Ayala Land Inc.: Raising income forecast on better than expected FY13 results

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1 TUESDAY, 18 FEBRUARY 2014 Ayala Land Inc.: Raising income forecast on better than expected FY13 results FY13 income better than COL estimates, meets consensus. ALI s 4Q13 net income was up 29.74% to Php3.14 Bil, bringing FY13 income to Php11.74 Bil, 29.9% better than a year earlier. ALI was able to maintain the strong earnings growth exhibited during 9M13 with the help of strong residential revenues. Net income for FY13 was better than COL estimates owing to better than expected residential revenues and commercial lot sales. However, compared to consensus estimates, ALI s net income was just in line. An acceleration in residential revenues in 4Q13. Despite lower commercial lot sales in 4Q13, ALI was able to maintain its revenue growth trajectory due to the strong growth in residential development revenues. For the quarter, residential revenues grew 55% y/y due to a 44.7% increase in booked sales, from Php15.2 Bil in 4Q12 to Php22 Bil in 4Q13. ALI s commercial leasing business also generated strong revenue growth, particularly the hotels and resorts segment, whose revenues grew 68% to Php1.09 Bil in 4Q13 with the contribution of new hotel and resort rooms. Raising income forecast in higher residential revenues. We are raising our FY14 and FY15 net income forecast by 9% and 6% respectively to factor in strong than expected sales booking of ALI. We now expect residential and office for sale revenues to grow 28.6% this year and 18.4% in 2015 versus the 3% and 15% growth implied by our previous estimates. Despite a flattish lauch pipeline, its level of unbooked revenues should enable ALI to maintain a high growth trajectory. ALI has Php99 Bil of unbooked revenues as of end-fy13, this is 52% higher than unbooked revenue level it had at the end of FY12. Also, based on ALI s capex budget, it will spend more on project completions this year than last year. Maintain BUY with FV estimate of Php We reiterate our BUY rating on ALI with a FV estimate of Php ALI continues to deliver strong results and outlook remain bright due to its growing level of unbooked revenues. We like ALI as it is the most complete property company in terms of product offering. We believe this diversify puts the company in good position to capitalize on many growth areas and at the same time make the company s operations more sustainable over the long term. Forecast Summary (PhpMil) Year to December 31 (Php Mil) F 2015F Operating Revenues 41,231 54,705 76,337 86,609 99,891 % change y/y EBIT 10,709 13,488 19,119 22,724 26,735 %change y/y Net Profit 7,141 9,038 11,742 13,369 15,390 %change y/y EPS (in Php) %change y/y RELATIVE VALUE P/E(X) P/BV(X) ROE(%) Dividend Yield (%) *Source: Ayala Land, COL estimates SHARE DATA Rating Ticker ALI Fair Value (Php) Current Price Upside (%) ABSOLUTE PERFORMANCE MARKET DATA BUY SHARE PRICE MOVEMENT Nov-13 5-Dec-13 5-Jan-14 5-Feb-14 ALI PSEi 1M 3M YTD ALI PSEi Market Cap 373,466.10Mil Outstanding Shares 14,173.29Mil 52 Wk Range Mo Ave Daily T/O Mil Richard Lañeda, CFA richard.laneda@colfinancial.com

2 FY13 income better than COL estimates, meets consensus ALI s 4Q13 net income was up 29.74% to Php3.14 Bil, bringing FY13 income to Php11.74 Bil, 29.9% better than a year earlier. ALI was able to maintain the strong earnings growth exhibited during 9M13 with the help of strong residential revenues. Net income for FY13 was better than COL estimates owing to better than expected residential revenues and commercial lot sales. However, compared to consensus estimates, ALI s net income was just in line. Exhibit 1. Results Summary % % of full-year estimate 4Q12 4Q13 % change FY12 FY13 in Php Mil change COL Consensus Operating revenues 14,662 20, % 54,705 76, % 110.5% 109.1% EBIT 2,078 3, % 13,488 19, % 102.6% 104.5% EBIT margin 14.2% 17.4% 3.3% 24.7% 17.4% -7.2% Core Net income 2,421 3, % 9,038 11, % 110.6% 102.3% Source: COL estimates, ALI, Bloomberg An acceleration in residential revenues in 4Q13 Despite lower commercial lot sales in 4Q13, ALI was able to maintain its revenue growth trajectory due to the strong growth in residential development revenues. For the quarter, residential revenues grew 55% y/y due to a 44.7% increase in booked sales, from Php15.2 Bil in 4Q12 to Php22 Bil in 4Q13. ALI s commercial leasing business also generated strong revenue growth, particularly the hotels and resorts segment, whose revenues grew 68% to Php1.09 Bil in 4Q13 with the contribution of new hotel and resort rooms. Exhibit 2. 4Q13 revenue breakdown in Php Mil 4Q12 4Q13 % change Residential development 8,903 13,776 55% Office for sale Commercial lot sales % Shopping malls 2,756 2,879 4% Offices % Hotels 646 1,085 68% Service % Total 14,662 20,560 40% Total ex. Service 14,066 19,806 41% Source: ALI page 2

3 Exhibit 3. FY13 revenue performance % of COL in Php Mil FY12 FY13 % change estimate Residential development 31,879 41,991 32% 112% Office for sale 109 1, % Commercial lot sales 2,472 8, % 110% Shopping malls 9,494 10,484 10% 96% Offices 2,966 3,500 18% 102% Hotels 2,452 4,017 64% 97% Service 5,333 6,376 20% 121% Total 54,705 76,337 40% 110% Total ex. Service 49,372 69,961 42% 110% Source: ALI, COL estimates Leasing revenue grows on higher GLA ALI s mall revenues in 4Q13 grew 4% y/y to Php2.9 Bil on higher GLA and improvement in lease rates. Slower growth during the fourth quarter should not be a concern as we believe this was merely a timing issue in terms of now space opernings. Meanwhile, office revenues were up 17% y/y to Php1.09 Bil on the back of a 16% jump in occupied BPO GLA and a 8% improvement in average BPO lease rates. Sales momentum maintained despite difficult quarter In the fourth quarter, ALI sold Php24.2 Bil worth of units, equal to the sales it had for both 2Q13 and 3Q13. Full-year take-up sales reached Php91.9 Bil, 18.4% higher than in Sales of ALI s project showed no signs of a slowdown despite the Philippines being hit by typhoon Yolanda in November. This calamity could have dampened buyers sentiment in November but was offset by strong December sales. Launches to match last year s but completions will be higher ALI said it will lauch around Php107 Bil worth or residential and offices for sale this year, matching last year s Php108 Bil. For its investment properties, it will launch aroudn Php35 Bil worth compared to Php32 Bil it launched in Although launches are flattish, we expect revenues to continue growing this year as ALI will spend more this year on project completions. Based on ALI s capex budget, it will spend around Php50 Bil for projects completions (for all business segments) this year compared to the Php39 Bil it spent last year. Raising income forecast in higher residential revenues We are raising our FY14 and FY15 net income forecast by 9% and 6% respectively to factor in strong than expected sales booking of ALI. We now expect residential and office for sale revenues to grow 28.6% this year and 18.4% in 2015 versus the 3% and 15% growth implied by our previous estimates. Despite a flattish lauch pipeline, its level of unbooked revenues should enable ALI to page 3

4 maintain a high growth trajectory. ALI has Php99 Bil of unbooked revenues as of end-fy13, this is 52% higher than unbooked revenue level it had at the end of FY12. As we stated above, based on ALI s capex budget, it will spend more on project completions this year than last year. Exhibit 4. Changes in COL estimates FY14 % FY15 in Php Mil Old New change Old New Source: ALI, COL estimates % change Revenues 75,106 86,609 15% 84,230 99,891 19% EBIT 20,821 22,724 9% 23,826 26,735 12% Net income 12,234 13,369 9% 14,431 15,390 7% Lower lot sales this year not a concern Last year, ALI booked a significant amount of revenues from sales of commercial lots in Nuvali. As of 9M13, ALI booked Php8.2 Bil in revenues from commercial lot sales, significantly higher than the Php2.3 Bil booked in 2012.Commercial sales this year will most likely be closer to 2012 level as ALI booked most of its FTI lot sales last year. Nevertheless, the absence of commercial lot sales should not limit the growth of ALI s revenues. Residential revenues will remain strong on the back of completion of previously sold projects.we expect a 28.6% growth in residential revenues. Also, ALI s recurring income is also growing as the company expands its leasing portfolio. We estimate leasing revenues to grow by 13.1% for retail, 18.2% for BPO offices, and 33.2% for hotels and resorts. Maintain BUY with FV estimate of Php36.08 We reiterate our BUY rating on ALI with a FV estimate of Php ALI continues to deliver strong results and outlook remain bright due to its growing level of unbooked revenues. We like ALI as it is the most complete property company in terms of product offering. We believe this diversify puts the company in good position to capitalize on many growth areas and at the same time make the company s operations more sustainable over the long term. page 4

5 Investment Rating Definitions BUY HOLD SELL Stocks that have a BUY rating have attractive fundamentals and valuations, based on our analysis. We expect the share price to outperform the market in the next six to twelve months. Stocks that have a HOLD rating have either 1.) attractive fundamentals but expensive valuations; 2.) attractive valuations but near term earnings outlook might be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely inline or underperform the market in the next six to twelve months. We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to twelve months. Important Disclaimers Securities recommended, offered or sold by COL Financial Group, Inc.are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the judgment of COL s Equity Research Department as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report B East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City, 1605 Philippines Tel: Fax: Website: page 5