726
Minority Interests
Pref. & Special Div 0 0 0 0 0
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 1,704 2,184 3,555 4,529 5,726
Recurring Net Profit 1,704 2,184 3,555 4,529 5,726
Fully Diluted Recurring Net Profit 1,704 2,184 3,555 4,529 5,726


Cash Flow
(PHPm) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
EBITDA 1,703 2,235 3,194 4,135 5,306
Cash Flow from Invt. & Assoc.
Change In Working Capital (3,328) (4,628) (721) (2,560) (4,351)
Straight Line Adjustment
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense 81 120 620 713 877
Other Operating Cashflow 33 175 48 56 67
Net Interest (Paid)/Received 11 127 (29) (44) (251)
Tax Paid (5) (14) (420) (535) (676)
Cashflow From Operations (1,505) (1,985) 2,692 1,765 972
Capex (441) (1,269) (764) (895) (1,053)
Disposals Of FAs/subsidiaries (62) 0 0 0 0
Disposals of Investment Properties 0 0 0 0 0
Acq. Of Subsidiaries/investments 0 0 0 0 0
Other Investing Cashflow 124 3 110 112 108
Cash Flow From Investing (378) (1,266) (654) (782) (945)
Debt Raised/(repaid) 2,124 3,137 (1,239) (252) 2,601
Proceeds From Issue Of Shares 0 0 4,118 0 0
Shares Repurchased
Dividends Paid (400) 0 0 (2,658) (3,594)
Preferred Dividends
Other Financing Cashflow 88 183 (243) 3,098 2,333
Cash Flow From Financing 1,812 3,320 2,636 188 1,340

BY THE NUMBERS
SOURCE: CIMB, COMPANY REPORTS
8990 Holdings, Inc.

June 11, 2014




4

Proceeds from follow-on
offering were primarily used
to reduce outstanding debt.


Balance Sheet
(PHPm) Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
Total Cash And Equivalents 180 249 4,924 6,094 7,462
Properties Under Development
Total Debtors 685 1,055 2,332 2,579 3,051
Inventories 2,041 2,244 3,124 4,042 5,186
Total Other Current Assets 140 342 134 126 141
Total Current Assets 3,046 3,889 10,513 12,841 15,839
Fixed Assets 147 209 293 401 536
Total Investments 5,655 13,517 13,191 14,769 18,597
Intangible Assets 0 0 0 0 0
Total Other Non-Current Assets 0 0 0 0 0
Total Non-current Assets 5,802 13,726 13,484 15,169 19,133
Short-term Debt
Current Portion of Long-Term Debt 1,258 3,332 1,739 1,502 1,699
Total Creditors 675 3,111 2,720 3,845 4,535
Other Current Liabilities 119 79 164 177 177
Total Current Liabilities 2,051 6,522 4,624 5,524 6,411
Total Long-term Debt 2,317 3,981 2,559 3,298 6,938
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 500 263 1,204 1,706 2,014
Total Non-current Liabilities 2,817 4,244 3,764 5,003 8,952
Total Provisions 32 254 32 36 31
Total Liabilities 4,900 11,020 8,420 10,563 15,393
Shareholders' Equity 3,948 6,596 15,577 17,447 19,579
Minority Interests
Total Equity 3,948 6,596 15,577 17,447 19,579


Key Drivers
Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
Unbooked Presales (m) (PHP) N/A N/A N/A N/A N/A
Unbooked Presales (area: m sm) N/A N/A N/A N/A N/A
Unbooked Presales (units) N/A N/A N/A N/A N/A
Unsold attrib. landbank (area: m sm) N/A N/A N/A N/A N/A
Gross Margins (%) 62.2% 63.3% 63.0% 63.0% 63.0%
Contracted Sales ASP (per Sm) (PHP) N/A N/A N/A N/A N/A
Residential EBIT Margin (%) 44.1% 41.3% 42.5% 42.5% 42.5%
Investment rev / total rev (%) 0.0% 0.0% 0.0% 0.0% 0.0%
Residential rev / total rev (%) 98.9% 98.4% 100.0% 100.0% 100.0%
Invt. properties rental margin (%) N/A N/A N/A N/A N/A
SG&A / Sales Ratio (%) 18.1% 22.0% 20.5% 20.5% 20.5%

BY THE NUMBERS

Key Ratios
Dec-12A Dec-13A Dec-14F Dec-15F Dec-16F
Revenue Growth 63.1% 39.8% 39.2% 29.4% 28.3%
Operating EBITDA Growth 266% 31% 43% 29% 28%
Operating EBITDA Margin 44.5% 41.7% 42.8% 42.9% 42.9%
Net Cash Per Share (PHP) (0.73) (1.52) 0.11 0.23 (0.21)
BVPS (PHP) 0.85 1.42 2.82 3.16 3.55
Gross Interest Cover 7.80 5.44 12.35 14.57 11.14
Effective Tax Rate 2.8% 10.6% 10.6% 10.6% 10.6%
Net Dividend Payout Ratio 23.5% NA NA 58.7% 62.8%
Accounts Receivables Days 34.15 36.60 55.77 70.61 65.70
Inventory Days 532.8 397.5 355.0 366.3 368.6
Accounts Payables Days 143.3 329.9 371.6 331.1 330.8
ROIC (%) 319% 100% 480% 137% 168%
ROCE (%) 32.8% 20.4% 18.6% 19.4% 20.8%

SOURCE: CIMB, COMPANY REPORTS
8990 Holdings, Inc.

June 11, 2014




5



Dominance in low cost housing
1. BACKGROUND
1.1 One of the largest low-cost mass housing developers
8990 Holdings, Inc. (8990) is one of the countrys largest mass housing
developers. It was recently selected as an awardee in the 2013 Housing Awards
given by the Housing and Land Use Regulatory Board (HLURB) as the
developer with the most number of subdivision units licensed under BP 220,
otherwise known as the social housing law.

1.2 Corporate structure
The following figure shows the corporate structure of 8990 Holdings, Inc. and
related subsidiaries.
Figure 1: 8990 Holdings, Inc. and subsidiaries
8990 Holdings, Inc.
8990 Housing Development
Corp (8990 HDC)
Fog Horn, Inc. (FHI)
8990 Luzon Housing Dev't
Corp (8990 LHDC)
8990 Leisure and Resorts
Corp (8990 LRC)
8990 Mindanao Housing
Dev't Corp (8990 MHDC)
8990 Davao Housing Dev't
Corp (8990 DHDC)

SOURCE:COMPANY REPORTS

1.3 Board of directors and key officers
The following figure shows the corporate structure of 8990 Holdings, Inc. and
related subsidiaries.
Figure 2: Board of directors
Name Position Nationality Age
Mariano D. Martinez, Jr. Chairman of the Board Filipino 58
Januario Jesus Gregorio III Atencio President and CEO Filipino 51
Luis N. Yu, Jr. Chairman Emeritus and Director Filipino 57
Anthony Vincent S. Sotto Director Filipino 37
Carla R. Lipardo Director Filipino 44
Willibaldo J. Uy Independent Director Filipino 54
Arlene C. Keh Independent Director Filipino 45

SOURCE: COMPANY REPORTS


Table of Contents
1. BACKGROUND p.5
2. OUTLOOK p.16
3. RISKS p.22
4. SWOT p.24
5. FINANCIALS p.25
6. VALUATION AND RECOMMENDATION p.28


We expect very good
results this year... have 8
on-going projects, we should be
able to derive 24,000 housing
units from that... We only did
almost 7,000 units in 2013 and
we are cleared to do 8,800 units
this year."
Mariano Martinez, Jr., Chairman




8990 Holdings, Inc.

June 11, 2014




6

Figure 3: Key officers
Name Position Nationality Age
Januario Jesus Gregorio III Atencio President and CEO Filipino 51
Carla R. Lipardo Treasurer Filipino 44
Richard Haosen Chief Financial Officer Filipino 51
Teresa S. Secuya Compliance Officer Filipino 51
Cristina S. Palma Gil-Fernandez Corporate Secretary Filipino 45
Kristine Joyce C. Caro-Gangan Assistant Corporate Secretary Filipino 31

SOURCE: COMPANY REPORTS

1.4 Founders experience and expertise
8990 Holdings is primarily led by the three founding business partners, namely
Mariano D. Martinez, Jr., Januario Jesus Gregorio B. Atencio III, and Luis N.
Yu. These individuals had already achieved some success in the mass housing
market prior to forming 8990.
Mariano D. Martinez, Jr. assumed the Chairmanship of 8990 Holdings in
September 2012. He also holds the President and CEO positions in other
affiliated 8990 companies. He formerly held the positions of Chairman and
President for the Subdivisions and Housing Developers Association (SHDA).
Januario Jesus Gregorio B. Atencio III assumed the President and CEO role of
8990 Holdings, Inc. in September 2012. He is also the chairman of Januarius
Resources Realty Corporation. He holds the Presidency position and
directorships in 11 subsidiaries and affiliated companies of 8990. He currently
represents the private sector as a member of the Housing and Urban
Development Coordinating Council (HUDCC). He is currently a board member
of SHDA, and formerly National President and National chairman of the same
organisation.
Luis N. Yu is a director of 8990 Holdings, Inc. and the Chairman Emeritus of
Iholdings, Inc. with over 30 years of experience in the mass housing business.
He holds chairmanship positions in 11 associated firms of 8990 Holdings.

1.5 Mass housing revenues
In 2013, 87% of 8990s revenues were derived from its horizontal low-cost mass
housing developments, while the balance was from its medium rise building
(MRB) developments and others.

Figure 4: Revenue composition 2013
Title:
Source:
Please fill in the values above to have them entered in your report
Low cost mass
housing
87%
Medium-rise
condominium units
10%
Others
3%

SOURCE: COMPANY REPORTS




87% of revenues are derived from
horizontal low cost housing
developments
8990 Holdings, Inc.

June 11, 2014




7

8990 Holdings has a nationwide presence in the Philippines, with completed
and ongoing projects in the cities of Cebu, Davao, Iloilo, Angeles, and Cavite.
The company offers single-storey detached houses with lofts and attached row
houses, two-storey townhouses, and medium-rise buildings (MRB). It also has
plans to construct low-cost high-rise residential buildings in the near future.

Figure 5: Housing classifications
Subdivisions and Housing
Developers Association
(SHDA)
Housing and Urban
Development
Coordinating
Council (HUDCC)
Home Guaranty
Corporation (HGC)
Category
Socialized Php0.45m and below Below Php0.3m Php0.4m and below
Economic >Php0.45m to 1.25m >Php0.3m to 3m
Low Cost >Php1.25m to 3m >Php3m to 4m
Mid End >Php3m to 6m >Php3m to 4m
High End >Php6m and upwards >Php4m
Mass housing
>Php0.4m to 3m
>Php4m Open market

SOURCES: SHDA, HUDCC, HGC



Figure 6: Completed and ongoing projects

Location Completed Projects No. of units % sold
Ongoing
projects No. of units % sold
Cebu 12 9,102 100% 2 2,421 46%
Davao 1 1,538 100% 3 12,298 65%
Iloilo 1 976 100% 1 884 33%
Cavite - - - 1 3,881 27%
Angeles 1 2,697 100% 1 4,843 17%
Total 15 14,313 100% 8 24,327 46%

SOURCE: COMPANY REPORTS



Figure 7: Nationwide presence
Angeles
Cavite
Cebu
Iloilo
Davao

SOURCE: COMPANY REPORTS


The companys developments are
located in key high-growth areas
8990 Holdings, Inc.

June 11, 2014




8


Figure 8: Project pipeline
Project Location
Target
Completion No. of units
1 Deca Home Resort Res. Comml Davao 2014 109
2 Deca Homes Resort Res. Ext (Prime) Davao 2014 217
3 Deca Homes Guadalupe Cebu 2015 393
4 Deca Homes Marseilles Cavite 2015 426
5 Deca Homes Tanza Cavite 2015 585
6 Deca Homes Baywalk Talisay 3 Cebu 2015 600
7 Deca Homes Catalunan Grande Davao 2016 720
8 Urban Deca Homes Quirino Davao 2016 540
9 Urban Deca Tower Edsa Shaw Metro Manila 2016 1,000
10 Deca Homes San Mateo Rizal 2017 3,600
11 Urban Deca Homes Muntinlupa Metro Manila 2017 3,240
12 Urban Deca Tower Yakal Makati Metro Manila 2017 1,600
13 Urban Deca Homes Tisa Cebu 2018 2,800
14 Deca Homes (Lorenzo) Davao 2018 3,125
15 Deca Homes Pavia 3 Iloilo 2019 11,250
16 Deca Homes Batasan (QC) Metro Manila 2019 2,100
17 Deca Homes Pavia 3 Additional Iloilo 2020 5,100
18 Urban Deca Homes Ortigas Metro Manila 2022 27,000
Total 64,405

SOURCE: COMPANY REPORTS


The company operates its horizontal real estate developments under the Deca
Homes brand, Urban Deca Homes for its MRB developments, and Urban
Deca Towers for its high-rise developments.

Figure 9: 8990 brands

SOURCE: COMPANY REPORTS


1.6 Real estate offerings
The company currently has two types of real estate development offerings: (1)
horizontal residential subdivisions, and (2) medium-rise buildings (MRB). The
company also has high-rise residential buildings in the pipeline.
8990 has a nationwide presence
throughout the Philippines

The company offers horizontal and
vertical residential developments
8990 Holdings, Inc.

June 11, 2014




9


Figure 10: Single-storey with loft

SOURCE: COMPANY REPORTS


Figure 11: Single-storey attached

SOURCE: COMPANY REPORTS


Figure 12: Two-storey row houses

SOURCE: COMPANY REPORTS


Most of the companys projects are horizontal residential subdivisions, which
can be a combination of single-storey detached, single-storey attached, or
townhouse. Floor areas range from 35-120 sq m and unit prices range from
PHP450,000 to PHP1,250,000.
8990 Holdings, Inc.

June 11, 2014




10

This puts the companys horizontal developments in the socialised and
economic housing segments. Despite being at the lower-end of the housing
scale, some of 8990s horizontal developments include swimming pools, sports
facilities, multi-purpose halls, and wakeboard parks to complement the
community aspect of these subdivision projects.
Medium-rise buildings are more recent developments of the company. 8990s
MRB projects are four to five storeys tall, and primarily located in highly
urbanised cities and accessible to major public transportation routes. A typical
unit floor area is 25 sq m, with unit prices ranging from PHP800,000 to
PHP1,250,000, putting the MRBs into the economic housing bracket.
Lastly, the company plans to enter the high-rise residential building category,
with planned developments in Metro Manila. 8990 aims to target office
workers who take long commutes from their current residences in the outskirts
of the city or nearby provinces. Units are designed to be half the size of normal
studio apartments at around 13 sq m, with a target price of PHP875,000,
putting it under the economic housing segment. This price point should
translate to a monthly amortisation of around PHP7,500 under the companys
in-house financing programme.

1.7 Construction technology leads to efficiencies
The company has invested in developing its proprietary pre-cast building
technology. This allows the company to construct single-storey houses and
townhouses within 8-10 days, and an additional 5 days for single-storey houses
with lofts. This is in stark contrast to the usual cinder block method which takes
months to complete. Current capacity using this method is approximately
12,900 units/year, and easily scalable with the use of additional forms.
The company sources cement from the largest cement manufacturers which
they then blend in-house, together with other additives and the correct
proportions, to create their own proprietary concrete blend. The company
believes that their concrete mix has a faster curing time, which allows for faster
setting of pre-cast moulds, and is able to withstand 4x more pressure per
square inch than traditional hollow block structures once set.
This method provides the company with significant cost savings and enables it
to provide quick turnover of its units to customers. This also endows the
company with a faster turnover of its capital outlay, allowing it to re-allocate
capital to new phases or to new developments in a much quicker manner.

Figure 13: Unit turnover to buyers
Title:
Source:
Please fill in the values above to have them entered in your report
3,148
4,107
5,687
0
1,000
2,000
3,000
4,000
5,000
6,000
2011 2012 2013

COMPANY REPORTS


The companys proprietary pre-cast
building technology is quicker,
easily scalable, and stronger than
traditional cinder block methods
8990 Holdings, Inc.

June 11, 2014




11

1.8 Building a house within 10 days
The company builds its horizontal subdivision units in five steps: (1) casting, (2)
foundation preparation, (3) assembly, (4) roofing and retouching, and (5)
finishing and detailing:
Figure 14: Pre-cast construction process flowchart single-storey & townhouses
Step Task Days 1 2 3 4 5 6 7 8 9 10
- Start 0
1 Casting 1
2 Foundation preparation 1
3 Assembly 1
4 Roofing and retouching 2-3
5 Finishing and detailing 4-5
- End 0

SOURCE: SB EQUITIES

8990 begins construction with the casting process, by compacting ground near
the site, setting forms, and pre-casting walls and ceiling slabs. This phase is
completed in 22 hours compared to 21 days for standard casting.
Figure 15: Casting and foundation preparation

SOURCE: COMPANY REPORTS

The foundation preparation stage occurs simultaneously with the casting stage.
In this stage, the foundation of the new unit is prepared, reinforcing bars and
allocation for wiring and pipes are laid, hooks are set for the assembly stage,
and concrete mixture is poured. This stage takes one day.










8990 Holdings, Inc.

June 11, 2014




12

Next is the assembly stage where cranes are used to lift the pre-cast
components to be erected in the foundation that have been prepared while
casting was in progress. Ends of components are together. This process also
takes just one day.
Figure 16: Assembly

SOURCE: COMPANY REPORTS

Roofing and retouching involves the addition of steel beams to support the roof,
installing the roof, and retouching rough edges in the concrete structure. This
stage takes two to three days to complete.

Figure 17: Roofing & retouching

SOURCE: COMPANY REPORTS











Assembly requires no special
equipment, using only cranes and
trucks to lift and transport pre-cast
components to the construction site
8990 Holdings, Inc.

June 11, 2014




13

Lastly, finishing & detailing takes four to five days to complete and involves
smoothing out the walls, floors, and ceilings of the unit, applying paint, and
installing light bulbs and fixtures.
Figure 18: Finishing & detailing

SOURCE: COMPANY REPORTS

The entire process takes eight to ten days to complete and allows the company
to keep pace with the high demand from its target market.
While the companys contractors are doing work exclusively for 8990, there is
still a risk of work stoppage by the contractors due to various factors. The
company maintains multiple contractors to mitigate this risk and in-house
engineers oversee critical functions in project construction to maintain project
quality.

1.9 Affordability-driven financing
8990 Holdings has crafted its in-house financing programmes, CTS Gold and
CTS Gold Straight, which allow qualified customers who have sufficient
monthly earnings to service around PHP8,000 in monthly amortisation
payments, to move-in immediately into their purchased property with minimal
upfront costs at just 2% of purchase price.
This puts the company in stark contrast to its local mass market competitors
who usually require buyers an upfront down payment equivalent to 10% to 20%
equity of the property. This practice severely limits the potential low-cost target
market despite sufficient monthly disposal income for monthly amortisation
payments for this market segment. As a result, take up of companys
developments is very quick owing to mass housing demand and reasonable
in-house financing terms.
For CTS Gold, interest is pegged at 8.5% p.a. for the first four years, with an
interest re-pricing at the end of the fourth year. This falls in line with the
companys buyer demographics which tend to be single or married individuals
with a gross monthly income of above PHP25,000 and between the ages of 26
and 45. Loans for this programme are intended for migration to Pag-IBIG.
Loans under CTS Gold Straight, on the other hand, are not intended for
Pag-IBIG migration. Interest rate under this programme is pegged at 11.5% p.a.
The company is able to offer reasonable rates by stretching the mortgage
duration up to 25 years. 8990 currently has taken out arrangements with the
Home Development Mutual Fund (Pag-IBIG Fund), where it transfers its CTS
Gold Convertible receivables to Pag-IBIG in exchange for cash. 8990 intends to
ramp up this take out arrangement with Pag-IBIG. In addition, 8990 is also
exploring various securitisation options and strategies for its receivables. This
will allow the company to leverage on its existing contracts portfolio and get
cash in return for their contracts-to-sell.
CTS Gold was conceived as a way to
allow its customers a smooth
transition from home rental to
home ownership

8990 maintains multiple
contractors to mitigate the risk of
work stoppages
8990 Holdings, Inc.

June 11, 2014




14


Figure 19: Illustrative monthly amortisation payments
Home price
(Php)
Down payment
(2%)
Remaining loan
amount (Php)
Loan tenure
(years)
Interest rate
Monthly
amortization (Php)
450,000 9,000 441,000 25 8.50% (3,551)
850,000 17,000 784,000 25 8.50% (6,313)
1,250,000 25,000 1,225,000 25 8.50% (9,864)

SOURCE: SB EQUITIES



Figure 20: Around 80% of buyers are within the 26-45 age range
Title:
Source:
Please fill in the values above to have them entered in your report
8%
5%
52%
46%
29%
34%
8%
10%
3%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Townhouse/ Single-attached (%) Medium Rise Building (%)
25 and Below 26 35 yrs. Ol d 36 45 yrs. Ol d 46 55 yrs. Ol d Above 55 yrs. Old
81%
80%

SOURCE: COMPANY REPORTS



Figure 21: Majority of buyers earn gross monthly income above PHP25K
Title:
Source:
Please fill in the values above to have them entered in your report
18%
7%
29%
15%
53%
78%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Townhouse/ Single-attached (%) Medium Rise Building (%)
8K 15K 16K 25K Above 25K

SOURCE: COMPANY REPORTS










Majority of buyers are aged 26-45
and earn a gross monthly income of
greater than PHP25,000
8990 Holdings, Inc.

June 11, 2014




15


Figure 22: Townhouse/ Single-attached (%) Figure 23: Medium Rise Building (%)
Title:
Source:
Please fill in the values above to have them entered in your report
Single, 45%
Married, 53%
Others, 2%

Title:
Source:
Please fill in the values above to have them entered in your report
Single, 56%
Married, 42%
Others, 2%

SOURCE: COMPANY REPORTS SOURCE: COMPANY REPORTS



Figure 24: Customer demographics based on employment
Townhouse/ Single-attached (%) Medium Rise Building (%)
Retail & Services 34% 32%
BPO/IT 15% 28%
OFW/Land Based 17% 12%
Seaman 12% 7%
Government Employees 3% 6%
Self-Employed 7% 4%
Education 7% 3%
Manufacturing 3% 3%
Medical Profession 1% 3%
Bankers 1% 2%

SOURCES: COMPANY REPORTS


Stringent credit policies and collection mechanisms have kept delinquencies at
a minimum with an average of just 5.4% in the past three years. Half of these
delinquencies become current again through the companys collection
mechanisms. The remaining half of non-remediable delinquencies end up as
repossessions and the company is able to resell them usually with no loss and at
a premium to the defaulted loan amount.

Figure 25: 2011-2013 collection efficiency
2011 2012 2013
Collection Efficiency 93.21% 93.79% 96.80%
Delinquencies 6.79% 6.21% 3.20%

SOURCES: COMPANY REPORTS



8990 enforces stringent credit
policies and collection mechanisms
to keep delinquencies at a minimum
8990 Holdings, Inc.

June 11, 2014




16

2. OUTLOOK
2.1 Pent-up mass housing backlog
In a study commissioned in 2012 by the Subdivisions and Housing Developers
Association (SHDA), the largest organisation of real estate developers in the
Philippines, a historical analysis of housing supply and demand was performed.
A key finding is that while the mid to high-end housing units production has
tended to be oversupplied in the past years, the mass housing market,
comprising of socialised, economic, and low-cost segments, has been
undersupplied from 2001 to 2011 by 3.1m units.

Figure 26: Mass housing demand vs supply
Title:
Source:
Please fill in the values above to have them entered in your report
(979,358)
135,849
(136,635)
245,768
(1,200,000)
(1,000,000)
(800,000)
(600,000)
(400,000)
(200,000)
0
200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012F 2013F 2014F 2015F 2016F
New Demand New Supply Annual Oversupply (Backlog)
Assumption:
114,902 annual
new supply

SOURCES: SHDA Road Map, HLURB, HUDCC, UN World Population Prospects, NSO, SB EQUITIES



Figure 27: Housing backlog from 2001 to 2011 by Housing Segment
Year Socialized Economic Low Cost Mid High End
2001 (49,860) (92,317) (7,727) 19,082 15,513
2002 (47,675) (85,977) (7,148) 20,469 16,578
2003 (42,941) (85,755) (5,035) 23,916 19,189
2004 (40,401) (43,403) (7,715) 20,983 17,016
2005 (37,042) (73,828) (3,067) 27,836 22,182
2006 (47,394) (122,436) (7,225) 32,545 26,133
2007 (81,312) (331,425) (96,772) 18,790 20,317
2008 (156,797) (620,893) (201,667) 13,162 21,776
2009 (119,077) (413,970) (124,053) 14,562 18,483
2010 50,104 64,237 21,508 29,866 22,448
2011 (90,886) (156,310) (23,259) 29,192 24,376
Total (663,281) (1,962,077) (462,160) 250,403 224,011

SOURCES: COMPANY REPORTS, SHDA ROAD MAP, HLURB, HUDCC. UN WORLD POPULATION PROSPECTS


Assuming an average mass housing production of 114.9 thousand from 2012 to
2016, we estimate the housing backlog to increase from 3.1m to 3.8m, a
compounded increase of 4% for the same period.
Increase in households in the mass housing market income segment has far
outstripped production of mass houses by developers. The mid and high-end
segments have consistently been oversupplied, owing to higher production of
houses by larger real estate developers compared to mass housing developers
which tend to be more fragmented as a sub-industry.
8990 Holdings, Inc.

June 11, 2014




17


Figure 28: Mass housing vs open market
Title:
Source:
Please fill in the values above to have them entered in your report
(3,087,521)
474,414
(1,503,744)
527,600
(4,591,265)
1,002,014
(5,000,000)
(4,000,000)
(3,000,000)
(2,000,000)
(1,000,000)
0
1,000,000
2,000,000
Over (under) supply 2001-2011 Over (under) supply 2012-2022
Historical backlog
of 3.1m units
Forecasted backlog
of 1.5m units
Mass Housing Open Market

SOURCES: SHDA Road Map, HLURB, HUDCC, UN World Population Prospects, NSO


The forecast mass housing backlog is expected reach 4.5m units by 2022 using
our own estimates of future production. This clearly points to an underserved
mass market which has yet to be penetrated on a scale similar to the mid and
high-end real estate market. 8990s strategy is very clear in focusing on this
market and the company is confident that it can take advantage of this situation
with its construction efficiencies and in-house financing scheme.

2.2 Housing demand predicated by improving economy
While housing demand forecasts may seem to be on the higher end of estimates,
this is predicated by an improving economy and an increasing proportion of
working age population.
The Philippines growth is rooted in a dynamic and resilient consumer base,
with a population growth rate of 2.3% per annum. This is seen to grow at a
more gradual pace of 1.63% in the next ten years and at present, just over half
of the population is under 24 years old with average age at 23.4 years old. The
economic growth seen in Asia has partially been built on reaping favourable
demographic trends which transmit via two channels: (a) rapid labour force
growth and (b) a rise in the share of working age population.
This second channel is critical since this is what leads to both rising GDP and
rising GDP per capital rather than just rising GDP and no change in per capita
incomes.

Figure 29: Philippine population (million persons)
Title:
Source:
Please fill in the values above to have them entered in your report
98.4
100.1
101.8
103.5
105.2
106.9
108.7
110.4
112.2
113.9
115.7
85
90
95
100
105
110
115
120
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

SOURCE: World Population Prospects: The 2012 Revision , UN Population Division
The Philippines growth is rooted in
a consumer base with a population
growth rate of 2.3% p.a.
8990 Holdings, Inc.

June 11, 2014




18

The concept of demographic dividend is defined as the ratio of economically
active cohort (i.e., working age population or ages 20-64) to dependents (i.e., 19
and under & 65 and over).
A part of the success of other Asian countries in the past decades has been from
reaping this demographic dividend during the years of their highest working
age population. It seems that while the rest of Asia is already entering a reversal
of this demographic dividend (the so-called demographic winter) notably Japan
and China, the Philippines will enjoy reaping the demographic dividend for the
next few decades.

Figure 30: Demographic Dividend
Title:
Source:
Please fill in the values above to have them entered in your report
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1950 1975 2000 2010 2025 2050
P
r
o
p
o
r
t
i
o
n

o
f

E
c
o
n
o
m
i
c
a
l
l
y

A
c
t
i
v
e

C
o
h
o
r
t

t
o

D
e
p
e
n
d
e
n
t
s
Philippines Asian Average Southeast Asia Indonesia India Japan China Philippines+India+Cambodia+Nepal

SOURCE: World Population Prospects: The 2012 Revision , UN Population Division


In fact, the Philippines is in the early stages of reaping the benefits of this
demographic sweet spot. Based on historical data, every time Asian economies
enter this demographic dividend, it always coincides with the strongest level of
economic growth.
For instance Japan entered this range back in 1965, South Korea in 1985, China
in 1990, and Indonesia in 2005, and in each case, a strong economic boom will
follow that could last for the subsequent few decades. For the Philippines, this
demographic window should open in 2015 and would probably last for the next
three decades.
Figure 31: Asian demographic windows
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
Japan
Hong Kong
Singapore
South Korea
China
Thailand
Indonesia
Vietnam
Malaysia
India
Philippines
1965 1995
1980
2015
1980
2015
1985 2020
1990 2025
1995
2030
2005 2040
2005
2040
2010
2045
2010 2050
2015
2050

SOURCE: UN Population to 2030, UN World Population Prospects

Based on historical data, the
strongest level of economic growth
coincides with demographic
windows
8990 Holdings, Inc.

June 11, 2014




19

Demographic dividends only dipped during the 1970s which was due to efforts
in Asia to adopt population control. Since that time this has steadily increased
and is projected by the UN to peak by 2025 and trend lower by 2050. Even for
another high growth country like Indonesia, it will lose some of this
demographic dividend by 2050.
The Philippines, together with some Asian neighbours like India. Cambodia
and Nepal, are a different matter, with their steady population growth, high
fertility rates and growing share of working age population expected to remain
in place up to 2050, according to UN projections.

Figure 32: 20-64 age group 10yr annual growth rates (%)
Title:
Source:
Please fill in the values above to have them entered in your report
2.7
2.1
1.8 1.8
1.5
1.5
1.4
1.3
1.1
1.0 1.0
1.0
0.9
0.7
0.6
0.1
0.0
0.0
-0.2
-0.4
-0.8
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0

SOURCE: World Population Prospects: The 2012 Revision , UN Population Division


2.3 Credit rating upgrades confirm bullish outlook on the
Philippines
The rating upgrades by S&P, Moodys, and Fitch, of sovereign debt to
investment grade highlight the remarkable turnaround in growth. For quite a
few decades, the Philippines was regarded as the Sick Man of Asia whose
lethargic growth and capacity to consistently disappoint in a region of
fast-growing economies had basis. The figure below shows the variability of
growth, as the average growth from the post-World War 2 to the 1970s was
5.8%, then steeply dropped off in the 1980s to just 2% at a time when the rest of
Asia was averaging 7%, and then a steady three decade climb back to 6% by the
2010s.

Figure 33: Philippine GDP growth trend
Title:
Source:
Please fill in the values above to have them entered in your report
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
1
9
9
8

4
Q
1
9
9
9

1
Q
1
9
9
9

2
Q
1
9
9
9

3
Q
1
9
9
9

4
Q
2
0
0
0

1
Q
2
0
0
0

2
Q
2
0
0
0

3
Q
2
0
0
0

4
Q
2
0
0
1

1
Q
2
0
0
1

2
Q
2
0
0
1

3
Q
2
0
0
1

4
Q
2
0
0
2

1
Q
2
0
0
2

2
Q
2
0
0
2

3
Q
2
0
0
2

4
Q
2
0
0
3

1
Q
2
0
0
3

2
Q
2
0
0
3

3
Q
2
0
0
3

4
Q
2
0
0
4

1
Q
2
0
0
4

2
Q
2
0
0
4

3
Q
2
0
0
4

4
Q
2
0
0
5

1
Q
2
0
0
5

2
Q
2
0
0
5

3
Q
2
0
0
5

4
Q
2
0
0
6

1
Q
2
0
0
6

2
Q
2
0
0
6

3
Q
2
0
0
6

4
Q
2
0
0
7

1
Q
2
0
0
7

2
Q
2
0
0
7

3
Q
2
0
0
7

4
Q
2
0
0
8

1
Q
2
0
0
8

2
Q
2
0
0
8

3
Q
2
0
0
8

4
Q
2
0
0
9

1
Q
2
0
0
9

2
Q
2
0
0
9

3
Q
2
0
0
9

4
Q
2
0
1
0

1
Q
2
0
1
0

2
Q
2
0
1
0

3
Q
2
0
1
0

4
Q
2
0
1
1

1
Q
2
0
1
1

2
Q
2
0
1
1

3
Q
2
0
1
1

4
Q
2
0
1
2

1
Q
2
0
1
2

2
Q
2
0
1
2

3
Q
2
0
1
2

4
Q
2
0
1
3

1
Q
2
0
1
3

2
Q
Seasonally Adjusted GDP (YoY, %) Real GDP (YoY,%) Long-Term Historical Ave. = 5.3%

SOURCE: National Statistical Coordination Board

8990 Holdings, Inc.

June 11, 2014




20

Remittances are also seen to average at the $2bn per month mark next year
which is another milestone. Consider that it took 17 years (1990-2006) for
remittances to go from $100m per month to $1bn, and it took only 9 years
(2006-2014) to add another billion. About a fifth of consumption and more
than 15% of GDP is the share of remittances.

Figure 34: Remittances in terms of GDP and domestic consumption
Title:
Source:
Please fill in the values above to have them entered in your report
0
5
10
15
20
25
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% of GDP % of Consumption

SOURCES: National Statistical Coordination Board



Figure 35: Economic buffers (as % GDP)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
BPO Revenues 1.4 1.9 2.4 2.9 3.6 4.9 5.0 5.4 5.2 5.4 5.3 5.4 5.6 5.7
Change in Gross Reserves -0.9 2.2 3.7 7.2 2.2 4.0 8.9 6.1 3.3 -0.3 1.2 1.0 0.9 0.8
OFW Remittances 9.4 10.4 10.4 9.7 9.5 10.3 9.4 9.0 8.6 8.0 7.1 6.6 6.1 5.7
Tourism Receipts 2.2 2.2 2.7 3.2 1.4 1.3 1.2 1.3 1.5 1.8 1.8 1.8 1.8 1.8
Total Buffers 12.1 16.7 19.2 23.0 16.7 20.5 24.6 21.8 18.5 14.9 15.3 14.9 14.4 13.9
Total Buffers (in $ bn) 11.0 17.2 23.5 34.4 29.0 34.5 49.1 48.8 46.4 42.2 52.3 58.1 64.6 72.1

SOURCE: BSP, BPOAP, DOT, SB EQUITIES


2.4 Local industry competition
The local real estate development industry is primarily dominated by
publicly-listed developers in terms of size of developments and presence. A key
characteristic of this group is their focus on the PHP1.5m and up price range,
which puts them on the upper low-cost all the way to the high-end market
segments. As such, these companies do not compete directly with 8990, whose
selling prices fall within the PHP450,000 to PHP1.25m range.
Private developers, on the other hand, compete with 8990 in the PHP450,000
to PHP1.25m price range but they tend to be more fragmented across the areas
in which 8990 has some presence. It is also worth noting that this group does
not have the scale and scope that 8990 provides, as 8990 appears to be more of
a national mass housing player than a provincial one.

Larger publicly-listed developers
tend to be nationwide in scope and
focused on the upper low cost to
high-end segment


Private developers tend to be
localised and focused on the mass
market segment

8990 Holdings, Inc.

June 11, 2014




21


Figure 36: Publicly-listed developers Figure 37: Private developers
Company Location
Ayala Land Inc. Nationwide
Century Properties Group Inc Nationwide
Filinvest Land Inc Nationwide
Megaworld Corp Nationwide
Robinsons Land Corp Nationwide
SM Prime Holdings Inc Nationwide
Vista Land & Lifescapes Inc Nationwide

Company Location
Johndorf Cebu
ProHomes Cebu
Foothills Development Corp Davao
HLC Development Corp Davao
ProFriends Cavite, Iloilo
Ion Realty Iloilo
Happy Homes Iloilo
San Raphael Realty Iloilo
Hausland Pampanga
Fiesta Communities Pampanga
El Valerio Realty Pampanga
ProFriends Cavite
Homemark Development Cavite
Picar Development Cavite
Rudex Cavite
Masaito Cavite
New APEC Cavite

SOURCE: COMPANY REPORTS SOURCE: COMPANY REPORTS


8990 Holdings, Inc.

June 11, 2014




22

3. RISKS
3.1 Regulatory environment
Real estate development is highly-regulated and the company is no exception in
having to follow those rules. Approvals of development plans from regulatory
bodies are required prior to construction. The company is also expected to
adhere to environmental laws or else have their permits revoked.
Most of the regulation entails for close coordination with Housing and Land
Use Regulatory Board (HLURB) to cover development and sales of subdivisions
or condominiums.
Mass housing companies operating in the Philippines need to act in concert
with the Home Development Mutual Fund (Pag-IBIG Fund) as they provide
loans to fund members which are usually a necessity in the case of low cost
housing buyers.
The Pag-IBIG Fund has slowed down its loan take outs due to changes in the
administration, making processing stricter and longer, but has recently
indicated a desire to accept more loans to address the large housing backlog.

Figure 38: Pag-IBIG proceeds from member contributions (PHP bn)
Title:
Source:
Please fill in the values above to have them entered in your report
16.8
17.4
19.8
22.2
24.3
0
5
10
15
20
25
30
2008 2009 2010 2011 2012

SOURCE: COMPANY REPORTS


Another regulatory risk lies with the governments interpretation of Republic
Act 7279 or the Urban Development and Housing Act, which provides tax
incentives to private developers and government agencies engaged in the
development of socialised housing projects. The Executive Order No. 226, or
the Omnibus Investments Code of 1987, also has directed the Board of
Investments (BOI) to provide incentives such as Income Tax Holidays (ITH) to
private developers who will venture into mass housing projects.
8990 enjoys some degree of tax incentives as most of its projects are licensed
under BP 220 or the mass housing law. In recent years, however, the
governments tax authority has been reviewing this legislation, with the
intention of cracking down on unscrupulous private developers who take
advantage of these incentives but do not hold up their end of the bargain, i.e.
mass housing for the lower income segment. This has resulted in stricter
processing of applications for social housing projects by developers.
The company is confident that its current projects fall under the mass housing
category, as it has applied for mass housing status from the Housing and Land
Use Regulatory Board (HLURB) for its low cost housing projects and have also
gotten approvals for the same.

8990 coordinates with HLURB and
Pag-IBIG, among others, on
housing regulation and policies
8990 Holdings, Inc.

June 11, 2014




23

3.2 Financial
The companys CTS Gold financing programmes have been very successful in
enticing qualified buyers to purchase units from 8990 with a monthly
amortisation of around PHP8,000 a month with an interest rate of 8.5% for
CTS Gold Convertible and 11.5%. for CTS Gold Straight. The company is able to
offer reasonable rates by stretching its mortgage duration to 25 years. Strong
collection measures enable the company to reduce its customer default risk by
taking proactive approaches and keep delinquency rates at 3.2% in 2013.
The CTS Gold scheme, while extremely efficient in luring mass housing
customers and allowing buyers the opportunity to build up their credit profile
for at least two years before the company can transfer their contracts-to-sell,
has also the downside of increasing accounts receivables at a pace in lock step
with its increase in annual sales.
The company realises that it can unlock value from its growing receivables by
trying to push for large loan take-outs for its buyers under the governments
Pag-IBIG Fund and exploring securitisation options. These measures, should it
prove successful, would serve a dual purpose, by providing the company with
more cash to fund its expansion and also to keep the companys balance sheet
in a healthy position.

3.3 Industry
The real estate industry in the Philippines is a tale of open market and mass
housing sub-industries. Land acquisitions of the right size and price will
continue to be a challenge even in the provinces. 8990s landholdings are
mostly within the outskirts of the city proper, which lessens the price
acquisition costs of the company.
There is also a risk of a larger property developer trying to enter the mass
housing business. The company is confident that its pre-cast building
technology, CTS Gold financing programme, and experience in the mass
housing market, makes it a frontrunner in the segment, allowing it to defend its
market share in the country.

3.4 Economic
We do not discount the possibility that the company will be affected by changes
in the economic climate as the real estate housing industry is prone to property
cycles where there is a characteristic boom-slump-recovery cycle.
The mass housing market is currently looking at a historical housing backlog of
3.1m from 2001 to 2011, and a conservative estimate of 1.5m from 2012 to 2022.
Despite this, market sentiment on real estate can shift depending on the
interaction of supply and demand, as well as external factors (e.g. property
financing, media coverage, regulatory issues, etc.), which could then affect the
take up of new real estate developments.

The company has existing take-out
arrangements with Pag-IBIG to
unlock value from receivables
8990 Holdings, Inc.

June 11, 2014




24

4. SWOT ANALYSIS
4.1 SWOT table

Figure 39: SWOT analysis
Strengths Opportunities
Pre-cast technology allows for construction efficiencies and scalability Mass housing backlog expected to reach 4.6m by 2022
Innovative in-house financing scheme expands customer base and caters
to mass housing market
Expansion in other key cities nationwide, especially Luzon
Founding partners with several decades of mass housing experience
Creation of in-house construction company to control the construction
process from end-to-end
Weaknesses Threats
High proportion of installment sales increases receivables at a fast rate
Larger property developers may be enticed by mass market undersupply
and enter aggressively
Relatively smaller in scale than established publicly-listed developers Reliability of outsourced contractors and machinery
Reliance on outsourced contractors to build developments
Regulatory environment might have unforseen changes that could alter the
industry dynamics

SOURCE: CIMB RESEARCH, COMPANY

8990 Holdings, Inc.

June 11, 2014




25

5. FINANCIALS
5.1 38% earnings CAGR between 2013 and 2016
8990 is expected to see a 38% compounded annual earnings growth rate from
between 2013 and 2016 due to a combination of low cost production technique
amidst a huge demand in the mass housing market.
Revenue growth from horizontal mass housing projects is expected to grow
from PHP4.7bn in 2013 to PHP7.1bn in 2016 or a compounded growth rate of
14.9% p.a.
Another source of growth will come from its ventures in the middle rise
building (MRB) and high-rise building markets in Metro Manila.
Admittedly, this may raise some concerns that the company may be venturing
out from its core competence. However, this is not the case.

Figure 40: Revenue composition (2011 to 2016)
Title:
Source:
Please fill in the values above to have them entered in your report
2,349
3,831
5,356
7,457
9,649
12,380
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2011A 2012A 2013A 2014F 2015F 2016F
Low cost mass housing Medium-ri se condominium units High-rise condominium uni ts Others

SOURCES: COMPANY REPORTS, SB EQUITIES


Metro Manila has not been penetrated by the company in the past. Keeping
true to its low-cost origins, 8990 will be designing 13 sq m units with a target
price of just PHP875,000, with a monthly amortisation of around PHP7,500,
pricing it under the mass housing category and making it eligible under the
companys CTS Gold financing programme as well as through the governments
housing programme.
These units are targeted to professionals who are either renting out in Metro
Manila or to those who have to take a one-to-two hour commute from adjacent
suburbs
We expect that these high-rise projects to start to contribute to the companys
revenue streams by 2016, while medium-rise condominium units should
comprise 14% of the companys revenues by 2014.
All of these should allow the company to grow its revenues at a compounded
rate of 32.2% between 2013 and 2016.

5.2 Margins seen to remain high over forecast period
The companys margins are expected to remain high over our forecast period
due to a confluence of factors. The primary factor is the companys cheaper and
more efficient pre-cast construction method that allows it to have cheaper raw
material and labour costs over a shorter period of time.
Another advantage of pre-cast construction is that the company can maintain
consistent quality over all of its projects. With a strength four times that of the
traditional cinder block approach, home buyers are more willing to buy at a
premium. This is the reason why the company has been able to raise its prices
Revenue from horizontal projects
expected to grow 14.9% p.a. in the
next three years
8990 Holdings, Inc.

June 11, 2014




26

during the past three years without any effect on its ability to sell its housing
units.
8990s land acquisition strategy also remains as a strong point by focusing on
property that are in the periphery of urbanised cities, making acquisition costs
cheaper than comparable properties in the middle of the city. The company also
tries to time its purchases so that it is ready to commence development as soon
as a new parcel of land is bought, limiting the landholdings non-revenue
generating status in the companys portfolio.
These factors will allow 8990 to enjoy a gross margin of greater than 60% from
2014 to 2016.
Another factor on the expense side is the companys low SG&A spending owing
from its low-key marketing strategy which tends to be more word of mouth and
buyer referrals rather than via heavy advertising spending.
Lastly, the company is also benefitting from the tax incentives that the
government provides to mass housing developers. Mass housing developers
are given as much as a 4-year income tax holiday on every new mass housing
project that a developer launches.
These factors allow 8990 to enjoy net margins that hover above 40%. EBITDA
margin is expected to be steady at around 47% in the next three years.

Figure 41: Key Financials
2011A 2012A 2013A 2014F 2015F 2016F
Revenue (PHP m) 2,349 3,831 5,356 7,457 9,649 12,380
ROE (%) 43.4 65.4 41.4 33.5 28.7 31.5
EBITDA margin (%) 20.7 45.0 42.8 44.1 44.2 44.0
Gross margin (%) 42.9 62.2 63.3 63.0 63.0 63.0
Net margin (%) 18.7 44.5 40.8 47.7 46.9 46.2
Net sales growth (%) 5.9 63.1 39.8 39.2 29.4 28.3

SOURCES: COMPANY REPORTS, SB EQUITIES


5.3 Cashflow analysis
One of the key risks of 8990, as a function of its CTS Gold financing scheme, is
the increase of its receivables as its sales increase. We estimate the companys
total receivables to reach PHP10.8bn by the end of 2014.
The company recognises this issue and has put in measures to reduce its
receivables by increasing the Pag-IBIG loan take-outs of its seasoned buyers. As
at end March, 8990 has delivered 4,759 housing loan folders to Pag-IBIG, an
estimated value of PHP4bn worth of receivables, of which 45% of the total was
issued Notice of Approvals (NOA) or in the process of issuing NOAs, with
approximately 22% of the value of submitted receivables already paid for.
The company is also exploring sale of part of its receivables portfolio (with no
recourse) to private banks. Another avenue which 8990 is actively pursuing is
the securitisation of seasoned CTS home loans, which will allow the company to
receive around PHP800m of cash for every PHP1bn in loans that will be
securitised.
This should keep the companys total accounts receivable at manageable levels,
despite additions from new house sales, with an average of around 54% of total
assets in the next three years.

5.4 Comparison with local competitors
In terms of forward earnings growth rates for the period from 2014 to 2015,
8990 leads the way with a 44% rate, above Ayala Land (ALI PM) and
Megaworld (MEG PM) at 30% and 24%, respectively.
In terms of forward profit margins, 8990 leads the group with a 47.7% rate,
followed by SM Prime Holdings (SMPH PM) at 32.2% and Megaworld at 31.2%.
Gross margins expected to remain
at greater than 60% from 2014 to
2016
Measures to reduce receivables
include increasing Pag-IBIG loan
take-outs, sale of part of its
receivable portfolio (with no
recourse), and securitisation of
seasoned CTS home loans
8990 Holdings, Inc.

June 11, 2014




27

This fact flies in the face of conventional wisdom that low-cost housing
developers have lower margins compared to open market players.
Lastly, in terms of net income, 8990 is ranked 7th of 8 developers for 2014F
earnings, edging out Century Properties (CPG PM), with PHP3.6bn.
This puts 8990 in an enviable position of having robust profit margins while
enjoying an earnings growth rate percentage in the 40s.

Figure 42: Competitive positioning
Title:
Source:
Please fill in the values above to have them entered in your report
ALI
CPG
FLI
HOUSE
MEG
Scale
Net income
= Php1bn
RLC
SMPH
VLL
-
10.0
20.0
30.0
40.0
50.0
60.0
- 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0
P
r
o
f
i
t

m
a
r
g
i
n

2
0
1
4
F

(
%
)
CAGR %, (2014-2015)
CAGR = 44%, Profit
Margin = 48%, Net
Income 2014F =
Php3.6bn

SOURCES: COMPANY REPORTS, SB EQUITIES


8990 leads its peers in profit
margins and forward earnings
growth
8990 Holdings, Inc.

June 11, 2014




28

6. VALUATION AND RECOMMENDATION
6.1 Reasonably valued amidst robust growth and returns
On a P/E basis, 8990 trades at a slight premium relative to its peers in the
region. However, this is justified as the company has better profitability metrics.
Its 2-year average EPS growth of 33% is far superior than the peer average of
19%. 8990 also provides higher return on equity at 32% versus regional
average of 18%.

Figure 43: Regional peer comparison
2014 PE 2 yr ave growth PEG ROE
AP (Thailand) PCL (THB) 8.1 10 0.8 14
Supalai PCL (THB) 8.6 34 0.3 26
Mah Sing Group (MYR) 9.2 20 0.5 17
Sansiri Public Co (THB) 9.7 20 0.5 12
Quality Houses (THB) 9.7 10 1.0 18
Ananda Development (THB) 10.1 42 0.2 13
Pruksa Real Estate (THB) 10.8 9 1.2 21
SC Asset Corporation (THB) 11.0 15 0.7 10
Lippo Karawaci (IDR) 11.1 27 0.4 17
LPN Development (THB) 11.6 20 0.6 24
8990 Holdings, Inc. (PHP) 11.5 33 0.3 32
Metropolitan Land (IDR) 12.8 16 0.8 14
Land And Houses (THB) 15.8 4 4.0 19
Summarecon Agung (IDR) 16.1 4 3.8 22
Average 11.2 19 1.1 18

SOURCES: CIMB, SB EQUITIES

Even on the domestic front, the company fares favourably well vis--vis its
earnings growth and ROE.

Figure 44: Domestic peer comparison
PE 2 yr average growth PEG ROE
Ayala Land 28.9 23 1.3 15
SM Prime Holdings 23.1 18 1.3 11
Robinsons Land 17.8 19 0.9 10
Megaworld 16.4 13 1.3 10
8990 Holdings Inc 11.5 33 0.3 32
Filinvest Land 9.8 12 0.8 8
Vista Land 9.4 15 0.6 11
Average 16.7 19 0.9 14

SOURCES: SB EQUITIES, BLOOMBERG



6.2 DCF-based price target set at PHP11.20
We used the DCF valuation method in determining the companys target price.
We believe that between the two valuation methods of P/E multiple and DCF,
DCF appears to be better suited to ascertain the value of 8990. Using peer P/E
multiples may not reflect the true value of the company, as some of the
domestic companies low or high valuation is a result of their historical dealings
with the market rather than their growth potential.
In addition, the company has no direct comparison with the current crop of
listed property companies as most them have limited exposure to the low-cost
housing market.
Also, a DCF valuation more accurately captures 8990s current business model
as a real estate company with a constant and fast turnover of housing units in
line with demand, as opposed to traditional real estate companies who might
take longer to realise cash flows from their developments. This method also
takes into account the potential for growth as well as the attractive margins that
the company is enjoying right now.
8990 Holdings, Inc.

June 11, 2014




29

Lastly, applying a discount of 30% to NAV is a way to include the risks inherent
in the property sector as well as the risk of 8990 as a new issue.
Discounting the companys free cashflow at an estimated WACC of 8.8%, we
arrive at an equity value of PHP61.8bn or PHP11.20/share.
Figure 45: WACC assumptions
% (except for Beta)
WACC 8.8
Ke 11.4
Equity/(Debt + Equity) 37.4
Kd 7.2
Debt/(Debt + Equity) 62.6
Cost of equity 11.4
Risk free equity 5.0
Beta 1.07
Equity risk premium 6.0
Cost of debt (after-tax) 7.2
Debt premium 3.5
Statutory tax rate 15.0

SOURCES: CIMB, COMPANY REPORTS


Figure 46: Summary of equity valuation
PV of Forecasted Cash Flows 95,303
Add: Cash 249
Total Firm Value 95,552
Less: Bank & Other Debt (7,313)
Net Asset Value (NAV) 88,239
Discount to NAV (30%) (26,472)
Total Value to Equity 61,768
Value per share 11.20

SOURCES: SB EQUITIES







8990 Holdings, Inc.

June 11, 2014




30


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8990 Holdings, Inc.

June 11, 2014




31

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8990 Holdings, Inc.

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Institutional Investor or Major Institutional Investor must not rely on this communication. The delivery of this research report to any person in the United States of America is not a
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Spitzer Chart for stock being researched ( 2 year data )
8990 Holdings, Inc. (HOUSE PM)
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Price Close


As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any
recommendations stated in this report.
CIMB Recommendation Framework #1
Stock Ratings Definition
Add The stocks total return is expected to exceed 10% over the next 12 months.
Hold The stocks total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stocks total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the
stock.
Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

CIMB Stock Recommendation Framework #2 *
Outperform The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.
Neutral The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.
Underperform The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.
Trading Buy The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months.
Trading Sell The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities
Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

CIMB Stock Recommendation Framework #3 **
Outperform Expected positive total returns of 10% or more over the next 12 months.
Neutral Expected total returns of between -10% and +10% over the next 12 months.
Underperform Expected negative total returns of 10% or more over the next 12 months.
Trading Buy Expected positive total returns of 10% or more over the next 3 months.
Trading Sell Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is
permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
AAV Good, ADVANC - Excellent, AMATA - Very Good, ANAN Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH Good,
BCP - Excellent, BEC - Very Good, BGH - not available, BJC Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET Very Good, CENTEL Very Good, CK -
Excellent, CPALL - Very Good, CPF Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY
Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Excellent, ITD Very Good, IVL - Excellent, JAS Very Good, KAMART not available,
KBANK - Excellent, KKP Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR Very Good, MAKRO Very Good, MCOT - Excellent, MEGA not available,
MINT - Excellent, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent,
SAMART Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP -
Excellent, THAI - Excellent, THCOM Excellent, TICON Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW Excellent, TUF - Very Good,
VGI Excellent, WORK Good.
8990 Holdings, Inc.

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