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Shangri-La Properties Is Undervalued

- By Mark Yu

Shangri-La Properties (PHS:SHNG) filed its second-quarter and first-half operational results on Aug. 11, and the 15.48 billion Philippine peso ($320.36 million) property specialist delivered sales and profit growth of 18.14% to 4.8 billion pesos and -5.31% to 1.25 billion pesos.

As a result, Shangri-La shares closed flat 0% that day while the broader Philippine Composite Index closed -0.87%.

For the past five years (2011 to date), Shangri-La's share price, excluding dividends, provided a capital appreciation of 71% while the Philippine index appreciated 77.91%.

Shangri-La properties

Shangri-La was first incorporated in 1987 and described itself as a property development, real estate management and investment holding company. The company's shares have been publicly listed since 1999. In its fiscal year 2015 annual filing, Shangri-La had three business segments: condominium sales, rental (leasing) and cinema.

Shangri-La entered several acquisitions and partnerships over the years and eventually had 19 subsidiaries, mostly wholly owned, as of June.

(Shangri-La Properties Subsidiaries, quarterly filing)

Some wholly owned subsidiaries

Shangri-La Plaza Corporation

Shangri-La Plaza Corporation (SLPC) is 100% owned by Shangri-La and was incorporated in 1993. According to Shangri-La, SLPC's primary business is leasing.

(Shangri-La Plaza Shopping Complex, Company Website)

SLPC is designed to invest in, purchase, own, hold, lease and operate Shangri-La Plaza Shopping Complex located in Mandaluyong City, Philippines. Shangri-La Plaza Shopping Complex houses several leading international and local retailers, Rustan's department store, Marks & Spencer, theater, cinema, restaurants, fast-food outlets, boutiques and specialty stores.

SPI Parking Services

SPI Parking Services (SPSI) is 100% owned by Shangri-La and was incorporated in 2001. The company is also part of Shangri-La's Leasing business operations.

The company was designed to own and/or manage and operate carpark facilities including those surrounding Shangri-La Plaza Shopping Complex.

Shang Properties Reality Corporation

Shang Properties Reality Corporation (SPRC) is 100% owned by Shangri-La and was incorporated in 2003. The company is part of Shangri-La's property and development business operations. It is a realty development company.

(Shang Grand Tower, company website)

SPRC was formerly known as Shang Grand Tower Corporation. The 46-story Shang Grand Tower opened in 2006 and was sold out in the same year. In addition to the Shang Grand Tower, SPRC also owns the St. Francis - Shangri-La Place and One Shangri-La Place.

(Shang Salcedo Place as of July 2016, Company Website)

Shang Property Developers

Shang Property Developers (SPDI) is 100% owned by Shangri-La and was incorporated in 2010. The company is also part of Shangri-La's property and development business operations. SPDI is the owner and developer of Shang Salcedo Place, which was slated to be completed in 2015.

As shown in the image above, Shang Salcedo seemed to be nearing its completion still as of July this year. Nonetheless, its units seemed to be in high demand as there were only two units left up for sale according to a local real estate marketer (chat screenshot above).

(Shangri-La at the Fort-Deluxe Room, company website)

Shang Global City Properties

Shang Global City Properties (SGCPI) is 60% owned by Shangri-La and was incorporated in 2007. The company is part of Shangri-La's property and development business operations. SPRC is the owner and developer of the hotel and residential development known as Shangri-La at the Fort. According to Shangri-La, the residential component had initiated its pre-selling (2).

(Shangri-La at the Fort-Makati City (West) Side View, Company Website)

Sales and profits

In fiscal year 2015, condominium sales contributed 63%, or 4.65 billion pesos, in total Shangri-La sales. Condominium sales grew by 23.6% year on year. The rental (leasing) business, meanwhile, delivered 2% growth with 2.68 billion pesos, or 36.2%, of total sales. Last, Shangri-La's hotel business grew by 0.5% to 60.7 million pesos.

In the first half of this year, Shangri-La provided a better view on how its recently added hotel operations performed. The company highlighted four business segments: condominium sales, rental, hotel operations and others (3).

In the first half, Shangri-La's condominium sales grew by 11% compared to the same period last year while delivering a 43.3% gross margin. Shangri-La's rental business, meanwhile, delivered a 1.8% growth while representing a 100% gross margin.

Shangri-La's newly labeled segment, hotel operations, delivered 372.9 million pesos in sales, or 7.8% of total first half sales (4). The segment is yet to be profitable and delivered a loss of 279 million pesos. Lastly, Shangri-La's other business segment delivered 4.6% growth.

For the past five years, Shangri-La Properties was able to grow its sales and profit figures by 29.8% and 23%.

Cash, debt and book value

Shangri-La Properties' unaudited financials as of June 30 indicated that it had total cash and cash equivalents of 3.55 billion. The company also had total debt of 1.72 billion pesos with a 0.05 debt-equity ratio. Shangri-La also had a book value of 32 billion pesos.

Cash flow

(Shangri-La Properties in FY 2015, Annual Filing)

In fiscal year 2015, Shangri-La grew its cash flow from operations by 709.2% to 4.89 billion pesos by gross reduction in properties held for sale, receivable and increase in account payables for the period. As observed, Shangri-La also continued to deliver profit growth.

Shangri-La also allocated 10.5 million pesos in capital expenditures, leaving it with 4.88 billion in free cash flow. The property specialist also allocated 2.37 billion in real estate development projects, which involved the Shangri-La at the Fort project in 2014, and another wholly owned real estate subsidiary, KRC, of a high-rise condominium project that commenced in 2014.

Shangri-La also had a net debt cash flow of 138.4 million pesos (debt intake) for fiscal year 2015.

Nonetheless, Shangri-La still provided 976.5 million pesos in dividends, which represented 20% of its free cash flow for the period. For the past three years, Shangri-La had a dividend/free cash flow payout ratio average of 71%.

In the first half, Shangri-La Properties grew its cash flow from operations by 65.92% to 2.48 billion pesos. The company retained a free cash flow of 2.18 billion pesos.

Shangri-La also allocated 2.74 billion pesos in adding interest in subsidiaries and real estate development projects. Nonetheless, the company paid out 26%, or 569.7 million pesos, of its free cash flow as dividends in the first half.


With a market capitalization of 15.48 billion pesos, Shangri-La had a trailing 12-month price-earnings (P/E) multiple of 5.6 times, a price-book (P/B) value of 0.48 times and a price-sales (P/S) multiple of 1.9 times. The company also had a 4.31% dividend yield (5).


Identifying a company that sells less than half of its book value (tangible) is rare and usually observed only in troubled times. Shangri-La, on the other hand, demonstrated this despite carrying no observable threat to its business operations. In fact, the company is impressively delivering growth to its top and bottom lines for the past recent years.

Shangri-La also added another line of business to its operations, hotel operations, and also seemed determined to grow this segment as it delivered a good portion of its total sales for the first half.

Shangri-La also had strong balance sheet and can carry more debt (conservatively) to further expand its assets as it gathers more of its business from condominium sales. Shangri-La also demonstrated good stewardship as it provided growing dividend payouts over time.

Using book value alone at a conservative multiple of 1 would indicate a tangible value per share of 6.74 pesos, a 107% capital appreciation, excluding dividends, if met.

In summary, Shangri-La Properties is a BUY.


(1) Company website: the Shang Grand Tower is a five-star residential development built by the distinguished Kuok Group, one of Asia's most diversified conglomerates. This 46-story residential condominium, situated in the pulsating cosmopolitan hub of Legaspi Village, at the corners of Perea and Nieva streets, added a new dimension in the Makati skyline. With one level dedicated for amenities facilities, and two lobbies serving the lower and higher floors with concierge services and 24-hour security, the Shang Grand Tower aims to continue providing exemplary service to its residents and their guests.

(2) Company website: Shangri-La at the Fort (Hotel)

Shangri-La Hotel at the Fort, Manila offers 576 guest rooms and suites, with room sizes starting from 45 square meters and suites ranging from 90 to 235 square meters.

Shangri-La at the Fort (Residences)

A selection of 97 fully furnished, well-appointed residences are available, in one-, two- or three-bedroom configurations, each featuring crisp, contemporary design and a range of comforts, including high-speed Wi-Fi Internet access, local and IDD phone lines, a personal safe, a 49-inch flatscreen television programmed with popular international channels and a fully equipped modern kitchen.

(3) Author's assumption: Others segment represents Shangri-La's cinema business.

(4) Author's assumption: Shangri-La Properties recently included its hotel operations in its filings. This is to welcome a new business that can further facilitate growth in the company's top and bottom line.

Interestingly enough, there is an already established five-star hotel, Makati Shangri-La, located in Makati and had been in operations since 1993. This hotel, however, is not included in the company being discussed here and is owned by the Hong Kong-based Shangri-La Hotels and Resorts instead.

(5) Bloomberg website.

Disclosure: I am long Shangri-La Properties.

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