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Conglomerates deliver mixed Q1 results, but outlook remains positive

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PSE
PHILSTAR/KRIZ JOHN ROSALES

By Arra B. Francia
Reporter

CONGLOMERATES are expected to register better financial results this year, as the country’s top firms proceed with expansion programs amid a new tax regime and challenges in their respective businesses.

The country’s top holding firms — Ayala Corp. (AC), Aboitiz Equity Ventures, Inc. (AEV), Alliance Global Group, Inc. (AGI), DMCI Holdings, Inc., GT Capital Holdings Corp., JG Summit Holdings, Inc., LT Group, Inc., SM Investments Corp. (SMIC), San Miguel Corp. (SMC), and Metro Pacific Investments, Corp. (MPIC), — delivered mixed results for the first three months of the year.

Analysts expect these holding firms, which together account for 37.9% of the Philippine Stock Exchange index basket, will sustain their earnings growth for the remaining nine months of 2018.

“As expected there are some soft spots for conglomerates given the diverse business interests of each. The rest of the year should be better than last year overall as there should be some recovery in the initial or first-quarter underperformers of each conglomerate,” PCCI Securities Brokers Corp. Research Head Joseph James F. Lago said in an e-mail correspondence with BusinessWorld.

Mr. Lago noted some companies he expected to take a hit from the Tax Reform for Acceleration and Inclusion (TRAIN) program actually managed to contain the higher costs.

“Some of these business segments even posted better-than-expected results which when consolidated with the conglomerates’ financials were earnings positive,” Mr. Lago said.

Since its implementation in January, the TRAIN Act reduced personal income taxes for those earning below P2 million, alongside a simpler system for computing donor and estate taxes. However, it also removed some exemptions to value-added tax; increased tax rates for fuel, automobiles, tobacco, coal, minerals, documentary stamps, foreign currency deposit units, capital gains for stocks not in the stock exchange, and stock transactions; and new taxes for sugar-sweetened drinks and cosmetic enhancements.

Tycoon George S.K. Ty’s GT Capital grew its consolidated net income by a fifth to P3.7 billion in the January to March period due to the higher share in net income derived from Metropolitan Bank and Trust Co. (Metrobank), AXA Philippines, and MPIC.

GT Capital’s revenues for the quarter stood at P45.5 billion, lower than the P48.8 billion it reported in the same period a year ago, as vehicle sales from its automotive unit Toyota Motor Philippines (TMP) slowed.

“The interim soft numbers for the auto sector during the first quarter resulted from the front-loading of orders late last year in anticipation of the new excise tax. We expect sales to normalize by the second half of the year,” GT Capital President Carmelo Maria Luza Bautista was quoted in a statement as saying.

On the other hand, Alliance Global Group, Inc. (AGI)’s attributable profit dipped by 2% for the quarter to P3.5 billion, following minimal growth in revenues to P35.5 billion, or a 5% year-on-year increase. The company blamed higher interest charges and unrealized forex losses for dragging down its earnings for the period.

“All our businesses are also operationally geared, such that any improvement in our topline can be amplified in our bottom line. We endeavor to remain cost efficient to protect our margins despite bouts of inflationary pressures,” AGI President Kingson U. Sian said in a statement.

JG Summit’s attributable profit dropped 35% to P4.82 billion for the period, despite a 4.7% uptick in revenues to P70.68 billion. Lower profit from its petrochemical and food businesses, alongside the weaker peso, weighed on the Gokongwei-led conglomerate’s bottomline.

“Going through the business cycle is indeed tough but we are confident that JG Summit can withstand the volatilities in foreign exchange rates and commodity prices, and ultimately overcome these challenges as we continue to maintain a well-diversified portfolio with a balanced income stream and healthy source of recurring cash flows,” JG Summit President and Chief Executive Officer Lance Y. Gokongwei said in a statement.

Diversified conglomerate SMC recorded a consolidated recurring net income of P19.4 billion for the first three months of the year, up by 31% from the same period a year ago.

SMIC, the holding firm of the country’s richest man Henry Sy, Sr., posted a P8.5 billion net income attributable to owners of the parent in the first quarter, up 10% from the same period a year ago. This was driven by an 11% increase in revenues to P95 billion.

Ayala Corp. grew its attributable profit by 10% to P7.7 billion for the January to March period, on the back of a 17% rise in revenues to P70.29 billion.

AEV registered a 3% growth in its bottomline to P4.8 billion, due to higher unrealized foreign exchange losses.

Consunji-led DMCI Holdings saw first quarter net income gain 5% to P4.3 billion, supported by an 8% growth in revenues to P20.3 billion.

Infrastructure conglomerate MPIC saw a 27% rise in attributable income to P3.81 billion in the first quarter, as its revenues surged 69% reflecting the consolidation of Global Business Power Corp. and improved performance of its water, tollroads and hospital businesses.

LT Group’s attributable profit jumped by 61% to P3.63 billion, boosted by its tobacco and banking units.

Lopez Holdings Corp. reported a 10% increase in its attributable profit to P1.15 billion, citing higher consolidated forex losses for the quarter.

Asked which companies he is concerned about this year, Eagle Equities, Inc. Research Head Christopher John Mangun pointed to AEV and its expansion of its power portfolio.

“Aboitiz doubled their capex this year and is spending a lot on power. This investment will be fruitful in the following years. This year we won’t see much profit from it,” Mr. Mangun said.