Outlier

AYALA CORP. (AC) was the sixth most actively traded stock in the Philippine Stock Exchange last week with analysts attributing the movement to the disclosure of the company’s expansion plans.

A total of P1.089 billion worth of 1.204 million shares exchanged hands on the trading floor from April 29 to May 3, data from the Philippine Stock Exchange showed.

AC shares closed at P900 apiece on Friday, down 0.99% from the previous day and 0.7% down year to date. However, the stock is up 0.6% from the April 26 close of P895 per share.

Unicapital Securities, Inc. technical analyst Jeff Radley C. See said in a mobile message that AC was favored by investors last week after news of its non-core businesses expansion plans came out.

“[Ayala] has been really aggressive the past few months. They have been acquiring companies like Phinma Energy and iPeople, Inc. expanding their non-core assets. Aside from that, they recently launched a venture capital fund to invest in technology worldwide that would complement their current businesses,” Mr. See said.

Jervin S. de Celis, equity trader at the Timson Securities, Inc., noted in a mobile message that investors bought AC shares at a bargain last week as they expect its subsidiaries to benefit from the country’s recent credit rating upgrade.

“AC has been on a sideways movement since Mitsubishi Corp. trimmed its stake in the company and after breaking its psychological support at P900 [per share since April 22]. I guess market players bought the stock at a bargain. So, it’s more of a value play among investors,” Mr. De Celis said.

Moreover, Mr. De Celis added that the credit rating upgrade “may also have influenced the strength of Ayala Corp.’s bounce” as its businesses will stand to benefit from opportunities following the country’s credit rating upgrade.

On April 30, S&P Global Ratings raised the Philippines’ long-term credit rating by a notch to “BBB+” from “BBB,” a step closer to bagging a single “A” grade. S&P said its rating on the country is “stable” or expects to keep this level in the next six months to two years as the economy is likely to remain strong over the medium term.

Meanwhile, Ayala’s energy unit AC Energy, Inc. recently said that it will soon complete its acquisition of Phinma Energy as it targets to launch the mandatory tender offer to the latter’s minority shareholders within the second quarter of 2019.

As part of the sale, AC Energy will subscribe to around P2.632 billion worth of primary shares of Phinma Energy at par value, which will result in a total stake for the Ayala group of around 68%, subject to the conduct of a tender offer for the shares of Phinma Energy’s minority shareholders.

Furthermore, the Ayala and Yuchengco groups have finalized the merger of their education units AC Education, Inc. and iPeople on May 2. After the merger, the surviving entity iPeople was valued at P15.5 billion, with its parent House of Investments, Inc. (HI) has a 51.3% stake in the firm while Ayala Corp. owns 33.5%.

The Ayala group will subscribe to 132.79 million AC Education shares, after which it will acquire an additional 54.5 million shares from exiting affiliates of HI.

The merger brought together seven educational institutions of iPeople and AC Education under one roof. This includes iPeople’s Malayan Education System, Inc., which operates Mapua University, Malayan Colleges Laguna, Malayan Colleges Mindanao in Davao, and Malayan Science High School in Manila; and AC Education’s University of Nueva Caceres, National Teachers College, APEC Schools.

On April 26, AC also bared plans to put up a $150-million venture capital fund among its subsidiaries that will allow it to invest in start-ups across various industries at home and abroad within the next five years.

For the year, the conglomerate’s fundamentals remain strong.

“AC continues to stay strong despite the slowdown last 2018. Key drivers for their growth this year would be their core businesses such as Ayala Land, Inc., Globe Telecom, Inc. and Bank of the Philippine Islands,” Unicapital Securities’ Mr. See said.

“Expansion of their non-core assets would also boost their income this year,” he added.

AC’s net income attributable to parent grew by 5.13% to P31.8 billion in 2018 from P30.3 billion in 2017.

For Timson Securities’ Mr. De Celis, AC’s earnings will be driven by Ayala Land and Globe this year, offsetting the “lackluster” contributions from its banking, motor and electronics businesses.

“AC’s profit is expected to reach P35 billion this year as Ayala Land and Globe maintains its growth [in 2018]. Ayala Land is getting a boost from a higher influx of tourists and Chinese investors who are driving property prices around Metro Manila,” he said.

“AC is also benefitting from its energy business as AC energy’s profit surge by 18% for 2018,” Mr. De Celis added.

Mr. De Celis pegged the stock’s support between P870-P880 and resistance at P920 apiece.

“AC might struggle, at least in the short run, to go past P920 [per share] unless we see a catalyst that is convincing enough to push the company’s price back above that level,” he said.

For Unicapital’s Mr. See: “AC is ranging between P1,020 per share and P880 per share in the medium term. The stock would continue to go sideways and probably range within those levels unless it breaks P1,020 per share.” — Carmina Angelica V. Olano

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