March 11, 2014

AC posts 21.6% growth in 2013 earnings

In a press statement, Ayala Corp (AC) registered an unaudited net income of P12.78b, up 21.6% YoY. This was driven primarily by the strong performance of its real estate and banking businesses on the back of a robust residential market and hefty bank trading gains. On the other hand, AC’s income was weighed down only by the higher charges related to accelerated depreciation of its telecom unit amid an ongoing networkbmodernization. Otherwise, core net income would have increased 28% to P14.8b. Earnings were also aided by significant improvements its electronics and business outsourcing operations.

Our take: We expect AC’s earnings momentum to be sustained primarily due to the aggressive expansion and diversification efforts across its units. The property business should continue to benefit from a robust residential property market and increasing contributions from its mall and office businesses which should reap the fruits of expansion. While the banking unit should post a tapered earnings growth in the absence of last year’s hefty trading gains, the quality of earnings should also improve as it focuses on core banking operations.

The water business may also see a possible upside on increased contribution from new businesses and acquisitions including the Laguna Technopark water management and the Cebu bulk water supply contracts. The company is also expecting the ongoing arbitration proceedings to wind down in the next couple of months. A favorable decision on its rate hike petition can serve as an additional growth driver.

AC is also expecting an earnings upside from its power investments. Last year, AC booked pre-operating expenses from the power business. AC has a 20% economic interest in GN Power which is now commissioning its 600MW plant in Luzon while 50%-owned SLTEC is expected to operate its first 135MW plant by 2H14 with the second unit slated for operations in 2H15.

The group has set a capex of P187b for 2014, with each unit having their own programs to finance their respective spending. AC said it intends to tap various sources (both debt and equity) to finance its own investments. – WealthSec