Ayala Corporation’s net income almost doubled during the first nine months of the year to reach ₱46.2 billion, lifted by the solid contribution of its banking, telecommunications, real estate, and power units.
Equity earnings from Ayala’s business units grew 77 percent to reach ₱51.9 billion, boosted by contributions coming from the Bank of the Philippine Islands, Ayala Land, and AC Energy. Further, Ayala recognized gains from the merger of AC Education with iPeople and from the partial divestment of AC Energy’s thermal assets.
All these cushioned the impact of weaker results of AC Industrials, which is experiencing headwinds from one of the sharpest and most widespread downturns in global manufacturing that significantly weighed on most of its business lines.
In the third quarter, Ayala’s net profits expanded seven percent to ₱8.3 billion, supported by robust results from BPI and AC Energy. Equity earnings from Ayala’s business units, meanwhile, rose four percent year-on-year to ₱10.2 billion in the third quarter.
“We are pleased to see sustained growth in most of our core businesses continuing to provide stability in our earnings. AC Energy has quickly become a significant contributor to our portfolio,” Ayala President and COO Fernando Zobel de Ayala said. “We continue to be mindful of the challenges in some sectors, particularly AC Industrials and the global manufacturing space,” Mr. Zobel noted. “We believe the strategies put forth in AC industrials continue to be promising but are saddled near-term by geopolitical and trade issues. The pipeline of opportunities remains strong and efforts to manage the effects of this near-term uncertainty are being aggressively addressed,” he explained.
Ayala Land
Ayala Land saw its net income reach ₱23.2 billion in the first nine months of 2019, climbing 12 percent from ₱20.8 billion in the same period last year. This was driven by strong revenues from office, commercial and industrial lot sales, and commercial leasing assets.
Revenues from property development went down 2 percent to ₱85.4 billion year-on-year. The decrease was due to lower contributions from its high-end and upscale residential projects as well as from the full sell-out of projects by Malaysia-based MCT. This was offset by office for sale revenues that saw a 51 percent increase to ₱11.1 billion from ₱7.3 billion from projects in Makati and Bonifacio Global City. The sale of commercial and industrial lots, which grew 16 percent to ₱6.5 billion, likewise supported Ayala Land’s revenues during the period. In the third quarter, Ayala Land infused ₱37.8 billion worth of new inventory, bringing the launches to ₱57.3 billion during the nine-month period.
Commercial leasing revenues, on the other hand, expanded 16 percent to ₱27.6 billion from ₱23.9 billion year-on-year as openings from new malls, offices, and hotel assets provided uplift to the segment. Ayala Land continued its expansion of mall and office leasing spaces, adding 2.1 million and 1.2 million, respectively, in gross leasable area to its portfolio during the period. It opened the Ayala Malls Manila Bay, which also houses a BPO office space.
Capital spending reached ₱78.2 billion after the first three quarters wherein 42 percent was spent for residential projects, 22 percent for malls, offices, and hotels, 17 percent for land acquisition, and the rest for estate development and others.
Bank of the Philippine Islands
Strong revenues from its core intermediation and fee-based businesses drove the 30 percent hike in Bank of the Philippine Islands’ net earnings to ₱22 billion in the first nine months.
Total revenues increased 25 percent to ₱71 billion, driven by a 20 percent year-on-year growth in net interest income which reached ₱48.7 billion. Net interest margin widened 26 basis points on higher asset yields which rose 89 basis points. This was partially offset by higher cost of funds.
Meanwhile, total loans as of end-September reached ₱1.4 trillion, up 8.2 percent year-on-year on the back of consumer and corporate loan growth of 12.5 percent and 7.4 percent, respectively. Within the consumer segment, credit card loans continued its upward trajectory, climbing 25 percent from a year ago. Total deposits reached ₱1.6 trillion, 5 percent higher than a year ago. The bank’s current account savings account deposit ratio stood at 69 percent while the loan-to-deposit ratio was at 85 percent.
Non-interest income reached ₱22.3 billion in the nine-month period, growing 38 percent, driven by higher securities trading gains and fee-based income. BPI’s total securities position stood at ₱393 billion, up 17 percent year-on-year. Meanwhile, fees, commissions, and other income increased 19 percent, primarily driven by higher fee revenues from credit cards, transaction banking, electronic channels, deposit products, and insurance.
Operating expenses stood at ₱37.1 billion in the nine-month period, 16 percent higher year-on-year. Cost-to-income ratio was at 52.2 percent, lower than the 56.4 percent recorded in the same period last year. Provision for losses for the nine-month period, including specific reserves for Hanjin, was at ₱4.6 billion, bringing BPI’s loss coverage ratio to 102.7 percent. Non-performing loans ratio ended flat at 1.81 percent.
In August, S&P Global Ratings assigned a ‘BBB+’ long-term and an ‘A-2’ short-term issuer credit rating to the bank. S&P’s outlook on BPI’s long-term rating is stable and its standalone credit profile was assessed to be ‘bbb+’.
During the period, BPI priced its inaugural CHF 100 million two-year interest free ASEAN Green Bond, the first public Swiss franc-denominated benchmark out of the Philippines, the first ASEAN Green Bond benchmark for BPI, the first ever rated Philippine Green Bond in the international capital markets, and the first negative yielding bonds to be issued out of the Philippines in the international capital markets. Subsequently, the bank priced a US$300 million Senior Unsecured Fixed Rate ASEAN Green Bond via a drawdown under its US$2 billion Medium Term Note Program.
Globe Telecom
Globe Telecom’s net profits in the first nine months of 2019 reached ₱17.7 billion from last year’s comparative period of ₱14.8 billion, expanding 20 percent mainly due to the continued shift towards data-related services and a growing subscriber base. The company’s mobile, home broadband, and corporate data segments bolstered its service revenues during the period, which saw a 13 percent growth year-on-year ending at ₱110.6 billion.
Mobile data revenues grew 44 percent to ₱52.2 billion lifted by higher traffic, which jumped 87 percent to 1,200 petabytes. Mobile data users ended at almost 38 million for the period, or 8 percent higher year-on-year.
In home broadband, revenues improved 19 percent to ₱16.1 billion resulting from a 24 percent year-on-year increase in subscriber base at 1.9 million as of the first three quarters of 2019. Corporate data revenues likewise grew 12 percent to ₱9.5 billion. As a whole, data-related services accounted for 70 percent of total service revenues in the first nine months of the year.
Globe’s robust revenues and subdued operating expenses supported the 17 percent growth in its EBITDA, which reached ₱57.9 billion during the period.
Capital expenditure ended at ₱32 billion to support the growing subscriber base and demand for data. Bulk of this amount at 75 percent was allocated for data-related services.
In a move aimed at strengthening the products and services catering to its enterprise clients, Globe reacquired a 51 percent stake in Yondu. From a content developer and provider of mobile value-added services, Yondu has evolved to become a leading IT solutions company in the Philippines since its acquisition by Xurpas Inc. in 2015.
Manila Water
Manila Water’s nine-month net profits dropped 11 percent from its year-ago level to ₱4.4 billion as Metro Manila’s water crisis early this year continued to weigh down on its core concession. The impact, however, was partly cushioned by the improved performance of its domestic subsidiaries.
Manila Concession’s net income declined 17 percent to ₱4 billion, driven by the impact of the water supply crisis. Non-revenue water remained at an efficient level of 11.5 percent to mitigate the impact of a still-reduced water supply allocation. Despite the ongoing challenges in water source, Manila Watercontinues to efficiently allocate the limited supply across the concession and provide consistent service to its customers.
Manila Water’s revenues expanded 10 percent to ₱16 billion on robust net income performance of its domestic subsidiary, Manila Water Philippine Ventures, which more than doubled to ₱301 million. Strong contributions from Laguna Water, Boracay Water, and Estate Water provided the boost.
Manila Water’s topline growth was tempered by the one-time bill waiver implemented in March and higher operating expenses resulting from the penalty imposed by the Metropolitan Waterworks and Sewerage System in connection with the water supply shortage. These items were already recognized by the company during the first half of this year.
AC Energy
AC Energy’s nine-month net profits reached ₱24.3 billion, lifted by the recovery of costs incurred from adjustments in the construction and operations of its power plants and gains from the partial divestment of its thermal assets. In addition, it realized earnings from 410MW of new solar projects in Vietnam following the start of commercial operations in the second quarter, in time to meet the solar feed-in tariff deadline. Remeasurement gain from a higher stake in South Luzon Thermal Energy Corporation following the acquisition of PHINMA Energy also boosted AC Energy’s net earnings during the period.
The Securities and Exchange Commission has since approved the renaming of PHINMA Energy to AC Energy Philippines, which will serve as AC Energy’s platform for growth in the Philippines. In October, AC Energy announced the transfer of its interests in SLTEC, its onshore renewable assets, and its Philippine development platform to ACEPH under a share-for-share swap.
For its international business, AC Energy has announced a new solar joint venture with UPC Solar Asia Pacific for the development of solar projects in the Asia-Pacific region. UPC Renewables is the company’s existing partner in the 81MW wind farm in the Philippines North Luzon Renewables as well as in the 75MW Sidrap wind project in Indonesia.
In October, AC Energy signed an agreement to enter into a joint venture with Yoma Strategic Holdings where the proposed joint venture will invest at least US$30 million into Yoma Micro Power and jointly explore developing around 200MW of additional renewable energy projects within Myanmar, including participation in large utility scale renewable projects. Yoma Micro Power builds micro power plants and mini-grids that provide electricity to off-grid rural communities and telecommunications towers in Myanmar.
These new investments and joint ventures support AC Energy’s goal of achieving 5GW of attributable capacity from renewable energy, with a target of generating at least 50 percent of total output from renewable sources by 2025.
AC Industrials
AC Industrials posted a net loss of ₱1.6 billion on weak performance across its business lines.
Integrated Micro-Electronics Inc., its electronics manufacturing services platform, continues to weather challenges in its main market segments in the slowing global automotive space. IMI recorded a significant drop in its net profit to US$451,000 from US$41.4 million a year ago as the continued slowdown in IMI’s main market segments, compounded by the effects of various geopolitical issues, hindered growth. Persistent contraction in the automotive sector, particularly in China, has brought down customer demand forecasts, leading to challenged margins as new manufacturing lines are temporarily underutilized.
Revenues from IMI’s wholly owned businesses stood at US$755M, down three percent from a year ago. China’s domestic market challenges proved to be the largest contributor to the decline, with IMI’s factories in the region showing a 22 percent decrease year-on-year. Despite the global slowdown, the company’s Mexico and Bulgaria/Serbia operations showed a growth of 66 percent and three percent, respectively.
IMI subsidiaries Via Optronics and STI, Ltd. together posted $184 million in revenues, a 20% decline against the same period last year. The delays in the production of next generation computer processors affected Via’s consumer laptop business. It remains ready to serve the market as the segment rebounds and rolls out new products towards the end of the year. Meanwhile, continued political tensions in the UK as a result of the Brexit situation have depressed revenue growth in STI, where revenues were down 11 percent during the period. However, IMI’s UK subsidiary expects business to improve in the near term having won US$62M in new business projects.
In vehicle distribution and retail, AC Motors registered a net loss of ₱262 million on lower sales volume of the Honda, Isuzu, and Volkswagen brands due to continued intensifying competition, combined with supply issues which affected unit availability. Players in the highly competitive Philippine automotive market continue to compete aggressively for incremental sales volumes in spite of the slowly recovering customer demand.
Meanwhile, AC Industrials’ startup investments, Merlin Solar and MT Technologies, recorded higher net losses during the period on challenges in new product launches, margin pressures, and underutilization of capacity resulting from the global downturn in automotive and manufacturing.
Balance Sheet
Ayala’s balance sheet remains strong with sufficient capacity to support its future investments and cover dividend and debt obligations. Its parent level cash stood at ₱12 billion, with net debt at ₱74.4 billion. Ayala’s net debt-to-equity ratio stood at 56 percent at the parent level and 60 percent at the consolidated level. The conglomerate’s loan-to-value ratio, the ratio of its parent net debt to the total value of its assets, was at 7.7 percent at the end of the first three quarters of 2019.
During the nine-month period, Ayala spent ₱15.1 billion in capital expenditure at the parent level, accounting for 67 percent of the allocation for the year, primarily to support its investments in power, industrial technology, and infrastructure.
On October 23, Ayala together with its subsidiary AYC Finance Limited has set the terms of a US dollar-denominated fixed-for-life (non-deferrable) senior perpetual notes. The notes will be issued by AYC Finance Limited for an aggregate principal amount of US$400 million with an annual coupon of 4.850% for life with no step-up. The notes will be unconditionally and irrevocably guaranteed by Ayala. AYC Finance Limited may redeem the notes in whole but not in part on October 30, 2024 (first redemption date) or any interest payment date falling after the first redemption date at 100 percent of the principal amount of the notes plus any accrued but unpaid interest. The notes are listed on the Singapore Exchange Securities Trading Limited.
In September, Ayala exercised the option for the early redemption of ₱13.5 billion Class B Series 2 Preferred Shares on November 5, 2019. Subsequently, it announced the reissuance of Class B Series 2 Preferred Shares for at least ₱10 billion with an oversubscription option of ₱5 billion.
