August 14, 2014

FLI posts 14% hike in 1H14 earnings

In a disclosure to the Exchange, Filinvest Land Inc announced 1H14 net earnings of P1.97b, up 14% YoY. This implied a growth of 15% in 2Q14 which is slightly better than the 14.2% growth in 1Q14. Net of one-off gains from sale of receivables in 2Q13, FLI’s net income to common would have risen 16.6% in 1H14 and 19.5% in 2Q14.

Revenue growth accelerated in 2Q14 (+30.3% YoY) to P3.59b (from the 22.5% growth in 1Q14) and brought overall 1H14 revenues to P7.18b (+26.3% YoY). This came on stronger real estate sales that were in turn driven by robust residential sales growth (+30% in 1H14 and +36.1% in 2Q14) that were aided by additional project launches. FLI said it has launched P8.4b worth of projects or about 48% of its full-year target which is rather unusual as the company normally launches the bulk of its projects towards 4Q when demand seasonally picks up.

The strong real estate sales made up for the modest 6.6% growth in rental income to P1.05b n 1H14, indicating a 4% YoY growth and an unusual 5% QoQ decline in 2Q14. We believe this can probably be due to weaker mall revenues QoQ as the Holy Week holidays fell in 2Q this year vs. 1Q last year. Also, mall occupancy has slid to 88% vs. FLI’s usualrange of 92%-94%.

Overall margins continued to slide (45.9% in 1H14 from 48.1% in 1H14) largely due to growing proportion of lower-margin residential products to total sales.

Meanwhile, sales takeup grew 9% YoY to P7.4b although FLI restated the 1H13 figure to P6.8b from P7.25b previously. The company explained that the restatement came after it took out cancellations in 1H13 for proper comparison, implying therefore that presales have actually declined in 1H13 when the industry was then posting robust growth. FLI also hinted that the 2H13 sales takeup figures will likely be restated as well.

Our take: FLI’s 1H14 net income accounted for 45% of the full-year forecast and is at pace with its performance in the previous years when 55%-60% of the full-year income were earned in the second half of the year. However, after launching almost half of its targeted new inventory launches this year, the company may have to catch up on selling old inventory to sustain growth.

We also raise concern on its move towards tapping the highly specialized Chinese market with new products. While Chinese buyers normally pay in cash, the company explained that most of these buyers usually wait until a significant portion of the project has been constructed before making any actual purchases. This should explain the relatively slower takeup for FLI’s projects geared towards this market.

While such projects do not account for a significant portion of FLI’s new project portfolio, the company may still have to finance the initial construction of these projects with existing cash flows or debt thereby deviating from the usual model where preselling proceeds are used to fund the construction. – WealthSec