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Monday, May 5, 2014

Alliance Global Inc: Gaming business drags FY13 net income lower

FY13 Core income drops on weak gaming. AGI reported a net income of Php17.22 Bil for FY13. However, if we exclude one-time gains which amount to around Php5.74 Bil, core net incomewas only Php11.48 Bil, underperforming our estimates. The main reason for the disappointingcore income of AGI was the dismal performance of RWM whose net income dropped 59% due to a very low hold rate in 2H13.

AGI booked Php5.56 Bil in one-time gains. Much of AGI’s reported income growth was due to non-recurring profits. AGI booked a Php2.9 Bil gain from the sale of a 12% stake in Emeperador. It also booked a Php2.34 Bil foreign currency gain. It also recognized a Php763.8 Mil gain from MEG’s acquisition of a real estate company. After netting out EMP’s Php212.2 Mil fair value loss on financial instruments and minority interests, we estimate that total one-off gains amounted to Php5.56 Bil.

RWM reports loss in 4Q13.RWM reported a loss of Php835 Mil in 4Q13 from an income of Php3.17 Bil a year earlier. Lower revenues and higher expenses during the quarter led to the loss. For the full year 2013, net income dropped 59.3% to Php2.74 Bil. For the full year, EBITDA margin dropped to 21.8% from 31.2% in FY12. This was a result of increased expenses from operations, but we believe a large part was also due to the lower win rate of the VIP segment. VIP revenues were up just 10.3% but drop volume grew 27.3%. In the VIP segment, higher volume drop results to higher commissions paid to junket operators. Thus, a lower win rate had a big impact on its operating margins.

Forecasts and FV estimates under review. In light of the listing of two of AGI’s subsidiaries RWM and EMP, we are reviewing our FV estimate for AGI. We will come out with our new FV estimate on AGI soon as we have already initiated coverage on both RMW and EMP.

- COL Financial

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