November 11, 2014

ALI sustains strong earnings momentum

In a briefing last Friday, Ayala Land Inc announced a 25% YoY hike in its 9M14 net income to P10.79b, consistent with the pace set in 1H14. This came on the back of a 21% growth in overall real estate revenues that were in turn driven by strong residential revenue growth and hefty sales of office units. These compensated for some slowdown (albeit at a positive growth) in the leasing and hotel operations. Residential revenues grew 40%, relatively steady from the 42% growth in 1H14.

Meanwhile, sales of office units increased 339% to P2.57b in 9M14 or about three times the P827m in office unit sales registered in 1H14 owing to additional sales coming from Alveo and Avida in Bonifacio Global City and Alveo sales in Cebu. These compensated for the 47% drop in commercial and industrial lot sales to P4.37b which came off a high base last year when ALI sold units from FTI.

Recurring revenues from leasing (malls and office) and hotel operations grew 17.1% to P15.4b, implying a slowdown from the 22% growth in 1H14. This can be attributed to slower growth pace in office leasing (+19% in 9M14 vs. +31% in9M13) and hotel and resorts revenues (+37% vs. +48%) as these too were coming off a higher base.

Our take: ALI’s results were just in line with expectations and accounted for 75% of full-year forecasts. We expect ALI to sustain this pace into 4Q14 when mall and hotel revenues can get a seasonal boost from holiday spending even as residential revenues should be supported by accelerating sales take-up (+18% in 9M14 vs. +11% in 1H14) and huge unbooked revenues (P123b as of end-Sep 2014). ALI has also set a plan to grow its earnings by 20% annually. While we view this to be plausible given ALI’s geographical and brand diversification, this may have implications on capex, dividend payout and RoE. We will review our prospective numbers pending more details of the plan. – WealthSec