Rating

AP Securities, Inc.
Not Rated (formerly Angping & Associates Securities, Inc.)

Property Company 08 April 2016

DoubleDragon Properties Corp. Jerrie Mae Hyvi P. Respicio

Research Assistant
Company Update
+632 848 2915 local 110

DD To Raise P10 Bn Preferred Shares jmrespicio@angping.com.ph

Stock Price Target Price Return Potential Market Cap DD:PM

36.25 N/A N/A P 81 Bn DD.PS

The Evolution of the Dragon

Since its public listing in 2014, Double Dragon Properties Corp.’s (DD PM) 12-month Price Performance
real estate portfolio has grown tremendously. DD managed to grow mostly 450
on acquisitions and partnerships. In 2014, DD acquired 70.0% of Zion Land
Development Ph, Inc. The company also bought a property in Divsoria for 375

future development and took over a 38-floor office tower in Quezon City
300
during the same year. The newly acquired assets, together with new
inventories from completion of Injap Tower and Uptown Place
225
Condominium, increased total assets nine fold to P18.5 Bn from P1.8 Bn
the previous year. Moving forward, DD envisions to be one of the largest 150
commercial and property developer by 2020 with its plan of rolling out 100
community malls under its brand “CityMall”. Further, the 4.8 ha Double 75

Dragon Plaza, a mixed used development near Mall of Asia in Pasay, is

DD PM PCOMP
also expected to boost the company’s recurring income base.

The Offer 1m 6m 12m

To raise capital to support its ambitious growth, DD is offering preferred Absolute 4.62% 78.57% 326.47%
shares of up to P10.00 Bn, The rate for the preferred shares are pegged at PSEi 4.04% 1.24% -10.65%
a fixed rate of 6.4778%. Moreover, the P100-par value preferred shares are
convertible into the company's common shares at 1:1. Net proceeds from
the subscriptions will be used to fund existing projects, acquisition of new
Stock Data
land and the construction of more CityMalls.
Sector Property

There are Better Alternatives Ave. Value Traded (last 30 days) Pm 50.47

DD has a long way to go to achieve its goal deriving 90.0% of its revenues 12m high/low P 39.85 / 8.34
from recurring sources. However, based on the company’s current pipeline, TTM PER x 82.62
we expect DD to achieve this by 2018, once most constructions of
TTM PBV x 28.46
CityMalls and DoubleDragon Plaza are completed. To achieve this implies
massive CAPEX and we believe that the company will unlikely be able to
distribute dividends in the next two years as earnings will likely be used to
support the company’s expansion. Furthermore, we see higher yielding
alternatives in the market. Therefore, we advise clients NOT TO
SUBSCRIBE.

Key Statistics
2013A 2014A % Change 9M2014 9M2015 % Change

Revenue Pm 515.10 1,219.55 1.37% 1,124.95 1,083.12 -0.04%

Net Income Pm 106.65 555.89 4.21% 331.15 706.62 1.13%

Source: Company Data

AP Securities, Inc.

This research report was prepared by the APS Research Department. The opinions contained in this report are those of APS Research Department. DISCLOSURES AND
ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
DoubleDragon Properties Corp. Investment Highlights

Investment Highlights

The Evolution of the Dragon

Double Dragon Properties Corp. is a real estate company engaged in the

development of both horizontal and vertical projects. It envisions itself to be
one of the largest commercial and property developers in the Philippines by
2020. To do this, the company plans to roll out 100 community malls over the
next five years under its chain “CityMall” and to put up larger developments
such as the 4.8-ha DD Meridian Park.

DD went public in 2014, with initial public offering of 580.0 Mn shares at P2.0
per share. Double Dragon strategically acquired existing projects that have
been pre-sold and were partially completed by other developers. In 2014, DD
acquired 70.0% of Zion Land Development Ph, Inc. and a property in Divisoria,
which will be developed into Dragonn88 Shopping Center. Also, DD took over
“The Skysuites Tower”, a 38-floor office building in Quezon City. Two existing
projects, namely Uptown Place Condominium and Injap Tower, were also
completed in 2014.

The result was a sizable increase in the company’s portfolio as total assets
and total equity swelled nine-fold and eleven-fold, respectively. In the process,
DD had to endure a high total debt-to-equity ratio of 107.0% in 2014. However,
the company’s 9.47x interest coverage ratio (Exhibit 2) allows it to fulfill short
term obligations.

Exhibit 1: Balance Sheet Highlights Exhibit 2: Income Statement Highlights

25,000
1,200

20,000

15,000 800

10,000
400
5,000

- -
2012 2013 2014 9M2014 9M2015 2012 2013 2014 9M2014 9M2015

Total Assets Total Liabilities Total Equity Revenues Net Income

Source: Company Data Source: Company Data

DoubleDragon Properties Corp. Investment Highlights

Meanwhile, as of 9M2015, revenues and net income reached P1.1 Bn and

P589.4 Mn, respectively (Exhibit 3). Breaking down consolidated revenues,
rental income had the most substantial increase to P16.2 Mn from P1.4 Mn in
9M2014 due to significant contributions from new commercial projects, such
as newly opened CityMalls and Dragon88 Shopping Center. DD, however,
was not able to achieve the planned opening of 25 CityMalls by 2015. As of
December 2015, there are only 5 existing CityMalls and 25 still under
construction. The ones under construction are expected to be operational in
the next 12 months, according to the Management.

The Offer

To fund the company’s expansion plans, DD is set to raise up to P10.0 Bn

worth of preferred shares. The preferred shares, which are priced at P100.0
per share, will be issued following the approval of the Securities and Exchange
Commission of the Application of Amendment to increase the company’s
authorized capital stock to P 20.5 Bn from P 50.0 Mn. Holders of the
cumulative, non-voting, non-participating, redeemable convertible preferred
shares will receive cash dividends at an initial fixed rate of 6.4778% per
annum, at the discretion of the Board of Directors.

Moreover, the preferred shares have a conversion feature. Shareholders have

the option to convert their preferred shares to common shares at a ratio of 1:1
nd th
between the 2 and 5 year after issuance. This implies a conversion price of
P100.0 per share. We believe this to be part of the company’s signaling
strategy that they expect common shares to be trading more than the par
value of the preferred shares at least by the second year since the listing of
the preferred.

Most of the fresh funds will be used to finance the construction of CityMalls
and DoubleDragon Plaza.
DoubleDragon Properties Corp. Investment Highlights

Exhibit 2: Income Statement Highlights

Issuer Name Ticker Cpn Rate Market Price Div. Yield
San Miguel Corp SMCP1 8.0000% 74.00 8.1081%
San Miguel Corp SMC2C 8.0000% 80.30 7.4720%
First Gen Corp FGENF 8.0000% 108.10 7.4006%
San Miguel Corp SMC2B 7.6250% 80.00 7.1484%
First Gen Corp FGENG 7.7808% 115.40 6.7425%
Petron Corp PRF2B 6.8583% 1,030.00 6.6585%
San Miguel Corp SMC2F 6.8072% 76.90 6.6390%
DoubleDragon Prop Corp 6.4778% 100.00 6.4778%
San Miguel Corp SMC2G 6.5793% 77.40 6.3753%
San Miguel Corp SMC2I 6.3355% 75.00 6.3355%
San Miguel Corp SMC2H 6.3222% 75.05 6.3180%
San Miguel Corp SMC2E 6.3255% 75.60 6.2753%
Petron Corp PRF2A 6.3000% 1,030.00 6.1165%
San Miguel Corp SMC2D 5.9431% 78.00 5.7145%
Ayala Corp ACPB2 5.5750% 520.00 5.3606%
Globe Telecom Inc GLOPA 5.2006% 520.00 5.0006%
Ayala Corp ACPB1 5.2500% 525.00 5.0000%
Source: Bloomberg-compiled Data, Company Data

Recommendation

On the back of the company’s rich pipeline of projects, the company’s

ambitious goal of deriving 90.0% of its recurring income is still a long way from
fruition. In 9M2015, DD’s reported rental income contributed only 3.3% to total
revenues. We expect DD to achieve the aforementioned level of recurring
revenues in 2018, once most of the planned CityMalls and DoubleDragon
Plaza are completed. Hence, we believe that the company will unlikely be able
to distribute dividends in the next two years as earnings and cash flows from
operations will likely be used to support the company’s expansion plans.

Further, we believe that there are higher yielding alternatives available in the
market as listed in Exhibit 3. Most of the companies above have a good
history of paying out dividends, as operating cash flows have stabilized in
most of them. Therefore, we do not encourage the subscription of DD’s
preferred shares.
DoubleDragon Properties Corp.

STOCK RATING

OVERWEIGHT NEUTRAL UNDERWEIGHT

OVERWEIGHT.
We expect the share price
to outperform the market
in the next six to twelve
months.
UNDERWEIGHT.
NEUTRAL.
We expect the share price
We expect the share price
to underperform in the
to perform in line with the
next six to twelve months.
market in the next six to
twelve months.

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