May 21, 2014

AGI posts 11% hike in 1Q14 earnings

Alliance Global Group Inc (AGI) yesterday disclosed 1Q14 attributable net income of P3.94b, up 11% YoY. However, this included the P604m in one-time gain by 65%-owned property unit Megaworld corp (MEG) related to its acquisition of a leasing subsidiary. Net of this, we estimate recurring net income at P3.55b or relatively flat from the figure a year ago.

This came notwithstanding the strong performances by property units MEG and 49%-owned Global-Estate Resorts Inc (GERI) as well as 88%-owned liquor arm Emperador Inc (EMP). These offset the weakness in 49%-owned McDonald’s franchisee Golden Arches and weak gaming revenues of 42%-owned Travellers International Hotels Group (RWM).

As previously reported, MEG posted 1Q14 net earnings of P2.65b, up 49% but included a one-
time gain. Recurring core income grew 15% to P2.04b largely due to higher real estate sales (+14%) and rental income (+22.8%). GERI, meanwhile, reported a 27% hike in 1Q14 net income to P171m owing to a 47% growth in revenues.

Emperador’s 1Q14 results showed a sharp rebound with revenues rising by 22% to P7.5b driven largely by volume growth and coming off a low 1Q13 base which was weighed by the adverse impact of a hefty price hike spurred by higher excise tax. Gross margins also rose to 37.2% from 35% in 1Q13 on lower packaging costs. Net income was up 19% YoY to P1.7b.

While the 1Q14 net income of RWM rose by 72% to P1.72b, this came largely on costs cuts that offset weak gaming revenues (-23% YoY) brought about by low win rates and volumes. Golden Arches posted a 27% drop in 1Q14 net income to P171m despite the 13% growth in revenues to P4.36b fueled by the 10% growth in number of stores. Earnings were weighed down by the faster growth pace (+18% YoY) in costs and expenses.

Our take: AGI’s interim results fell short of expectations as the reported figure accounted for only 22% of full-year consensus forecast (or just 20% if we take out MEG’s one-time gain). Last year’s 1Q earnings accounted for 26% of full-year net income.

While there is room for MEG and EMP to gather momentum (largely on more project launches and leasing expansion for MEG, and margin improvement and volume growth for EMP), we expect RWM’s gaming revenues to remain under pressure as competition tightens with the opening of one more gaming facility in 2H14 and unless its win rates recover.– WealthSec