November 04, 2014

Non-recurring loss weighs on AEV’s 9M14 income

In a disclosure to the Exchange today, Aboitiz Equity Ventures (AEV) reported a 3Q14 consolidated net income of P4.8b, up 3% YoY. This was weighed by a P406m non-recurring loss pertaining to the revaluation of its power unit’s consolidated dollar-denominated liabilities and placements. Otherwise, core net income would have grown by 9% YoY to P5.2b. This brings the reported 9M14 consolidated income to P14.3b (down 14% YoY) which would also include the P634m in one-off gain from the sale of investments. Adjusting for the one-off items, the 9M14 core net income came in at P13.9b (down 16% YoY).

Aboitiz Power Corp (AP) contributed P10.1b to AEV’s 9M14 earnings (-8% YoY). This arose from 8% drop in AP’s overall 9M14 earnings to P13.2b owing to the non-recurring loss of P209m. Adjusted for the one-offs, AP’s 9M14 core net income fell 15% YoY to P13.4b. This comes slightly ahead of expectations and is equivalent to 76% of full-year consensus forecast. AP’s attributable net generation rose 2% YoY to 8,395 GWh of which 85% were sold through bilateral contract.

The latter rose 5% YoY while spot market sales fell 15% YoY to 1,266 GWh on low water levels that constrained the operations of the Magat, Ambuklao and Binga plants. Netting out one-off items, net income contribution of the generation business fell 19% YoY to P11b. On the other hand, the 9M14 income contribution from the distribution group rose 2% YoY to P2.5b as attributable electricity sales grew 9% YoY to 3,299 GWh. The 3Q14 performance was stronger as income contribution grew 29% YoY buoyed by the 15% YoY growth in power.

The banking group’s income contribution fell 28% YoY to P2.4b. This came despite the 25% YoY growth in 9M14 net interest income to P8b and was weighed by the 44% drop in other income to P5.9b (largely due to the hefty drop in trading gains). The banking group accounted for 18% of AEV’s net income.

Meanwhile, the food unit reported a relatively flat income contribution to P942m due to the weak performance of the Feeds division that more than offset the improvements in the Farms business. On the other hand, the property unit’s income contribution more than tripled (+247%) to P565m on higher industrial revenues following the company’s acquisition of Lima Land while the residential sales grew 57% YoY. The food and property units accounted for 6% and 8%, respectively, of AEV’s income.

Our take: Notwithstanding the weakness in the power unit’s overall earnings contribution, this has already been largely expected by the market and came in within consensus forecast. However, the overall drop in the banking group’s income contribution continued to weigh on AEV’s overall performance. AEV’s 9M14 core net income accounted for just 66% of the full-year consensus earnings. – WealthSec