8990 Holdings Inc. (HOUSE) plans to take advantage of the housing backlog in the country, by planning to build a total of 64,000+ units by the year 2022.
HOUSE offers a low-cost housing, with units ranging from as low as PHP 450,000 to PHP 1.25 million, targeting the OFW market, as well as the BPO employees with an average salary of about PHP 25,000 per month (considered as the lower middle class of the market). For as low as PHP 25,000 downpayment (2% of the package), people can already acquire a 13 sq.m house, with an interest rate of only 8.5% (first 4 years) and 11.5% (on the 5th year).
HOUSE has a low default rate of only 4-5%, but we remain cautious given the size of receivables of the company. The profile of the buyers likewise poses a concern, with a possibility of rising default levels from the buyers of HOUSE properties. HOUSE mainly caters to low-income segment, with an average salary of PHP 25,000 per month.
In terms of the land bank of the Company, it is significantly low (250-hectares of landbank), compared to its peers. In the first quarter of 2014, HOUSE reported robust growth, growing its Net Income by 30% to PHP 933.6 million, on track to have a banner year of about PHP 3 billion this year, equivalent to a 55% growth from the previous year.
PinoyInvestor’s Recommendation
We revise our Fair Value and Target Price estimate to PHP 9.30 per share, with the assumption that HOUSE achieves its target by 2016, giving a 12% upside from the current share price. We, however, remain cautious on the company due to the possibility of rising default rates as mentioned above.
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