$ABA: My Follow-Up Thoughts
Let's talk risk, management, and risk management.
In my “writeup” about Premium Leisure Corp. ($PLC), I promised that I would post a follow-up article on ABA. So, here it is. Just a quick post on my follow-up thoughts on ABA and some of its recent developments.
First, I would like to apologize if I didn’t clarify that I did not own any shares of ABA myself. Yes, I may have included an upfront disclaimer in my previous “writeup” on ABA stating that it was just an aggregation of my notes and thoughts about ABA rather than an investment recommendation, but I still feel responsible to you all. Whenever I write about a particular stock, I want you to all know whether I will or will not suffer or benefit from the thoughts I’ve shared about a particular stock if ever said thoughts turned out to be profitable or not.
I don’t want it that if ever an investment thesis I shared led to a loss for you in some way, I would be left unscathed while you all thought I was going to be there with you on the ship while it sank. I don’t like that kind of dishonorable act. Although, of course, your capital is still your responsibility. Let’s all just try to be careful.
With that clarified, let’s proceed…
There are, I think, two important things to realize about AbaCore Capital Holdings, Inc.:
Everything will depend on management’s capital allocation decisions.
News is just news.
I last wrote about $ABA on February 13, 2023 (You can read my analysis here). The stock has been up ~8% since then, though I don’t think the recent climb says anything meaningful about the prospects of the company nor does it say anything about my skill level as an “analyst.”
The main culprit for the climb, I believe, was the press release that management issued on March 10, 2023, where they reported that ABA, through its subsidiary, PRIDE, signed a memorandum of agreement (MOA) with Chinese property developer, Shanlin Real Estate Co. Ltd. (“Shanlin”), to build a Php 1.5B resort in Batangas.
The resort will be built at Montemaria Shrine, a pilgrimage site owned by ABA. Shanlin is expected to spend Php 1.5 billion constructing the resort while ABA will contribute the land the resort will stand on.
“[AbaCore Capital Holdings, Inc.] aims to attract 1 million visitors every year and to employ 1,000 people in the local community. It expects P800 million to P1 billion in annual income.
The resort will feature a glass walkway, which the company expects to be completed this year. It will also have a waterpark, ‘envisioned to be the largest in the Philippines,’ which is expected to be finished in 2024. A hotel with a 360-degree view of Batangas Bay is scheduled to be completed the following year.”
Sounds exciting, doesn’t it? “Biggest in the Philippines.” “360-degree view of Batangas Bay.” There is even a “glass walk coined miracle work” and a “residential community with commercial establishments” to be built in addition to the waterpark.
Impressive. I think I’ll put all my savings into ABA now!
Kidding and all the fluffy words aside, I would suggest that investors see this news for what it is: news. It is, no doubt, a positive news and development for ABA shareholders and is aligned with the story that management is looking to unlock its vast landbank by selling them for cash or generating recurring income from them through developing projects.
It’s nice to be optimistic, but I think investors will be better served to lower their expectations. The Php 1.5 billion joint venture with Shanlin is not ABA’s only project it has announced:
PRIDE signed a MOA with Highsource Prime Buildings, Inc. to build a four-star hotel, a land and water amusement park with supporting facilities, a 3D Glass Paradise, a residential community and commercial establishments to be located at the Montemaria Project in Pagkilatan, Batangas tourism site. (Kind of sounds…familiar?)
ABA’s Energy Hub project in Simlong, Batangas.
Coal exploration joint venture with Oriental Vision Mining Philippines.
Besides the above that I’ve mentioned, ABA has also announced other projects in its pipeline. The problem I have with these announcements is that little has been said about their progress. That said, the coal exploration and four-star hotel joint venture are recent announcements, but ABA announced in May 2021 that it was going to acquire a 90% stake in Simlong Energy Development Corp., the company leading the development of the energy hub in Batangas, yet, to the best of my knowledge, no update has been announced. From Philstar (May 2021):
The Simlong Energy Industrial Park Project would be renamed Abacore Energy Hub, an industrial location for energy related projects like power plants, liquid natural gasification projects.
“The Abacore Energy Hub will be a one stop shop for energy projects which is in line with Batangas’ reputation of being the most ‘powerful’ as it contains and produces most of the energy needs of the entire Luzon,” Abacore said.
Abacore said SEDCO would be the corporate vehicle where its affiliates will consolidate land assets that will be part of the Abacore Energy Hub.
“The details of the consolidation are being worked on in the most tax efficient manner, which will be disclosed to the public in due time in accordance with the disclosure rules of the exchange,” Abacore said.
Since ABA has no operating business yet and most of the company’s value is tied up in its landbank, almost all of the future returns investors can expect will depend on how management will be utilizing the company’s land assets and capital. So, announcements about partnerships, joint ventures, and projects look exciting on the outside.
Why I think that such announcements from ABA should be treated as “just news” is because, from what I know, the company has not issued any statements about whether the MOAs signed with venture partners are legally binding or not. All they say is that “Abacore hopes and believes that its majority partner will deliver on its commitments under the MOA between the parties.” This means we don’t know if ABA, on the off-chance that its partners back out of the agreement, can legally take their partners to court and hold them accountable.
We have no guarantee that announced projects will fully actualize. All investors have is that it is “likely” that partners will fulfill their end of the bargain. We don’t know if they can back out. Of course, there is also the risk that projects will be executed poorly resulting in inadequate or even negative returns for shareholders.
So, this year 2023, what I would like to see from ABA’s management is more land sales transactions, a new dividend announcement, perhaps some updates on the Energy Hub in Simlong, updates on PRIDE’s listing by way of introduction, and ABA finally paying the dividends it declared in 2020 and 2021.
Still, the investment thesis for ABA is simple. Investors get to buy a piece of ABA at a price below what its land assets in its balance sheet are supposedly worth per share. You’re buying a peso of land for less than 50 cents.
All I would say is just don’t bet everything on ABA, remain rational when “exciting” announcements are released, and keep a close eye on management—what they’re doing, what they say they’re planning to do, and if Mr. Raul B. De Mesa (ABA’s CEO) has started buying shares of ABA for himself.
If you don’t like ABA as a stock, there are always others you could check out. I might even end up writing about some of those “others” too.
That’s all, thanks.
Be seeing you in the next one,
Charles Liong
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Disclaimer: This is not investment advice. Please do your own work. It’s your money, it’s your responsibility. I might change my mind about certain things and might not follow up on them. Do your own analysis. I am not your investment or financial advisor.