November 18, 2014

AC’s recurring income up 27% YoY in 3Q14

Ayala Corp (AC) disclosed a 35% rise in consolidated net profits to P14.05b in 9M14, boosted partly by a P1.8b one-off net gain booked by AC unit Liveit in 1Q14. On a quarterly basis, earnings rose 36% to P4.24b in 3Q14.

Major operating units Ayala Land Inc (ALI) and Globe Telecom Inc (GLO) accounted for much of AC’s growth. Subsidiary ALI reported a 25% rise in stand-alone net profits to P10.8b on the back of a 20% growth in revenues.

Affiliate GLO posted an almost three-fold increase in reported net profits to P10.53b, thus boosting GLO’s overall profit contribution to AC by 280% to P3.22b. GLO’s depreciation charges were substantially lower in 9M14 as bulk of the accelerated depreciation charges related to the modernization projects were already incurred in 2013. Excluding these charges, GLO’s core income would have reached P11.6b, a 22% YoY improvement.

Other subsidiaries also turned in higher earnings with Manila Water Co Inc (MWC) posting a 6% growth to P4.5b while Integrated Microelectronics Inc (IMI) ended with P930m, a four-fold increase.

On the other hand, affiliate Bank of the Philippine Islands (BPI) contributed lower equitized net profits of P6.24b, down 9% YoY. BPI’s stand-alone earnings fell 22% but this was partly mitigated by AC’s higher equity stake in the bank to 48% to 44%.

Our take: Netting out the impact of GLO’s accelerated depreciation charges and the P1.8b in one-off gain booked this year, we estimate AC’s recurring income would have amounted to P12.55b in 9M14, 2% higher YoY. On a quarterly basis, earnings are up 27% to P4.34b. The results appear to be tracking below the 2014E consensus forecasts of P16.86b, with AC’s 9M14 results accounting for just 74% of the full-year estimate of P16.86b vs. AC’s historical range of 81-86% in the past three years.

Higher year-end expenses (eg. salaries and bonuses) and potentially slower earnings growth from GLO this quarter due to the seasonal rise in marketing and promotion costs could temper growth in 4Q14 and will be offset only by stronger profits from ALI. We expect to get more details on the results following this afternoon’s analysts’ briefing. - WealthSec