Ayala unit raises $300M from bond sale

A unit of Ayala Corp (AC) has completed the sale of bonds that can be exchanged for shares in the conglomerate's property arm.

In a disclosure to the Philippine Stock Exchange, AC said AYC Finance Ltd listed the $300 million worth of bonds due 2019 in the Singapore Exchange on Monday.

The bonds, carrying an interest rate of 0.5 percent per year, will be exchangeable to common shares of Ayala Land Inc (ALI) at P36.48 per share starting June 11 until the tenth day prior to its May 2, 2019 maturity date.

The issuance will not result in a dilution of ownership in ALI because the shares to be exchanged will come from the conglomerate's stake in the real estate firm.

AC’s holdings in the property company will fall to 46.5 percent from 49 percent if all bondholders will exchange their debt for shares in ALI.

The offering is the first equity-linked international issuance by a Philippine issuer in the past two years. It has also achieved the lowest cost of financing across Asia ex-Japan in 2014.

The Ayala group intends to use proceeds from the issuance for general corporate purposes and investments, particularly those at the parent level.

AC's consolidated net income jumped 22 percent to P12.8 billion last year, faster than the 14 percent expansion to P10.50 billion in 2012, on the strength of its real estate and banking businesses.

AC also has interests in Bank of the Philippine Islands, Globe Telecom, Manila Water, Integrated Micro-Electronics Inc, and business process outsourcing firm LiveIt.

- Interaksyon

Emperador board approves maiden debt sale to help finance doubling of profit in 2-3 years

Emperador Inc aims to double earnings in the next two to three years as it plans to tap the market to finance expansion.

"The expansion is in line with Emperador’s strategy of diversifying and strengthening its liquor product portfolio as well as its premiumization strategy in the liquor industry," the liquor arm of Andrew Tan-owned Alliance Global Group Inc.

Emperador's profit climbed 17.4 percent to P5.8 billion last year from P5 billion in 2012, bucking the impact of higher excise taxes to remain as the world’s largest selling brandy brand.

To strengthen its capital base and fund its expansion, the company’s board of directors cleared the appointment of global investment banks to advise the firm as it undertakes its maiden debt offering.

Emperador plans to raise an amount equivalent to as much as 70 percent of its stockholders' equity even after it closed last year with P24 billion in cash.

Based on its stockholders' equity of P30.89 billion at end-2013, the leading brandy maker may raise as much as P21.62 billion from its first debt issuance.

Last year, the company embarked on a five-year plan to double sales volume and corner a third of the world market in five years. It is in talks to acquire Diageo’s Whyte and Mackay spirits business but an agreement has yet to be reached.

So far, Emperador has invested P5.8 billion in the most technologically advanced vineyards, distilleries and bodegas in Spain.

This year, the liquor maker is spending P4 billion to boost its production capacity in the Philippines. Besides flagship Emperador, the company also manufactures the Generoso and Emperador Light brandies as well as a line of flavored alcoholic beverages called The Bar.

Emperador sold 33 million cases last year to remain the world's largest selling brandy brand and the largest liquor company in the Philippines. Emperador Brandy comprises seven out of 10 liquor bottles sold in Manila, the company said.

- Interaksyon

Century Tuna maker's stock shines on market debut

Shares of Century Pacific Food Inc surged Tuesday on its debut in the Philippine Stock Exchange, defying the sluggish performance of the broader market.

The Century Tuna maker’s stock opened at P15.50 per share, an increase of 12.73 percent from the listing price of P13.75 per share. It peaked at P16.04 apiece in morning trade.

"For the stock to go up by 12 percent in a market that is moving nowhere is a testament to the market's perception of the company. The main selling point is its recognized brand name," said Jose Vistan of AB Capital Securities Inc. The bellwether PSE index was swinging between gains and losses in morning trade.

Aside from Century Tuna, the company is also behind the brands 555 Sardines, Argentina Corned Beef, Swift, Angel and Birch Tree.

"It's very flattering that the market has responded this way," Century Pacific president Christoper T. Po said on the sidelines of the company's listing ceremony.

Stephen CuUnjieng, Evercore chairman for Asia, said the leading canned food manufacturer could have priced the initial public offering (IPO) at P14.50 per share but it opted to leave a little more on the table.

"The issuer chose that they wanted to come in at a price fair to them and at a price fair to investors to make sure the IPO was well received," CuUnjieng said. Evercore advised Century Pacific in the offering.

Investors swamped this year's third IPO, which was 3.5 times oversubscribed, said Ed Francisco, president of BDO Capital & Investment Corp, one of the underwriters of the transaction. Institutional investors took up 65-70 percent of the shares.

Century Pacific raised P3.16 billion from the sale of 229.65 million shares to repay debt, fund working capital and potential acquisitions, expand production capacity and improve efficiency.

Century Pacific is “comfortable” to hit the upper end of its P1.1 billion to P1.5 billion guidance on the back of the mid- to high-teens growth in revenues and margin improvements, Po said.

In the first quarter, the canned food manufacturer grew its top line near the 20 percent mark, he added.

Aside from BDO, First Metro Investment Corp and BPI Capital Corp were tapped to underwrite the offering.

Century Pacific is the third company to go public this year after Top Frontier Holdings Inc, which joined the bourse through listing by way of introduction, and DoubleDragon Properties Corp, which entered the PSE through the IPO route.

- Interaksyon

SMPH: Real estate business puts drag 1Q14 income

1Q14 net income jumps 11.4%. Net income for the first quarter jumped 11.4% to Php4.58 Bil. Revenues rose just 2.7% but EBIT increased 9% to Php6.67 Bil as overall expenses grew at a slower pace. SMPH’s 1Q14 income is slightly behind our estimates due to a weaker than expected real estate revenues but it is in line with consensus estimates.

Rental and other revenues offset real estate weakness. Consolidated revenues grew just 2.7% to Php15.35 Bil. The slow growth was a result of the 17% decline in real estate revenues from Php6.01 Bil to Php5.02 Bil. Excluding real estate revenues, other revenues grew 15.5% to Php10.33 Bil, led by rental revenues which grew 12% to Php8.56 Bil. Same store rental growth of malls grew 7% y/y while the balance of the 12% growth came from new malls opened in 2013.

Real estate revenues to remain low for the year. We expect revenues to remain low throughout the year given the low take up sales last year. Recall that in 2013, take-up sales of SMPH dropped 17% y/y to Php26.3 Bil. We believe this was a deliberate move by SMPH as the group underwent reorganization and does not reflect slowing demand in the sector. We expect changes starting this year as SMPH plans to double its number of projects by 2018.

Lowering income forecast but FV is unchanged. We are lowering our net income forecast for FY14 and FY15 to factor in lower real estate revenues for FY14 and FY15. We lower our FY14 and FY15 real estate revenue forecast by 23% to Php19.74 Bil and Php20.72 Bil respectively. This resulted in a 6.2% and 6.5% decline in our net income forecast to Php19.14 Bil and Php21.64 Bil for FY14 and FY15 respectively. Our FV estimate is unchanged at Php19.41 based on a 10% discount to our NAV estimate of Php21.67. Despite the weak short term outlook on real estate revenues, our outlook remain positive, reinforced by the company’s five-year plan of doubling the number of residential projects by 2018. We maintain a BUY rating on SMPH.

- Col Financial

Aboitiz Power Corporation: Upgrading to BUY on improving earnings outlook

We are raising our earnings forecast on AP by 4.3% to Php15.8 Bil in 2014E and by 4.4% to Php20.2 Bil in 2014E after factoring in the lower than expected steam cost of the Tiwi-Makban plant and the first time earnings contribution of the newly won 246MW Therma Mobile diesel plants. Based on our estimates, the Cebu coal plant coupled with the Therma Mobile diesel plants and the savings from the lower than expected steam cost will boost AP’s FV estimate by 18.8% to Php44.3/sh, warranting an upgrade in our recommendation from a HOLD to a BUY.

Raising estimates for Tiwi-Makban on lower than expected steam cost. We are reducing our average steam pricing assumption for the Tiwi-Makban by 13.8% to Php2.02/kwh due to the continuous weakness in regional coal prices. This led to a 19.8% reduction in our steam cost estimate for the Tiwi-Makban to Php5.8Bil. In light of the new steam cost estimates, we are raising our 2014E and 2015E EBITDA forecast for the Tiwi-Makban by 17.8% to Php6.4Bil.

New Cebu coal plant to boost NAV by Php1.91/sh. AP’s management said that it will push through with the 300MW Cebu coal plant project. Assuming a total project cost of US$2Mil/MW, capacity factor sold of 80%, and gross margin of Php3.1/kwh, we estimate that this project could generate Php2.9Bil in earnings annually, equivalent to 14.4% of AP’s FY13E earnings. The new project would also boost AP’s NAV by Php1.91/sh, representing 4.3% of our current NAV estimate. The new Cebu Coal project, together with other new coal plant projects such as the 300MW Davao coal plant, and the 400MW Pagbilao coal expansion project, will boost the long term earnings growth of AP.

Therma Mobile to boost NAV by Php1.13/sh. AP won the bid for the 246MW Navotas barges (under AP’s wholly owned subsidiary, Therma Mobile) on July 2011. Half of the 246MW capacity began operations in 4Q13 after two years of rehabilitation works, with the remaining half scheduled to start operations in 2Q14. We expect the power barges to generate ~ Php470Mil in earnings annually representing 2.3% of AP’s FY13 net income. Therma Mobile would also boost AP’s NAV by Php1.13/sh, representing 2.5% of our current NAV estimate.




- Col Financial

SM Prime board approves P25B maiden retail bond sale

Photo be Bernard Testa

The board of SM Prime Holdings Inc has approved the property firm's maiden bond issuance to finance its expansion program.

In a disclosure to the Philippine Stock Exchange, the Henry Sy-owned company said its board of directors approved on Monday the offering of up to P25 billion in fixed-rate retail bonds.

The amount includes a P5-billion overallotment option in case of strong demand, SM Prime chief financial officer Jeffrey Lim said in an earlier interview.

The bonds will be sold with tenors of five years and six months, seven and/or 10 years.

Proceeds of the debt issuance will bankroll capital expenditures for its malls, offices and hotel operations. The real estate firm set a capex budget of P70 billion this year.

After the debt sale, SM Prime is looking at a syndicated loan of up to $300 million later this year to bankroll land banking initiatives and the development of its malls in China.

SM Prime is the holding firm for the mall, residential, office and leisure businesses of the Sy family following a corporate restructuring exercise approved by the Securities and Exchange Commission in October 2013.

With the consolidation of the Sy family's real estate assets, the enlarged SM Prime is now in a position to undertake larger scale projects with the participation of all of its business units.

SM Prime is spending P400 billion to expand its businesses that will double earnings within the next five years.

SM Prime’s earnings attributable to equity holders of the parent was flat at P16.27 billion in 2013 as one-time restructuring cost of P1.28 billion weighed on the company’s profit.

- Interaksyon

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