November 10, 2013

ALI posts strong revenue and earnings growth

Ayala Land Inc results showed growth on all fronts: +38% growth in revenues to P57.7b and +30% in net earnings to P8.6b or around 78% of full-year consensus. This was shored up by both revenue growth and improved margins in almost all business segments.

Our take: The results were ahead of market expectations as growth was evident across all business segments and margin improvements in most business units. ALI is still benefitting from higher residential sales booking and the sale of commercial lots from the FTI property which ALI acquired in 4Q12. If the consensus forecasts will not be upgraded this year, this would imply that the market is expecting a slowdown in 4Q13 earnings and this, we believe, may be due to expectations that FTI commercial lot sales will wind down. While this is plausible, we also note of the continued strength in new residential launches and bookings. Completion on these projects should compensate from the declining lot sales booking and should shore up earnings going forward.

There may be concerns regarding prospective growth given the high base set this year with the FTI lot sales (P6.2b booked so far in 9M13 and rising interest costs given the higher debt load). However, we take note of the following salient points from the company’s investors’ briefing yesterday which we believe will continue to provide the impetus for growth.

18% YoY growth in presales to P68b in 9M13 (with record quarterly takeup of P24.2b sustained in the last two quarters and despite 3Q being normally a lean season) and 27% growth in residential sales bookings to P30b during the same period Unbooked revenues worth P90b which is equivalent to three years’ worth of residential revenues (assuming the P30b+ 2012 residential revenues.

The expected 21% YoY growth in BPO office GLA in 2013 and 7% average office lease rates, and the planned 6% expansion in mall GLA amid steady rental rates and sustained 5% same-store sales growth. The completion of mall redevelopments should enable lease rates to revert to market levels and further enhance margins.

Creation of new large-scale integrated developments in various geographical locations that will also include some commercial lots (albeit at small magnitude than the FTI bookings at but at higher margins given the lower cost of land acquisitions).

Further margin enhancements which continues to support RoE improvement (despite the two equity placements done by the company) towards the 15% company RoE target by 2014 (from an annualized 13% this year). - WealthSec