January 12, 2015

ALI generates P16b from top-up offer

ALI disclosed today that it sold 484.85m shares at P33/sh through a top-up offer last Friday night and raised P16b. The shares were lent by Ayala Corp and will be replaced when ALI will issue some of its 1b carved-out shares. The offer was initially made at an indicative price of P32.75-33.50 and was finally transacted at P33 upon a reported strong demand from two large long-only institutional funds at this price. ALI said it will use the proceeds of the offer for its expansion projects.

Our take: ALI has previously communicated its plans to grow its net income at an average annual rate of 20% until 2020. The company target factors in an aggressive rollout of investment assets (shopping centers, office buildings and hotels) and continued land banking.

The transaction was done at a 5.7% discount to last Friday’s closing price of P35 and the new shares represent a 3.4% expansion to ALI’s outstanding shares. However, our 2015E EPS dilution will be less at 2.6% to P1.17/sh as we assumed some interest income on the placement of the cash proceeds from the offer. While we are keeping our 17% net income growth target for the year, the EPS growth will be lower at 13% due to the share dilution. To be on track with its 20% average annual income growth rate target, we believe ALI will likely accelerate the sale of high-margin residential lots or office space.

The dilution to our NAV/sh estimate is also lower at just 1.4% to P49.65/sh as the higher cash balance led us to cut our debt assumptions for the year, thus leading to a lower net debt estimate. Imputing a 20% discount to NAV, our TP should go down to P39.72/sh but we will round this off to P40/sh (unchanged from previous TP).

While the discounted pricing for the offer may lead to a short-term weakness in the share price, we would take this as an opportunity to Buy the shares as we believe that the company’s positive long-term outlook is intact. – WealthSec