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A year after taking over from his father as chief executive officer, Alliance Global Group Inc.’s Kevin Tan says tourism and consumer spending in the Philippines will drive growth as his real-estate-to-booze conglomerate doubles capacity at its Manila gambling resorts.
Westside City, the group’s second casino complex in the capital, will also boost the share of revenue from gaming by almost half to 20% over five years, said Tan, 39. Resorts World Manila, Alliance’s first gaming property, is expanding this year and the second resort will begin opening in 2021, he said.
The casino expansion along with a shift to premium products by Alliance’s distiller Emperador Inc. and a property boom have Tan expecting to increase profit by about 15% a year at each subsidiary over the next five years, he said. Consumer spending jumped more than 6% in the first quarter in the Philippines, where it accounts for more than three quarters of an economy that’s forecast to be one of Asia’s fastest growing this year.
“Fundamentally, the Philippine economy is quite strong and consumption is also quite high,” Tan said in an interview. “We will see a lot of our businesses thriving in this kind of environment.”
Tan’s group covers real estate, hotels, casinos and distilleries, including the local franchise of McDonald’s. Its unit Megaworld Corp. is the largest landlord for call centers in the Philippines, with more than 63 office towers, mostly in 24 mixed-use developments across the country.
“Hitting double-digit earnings growth at each subsidiary and sustaining the recovery in its challenged units could put Alliance at par with larger conglomerates," says Rachelle Cruz, analyst at AP Securities Inc. “Valuation-wise, Alliance trails the big boys as -- except for Megaworld -- its units are yet to reach full potential."
Alliance shares are trading at 8 times 12-month estimated earnings compared with 15.47 times average for an index of Philippine holding companies. Conglomerates SM Investments Corp., JG Summit Holdings Inc., and Ayala Corp., which own property developers, are trading at 15 times forward earnings or more.
Gaming unit Travellers International Hotel Group Inc., a venture with Genting Hong Kong Ltd. and builder of Manila’s first casino resort, is betting on new capacity to maintain earnings growth after a profit surge in 2018 ended a three-year decline.
The rebound also represents a comeback for Travellers from a June 2017 fire at its Resorts World Manila casino that left 38 people dead. The blaze, set by an arsonist, cost the company about 60 million pesos ($1 million) a day in lost revenue and cut traffic by half when it reopened.
“The next five years will be very exciting,” Tan said. “I am very confident about how well Travellers will do and how much contribution it will have to our overall top line. Westside will easily double our capacity.”
Rising consumer purchasing power in the Philippines is also helping the group’s liquor business along with growing overseas sales. The shift by Emperador, the world’s largest brandy maker, to more premium products may help the brand weather a planned increase in booze taxes, said Tan.
At the same time, Megaworld will remain a key growth driver for the group with a 300 billion peso budget in the five years through 2024 to build more apartments, office towers and shopping malls. “We are still experiencing a boom in the real-estate sector,” Tan said.
Alliance shares rose as much 1.1% in Manila trading Thursday, while Megaworld climbed 2.2%, Emperador gained 0.4% and Travellers fell 1%.
Investors have welcomed Tan’s appointment to succeed his father Andrew Tan, who’s still Alliance chairman. Alliance shares were up 28% this year as of Wednesday, compared with the benchmark Philippine Stock Exchange Index’s 7% gain.
Alliance’s capital expenditures in the five years through 2024 will surpass the record 377 billion pesos for the five years through 2019, Tan said. The expansion will be mostly funded internally.
Alliance debt rose to 297.7 billion pesos as of the end 2018, 14 percent higher than the previous year. Cash flow from operations more than doubled in the period to 17.84 billion pesos, data compiled by Bloomberg show.
“I am conservative when it comes to debt,” said Tan. “While the gearing at Alliance is something we are comfortable with, we are preparing to pare that down.”
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