Cebu Landmasters, Inc. (CLI) Earnings Call Transcript & Summary

Great day, everyone. Hello to our viewers from the Philippines and all around the world. Joining us from our events platforms Livestream and on our live broadcast via Bloomberg terminal. Those of you who joined us this morning or our previous sessions, welcome back. The Philippines Stock Exchange and Bloomberg are excited to host all of you over 2 days on PSE STAR Strengthening Access and Reach Investor Day. To those of you joining us from the first -- for the first time, this 2-day event gives all of you an access to 8 listed company's financial highlights, growth strategies and market opportunities. And of course, Bloomberg analyst economic and sectoral outlooks. I'm Nathan Naidu, Equity Research Analyst from Bloomberg Intelligence, and I'm excited to open our day 2 afternoon session. This afternoon, we are excited to feature 3 listed companies, Cebu Landmasters, [indiscernible] Consumer Corporation, and [indiscernible] Inc. So before we get started, a few housekeeping items. If you experience any issue with your audio or video during the broadcast, please simply try refreshing your browser. You may submit your questions to any of our speakers and please type them on the Q&A box of our event platform. Now let's kick things off with our first listed company this afternoon. Cebu Landmasters Inc. Joining us today is Grant Cheng, Chief Financial Officer. Grant, over to you.

Thank you, and welcome, everyone, and thank you for your time. We hope that we can share and communicate something that will inform your investment making decisions. And we hope it enhances your understanding and appreciation of the investment decisions that you can make surrounding Cebu Landmasters. So we're proud to be able to present to you our financial numbers and our operations and our business model, and I look forward to having a robust conversation with the revenue regarding our results. So let me start off first with an overview of Cebu Landmasters, we are the #1 real estate developer in Visayas and Mindanao. Our story is that we are based in Cebu and from that base in Cebu, we have radiated our growth outwards to the point where we are now the #1 housing developer with the #1 market share in the residential segment in Desitin Mindanao. So we are outselling our competitors and our peers. And it is a growth that is attributed to our commitment, our focus and eventually the build up professional knowledge, the nurturing of relationships within the region that has allowed us to deliver what we feel to be superior product and best value for money in the product segment where we are competing. Because of this, we've grown quite tremendously. We are now in 16 key areas of [indiscernible] Mindanao, 117 different projects across the residential, commercial hospitality space that we are building all over besides Mindanao. We have PHP 15 billion in top line in 2022 which is a 37% compounded annual growth rate since we went public and that has translated into a PHP 3.2 billion of net income after tax attributable to the public shareholders, which is a 26% compounded annual growth rate from our IPO. The company is fairly young. We were founded in 2003 by Joe and Maro Soberano, who have extensive professional experience from their days with Ayala Land. So we are a young company, but our founders and the managers that are running it come from a wealth of experience that has allowed them to bring that into the selected market and not to belabor the entire slide, I'm sure you can you can look at this publicly in our annual report, but the growth has been tremendous from horizontal development, we've developed condominiums in 2010, expanded outside of Cebu in 2015, went public in 2017. And then we just went on to bigger and more voluminous projects in the years afterwards. So this is a quick overview and a quick map of where we are. So as you could see, we are still -- for the most part, just a concentration of development in the metro Cebu area. So when you talk about Cebu -- that the Cebu City proper as well as Mandaue and Lapu Lapu City in Mactan Island. So a total of 70 different projects. But you could also see that from that base, we have committed our growth to areas outside of that. And you think our -- using our institutional knowledge and our success in Cebu. We have brought [indiscernible], as well as all the other nearby major [indiscernible] Mindanao City. Here's a quick snapshot of our current product portfolio. So as you can see, we are still, for the most part, we're still at our core, a residential developer. So we build shelter. We provide shelter. We build houses for Filipino families. It is split evenly between vertical and horizontal or condominiums as well as townhouse, house development type. And it is also diversified across market segments. I'm proud to say we are strongest in our mid-market and our affordable or economic housing projects branded at Casamira and the Garden series, but we will also strategically launch higher-end projects if the right acquisition opportunity arises. And as we are carried -- sorry, please stay on that slide. As we are carried by our residential and core business portfolio, we're using that as a foundation to also diversify and expand our offerings in the real estate market. To this point, we have 6 office spaces that are either currently being built up or already in operation -- and the second leg or the second component of our expansion into these recurring income assets would be our hospitality portfolio. And of the 10 hotels here, only 1 is operational so far, the 9 other hotels in our pipeline are expected to open and be operational within the next 3 to 4 years. In fact, 3 of them will be operation -- more hotels will be operational in the next 12 months. So it's really an exciting time for the growth of this business segment of CLI that should enhance not only our revenue stream, but our cash flow profile as well. And then we have mixed-use projects -- and when you say mixed use, it really is a multi-asset development within an area and we get a lot of synergies. We get a lot of complementary value. The residential area is more valuable because they have easy access to retail and the commercial spaces like offices may become more attractive. [indiscernible] Proud to say that building up on my introduction earlier, when we say we're the #1 developer, this is something that we claim only because it is verified by a third-party market research in this case, Colliers. And we are measuring ourselves according to market impact. i.e., sales take-up. What we mean is we measure the velocity at which our inventory is actually taken up by the market. And so from that, we surveyed the market, we are at 22.8% or close to 23%. So the 2 takeaways I would share with investors here is that, #1, we are -- yes, we're the biggest in market share, but we are what I call the largest minority. So there is 1 vector for growth for CLI is to simply build on our momentum and our reputation and continue to expand our housing projects in these cities where we have successfully gained the portfolio. And if we increase our market share in this pie, that is the first vector of our goal, but I will hasten to add that this is actually a market with perpetually underserved demand. So for those of you who are familiar with the housing statistics in the Philippines and what the government has been saying for essentially decades and through several administrations, we have a housing backlog and that backlog has only gotten bigger. In other words, every year, the number of houses that the industry can build is, in fact, lower than the actual demand there is. And unlike other types of products where there might be demand destruction or there might be a phasing out of a demand, housing -- the demand is persist and what we mean by that is, if you are a household that is looking for a housing unit today just because it's not available today, it doesn't mean you'll stop planning to acquire it. So that backlog is real, it persist. There is so much more that we can sell into. So now I'll transition a little bit into our business strategies and what makes us CLI a little bit unique and a little peak into our the key performance indicators that underpin our financial results. So our real estate sales, again, the core business of CLI is up 17% year-on-year that with PHP 12.7 billion of real estate sales revenue. And the key statistics really here that I want to share with you today is the percent that we are sold out and what this means is for -- on average, we have very little inventory. If you look at any of our condominiums or any of our composition and housing development, we actually have very little inventory across the board. Here, we just broke it out a little bit. So where does that 93% come from? So just a little bit of nuance into this, and we're just cutting up the data. In fact, it's a little better than 93, because if you look at our completed projects -- if you look at our completed projects, we are 98% pulled out. So if -- I'm not sure if I can annotate here, but if I can draw your eyes to the second column, the complete -- under the completed column, you can see we have 35 projects already completed, which is 98% sold. And then if you slide or if you move over to the 1 on the right, construction in progress and then recent launch. So you could see that what we did is we just broke up the statistics. And for construction in progress, it's 95% and for recent launches, it is 80%. So on a pre-selling model, it underscores 2 things: that we have the ability to substantially sell out our project within the first 12 months of its launches thereby making the project very bankable, making the project very viable from a financial point of view. Because we know that we will not only recover our initial capital, but we're already going to make a profit at the end of the project, once we execute and deliver the unit. And as it progresses towards completion in the 4 to 5 years of the construction period of a real estate development, we continue to sell out more and more inventory at progressively higher prices, and this underpins the -- this really showcases the core strength of CLI which is that we are able to deliver products that are like in demand and that demand that is perpetually preserved. So the next few slides, I won't go through all of the details you see on your screen. These are part of the recently concluded 9 months reaching that we held just 2 days ago. So please go to the PSE website for our own Investor Relations website. These are all yours or download -- available for download. So the first slide simply showcases an outline of all our finished projects across the year all over besides Mindanao. Next slide, please. My next slide shows no construction in progress. So again, we're not sitting on our laurels, what we've done so far. We have so many projects in our pipeline, over 33 projects, over 86 hectares, 17,735 units. So we have a big responsibility to our buyers who have reserved this unit, who have committed to buy these units from us. And when I say committed, they've signed the contract and have started to pay into those contracts. So we want to deliver them and to be able to collect the balance of their content. Next slide. And these are the newly launched projects. as these are rendering from the project, but I can share with you that -- these are all projects where the land is [indiscernible]. And when we say launch, we have gone to the market and already pre-launched or pre-sold a lot of these projects. So I have the highest level of confidence based on our track record. All of this will eventually become substantially [indiscernible]. Next Slide, and then we did launch a new product segment. This is tapering more towards affordable -- more affordable segments with a walk-up apartment called [indiscernible]. So selling price is around PHP 1.9 million to PHP 2.5 million per unit and we're launching this in the North of Cebu [indiscernible]. And then we just wanted to show you that -- we are -- we have expansion plans for next year, but we are expanding judiciously. We're expanding very selectively. So I noticed that the names of these projects are actually expansion basis of -- most of them are expansion cases of existing projects already. So in other words, these are projects where we have actively sold out most of our projects, and these are expansion within the [indiscernible] in the adjacent vicinity. So I'll move on now to our office and retail projects. So we are committed to building out our recurring income portfolio. So starting with office and retail. We have over 35,000 square meters in gross visible areas, and we plan to triple the team, the next 5 years with the commercial real realestate that we are currently building up. And all of these are projects that we are currently building, and we're growing our roster of very notable tenant all over beside Mindanao. So [indiscernible] for office spaces, we're [indiscernible] to BPO and non-BPO businesses depending on the location of where we're building them. This means [indiscernible] such a strong hub for BPO, Cebu, [indiscernible]. I mean, it's no secret for developers that these are incredibly active, highly developed areas where the BPO industry plays a very big role. And then most of our buildings now, we are building a retail component into them, that makes them doubly attractive to both the retail tenants, the office tenants as well as the residential buyers. And here is just a highlight of where those leasable areas are [indiscernible] some of you might be familiar that [indiscernible]. We're bringing them here to Cebu. We're bringing several concepts to the [indiscernible] where we're developing a township. So this is important not only to round out and can leverage our economies of scale to build up these projects, but also to round out our revenue and capital profile. And the other major leg of our recurring income would be our hospitality portfolio. So we only have 1 hotel operational right now, but what really underscores our commitment to this industry is the 9 other projects under construction are in our portfolio. We're really excited to bring a lot of them to the market in the next 12 months. We have a coliving space in Cebu, another set of is that we're opening in [indiscernible] then another [indiscernible] branded hotel called LYF. The first 1 in the [indiscernible]. The second 1 will be in the Cebu right in the heart of where [indiscernible] it's that kind of traveler and that kind of tourism experience that the hotel seeks to capture and we're excited to open that in the next 3 to 4 months. We also have the world famous Abaca hotel in our pipeline and we hope to open that in the next 4 to 5 years. It's is going to be the crown jewel of our hospitality development. This was a 5-star rated or 5-star rated resort that will be run by the same management group. And this has a cult following among many of the higher-end travelers all over Europe, the Americas and Australia. So we can't wait to reopen this and welcome good tourism back. And of course, we are also building the 5 -- the first -- the new 5-star hotel in Cebu. We're bringing [indiscernible] to Cebu. So that's in the pipeline will be launched by 2026. Next slide, please. So before I completely move on from retail and hospitality. So we will also say that these 2 recurring income aspects or recurring income asset side of real estate will form the foundational assets that we will eventually infuse into an entity that we aspire to list publicly [indiscernible]. And then we have a townships where starting to acquire larger lots of land who have multi-asset development within those properties. We have 1 in [indiscernible] 1 in Davao and 1 here in Cebu. Here's a picture of the one in Davao, wide open road, underground cabling and street light. We are starting to build out the commercial areas in [indiscernible]. This is going to be -- this is going to be a great location. So we're already -- for this particular business, we are looking for -- the business model [indiscernible] different we're selling plus of land to locators or other developers and also other corporations who want to put up their plot here. So we envision this to be a prime business district in the valve. So this is the 1 again the [indiscernible] again, the order that we mentioned. This is in partnership with [indiscernible] University in [indiscernible], where they still own the majority of the line. We bought a 14-hectare part of that out of the land that sees still own to develop the commercial and residential [indiscernible] -- the commercial and -- the commercial and residential aspects of this township development. So we envision this to be a proper university town with a large wide open campus and then you have dormitories and residential condos that cater to students, parents, faculty, administrators within the same university [indiscernible] . And then this is our contemplated reclamation project in [indiscernible] in Cebu. So I will end my -- or I will wrap up my presentation or the later-on presentation is about, maybe talking about how we want to sustain our growth and our strategy. And we want to sustain our growth momentum you could see that since we went public is 2017 from using our financial results of 2015. We have grown tremendously, both in terms of our balance sheet. We've grown our top line and our bottom line as well as our reservation sales. And it really goes everywhere in terms of our market share, in terms of the size of our portfolio, in terms of the number of buyers and the number of projects that we are currently building. Next slide. I think that's the kind of unprecedented performance and the kind of sustained growth and performance that I believe, should be a compelling investment opportunity. And key highlights from our 9-month results is that we are continuing to build on that momentum because our accounting standards is on a percentage of completion basis. So what that means is that if you saw my pipeline of fully-sold project, my runway or I actually have very strong -- we have very strong visibility on what kind of revenues and net income we will get for the next 2 to 3 years because if we're talking about a percentage of completion, you're really talking about recognizing revenue from contracts we already signed 1 year, 2 years ago. It's just a matter of finishing out the building. So just -- this is just a little bit of detail now into our financial statement. Again, I will just -- I'll repeat what I said 2 days ago with our 9 months briefing. We continue to make sustained growth on delivering healthy top line and bottom line for our shareholders. And although while maintaining and in some [indiscernible] even improving our margin. And the only caveat I will share is that some of the improvement in margin is attributable to an accounting change or an accounting decision that our auditors [indiscernible], which is some of the interest that we've voluntarily accrued, they said that you should only recognize that upon in current and not -- you should not accrue it. So it lowered our cost of sales. But on a like-for-like basis, accounting for -- or on the same basis when we compare our margins this year and last year, we kept it steady, and I already feel that kind of accomplishment given an inflationary environment. Our reservation deal, which are actual market impact for the year is also on a steady growth path. So year-to-date in September, we sold PHP 17.075 billion worth of real estate products, that the actual amount of contracts we were able to secure this year. So this is a forward-looking indicator of our future revenues because the vast majority of the PHP 17 billion cannot be recognized yet, obviously, because as I mentioned, a percentage of completion. So a lot of these projects were just newly launched and we need to deliver percentage of completion progress on our construction asset in order to be able to recognize revenues on the -- but it does show that our pipeline for revenue is quite strong. And this year, 2023, we're on track to once again beat our record in terms of the value of houses, we are able to collectively sell. And if you could see on the right side recently broke down for you, the market segment contributing to this revenue sales. So our economic housing a brand called Casimira continues to be our strongest driver of sales. So it's 52% this year, but our other mid-market and premier housing products are also quite strong. And geographically, we're quite diversified in fact, this year, 9 months 2023 in the now, particularly the [indiscernible] really drove our sales numbers. It really sold a strong the market share [indiscernible] how and fast that demand is. In terms of our balance sheet, we continue to have -- we continue to ensure that our balance sheet is well capitalized and is also the capital that we are having is all well deployed, meaning that a real estate company like Cebu Landmasters, we're not part of a bigger conglomerate or we cannot -- we don't have a parent that will infuse capital for us. For a high CapEx industry with a relatively long cash conversion cycle, we are building a house after all. You could see that all of the capital we are raising, whether is through equity or whether is through debt from commercial banks or from bond or one-on-one placement, they are all being used and deployed towards salable projects. So all our interest-bearing debt that we're carrying on our balance sheet is more than twice covered by sales that I have in our pipeline. That really is the key takeaway that every peso that we borrowed, every peso that we got from investors, they're going into assets that are going to be generating revenue. And if you look at our pipeline of receivables, it will more than -- it is based off all interest-bearing that's twice over. So our consolidated return on assets remained quite steady and with the judicious use of leverage, the maintenance of our margins as well as the efficiency of our turnover or -- our developing our asset. So we don't sit on a lot of land bank. We want to develop and sell them again. We're always -- we feel this is 1 of the ways we can drive return on equity for our shareholders. Okay. Next slide. So this year, we plan to just continue our momentum in terms of CapEx spending, but most of that CapEx spending, if you look to the right is concentrated towards delivery, towards execution, towards finishing projects that we have already sold out. So in this sense, 1 of the things that we're sharing [indiscernible] is in an environment of high capital costs, both on the debt side and even the equity side, when I say is expensive equity, we mean that the valuations are quite challenging. And it's going to be expensive to raise equity from a valuation point of view. So in this environment, the main focus is on finishing projects that are already there and prioritizing both over acquisitions and expansion. Because the easiest way to deleverage to return capital, really just collect on the receivables we have in our pipeline. Okay. So we are going to continue to expand our land bank. And this time, this is the year where we're considering where to expand in [indiscernible]. So as I mentioned earlier, you think the Cebu [indiscernible], the more logical move is to just move [indiscernible] growth geographically. So we're looking at the southern part of the zone, perhaps in [indiscernible] area. So this year, we just celebrated our 20th year anniversary. So it's been a while, it's been exciting right, growing the company this way. And there's going to be much, much more that we know we can do for the entire country because, again, just for context, I mentioned the backlog for housing in the Philippines, the backlog stand up over 6 million houses. And through our 20-year history, we've built less than just over 30,000, less than 50,000 houses. So we're doing our part of water drop in the bucket of what needs to be done. So that's what I meant by. Our growth strategy is really simple, and our business model is quite simple. We're going to develop and build houses and if we simply grow the pie that is still available for real estate developers and keep or grow our market share, then that's going to drive our growth for the foreseeable future. Yes. The last [indiscernible] something that I wanted to highlight that as a publicly listed company, we continue -- we are committed to good corporate governance. I'm so proud of the team. I know I'm the 1 receiving this award on our behalf, but you just really testament to the organization from rank and file all the way to the manager, who are committed to good corporate governance. That means compliance to all our regulatory laws, our accounting standards, taxation laws. And of course, the regulations and the rules that govern our industry with the [indiscernible] and selling contracts. All right. So I think that wraps up our presentation proper. I really look forward to engaging the audience and maybe looking at our questions that anyone might have.

Okay. Thank you [indiscernible] for that presentation on Cebu Landmasters business strategy and financial results. Congratulations as well on a meeting planner. So just as we move on to the Q&A segment. So we have a question here. Has CLI undergone a stock split or something similar since IPO given its stock price of around PHP 2.57, which is around half of the IPO price. Could you comment or share any insight on the prevailing stock price with respect to the financial performance and of the company?

Yes thanks [indiscernible] for bringing that question. So to acknowledge the whoever raised that question. It's a 2-part question. So the first question is, did we undergo some sort of stock split and the answer is yes, it's not exactly a stock split. But what we did is we gave out a stock dividend in proportion to the current stockholders as a way to meet the requirements for increasing our operated capital stock. So what that did was it preserved everyone for a fortunate shareholding and without using anyone, but we were still able to meet the requirements of the SEC for increasing our authorized capital stock without having to go through a [indiscernible] asking everyone to put in tax to the company. And as a result of that, everyone got more shares of CLI from the current share that they were holding, so expect eventually was effectively a tax split. So if you are going to compare our current price to our IPO price of PHP 5 then you have to multiply the current price by 2.23% -- 2.23x because that is the ratio by which we were repriced on the day after the stock dividend. And by the way, I should just add, when you look at kind of total return do we look at the cumulative dividends, we have also paid out. The second part of your question is our impact on the valuation. Well, if you're asking me, of course, and I'm pretty biased about it. And I do feel we're 1 of the more compelling companies some of growth and from a fundamental point of view, we're trading below 2.5x on a trailing. So that means that going forward, the 2.5x trailing does not even account for the further growth that we know we can drive or we can give the company all the investment assets that are about to come online that we will eventually put into a REIT, our market leadership and our track record. So -- and we're trading below book, if you just do the quick numbers just with my receivables alone, I could already monetize the entire company, pay down our debt, pay down our market cap and then you still have some free cash because that's the definition of trading below book. So we are -- again, if I was asking about my entire -- my opinion is I feel we're very undervalued at this price.

Thank you for that [indiscernible] -- so we have another question. So what is the typical time line to develop these projects? And is there any IRR that can be shared for that [indiscernible].

Of course, the typical cash -- the typical cycle or time line to develop a project is anywhere from 4 to 6 years, I would say. And that means when you say developed, that is from the time of land acquisition and then you have the design process, the permitting process with the different regulatory agencies and then the selling process and the actual construction process. And I will add also that -- this is true for all real estate developers for projects that straddled the pandemic. Let's say they were launched in 2019 or 2018 and construction has to be halted because of the various lockdowns, supply chain issues that we all the university face or the industry, the Philippine economy [indiscernible] would face. Then, the construction period actually got stretched for the entire construct industry. But barring that event, a typical construction period looking forward to 6 years, depending on the type of project. Horizontal projects tend to be faster than vertical projects.

Got this, company share and IRR first-thing is project when...

We target an IRR of the mid 20. When we launch our project, we always -- we want to target an IRR of between 20% to 25% or very simply, if you look at our business model, we want to double the amount of equity we would have put it, after paying, of course, paying the bank, paying our contractors and suppliers and taxes. So the net return to equity should be double over the construction time period. It's a little bit of -- those numbers are a little bit -- have a little bit of downward pressure right now because of the inflationary environment as well as a much more expensive cost of financing on the debt market. But still, I feel it is a terrific return for landowners and for developers. The key is selling out the project and controlling your cost.

Right -- so we have another question. So is there any other target market for audience [indiscernible] chat on their further developments?

Aside from -- we're pretty diversified already, as I mentioned, we're the strongest in economic and affordable housing, which is where the bulk of the demand is. So this is what I always want to emphasize as an appreciation of the business in [indiscernible] now, there are so many people -- so many people looking for affordable housing options. And if you go to our website, I would welcome you to please visit our virtual tours and our product portfolio. You could see what a PHP 3 million house and our product looks like on how we can deliver them. That's where -- that's the kind of audience -- the market that we want to continue to emphasize. But in terms of new markets and audience, we're looking forward to opening our hospitality projects to bring in high end tourists. We're looking to bring up to also open our other hospitality projects so that we can synergize the entire tourism industry in our retail and commercial basis and also with our long-stay hotels and some of our residential development for local traveler. Just as a quick example. We launched a beach town condominium in Mactan. It sold very well, especially -- and the buyers who got a lot of them are from outside Cebu. Because this is a condo that traffic on natural beach front -- so I doubt we have that in Metro Manila. No, I'm not -- I know we don't have the Metro Manila but this is a kind of condo where part of your condo development is the natural beach front in Mactan beach. So you think Miami, you think the beach [indiscernible] a condo with beautiful amenities, tennis court, swimming pool, GYM, function room and the right there, you have your own beach for residential.

Thank you for that again an interesting project. So we have another question here. So why do you think the market discounts the value of CLI and do you have any plans to adjust this?

There are probably many reasons why I thought about -- it has confused me for a long time. But 1 thing that I've always been a big believer that if we produce the results, if we continue delivering the growth in the profits, then the market will eventually wake up that because we're a relatively young company. The second is that it does the same out of site out of mind. Because we were so strong in deciding year now, and we're getting all our growth there. Most institutional investor asset managers, portfolio managers may not have the same everyday appreciation of our growth and what we do. So 1 of the things we plan to do with this in the next 12 months is to beef up and to improve our investor relations efforts and perhaps invite researchers analysts -- to be able to come and do a site visit to Cebu, we will tour them around our project site, give them an appreciation of the quality of the products that we are building at the price we're offering them and give them a glimpse of our actual market impact so that there's a good [indiscernible] management base time, so there's an appreciation of how the business is able to deliver the numbers that we are publicly disclosing. So we want to expand that effort to our people covering and following us here in Manila.

So since you mentioned, given your stellar presence in [indiscernible] development there, what led the company to choose to participate in the Luzon market, especially -- specifically for [indiscernible]?

Well, it's not really anything -- there's no 1 trigger [indiscernible]. It's just expansion and natural growth. And so we're already in Palawan. So again, our growth is radiating outwards from our home base in Cebu. So the decision to expand to [indiscernible] is just by convention of -- just convention of -- meaning that islands, already expanded to [indiscernible], and expanded to [indiscernible]. So it's the same decision-making process. The next project we want to expand or it just happens to be in Luzon -- so nothing really -- we don't see it's an extraordinary development except to market that people keep asking us when we will go to Luzon. And it's a great market to expand to, but we will do it in a way that where we know we can replicate our business model. We have to establish relationships with the regulators, the local government authorities, understand the market, understand the supply chain to be able to deliver as successfully as we have in established markets.

Got it. So that, you mentioned about inflation. So what impact does the [indiscernible] as well as the elevated interest rate environment now on the company, especially on the bottom line? And has the company taken any action to address these issues?

Right. To be very precise about it [indiscernible] downward pressure on our margins. So bottom line, we will be profitable. We have enough margin and enough of a buffer of our margin to be profitable. And before this inflationary environment, we were looking at margins between in the high 40s to low 50s or between 48% to 52%. But with inflation really catching up with us and interest rates going up, what that will do is it will exert downward pressure. And you can expect our margins to be in the meantime between 43% to 47%. That's the range that we're looking at. It's actually interest rate that have a larger impact on our bottom line and our margins that inflationary concerned because a lot of the input costs on inflation it will go to materials like steel and cement and architectural [indiscernible] like tiles, light, door [indiscernible] et cetera. But land, for example, is already a fixed cost. So there's no more inflationary pressure there. And then you have general contractor labor. So if you look at the inflationary impact, it's actually interest rate cost back our cost of capital, it's a little bit higher. So all in all, that will result in downward pressure. But as with all things in real estate, that's cyclical. So one cost of capital stabilizes. And second and most important, once you can transmit those inflationary pressures into a market price or into the selling price of our products, if you could restore our GP. Because when you think -- our industry is [indiscernible] next to me. But if you think about convenience stores and gas stations, they are able to transmit that inflation fairly quickly. I mean from the [indiscernible] pressure at Cebu, they'll also do it on their price list. But real estate companies are a little different. They can't raise the price of my condo tomorrow and a flat the price next week, right? That is not the way the industry work. So you have to do it a little bit slower because it tends to be stickier. And what we have to do is to wait until that economic transition mechanism of inflation, which means when average take-home salary wages go up, make it more -- allows us to have more purchasing power before you can increase the prices. So we have to find it that way. And what are we doing about it? Well, for 1 thing, we're able to sign our purchases so that we're not -- we're not buying products at peak of their prices. And on interest rates, I can tell you that -- we're looking at various ways to actually fix the rates that we are paying for a lot of our debt capital.

So just for the interest of time, let me ask you 1 last question. So the Cebu Landmasters have any plans to raise equity in the near future given all the expansion plans [indiscernible]?

Yes, we do. And I want to be very careful here. PSE is the #1 institution that should tell me that we're not disclosing anything for new here. When we say we have planned, we are auctioned on the table that we are looking at. So equity still involves a spectrum of options from different kinds of preferred shares, performance shares and then follow-on offering expert offering. So nothing specific yet. But when we say we are planning to, we're looking at those options because I think [indiscernible] does need capital. We do need to continue to sustain the business by raising that capital, but also in a way that should be value accretive to our investors. We're trying to find a way to increase the valuation first before we do so or we could go the [indiscernible]. And these are the things that we are currently considering. But yes, we do intend to do something on the equity side. And when we're ready to do it, and we have specific plans and file some of the -- with the regulatory agency, we'll make sure we make the disclosure in a timely mark.

All right. So for questions for any other questions, you may foresee to the IR team or at [email protected]. So that's all for Cebu Landmasters. We can have a nice day. Now I turn you over to the [indiscernible] Team.

Thank you so much, Cebu Landmaster's team and to our audience for participants in this Q&A segment.