Ayala Posts PhP8 Billion in First-Quarter Net Income, up 5%
Ayala Corporation (PSE: AC) recorded a net income of PhP8 billion in the first quarter of the year, five percent higher from a year ago, lifted by its real estate, banking, and telco units and boosted by net accounting gains from the merger of its education arm with the Yuchengco group.
Ayala’s sustained earnings momentum was a result of healthy equity earnings contribution from its business units, which grew seven percent to reach PhP9.9 billion. Equity earnings contributions of Globe, Ayala Land, and BPI grew 44 percent, 15 percent, and five percent, respectively in the first quarter.
Furthermore, Ayala’s net profits during the period was boosted by net accounting gains from AC Education’s merger with iPeople, which amounted to PhP1 billion. As a result of the merger and the additional shares it purchased, Ayala now owns a 33.5 percent stake in iPeople.
“Our first-quarter results show the advantages of a diversified portfolio. The strong performance of Ayala Land, Globe, and BPI offset the challenges from Manila Water’s water supply issues and the market conditions facing AC Industrials,” Ayala President and COO Fernando Zobel de Ayala said. “In addition, capital generated from the closing of the transactions in AC Education and AC Energy provide a boost for funding new investments and reducing debt at the parent level,” Mr. Zobel noted.
Apart from the gains from the merger of its education business with iPeople, Ayala will receive gross proceeds of US$573 million from the partial sale of AC Energy’s thermal assets to Aboitiz Power following the completion of the transaction last May 2. The transaction involved Aboitiz Power’s acquisition of a 49 percent voting stake and 60 percent economic stake in AA Thermal, AC Energy’s thermal platform in the Philippines. AA Thermal consists of AC Energy’s limited partnership interests in GNPower Mariveles and GNPower Dinginin, which is currently under construction.
Ayala Land
Ayala Land sustained its double-digit growth trajectory in the first three months of the year, with net income expanding 12 percent to PhP7.3 billion, driven by its property development and commercial leasing segments.
Ayala Land’s revenues from property development climbed four percent to PhP26.1 billion, lifted by its office-for-sale and commercial and industrial lot sales segments. Sales reservations expanded 8 percent to PhP34.1 billion driven by the continued strong demand from local and overseas Filipinos, which grew eight percent and 15 percent, respectively. Sales from other nationalities, meanwhile, increased five percent in the first quarter.
Revenues from commercial leasing grew 19 percent to PhP9.2 billion, lifted by higher contribution from newly opened malls, offices, and hotels and resorts. The opening of the retail section of Ayala North Exchange brought Ayala Land’s total mall gross leasable area to 1.9 million square meters in the first quarter, while 719,000 square meters is under construction. Its average mall occupancy rate stood at 89 percent, with stable malls at 95 percent. Same mall rental growth stood at 12 percent during the period. Meanwhile, office GLA stood at 1.1 million square meters, while 424,000 square meters is under construction. Average office occupancy rate was at 92 percent in the first quarter.
Ayala Land continues to diversify its income mix. In the first quarter, new estates contributed 54 percent to its net income, while established estates (Makati, Bonifacio Global City, Nuvali, Alabang, and Cebu) contributed 46 percent. In terms of business line, its recurring income segment accounted for 38 percent, while its development business contributed 62 percent to Ayala Land’s bottomline.
Ayala Land has announced its plans to establish the first real estate investment trust in the Philippines. It has set up AyalaLand REIT Inc. (formerly known as One Dela Rosa Property Development Inc.), which will initially be composed of Ayala Land’s prime, Grade-A, commercial office assets in Makati. Ayala Land believes that a REIT is a viable investment vehicle to access new investors, recycle capital, and promote the development of the Philippine capital market.
Bank of the Philippine Islands
Bank of the Philippine Islands recorded a net income of PhP6.72 billion in the first quarter, up eight percent year-on-year on strong performance of its core banking business.
BPI’s total revenues in the first quarter climbed 23.5 percent to PhP22.78 billion on solid growth from both net interest income and non-interest income. Net interest income jumped 29 percent to PhP16.1 billion resulting from an 8.8 percent increase in average asset base and a 50-basis point expansion in net interest margin to 3.39 percent. Yield on interest-earning assets improved 109 basis points, but this was partially offset by the increase in cost of funds, owing to higher time deposit rates, and an increase in other borrowings.
The bank’s total loans at the end of the first quarter stood at PhP1.35 trillion, up 11.5 percent year-onyear, boosted by strong growth in corporate loans, credit card loans, and housing loans with growth of 11.8 percent, 20.3 percent and 9.9 percent, respectively. Meanwhile, total deposits reached PhP1.61 trillion, an increase of 1.3 percent. The bank’s CASA ratio was at 70.3 percent while the loan-todeposit ratio stood at 83.9 percent.
On the other hand, non-interest income registered a 12.4 percent increase to reach PhP6.73 billion, attributed to increases in transaction-based service charges, credit card and rental businesses, and income from assets sold. Operating expenses totaled PhP12.1 billion in the first quarter of 2019, 23.8 percent higher year-on-year, mainly driven by the bank’s investments in technology, digitalization, and its microfinance branch network. Cost-to-Income ratio was at 53 percent, slightly up from the 52.8 percent registered from a year ago. The provision for losses of PhP1.80 billion was 13.2 percent lower than the fourth quarter of 2018. Non-performing loans ratio stood at 1.85 percent, while the bank’s total loss coverage, including allowances for contingent exposures, was at 95.7 percent in the first quarter.
At the end of March 2019, the bank’s total assets stood at PhP2.08 trillion, up 8.9 percent, and Return on Assets was at 1.34 percent. On account of the stock rights offering conducted in May 2018, BPI’s total capital reached PhP257.11 billion, up 35.6 percent. Return on Equity was at 10.7 percent, which declined 2.9 percentage points, reflecting the impact of the dilution from the SRO. Capital Adequacy and Common Equity Tier 1 ratios were at 16.57 percent and 15.68 percent, respectively.
Globe Telecom
Globe registered robust performance in the first quarter, with a 44 percent surge in net income from its year-ago level to PhP6.7 billion bolstered by strong subscriber usage in data-related services across mobile, corporate data, and home broadband segments.
This was achieved through solid topline gains, which fully offset the higher depreciation expenses from Globe’s continued network expansion and acceleration of its LTE and broadband rollout. Consolidated service revenues climbed 13 percent to PhP36 billion, while EBITDA grew 24 percent to PhP19.9 billion.
The sustained momentum in prepaid brands drove mobile revenues, which grew 11 percent to nearly PhP27 billion. Mobile data continued to be the top contributor to Globe’s total mobile business, accounting for 61 percent of gross service revenues from 47 percent a year ago. Mobile data revenues grew 44 percent to PhP16.5 billion as subscribers avail of promos that provide the best surfing deals.
Similarly, home broadband revenues climbed 21 percent to PhP5.2 billion resulting from a 22 percent increase in subscriber base at 1.7 million. Meanwhile, corporate data revenues grew 16 percent to PhP3.1 billion, from internet and domestic services and higher circuit count.
Overall, data-related services accounted for 69 percent of Globe’s service revenues during the period, with mobile data services alone making up for 46 percent. Globe is now reaping the benefits of its modernized 4G/LTE network that allows more of its customers to experience faster content downloads, smoother music and video streaming, and richer web browsing experiences. It recorded mobile data traffic growth from 180 petabytes a year ago to 370 petabytes in the first quarter.
During the period, Globe spent around PhP8.8 billion in capital expenditures or 24 percent of the topline revenue to support the growing subscriber base and demand for data. Of this amount, 68 percent was deployed to data-related services. Globe has provided a guidance of achieving a high single-digit growth in service revenues and EBITDA margin in the low-50s by the end of 2019.
Manila Water
Manila Water recorded a net income of PhP1.2 billion in the first three months of the year, 27 percent lower from the previous year on higher operating expenses, which reflects the impact of the water shortage in the Manila Concession.
Manila Water’s operating expenses reached PhP2.46 billion, up 39 percent from a year ago, driven by the provision of financial penalty imposed by the Metropolitan Waterworks and Sewerage System to Manila Water amounting to PhP534 million for its inability to meet its service obligations to provide 24/7 water supply to its consumers in accordance with the concession agreement.
Manila Water’s inability to provide its usual 24/7 water supply to some of its consumers stemmed from insufficiency of the water supply from Angat Dam to service the demand of its consumers. This raw water allocation has remained unchanged at 1,600 MLD since the concession started in 1997 when the Manila had a population of only three million people. Today, Manila Water serves a population of almost seven million people whose per capita consumption has significantly increased through over two decades of economic progress in Metro Manila. However, under the concession agreement, the development of new water sources is ultimately the responsibility of MWSS. In collaboration with government, Manila Water continues to implement service recovery efforts, which are now geared towards addressing those residing in the elevated and farthest areas of the concession who are still inconvenienced due to the water supply shortage.
The higher operating expenses eclipsed the improvement in revenues registered during the period, expanding 8 percent to PhP5.08 billion on account of higher tariff in the Manila Concession and improved topline growth of non-Manila Concession businesses which grew 19 percent to PhP1.1 billion. Revenues was also tempered by the implementation of the voluntary one-time bill waiver program made effective in April as relief to its customers who were affected by the water supply shortage.
Net earnings of Manila Water Philippine Ventures, which comprises the company’s domestic businesses outside the Manila Concession, climbed 7 percent to PhP174 million in the first quarter, primarily lifted by revenues from Estate Water, which grew more than twofold to PhP319 million. Meanwhile, net earnings of Manila Water Asia Pacific, which houses Manila Water’s international investments, more than doubled to PhP135 million led by contribution of East Water in Thailand and its operating subsidiaries in Vietnam.
AC Energy
AC Energy recorded a net income of PhP2.5 million in the first quarter, dropping from its year-ago level of PhP593 million, as higher interest expense from a green bond issuance, lower wind regime, and a scheduled outage of a thermal plant weighed on its bottomline.
Equity earnings from AC Energy’s investee companies reached PhP496.9 million, primarily lifted by its international renewable energy platforms. Meanwhile, it booked lower equity earnings contribution from GNPower Mariveles on scheduled outage combined with the impact of its reclassification to an asset held for sale in light of the thermal sell-down to Aboitiz Power. Similarly, its wind farms NorthWind and North Luzon Renewables posted lower equity earnings contribution owing to lower wind regime this El Nino season. Higher interest expense incurred from AC Energy’s issuance of US$410 million in green bonds also contributed to the decline in AC Energy’s net profits in the first quarter.
Last April, AC Energy and the BIM Group inaugurated the 330MW solar farm in Ninh Thuan Province, one of the largest solar farms in Southeast Asia, as well as the 30MW solar plant in Dak Lak, both in Vietnam. In addition, AC Energy in partnership with The Blue Circle recently announced the construction of the first 40MW of the Mui Ne Wind Farm located in Binh Thuan Province, Vietnam with an estimated cost of US$92 million. The project has an expansion potential of up to 170MW. AC Energy also recently energized a 50MW solar project in Khanh Hoa, which is part of the 80MW solar plant partnership with AMI Renewables of Vietnam. These projects are all in line with AC Energy’s target to assemble five gigawatts in attributable capacity across solar, wind, and geothermal technologies by 2025.
AC Industrials
The ongoing global market slowdown, startup losses from its newly acquired businesses, and weaker sales of its automotive retail distribution segment pulled AC Industrials’ performance in the first quarter to a net loss of PhP332 million.
Its electronics manufacturing services unit, Integrated Micro-Electronics, experienced macro-driven margin constraints due to the continued fallout from the US-China trade war, lingering political uncertainty in the UK, and the ongoing electronic component shortage. Net profits dropped to US$335,000, 94 percent lower from its year-ago level of US$5.6 million. Consolidated revenues stood at US$323 million (PhP16.6 billion), relatively flat from the previous year. Gross profit for the first three months of 2019 totaled US$29.1 million, with margins declining to 9 percent compared to the previous year’s 10.6 percent.
IMI continues to grow its target business segments – automotive, industrial, and aerospace – which now comprise 77 percent of total revenues for the period. Revenues from automotive grew 27 percent to US$168 million, while contribution from the industrial segment climbed 10 percent to US$68M. Revenues from aerospace increased six percent to US$13M. However, consumer and telecom revenues declined by 59 percent and 12 percent, respectively, due to delays in new project awards and the aforementioned China economic slowdown.
In domestic vehicle distribution, AC Motors registered a net loss of PhP89 million due to weaker sales of Honda, Isuzu, and Volkswagen, as the Philippine automotive market continues to experience an overhang from last year’s industry-wide decline. KTM and Kia also posted weaker than expected results, due to slower than expected exports and ongoing startup activities, respectively.
Balance Sheet
Ayala’s balance sheet remains healthy with ample capacity to undertake investments as well as cover its dividend and debt obligations. As of the first quarter of the year, parent level cash stood at PhP5.5 billion, with net debt at PhP99.8 billion. Ayala’s net debt-to-equity ratio stood at 0.79 at the parent level and 0.73 at the consolidated level. The conglomerate’s loan-to-value ratio, the ratio of its parent net debt to the total value of its assets, was at 11.7 percent at the end of the first quarter. Its peso-dollar debt split ended at 66:34 as of end-March. Ayala’s dollar denominated debts are fully covered by foreign currency assets.
In April 2014, Ayala issued US$300 million bonds, which were exchangeable into secondary shares of Ayala Land. Upon the bonds’ maturity last May 2, 100 percent of the bondholders opted to exchange into Ayala Land shares. The exchange led to a 2.6 percent dilution in Ayala’s economic ownership in Ayala Land to 44.4 percent from 47 percent.
