Financial Adviser: 5 Reasons Why AyalaLand Logistics Holdings Gained as Much as 82% This Year Amid Persistent Market Uncertainties
ILLUSTRATOR ROLAND MAE TANGLAO
Despite the gloomy performance of the PSE Index this year, which gained only 4.4 percent so far, there are few stocks in the market that were still able to register at least 50 percent return.
Many of these stocks do not have sustainable business models and whose share prices went up due to speculation and lack of liquidity.
But one stock that is emerging from this group that is fundamentally promising based on recent events is AyalaLand Logistics Holdings (PSE:ALLHC).
ALLHC has just completed its acquisition of Laguna Technopark, Inc (LTI) and is positioning to be the leading industrial estate developer in the country.
The change in business model has caused ALLHC shares to rise by 82 percent this year from Php2.37 per share to a high of Php4.31.
Although ALLHC has since corrected to Php3.73 per share, it is still up by 54 percent from its share price at the beginning of the year.
What are the compelling fundamentals of the company that will sustain the stock to trade at higher multiples in the long-term? What makes ALLHC a safe bet among investors during this time of market volatility?
Here are the five things every investor must know about AyalaLand Logistics Holdings and how you may profit from it:
1. Majority owned and controlled by Ayala Land
Before it was named AyalaLand Logistics Holdings, the company was known as Prime Orion Philippines, Inc. (POPI).
POPI was in the business of real estate development, leasing and non-life insurance when Ayala Land, Inc (PSE:ALI) acquired 51.36 percent control of the company for Php5.6 billion.
POPI owns and operates the Tutuban Center in Divisoria, Manila, which contributes about half of its total revenues up to 2017.
The company also holds the lease and development rights of a 22-hectare market district in downtown Divisoria where Tutuban Center is currently located.
POPI earlier announced that with ALI on board, the company plans to spend Php15 billion to redevelop the Tutuban Center into a large-scale mixed-use community.
The redevelopment is seen to quadruple its current gross leasable space of 50,000 square meters to 200,000.
2. Higher earnings from acquisition
Last year, POPI acquired 75 percent ownership in Laguna Technopark, Inc. (LTI) from its parent company, ALI, in exchange for additional shares, which increased ALI’s equity in POPI to 63.9 percent.
POPI also further increased its equity in LTI this year to 95 percent by buying 20 percent more for total cash consideration of P800 million
LTI is a prime developer of industrial parks in the Philippines with 460-hectare Laguna Technopark in Sta. Rosa and Binan. It also owns and manages the 118 hectare Cavite Technopark in Naic.
The acquisition of LTI increased POPI’s total revenues last year by more than five times to P3.4 billion from only P610 million in 2017.
This resulted in higher net income of P441 million last year compared to P33 million in 2017.
This year, LTI reported that its revenues for the first six months amounted to P1.8 billion, which is 50 percent higher than total revenues for the whole of 2018.
With higher equity stake in LTI and higher revenue growth, earnings should grow higher.
3. Sustained growth prospects from expansion
As POPI plans to scale up its logistics and industrial estate footprint, the company recently renamed itself AyalaLand Logistics Holdings.
Management earlier disclosed that it was planning to add two more industrial hubs in its portfolio this year.
Just a few weeks ago, ALLHC announced that it acquired a 192-hectare in Mabalacat, Pampanga that it plans to develop into an industrial park.
ALLHC bought 100 percent of URDC, which owns the property for P2.39 billion. Under the agreement, ALLHC will pay the amount in three payment installments from internally generated funds.
Assuming land development cost of P900 per square meter and 10 percent return on investment, this latest property acquisition should generate net earnings of at least P412 million per year once the property is developed.
With more properties to be acquired by ALLHC in the pipeline, higher growth prospects should advance earnings in the future.
4. Strong balance sheet to support growth financing
ALLHC is virtually debt-free with no interest-bearing debt in its balance sheet. The company has total liabilities of P3.1 billion that are mostly composed of trade payables and deposits.
It also has strong working capital position of P3.3 billion with a current ratio of 2.55 times.
With the strong financial position of the company, ALLHC can potentially leverage its total equity of Php10.3 billion to raise funds to finance its capital expenditures.
At debt-to-equity of 2.5 times, for example, ALLHC can take advantage of the low interest rate environment and raise as much as P25 billion from the debt market.
Alternatively, ALLHC can also raise funds from its parent company, ALI, via rights offering to finance its expansion.
5. Promising share price growth potential
When ALLHC acquired LTI, the agreed price was pegged at P3.0 billion.
At this price for 75 percent equity, LTI was valued at P4.0 billion. Given the net income of LTI in 2017 at P465 million, the estimated Price-to-Earnings (P/E) multiple used was only 8.7 times.
The acquisition of LTI at a low P/E allowed ALLHC to earn a return on investment at 11 percent per year, which is a value-creating strategy.
Given the growth of LTI’s earnings, a higher return on investment should translate to higher share price valuation of ALLHC.
Aside from LTI, ALLHC has huge growth opportunities to expand. With its strong balance sheet and financial capability, the market has every reason to expect that ALLHC’s earnings will significantly grow in the future.
This high market growth expectations can easily translate to higher long-term share price appreciation of the stock.
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice [email protected] or follow him on Twitter @henryong888