Bloomberry Resorts Corporation THU 02 APR 2020

Solaire closure to hurt near term

earnings
Enhanced community quarantine to severely impact economic activity. In response
to the sharp increase in the number of COVID-19 cases, the Philippine government put
the entire island of Luzon on a month-long enhanced community quarantine or lockdown
which began on March 17. Given the various restrictions under the enhanced community
BUY
quarantine, the economy will be severely hurt, especially since Luzon accounts for 70% of
the country’s GDP. For 2020, Fitch Solutions cut its GDP growth forecast by two percentage TICKER: BLOOM
points to 4.0%, while Capital Economics is projecting 0% GDP growth. Meanwhile, under
the worst-case scenario, NEDA said GDP could contract by 0.6%. In light of the economic FAIR VALUE: 8.10
weakness, most listed companies will also be negatively affected. CURRENT PRICE: 6.00
Solaire casino to remain closed during quarantine period. BLOOM’s Solaire casino will UPSIDE: 35.00
remain closed during the quarantine period, which under our conservative assumption
would last three months. We also assume lease payments of retailers renting space in
Solaire will be waived by BLOOM. Given these assumptions, we are lowering our revenue SHARE PRICE MOVEMENT
and net income forecast this year. We also expect some lingering impact of the coronavirus
outbreak in 2021 revenues. Our conservative forecast this year is for BLOOM to book a net
loss of Php1.7 Bil, a reversal from our previous forecast of a net income of Php8.1 Bil. For 110

2021, we lowered our revenue and income forecast by 9.6% and 36.2% respectively. 100

Reducing fair value estimate to Php8.10 on lower income, higher risk premium.
90

Because of the negative impact of the COVID-19 outbreak to economic growth, bond 80

yields rose globally as there is a flight to safety. Note that the yield on the Philippine 10- 70
year dollar bond is now at around 4.02% from 2.45% during the start of the year, while the 60
spread of Asian bonds over US treasuries has climbed to 6.80% from around 3.00% earlier
this year. As such, we increased our equity risk premium by 350 basis points to reflect the 50

heightened risk aversion. We combined this with the more conservative forecast for 2020 40
and 2021 to arrive at our new fair value estimate of Php8.10 which is 34% lower than our 30
previous fair value estimate of Php12.30. 1-Jan-20 1-Feb-20 1-Mar-20 1-Apr-20

Maintain BUY. Despite the downgrade, we are maintaining our BUY rating on BLOOM.
BLOOM PSEi

Even with our conservative fair value estimate, there still is significant capital appreciation
potential based on BLOOM’s current market price, leading us to believe that negatives
are mostly priced in. At its current enterprise value (EV), BLOOM is trading at 13.4X our ABSOLUTE PERFORMANCE
conservative 2020 EBITDA but this would drop to 6.6X based on 2021’s EBITDA. This is
lower than the median 2021 EV/EBITDA of 8.2x for global gaming companies. Our fair value 1M 3M YTD
estimate of Php8.10 and our 2021 EBITDA estimate would translate to a 2021 EV/EBITDA of BLOOM -22.94 -44.42 -44.42
8.3X, still in line with its global peers’ current median multiple.
PSEi -20.32 -30.80 -30.80
FORECAST SUMMARY
Year to December 31 (Php Mil) 2016 2017 2018 2019 2020E 2021E
Revenues 27,590 33,022 38,220 46,337 25,673 39,441
% change y/y 10.2 19.7 15.7 21.2 -44.6 53.6 MARKET DATA
EBITDA 8,895 12,281 14,753 19,539 6,947 14,049
% change y/y 171.8 38.1 20.1 32.4 -64.4 102.2 Market Cap 65,867.82Mil
EBITDA margin 32.2 37.2 38.6 42.2 27.1 35.6 Outstanding Shares 10,973.47Mil
EBIT 4,040 7,928 11,124 15,850 3,257 10,360 52 Wk Range 4.03 - 12.46
% change y/y - 96.2 40.3 42.5 -79.4 218.1
EBIT margin 14.6 24.0 29.1 34.2 12.7 26.3 3Mo Ave Daily T/O 50.14Mil
Core net income 2,819 5,610 6,831 10,275 -1,670 5,691
% change y/y - 99.0 21.8 50.4 -116.3 -440.8
Net profit margin 10.2 17.0 17.9 22.2 -6.5 14.4
EPS (cents) 0.21 0.55 0.65 0.90 (0.16) 0.51
% change y/y - 161.0 18.2 38.5 -117.3 -427.4

RELATIVE VALUE
P/E (X) 28.5 10.9 9.2 6.7 (38.4) 11.7
Richard Lañeda, CFA
EV/EBITDA 10.4 7.5 6.3 4.7 13.3 6.6
P/BV (X) 2.7 2.2 1.8 1.5 1.6 1.4 Senior Research Manager
ROE (%) 9.6 20.0 19.6 21.9 (4.0) 12.0 richard.laneda@colfinancial.com
Dividend Yield (%) 0.0 0.0 1.7 1.7 1.7 1.7
so urce: B LOOM , COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
 EARNINGS ANALYSIS I BLOOM: SOLAIRE CLOSURE TO HURT NEAR TERM EARNINGS

THU 02 APR 2020

Enhanced community quarantine to severely impact

economic activity

In response to the sharp increase in the number of COVID-19 cases, the Philippine
government put the entire island of Luzon on a month-long enhanced community
quarantine or lockdown which began on March 17. Although Visayas and Mindanao are
not on lock down, various local governments in the two island groups, including Cebu
and Davao, declared their own lockdowns.

Under the enhanced community quarantine, everyone must stay at home. Citizens are
banned from travelling overseas, while foreigners are banned from entering the country.
Classes in all levels of schools and work for government and most private sector companies
are suspended. Establishments like malls, casinos, movies and restaurants (for dine in) are
closed. Mass public transport is also suspended. Only exemptions are companies offering
basic utilities (power, water, telcos), critical services (food manufacturing, groceries,
convenience stores, medical services) banks, capital markets, BPO, IT and export-oriented
establishments, ports and logistics companies.

Given the various restrictions under the enhanced community quarantine, the economy
will be severely hurt, especially since Luzon accounts for 70% of the country’s GDP. For
2020, Fitch Solutions cut its GDP growth forecast by two percentage points to 4.0%,
while Capital Economics is projecting 0% GDP growth. Meanwhile, under the worst-case
scenario, NEDA said GDP could contract by 0.6%. In light of the economic weakness,
most listed companies will also be negatively affected.

Applying conservative assumptions

In light of the current situation of the COVID-19 outbreak and the uncertainties on
government policies that might be implemented to contain the spread of the virus,
we are applying very conservative assumptions to our forecast this year. Our base case
assumption is that there would be a three-month enhanced community quarantine in
Luzon, which is two months longer than what the government said it would implement.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I BLOOM: SOLAIRE CLOSURE TO HURT NEAR TERM EARNINGS

THU 02 APR 2020

Solaire casino to remain closed during quarantine period

BLOOM’s Solaire casino will remain closed during the quarantine period, which under
our conservative assumption would last three months. We also assume lease payments
of retailers renting space in Solaire will be waived by BLOOM.

Given these assumptions, we are lowering our revenue and net income forecast this year.
We also expect some lingering impact of the coronavirus outbreak in 2021 revenues. Our
conservative forecast this year is for BLOOM to book a net loss of Php1.7 Bil, a reversal
from our previous forecast of a net income of Php8.1 Bil. For 2021, we lowered our
revenue and income forecast by 9.6% and 36.2% respectively.

Exhibit 1: Adjustments in 2020 and 2021 forecast

2020E 2021E
change change
in Php Mil Old New Old New
GGR 56,839 34,184 -39.9% 59,034 53,354 -9.6%
EBITDA 16,709 6,947 -58.4% 17,273 14,049 -18.7%
EBIT 13,019 3,257 -75.0% 13,584 10,360 -23.7%
Net income 8,092 -1,670 -120.6% 8,915 5,691 -36.2%

Source: COL estimates

Reducing fair value estimate to Php8.10 on lower income,

higher risk premium

Because of the negative impact of the COVID-19 outbreak to economic growth, financial
markets are performing poorly. Aside from falling stock prices, this is reflected in rising
bond yields globally as there is a flight to safety. Note that the yield on the Philippine
10-year dollar bond is now at around 4.02% from 2.45% during the start of the year,
while the spread of Asian bonds over US treasuries has climbed to 6.80% from around
3.00% earlier this year. As such, we increased our equity risk premium assumptions
by 350 basis points to reflect the heightened risk aversion. We combined this with the
more conservative forecast for 2020 and 2021 to arrive at our new fair value estimate of
Php8.10 which is 34% lower than our previous fair value estimate of Php12.30.

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 EARNINGS ANALYSIS I BLOOM: SOLAIRE CLOSURE TO HURT NEAR TERM EARNINGS

THU 02 APR 2020

Maintain BUY

Despite the downgrade, we are maintaining our BUY rating on BLOOM. Even with our
conservative fair value estimate, there still is significant capital appreciation potential
based on BLOOM’s current market price, leading us to believe that negatives are mostly
priced in. At its current enterprise value (EV), BLOOM is trading at 13.4X our conservative
2020 EBITDA but this would drop to 6.6X based on 2021’s EBITDA. This is lower than the
median 2021 EV/EBITDA of 8.2x for global gaming companies. Our fair value estimate of
Php8.10 and our 2021 EBITDA estimate would translate to a 2021 EV/EBITDA of 8.3X, still
in line with its global peers’ current median multiple.

Exhibit 2: Relative valuation of gaming companies

EV/EBITDA EBITDA growth
Company name Ticker 2020E 2021E 2020E 2021E
Bloomberry Resorts BLOOM PH 13.3 6.6 -65.0% 102.2%
Wynn Macau 1128 HK 11.8 9.0 -26.4% 31.9%
Sands China 1928 HK 11.4 9.6 -8.5% 19.2%
MGM China 2282 HK 10.4 7.5 -29.0% 39.0%
Galaxy Entertainment 27 HK 13.0 9.1 -23.4% 42.9%
Melco Resorts MLCO US 10.1 6.3 -33.8% 61.7%
Crown Resorts CWN AU 10.5 9.0 -31.8% 17.0%
Star Entertainment SGR AU 7.5 6.5 -23.4% 14.3%
Industry Average 11.0 7.9 -30.2% 41.0%
Industry Median 10.9 8.2 -27.7% 35.4%

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 EARNINGS ANALYSIS I BLOOM: SOLAIRE CLOSURE TO HURT NEAR TERM EARNINGS

THU 02 APR 2020

Bloomberry Resorts INCOME STATEMENT (PHPMIL)

Corporation (BLOOM) Revenues

2016
27,590
2017
33,022
2018
38,220
2019E
46,337
2020E
25,673
2021E
39,441
% Growth 10.2% 19.7% 15.7% 21.2% -44.6% 53.6%
COMPANY BACKGROUND
Adjusted EBITDA 8,895 12,281 14,753 19,539 6,947 14,049
Bloomberry Resorts Corporation develops % Growth 171.8% 38.1% 20.1% 32.4% -64.4% 102.2%
Adjusted Operating Profit 4,040 7,928 11,124 15,850 3,257 10,360
tourist facilities, casino entertainment, and
% Growth -355.1% 96.2% 40.3% 42.5% -79.4% 218.1%
hotel and amusement-themed projects.
Interest Expense 2,223 2,152 4,582 5,562 5,168 4,920
Bloomberry Resorts Corporation owns Other Income/(Expense) (506) (948) (499) 29 (291) (291)
and operates Solaire Resort and Casino Net Income 2,357 6,071 7,188 9,955 (1,670) 5,691
which is one of the four license holders in % Growth -170.1% 157.5% 18.4% 38.5% -116.8% -440.8%
Entertainments City. Solaire is currently the EPS 0.21 0.55 0.65 0.90 (0.16) 0.51
% Growth -169.1% 161.0% 18.2% 38.5% -117.3% -427.4%
leading integrated resort in the Philippines.
Bloomberry also owns and operates Jeju BALANCE SHEET (IN PHPMIL)
Sun Hotel and Casino in Jeju, Korea. 2016 2017 2018 2019E 2019E 2019E
Cash & Equivalents 14,326 21,961 36,466 74,718 68,870 66,687
REVENUE BREAKDOWN Receivables 2,958 2,283 2,806 5,207 2,885 4,432
Other Current Assets 1,233 1,662 1,194 1,254 1,317 1,383
Restricted cash - net of
2% 2,252 2,251 - - - -
current
PPE andportion
Investment
6% 2% Properties 44,491 42,471 82,700 90,425 94,150 97,876
6%
2% 2,256 2,158 2,483 2,509 2,537 2,566
Other Non-Current Assets
6%
Total Assets
Payables and other 67,515 72,786 125,649 174,113 169,759 172,943
current liabilities 8,771 9,246 16,929 18,622 20,484 22,532
ST Debts 1,714 2,727 2,068 2,205 2,205 2,205
Other Current Liabilities 1 2 4 4 4 4
LT Debts 32,112 29,373 69,119 106,914 103,498 100,083
Other Non-Current
772 1,153 969 988 1,008 1,029
92% Liabilities
92%
Total Liabilities 43,370 42,501 89,088 128,732 127,199 125,853
92% Total Equity 24,144 30,285 36,561 45,381 42,560 47,090
Hotel, food and beverage Gaming Total Liabilities & Equity
Retail and others 67,515 72,786 125,649 174,113 169,759 172,943
Hotel, food and beverage Gaming Retail and others 2.19 2.75 3.32 4.12 3.87 4.28
BVPS
e Gaming Retail and others

CASHFLOW STATEMENT (IN PHPMIL)

2016 2017 2018 2019E 2019E 2019E
Pretax Income 3,982 6,295 7,039 10,109 (1,620) 5,731
Depreciation & Amortization 4,855 4,354 3,629 3,690 3,690 3,690
Other Non-Cash Exp (Gains) (233) (225) (22) - - -
Interest Expense (Income) 2,179 2,085 4,441 5,853 5,459 5,211
Decrease (Increase) in Working Cap -3,001 846 7,358 -748 4,141 457
Operating Cash Flow 6,353 13,420 22,527 18,425 11,279 14,697
Capex -1,481 -1,802 -43,801 -9,720 -4,727 -4,535
Decrease (Increase) in other investments 158 -31 1,947 -26 -28 -29
Investing Cash Flow -1,322 -1,832 -41,854 -9,746 -4,755 -4,564
Proceeds (Payment) Debts -3,283 -1,882 38,670 37,932 -3,416 -3,416
Net proceeds from issuance of capital stock 0 0 0 0 0 0
Interest Paid -2,109 -2,049 -3,604 -7,257 -7,856 -7,800
Others -46 0 -1,300 -1,101 -1,101 -1,101
Financing Cash Flow -5,437 -3,931 33,766 29,574 -12,373 -12,316
Change in Cash -170 7,636 14,504 38,252 -5,848 -2,183

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 EARNINGS ANALYSIS I BLOOM: SOLAIRE CLOSURE TO HURT NEAR TERM EARNINGS

THU 02 APR 2020

INVESTMENT THESIS: RATIOS

2016 2017 2018 2019E 2019E 2019E
Beneficiary of growing gaming sector
EBITDA Margin (%) 32.2% 37.2% 38.6% 42.2% 27.1% 35.6%
The local gaming sector is still in a growth
OPM (%) 14.6% 24.0% 29.1% 34.2% 12.7% 26.3%
phase and Bloomberry, the operator NPM (%) 8.5% 18.4% 18.8% 21.5% -6.5% 14.4%
of Solaire Resort and Casino, is a main Times Interest Earned (X) 1.8 3.7 2.4 2.8 0.6 2.1
beneficiary of the trend. Solaire Resort and Current Ratio (X) 1.77 2.16 2.13 3.90 3.22 2.93
Casino is one of four integrated resorts in Net D/E Ratio (X) 0.81 0.34 0.95 0.76 0.87 0.76
Entertainment City and once all four are Days Receivable 39.1 25.2 26.8 41.0 41.0 41.0
Asset T/O (%) 40.9% 45.4% 30.4% 26.6% 15.1% 22.8%
completed, Philippines will make a better
ROAE (%) 10.3% 22.3% 21.5% 24.3% -3.8% 12.7%
case as a regional gaming destination,
which will benefit all operators.
MAJOR CORPORATE DEVELOPMENTS (5-YEARS)

Leader in the Philippine gaming sector Acquisition of 92% of Golden & Luxusy Co. Ltd., a hotel and casino operator
12/31/2015
Bloomberry is the leader in the Philippine in Jeju Island
gaming sector as Solaire has the most
gross gaming revenues (GGR) among the
four integrated resorts. In 2016, the GGR of
Solaire accounted for 44% of total GGR of
integrated resorts.

KEY RATIOS (IN PHPMIL)

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 EARNINGS ANALYSIS I BLOOM: SOLAIRE CLOSURE TO HURT NEAR TERM EARNINGS

THU 02 APR 2020

Valuation RELATIVE VALUATION

Methodology
EV/EBITDA EBTIDA growth
2019E 2020E 2019E 2020E
Bloomberry Resorts 13.3 6.6 -65.0% 102.2%
Wynn Macau 11.8 9.0 -26.4% 31.9%
Sands China 11.4 9.6 -8.5% 19.2%
MGM China 10.4 7.5 -29.0% 39.0%
Galaxy Entertainment 13.0 9.1 -23.4% 42.9%
Melco Resorts 10.1 6.3 -33.8% 61.7%
Crown Resorts 10.5 9.0 -31.8% 17.0%
Star Entertainment 7.5 6.5 -23.4% 14.3%
Industry Average 11.0 7.9 -30.2% 41.0%
Industry Median 10.9 8.2 -27.7% 35.4%

VALUATION ASSUMPTIONS

DCF valuation
Risk Premium 9.0%
Risk Free Rate 6.0%
Beta 1.2
Cost of Equity 16.8%
Cost of Debt 7.5%
Tax Rate 0.0%
WACC 12.2%
Terminal Growth Rate 0.0%

PV of cash flows 100,186

Value of land 16,200
Enterprise value 116,386
Net debt -27,247
Net asset value 89,138
O/S 11,009
FV Estimate (Php) 8.10

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 EARNINGS ANALYSIS I BLOOM: SOLAIRE CLOSURE TO HURT NEAR TERM EARNINGS

THU 02 APR 2020

I MP OR TA NT R AT ING DEFINITIONS
BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

I MP OR TA NT DISC L AIM ER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of
a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies
mentioned in this report and may trade them in ways different from those discussed in this report.

C O L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

C O L F INANC IAL G R O UP, I NC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 8