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Ayala Land (ALI PM) Summary

Core Information

• Share Price: PHP36.80
• Target Price: PHP48.60 (+32%)
• Market Capitalization (USD): 11.6B
• Average Daily Trading Volume (USD): 8M
• Country: Philippines
• Sector: Real Estate
• Rating: BUY (Unchanged)

Key Highlights

• NAV and Target Price Increase: The Net Asset Value (NAV) and Target Price (TP) have been raised to PHP54.03/sh and PHP48.63, respectively, due to the inclusion of five new mixed-use estate projects.
• 2020 Vision Strategy: These new projects are expected to enable Ayala Land to achieve PHP40b net income by 2020, in line with its 2020 Vision strategy.
• Project Contributions:
  • Aseana City: Valued at PHP34b, with a mall of 292k sqm GLA.
  • Alviera: Valued at PHP11.4b, with residential, mall, office, and hotel components.
  • Makati Redevelopment: Expected to contribute PHP8.6b, including office, hotel, and retail.
  • Cloverleaf: Valued at PHP7.7b, with residential and retail.
  • Capitol Centre and North Point: Expected to add PHP7.556b, including malls, hotel, and residential.

Financial Forecasts

Earnings Accretion

• Earnings Growth: The company is expected to have an earnings CAGR of 22% from 2014-2019, up from 20% previously.
• Earnings Contributions:
  • 2015: Only residential projects from Cloverleaf and North Point will contribute to earnings.
  • 2016: Contributions from Alviera, Cloverleaf, and Aseana.
  • 2017: Contributions from all five projects.
• Interest Expenses: Increased due to higher leverage, which is expected to be supported by debt financing.

Debt and Leverage

• Capex Increase: Capex assumptions for 2015-2017 are raised by 13-28% to account for new projects.
• Leverage: Debt financing will increase leverage ratios to 0.90x net D/E in 2016 and 2017.
• Debt Capacity: ALI does not have debt covenants that restrict its borrowing.
• Operating Cash Flow: Expected to generate PHP17-29b in operating cash over the next three years, sufficient to cover debt maturities over the next 10 years.

Strategic Outlook

• BUY Rating: Maintained due to strong expected earnings growth and positive impact from new projects.
• BPO Industry: The BPO industry's growth is seen as a key driver for residential sales in ALI's provincial projects.
• Site Visits and Insights: Site visits to Negros Occidental projects provided insights into the potential of the BPO industry in the region.

Key Projects

• Aseana City: Master-planned community near Entertainment City, with a large mall and hotel.
• Alviera: Mixed-use project in Pampanga with residential, mall, office, and hotel.
• Makati Redevelopment: Redevelopment of Ayala Triangle with office, retail, and hotel.
• Cloverleaf: Mixed-use project in Quezon City with residential and retail.
• Capitol Centre and North Point: Mixed-use projects in Bacolod with malls, hotel, and residential components.

Summary of Key Data

Conclusion

Ayala Land is poised for strong earnings growth due to its new mixed-use projects, which are expected to significantly boost its Net Asset Value and meet the goals of the 2020 Vision strategy. The company's financial projections show a sustained increase in profitability and a rising core P/E ratio, supporting the continued BUY rating. The expected increase in leverage is manageable due to the company's strong cash flow generation and lack of restrictive debt covenants.