Philippine Markets Newsletter

This gaming and casino company has hit the jackpot, reaching a Uniform ROA of 8%, not 5%

January 24, 2024

This gaming and casino company took advantage of the increased industry demand. However, as reported data doesn’t seem to think so with ROAs only reaching 5%.

Also below, Uniform Accounting Embedded Expectations Analysis and the Uniform Accounting Performance and Valuation Tearsheet for the company.

Philippine Markets Newsletter:
Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus
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The local gaming and casino industry saw a large boost in revenues during 2022 as most gambling venues and casinos were allowed to fully resume operations. As a result, the industry’s gross gaming revenue grew by 90% year on year.

Taking advantage of this resurgence was Bloomberry Resorts Corp. (BLOOM:PHL).

Bloomberry is the operator of Solaire Resort & Casino, located at the heart of Metro Manila’s Entertainment City, as well as Jeju Sun Hotel & Casino in South Korea.

Solaire did most of the heavy lifting for Bloomberry, as restrictions were still being implemented for most of 2022 in South Korea. The company’s total gross gaming revenues stood at PHP 50.1 billion, which was 81% higher than the PHP 27.6 billion realized in the previous year.

Thanks to its strong domestic demand and a noticeable increase in international visitations during the second half of 2022, Bloomberry saw their VIP, mass table, and electronic gaming machine gross gaming revenues rebound from lows caused by the pandemic.

Furthermore, the company’s non-gaming revenue also doubled to PHP 6.7 billion in 2022. This was driven by a general increase in hotel foot traffic, therefore boosting its food, beverage, and retail segments along the way.

Bloomberry also has its eyes set on multiple expansion initiatives.

Solaire Resort North in Quezon City is undergoing its finishing touches as construction is set to be completed by the first quarter of 2024. Right after its completion, the company will immediately shift its focus on building up the third resort in the country in Paniman, Cavite.

These strategically located expansion projects are aimed at making customer visits more accessible, in hopes of getting higher foot traffic in their hotels and casinos.

A mix of this booming industry coupled with expansion projects places Bloomberry in a perfect position to maximize its profitability even further in the years to come. With all of these taken into account, as-reported earnings seem to be missing out on the company’s success.

Bloomberry’s earning power is stronger than you think

As-reported metrics understate the abilities of Bloomberry with ROAs only reaching 5% in 2022.

In reality, Bloomberry reached a higher Uniform ROA of 8%.

One of the said distortions stems from how Philippine Financial Reporting Standards (PFRS) classifies interest expense.

According to PFRS, interest expense is an operating cash flow. In reality, interest expense represents the cost of debt and is rightfully a financing cash flow. As such, in Uniform Accounting, interest expense is added back to earnings.

For example, in 2022, Bloomberry recognized an interest expense of PHP 5.8 billion, which is 112% of as-reported net income of PHP 5.2 billion. When we add the PHP 5.8 billion back to earnings, net income increases as this is not an operating expense. This adjustment, along with the many other necessary adjustments made, represents a 2.8% jump in Uniform earning power.

Bloomberry has a more efficient business than you think

Trends in Uniform ROA have been driven by trends in Uniform asset turns. The firm’s asset utilization, a critical factor in profitability, is also greatly distorted.

For Bloomberry, as-reported asset turnover has been consistently lower than Uniform asset turnover for the past decade, giving the company a lower asset efficiency score than actual economic measures indicate.

Moreover, in the past six years, as-reported asset turnover never broke past 0.5x. In comparison, Uniform turns have reached a high of 0.7x over the same time period, making Bloomberry appear to be a less efficient business than real economic metrics highlight.

SUMMARY and Bloomberry Resorts Corp. Tearsheet

As our Uniform Accounting tearsheet for Bloomberry Resorts Corp. (BLOOM:PHL) highlights, the company trades at a Uniform P/E of 12.4x, which is below the global corporate average of 22.4x and its historical P/E of 39.5x.

Low P/Es require low EPS growth to sustain them. In the case of Bloomberry, the company has recently shown a 175% Uniform EPS shrinkage.

Sell-side analysts provide stock and valuation recommendations that in general provide very poor guidance or insight. However, sell-side analysts’ near-term earnings forecasts tend to have relevant information.

We take sell-side forecasts for Philippine Financial Reporting Standards (PFRS) earnings and convert them to Uniform earnings forecasts. When we do this, Bloomberry’s sell-side analyst-driven forecast is to see a Uniform earnings growth of 140% and 13% in 2023 and 2024, respectively.

Based on current stock market valuations, we can use earnings growth valuation metrics to back into the required growth rate to justify Bloomberry’s PHP 10.24 stock price. These are often referred to as market-embedded expectations.

The company is currently being valued as if Uniform earnings were to shrink by 2% annually over the next three years. What sell-side analysts expect for Bloomberry’s earnings growth is above what the current stock market valuation requires through 2024.

Moreover, the company’s earning power is in line with the long-run corporate average. Cash flows and cash on hand are below its total obligations. Moreover, intrinsic credit risk is 280bps above the risk-free rate. Together, this signals a moderate credit risk.

Lastly, Bloomberry’s Uniform earnings growth is below its peer averages, and its Uniform forward P/E is below its average peer valuations.

About the Philippine Markets Newsletter
“Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus”

Some of the world’s greatest investors learned from the Father of Value Investing or have learned to follow his investment philosophy very closely. That pioneer of value investing is Professor Benjamin Graham. His followers:

Warren Buffett and Charles Munger of Berkshire Hathaway; Shelby C. Davis of Davis Funds; Marty Whitman of Third Avenue Value Fund; Jean-Marie Eveillard of First Eagle; Mitch Julis of Canyon Capital; just to name a few.

Each of these great investors studied security analysis and valuation, applying this methodology to manage their multi-billion dollar portfolios. They did this without relying on as-reported numbers.

Uniform Adjusted Financial Reporting Standards (UAFRS or Uniform Accounting) is an answer to the many inconsistencies present in GAAP and IFRS, as well as in PFRS.

Under IFRS, each company’s financial statements are rebuilt under a consistent set of rules, resulting in an apples-to-apples comparison. Resulting UAFRS-based earnings, assets, debts, cash flows from operations, investing, and financing, and other key elements become the basis for more reliable financial statement analysis.

Every Wednesday, we focus on one Philippine-listed company that’s particularly interesting from a UAFRS vs as-reported standpoint. We highlight one adjustment that illustrates why the as-reported numbers are unreliable.

This way, we gain a better understanding of the factors driving a particular stock’s returns, and whether or not the firm’s true profitability is reflected in its current valuations.

Hope you’ve found this week’s Uniform Earnings Tearsheet on a Philippine company interesting and insightful.

Stay tuned for next week’s Philippine company highlight!


Angelica Lim
Research Director
Philippine Markets Newsletter
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