Acesite Hotel Corp. (PHS:ACE, Financial), the 593 million Philippine pesos ($12 million) company, reported its first-quarter 2017 results in May. The Manila, Philippines-based hotel lodging company delivered 1.5% revenue growth to 153 million pesos and a very impressive 57% profit growth to 37.6 million pesos—24.6% margin compared to 15.9% in first-quarter 2016.
As observed, Acesite recorded 8.6 million pesos, down 25%, in operational expenses as a result of higher profitability in the recent quarter.
Valuations
Acesite is undervalued compared to its peers. According to Reuters data, the company had a trailing price-earnings (P/E) ratio of 7.12 times versus an industry average of 26.6 times, a price-book (P/B) ratio of 0.36 times versus the industry’s 5.3 times and a price-sales (P/S) ratio of 1 versus the industry average of 3.5 times.
The company does not have a trailing dividend yield.
Total return
According to Morningstar, Acesite has outperformed the broader local market, the iShares MSCI Philippines (EPHE, Financial) exchange-traded fund (ETF), so far this year with 26.5% total gains compared to the ETF’s 15.14% gains.
(Manila Pavilion Hotel & Casino, Source)
Acesite (Philippines) Hotel
According to filings, Acesite was incorporated in the Philippines' Securities and Exchange Commission in 1952.
The company is engaged in the business of operating a hotel, or other accommodations, for the general public. Acesite is also responsible for constructing accommodations or facilities as may be reasonably necessary.
Acesite is the owner and operator of Manila Pavilion Hotel. In 2011, the company acquired CIMA Realty for $2.5 million or 123.8 million pesos (at today’s exchange rate). CIMA Realty is the owner of the land on which the Manila Pavilion Hotel is situated.
As of December 2016, Acesite is a 55.7% owned subsidiary of Waterfront Philippines (PHS:WPI, Financial).
In the recent quarter, Acesite reported a 58% occupancy rate compared to 57.52% in the same period last year. The company also reported 4.9% lower average room rate of 2,237.23 peos in the recent quarter compared to 2,351.94 pesos in first-quarter 2016.
According to its most recent quarterly filings, Acesite derived most (58% of total unadjusted sales) of its revenue from rent, followed by room revenue with 25.4% and food and beverage with 16.2%.
The filings were not clear how much profits Acesite takes home per its products (rent, room and food and beverage), nonetheless, the company derived 66% gross margin in its food and beverage sales in the recent quarter compared to 65% the same period last year.
Sales and profits
Acesite had a three-year revenue growth average of 0.79%, profit growth of 88% and profit margin average of 10.7% (Morningstar).
Cash, debt and book value
As of March, Acesite had 79 million pesos in cash and no debt. As observed, the company has added 276 million pesos in retained earnings and other accumulated earnings, therefore growing its overall equity. Acesite grew its book value 20% to 1.65 billion pesos in the recent quarter.
Cash flow
In the recent quarter, Acesite nearly tripled its cash flow from operations to 49 million pesos on a year-over-year comparison. As observed, significantly less cash outflow of 13.3 million pesos was recognized in its accounts payables compared to 29.7 million pesos in the same period last year.
Capital expenditures were 741,000 pesos, leaving Acesite with 48.6 million in free cash flow compared to 16.8 million in the first quarter of 2016.
Meanwhile, the company received far less cash flow from its affiliates, amounting to nearly 9 million pesos compared to 59.5 million pesos in the year-ago period.
Conclusion
Acesite could have reported stagnant business growth in the recent quarter if not for its effective operational costs reduction. The company also demonstrated flat occupancy rate levels from 2015 up to the recent quarter at 58%.
In review, Acesite had 589 million pesos in revenues in fiscal 2016, which is lower than what it was able to generate five years ago—636 million pesos in fiscal 2011.
Nonetheless, Acesite has a strong balance sheet absent of any blue sky elements—goodwill and intangibles—and accompanied by the absence of any borrowings. The company has also exhibited prudence in using its cash flow by purchasing its land owner several years ago.
Apart from any dividend payouts and a recent run-up in its shares this year, Acesite appears to be attractive as it is still trading below its book value.
Asking a 30% margin from its reported book value would indicate a value of 1.2 billion pesos—nearly double today’s market capitalization of 593 million pesos or 1.72 pesos a share.
In summary, Acesite is a buy with a 3.3 pesos per share target price.
Disclosure: I do not have shares in any of the companies mentioned.
