5 Reasons Why DoubleDragon Properties, Inc ($DD) Will Pullback Below Php 2/share in less than a year

The first IPO this year is DoubleDragon Properties, Inc with the symbol, “DD”.

dd1This stock has a very good press release.  Infact, $DD is oversubscribed 14 times on March 21, 2014 according to Reuters.

There is high demand of the shares probably because of the so-called “co-marketing” where emphasis on joint venture of popular owners of big companies in the Philippines, like Mr. Tony Tan Caktiong of JFC and Henry Sy of SM, are also partners of DoubleDragon Properties, Inc.

Despite the popularity of the IPO, the first in 2014 and perceived as literally cheap, I believe the stock will pullback anytime soon.

There is no guarantee that over-subscription of the shares, which is similar to $RWM and other stocks which were listed in 2013, (with five times oversubscription with over 100 investors and partnership between tycoon Andrew Tan-led Alliance Global Group Inc. and the Genting group) will do well in the listing date.

There are 5 reasons why this stock will pullback below P2/share in 1 year probably not on listing date.

1.  High P/E with unmet expectation on net income 2014

As shown in the summary of financial performance from 2011-2013 courtesy of Colfinancial and DD:

DDBased on net profit of 122M, the stock P/E based on Php 2/share is 36.54. 

For year 2014, we cannot expect an outright increase of net income  for retail leasing since there are only few months left for construction of these community malls and recently acquired, 50% of Piccadilly Circus Landing, Inc., which will develop the Umbria Commercial Center.

Unmet expectation of net income for 2014 could be one reason to pullback its stock price below Php 2/share.  I believe investors will “factor-in” the net income in 2014 based on realistic P/E of the stock relative to valuation on other property companies, which are also performing well.

Remember that market is so efficient that a slight decrease of income or factors affecting the global markets may also reflect its stock price 😉

Assuming a 32% high growth net income in 2014 for purposes of justifying the high P/E of the stock,  P/E 2014F is still high at 27.693.

It seems to me that the only comparison for property stock DD is only ALI.  We are not talking here whether 2 pesos is cheaper than 28 pesos 🙂

Does $DD Management decide to price-in the net income growth of the stock price at Php 2/share on the high growth of the stock?  or the press is just manipulating the investors mindset that buying DD is similar to buying JFC 😉

DD2The Company will target 5 malls in 2014 and ambitious target of 20 community malls in 2015.  The rest of the 75 malls to spread until year 2020.

2.  The stock is perceived as similar to JFC and SM but this is a property company not a consumer stock

Many analysts are forecasting that the property sectors will slowdown in the next 3 years.  DoubleDragon is not the only one constructing community malls but we all know that $DD is very visible in the media.

As property company with P/E of 36.54, as compared to other property companies, the valuation is too high already in terms of financial ratios.  What is the economic moat of this stock – its high growth prospects? provincial retail leasing? Other property companies are also growing with undervalued price below Php 2/share.  Probably, the owners are anticipating, in a worst case scenario, the stock will be ranging the same with other property stocks between 1.5 to 1.8.

3.  To value the stock using a simple valuation, following the WB TTP presentation (it’s good the format has no ‘copyright’ 🙂 , the fair value is only at Php 1.52 per share.

Based on the existing  information, with P/E of 36.54, net income of Php 122M and market capitalization of 4.46B, below is the fair value range:

FV DDThe fair value of the stock, assuming high growth income is  Php 2.25 per share

However, if we can make reference on average P/E of 19.2 for property companies, the fair value of the stock is only Php 1.52 per share as per below reference:

DD3

 4.   Competitive Environment

We are aware that property business in the Philippines is very much competitive.  There are hundreds of property companies which are not publicly listed but also doing well because of overseas market share.  The same holds true in other publicly listed companies.  Contributing factors of their market share come from overseas and BPO market.

Considering the inflation and future high-interest rate environment, income of property companies may be affected especially the start of the slowdown of construction growth as written in the previous post, “Update on Real Estate Sales in the Philippines.”  Other property companies are also into leasing business with stable operating cash flow.

In this scenario, high P/E stock is the first one to be affected, adjusting its stock price towards its intrinsic value is a high possibility especially if the company could not maintain investors’ expectation.  DD stock price will surely go back to its intrinsic value over time.

5. Overvalued growth stock based on DD Price to Book Value Ratio (P/BV)

DoubleDragon is overvalued in terms of price-to-book value ratio.  Relative valuation indicates (although this is not the only basis) that if the property company has high P/BV, the stock should have high ROE.

PBV ROE

COL Estimate in 2013

Usually, in overvalued growth stock, a combination of low ROE and high P/B ratios is normal.  If a company’s ROE is growing, its P/B ratio should be doing the same. The above table shows that $DD has 7.25 P/BV, the highest among property stocks.  Probably, the owners decided to factor-in the Php 2/sh, to justify the high ROE of 23% in 2013, which is too high as compared to other established  property companies.

A good reference with regards to detailed discussion that DD is overvalued stock can also be found in the blog of Renzie, “Double Dragon Prospectus at a Glance.”

ADDENDUM ON 8 April 2014:

With the current sentiment of the market on DoubleDragon Properties, if I were to buy $DD shares, to keep the stock for 2 years until 2015 based on the following assumptions:  The above previous FV estimate is only applicable for 2014.

1. $DD can can complete 25 community malls within 2 years until 2015.

2. Lease at Ph700 per square meter

3. Average P/E is 19.2

4. Net Profit Margin is 30% in 2015

My FV estimate 2015 (above valuation is only 2014) is P3.62/share.  In order to have higher upside/ higher margin of safety (at least 15%), it is better to wait for pullback and buy $DD shares below P3.01/share provided that this stock will be kept for long term.

Note:  This is not bashing on DD but in my own discussion.  I fail to mention that DD valuation has big impact if the Company’s vision on net income of P4.8B in 2020 will be achieved/materialized after 6 years.  By then, the current price is too cheap!

Disclaimer: This article is for information purposes only. There are risks involved with investing including loss of capital. The information provided in the website is only an opinion of the author and  does not constitute as legal advice, research or recommendation to buy or sell any securities.

 


32 thoughts on “5 Reasons Why DoubleDragon Properties, Inc ($DD) Will Pullback Below Php 2/share in less than a year

  1. Tsupit Guy, Well I can’t blame the market sentiment on this stock. As what I’ve shared to some of my friends 3 days ago when a friend told me that “Injap does not think he will settle for P7/share. He wants more”. Probably the perception that DD seems to be a “consumer stock” + focus on the owner’s vision of the company works well in the market. If net income 2016 will be realized which is 1B, FV estimate is at P8.61 while for P4.5B net income in 2020, FV estimate would be P38/share! However, financial performance in 2016 is too far away but the “eye” of the market has vision in 2020 that’s why the stock is flying now at P9++/share. Fundamentals and technicals are ignored if jockeys + sentiment will push up this stock…. UNBELIEVABLE! Perhaps, I should also ride on the trend. However, it is important to trade with CAUTION 🙂

  2. Pingback: $DD: A Best World (BW) Resources, Inc In the Making? | Technimentalist

  3. One of my FB friends, Rayx Ilagan made a pondering words when he said, “When I bought $DD at 4, I was buying the business thinking it will be 10 after 2 years. When it hit 10 in just a week, I realized I bought a stock and sold it.”

  4. I think as of today based on Peter Lynch calculation on PEG Ratio if you consider and disclosure by DD to PSE http://www.pesobility.com/disclosures, They bought Zion Land they will forecase P85.6M Net profit and existing business of DD they are forecasting for this year 348M Net income, so P433.8 that is total net income which means their net income for this year is P433.6M and getting this year % grow P433.60/P4.458B (Paid up Capital)= 9.72%. P/E = P433.60/P4.456B= 9.72% x P9.40 as of this day trading (27 May 2014) = is 0.91/share this year.and I forecast their grow at 15.70% average per year cummulative . they get PEG Ratio = P0.91/15.70 (avarage growth)= 0.65. According to analysis of Peter Lynch a company which has below one (1) PEG ratio is Undervalue. 1 is Fair Value and above 1 is Over value. Here’s the companies which are undervalue or value;
    Price/share(26 May) PEG Ratio Remarks
    Alliance Global Inc. 30.55, 1.08 ——- Fairly value
    Aboitiz Power Corporation (AP) 37.3, 0.56—- Under value
    Banco de Oro Unibank, Inc. (BDO) 88.4, 0.59 — Under value
    Bank of the Philippine Islands (BPI) 87.9, 0.47— Under value
    China Banking Corporation (CHIB) 54.55, 0.37— Under value
    DOUBLEDRAGON PROPERTIES CORP. (DD) 10, 0.65 Under value
    DMCI Holdings, Inc. (DMC) 77.2, 0.74 —- Under value
    Energy Development Corporation (EDC) 6.15, 0.51—- Under value
    Filinvest Land, Inc. (FLI) 1.6, 0.27 — Under value
    Megaworld Corporation (MEG) 4.57, 0.52— Under value
    Metro Pacific Investment 5.15, 0.50— Under value
    Puregold Price Club, Inc. (PGOLD) 41.1, 0.95— Under value
    Robinson’s Land Corporation (RLC) 22.5, 0.60— Under value
    San Miguel Corporation (SMC) 78.50, 0.40— Under value
    SM Prime Holdings, Inc. (SMPH) 16.30, 0.76— Under value

    For DD stock analysis of calculating PEG Ratio is you project the growth net income against paid up capital. I project the growth very conservative. 15.70% average yearly. So i just calculate the disclosure against this year paid up capital which they disclose by DD to PSE http://www.pesobility.com/disclosures . They bought Zion Land and forecast this year net income of P85.60 and DD itself is P348M so approximately total net income of P433.60M. P/E = P433.60/P4.456B= 9.72% x P9.40 as of today trading(27 may,2014) = is 0.91/share this year. The PEG Ratio P0.91/ (3 yrs average growth) = 0.65. The father of PEG ratio is Peter Lynch he believed that if Company has forecast well and it falls to less than one (1) PEG Ratio this company is undervalue which means you can buy now DD. Now the current paid up capital of Company as of Today is 2.229 Billion shares x P9.4 = P20.95B if somebody will buy in DD company which means according to Peter Lynch analysis to get one (1) as PEG ratio means of DD company must have a current price today of P153 / share that is given by my program calculation. The person or analyst who are giving analysis of DD which is have no solid basis should think 100x and research properly. The Three Tycoons ( Sia, Tan and Sy) who formed this Company are very successful in their respective business. That is why Retail or Foreign Investors must know the PEG Ratio of any companies before buying any Companies. And They Should also considered CAN Slim Techniques by William O’niel ( The next heavy weight analyst in the US, Peter Lynch is the first). Next time I will discuss CAN Slim Stock techniques.

  5. Hi Rolly, thanks for your interesting input. I agree on PEG ratio however, it is difficult to value a company because we don’t exactly know the accurate rate of earnings growth especially we only base 1 year historical growth rate and there is no guarantee that future growth rate will not deviate from 1 year historical growth rate. Besides, earnings growth is not the only basis for company’s valuation however this is better than PE ratio but it is much better to consider also the revenue growth, cash flow, debt, dividend and other factors. I would fully agree if DD is into consumer industry. My only question is how DD would be able to deliver the promise of 1B in 2016 and 4.8B in 2020? How the Company will be able to raise capital expenditure? It is good now that DD is easy to move up its price because of the tight shares in the market. There are good property companies like MEG, SMPH but still have difficulty going up even 25% of its current price despite the strong fundamentals because of too much liquidity in the market. I would be impressed if DD will not issue more shares to the public in the years to come 🙂

    Thanks again for your useful sharing of info and please keep on reading. Appreciate if you could also share/contribute on this site for sharing to our readers for free. You may send your article to info@technimentalist.com.

  6. I dont think you should rely on PEG ratio bec in reality theres no linear relationship between pe and growth to say the least. On the contrary, dividing net earnings by paid uo capital completely seems like a conservative way of valuing this share (dude you are ignoring the other equity component which can lead to overstated pe multiple).

    For this company the best way to value it is to use SOTP NAV. It requires careful analysis of appropriate valuation method. Are we taking the view of minority shareholders? Then use, dividend models. Or, if we are looking at the controlling perspective, perhaps, the best to value this comlany’s share is through free cash flows model.

    My FV estimate for DD is PHP 5.5 (this is based on my personal research), risks to achieving TP is pretty similar to what COL Financial released so far.

    Thanks!

  7. Your name sounds GeniusNerdy. Thanks for your comment. DD is currently overvalued by the market based on your computed FV of P5.5 per share. COL is using DCF model of valuation. Whatever model we use, DD is still expensive for now 🙂

  8. Please… I really need your advice now. Should I sell DD now? Current price now is P9.20. I bought it 9.30/share. Please do advice me ASAP. Thank you very much.

  9. @Greg Calven: Here’s a tip. If you BELIEVE in the COMPANY and you know WELL the BUSINESS MODEL and HAS A LOT OF FAITH to the company MANAGEMENT, THEN DO NOT SELL. PLEASE ACCUMULATE INDEFINITELY.. (If you are a position trader, otherwise, SELL, if you don’t want to hold it now)

    For me, I strongly believe that DD’s aggressiveness will halt as it will revert back to its mean reversion level.
    What level? Who knows? Maybe, 2php? 3php? 5php? Bottomline here is DD = EXPENSIVE.

    Do not buy ENTERTAINMENT, buy FUNDAMENTALLY SOUND stocks! Thanks!

    Disclosure: FreakingNerdy is not acting an investment guru here and please do not rely on our opinions. We’re just stimulating your minds. FreakingNerdy is currently a candidate in the CFA program.

  10. @FreakingNerdy, I agree and thanks for your advice.
    @Greg Calven: In addition: If you are a short term trader and you don’t want to sell the stock hoping to go up next week (2 June), volume has increased from 9.61M to 12.2M while the price is going down. Probability of going down is high based on volume flow, please check your cut-loss point based on the support area at 8.95, 8.7 and 8.38. If the sentiment changes for some other reasons, resistance at 9.27, 9.52, 9.8 and 10.09. Good luck!

  11. Hi All,
    I am very new to stocks and the very first stock I purchased was actually that of DD. First set was purchased at P3.80, then because it was going too well, I purchased another set at P9.50. Hahaha, I should have sold the second set when it hit P10. I wished I have read more of these blogs and proceeded with caution.

    @Greg Calven, I am in the same predicament as you. Either to cut loses now, or keep it up the faith in the company as stated by FreakingNerdy.

  12. hello technimentalist, any updates for todays movement for dd? any thoughts wud be appreciated.

    I got a paperloss of 10% though my mindset is long term, but with scarcity of cash in mind, so would u say it wud go down and down? formed a based that it will consolidate?

    any advices?

  13. Hi KKK, as of 20 Aug 2014, technically, short term trend is still bearish, still showing a downward signal. But I think due to tightness of shares, may not go down further especially few sellers. Based on actual traded prices, 7.20/7.21 are strong support.

    • Hello Technimentalist. What do you mean by short term, how long is shortterm? Someone said that this stock formed a based. Upon searching what a base means, its says price will go around that level and may go on several years.

      If I may say, Still this stock Good For Long term? How would I know when is the best to know when to enter?

      thank you so much!

  14. Short term means disposing an asset within a day, next week, few days from now, etc. It could also mean holding a stock in less than a year. Technically, DD price action as of 22 August 2014 is in consolidation range which started in June 2014.

    When you said forming a base, I think it is in trade range or moving sideways which has been shown in its price action since June 13, 2014 (after its drop).

  15. Hi Technimentalist:

    Do you still think the same after one year of this writing and DD is currently striving somewhere at 9PHP/share.

    I am asking this because I have DD in my portfolio. And if your research deemed correct then my investment might be in jeopardy.

    thanks man,

    Van

    • Hi Van (Batang Beato),

      Thanks for visiting my site.

      If you have noticed the updated comments, I find DD seems impossible to pullback at 2/share. However, if there is a pullback especially on the fears on US interest hike, those stocks with high P/E will easily be affected which is happening now on URC & JFC. In my opinion, considering that DD shares are tight and Management is on track with its vision, DD price action may just cling to its support. What interests me with the company is the good PR where investors are always updated on the positive news of the company. There seems always good news every now and then. DD shareholders are not “swing traders” 😀

      Technically, DD may just be on range trading between 10.1 to 9.15 and is trying to escape the weak trend. There is also a good support (May 4, 2015) which I doubt will revisit near 8.74 area.

  16. Hi Sir, DD closed today at 19.28. Do you think it’s overbought and too expensive already that buying more shares at this point is not a wise move? It seems DD is benefiting from Mr. Sia’s good marketing savvy that it continues to be attractive to investors.

  17. its 21.45 this october 22, 2015. is it really dangerous to invest in this stock? i bought and sell just months ago at 10-13. and now its 21.40. whats happening here.

  18. anak ng tipaklong, 35 na o, tsk tsk tsk, di ako sumakay from the very start…

    1. newbie pa ako nung nag steady to sa 7 to 7.5, in fact, nagsa-start pa lang ko ng trading simulations ko nung mga panahon na yun.
    2. even a first grader would know masyado nang mahal to sa 7.5 from November 2014, and that came from the same newbie na nagpe paper trade pa lang “nung mga panahon na yun”

    yun nga lang, sayang lang talaga yung opportunity “sana”, di naman kasi ako si Madam Auring e, hahaha!

  19. Reading various technical analysis on DD I was one of those who took the ride when it was still 10. Before that, I was discouraged by various technical analysis that was often a miss and that is why I was not able to take position when it was around 4-7. Going against the odds I dumped 50% of my snail paced portfolio to come up with a substantial capital and bet on DD.

    It came to a point in Feb this year when I was contemplating to pull out because of the corection that happened then. Luckily I stayed until early last week before DD started to pull back from the 65-67 price range. I cashed in $$$$$$ 🤑🤑🤑now DD is currently at 58.55.

    Looking back to when I took a position to when I closed it, if I spent my time reading the analysis in here whether it is over priced or it will pull back I would have missed the opportunity.

    Note that even the greatest investor of all time said “no one can predict the movement of the market”…

    Anyhow, if the odds went against me A bad decision is still a good decision than having no decision at all. If you failed in your choice, drop it and move on to the next trade rather than spending your time analyzing something that you don’t have any control of else you will again miss the next ride 🤔🤔🤔

Leave a Reply