Our target price for ALI of P40/share is based on a 60% discount to our RNAV estimate of P99.5/share, which is set at -0.5SD below the mean of disc to NAV since 2019 (5 year). This is higher than our previous assumption of 51% to take into account impact of weaker currency to share price movement.  We think this level of discount to RNAV is appropriate given ALI’s ability to achieve its comfortable inventory level, accelerate residential development, and reinvent its flagship mall projects, which should result in its earnings returning to pre-pandemic levels by 2025E. Our GAV estimate (RNAV plus net debt and minority interest) is derived from: 1) a DCF-based valuation of ALI’s residential projects (WACC of 8.5%) alongside its existing inventory value; 2) retail and office EBITDA cap rates of between 7.5% and 9.5%, depending on the locations; 3) DCF-based valuation on its hotel business (WACC of 8.5%); and 4) the estimated market value of its remaining landbank.

Downside risks that could mean ALI shares fail to achieve our target price include: 1) weaker-than-expected residential pre-sales; 2) slower-than-expected mall revenue, due to renovation of 4 of its major malls or slower purchasing power; 3) a sharp increase in office vacancy; 4) lower-than-expected margins due to competition; 5) delay in interest rate cuts; and 6) stronger dollar for longer.