Government probe of contracts drags down stock price of Ayala Corp.

THE government’s review of its contracts with diversified conglomerate Ayala Corp.’s units prompted investors to sell the stock, making it one of the most actively traded issues last week.

Data from the Philippine Stock Exchange showed a total of P1.32 billion worth of 1.82 million Ayala Corp. (AC) shares were traded from Jan. 20 to 24, making it the fourth most actively traded issue last week.

Ayala Corp. dropped 7.8% on a week-on-week basis to P740 per share last Friday from P803 apiece on Jan. 17. Since the start of the year, the stock is down 3.9%.

COL Financial Group, Inc. Senior Research Manager Richard G. Laneda said in an e-mail interview attributed the decline to the “negative investor sentiment” amid a proposed government review of its contract with Ayala-linked companies such as Manila Water Co., Inc., Ayala Land, Inc. (ALI), and Light Rail Manila Corp. (LRMC).

PNB Securities, Inc. President Manuel Antonio G. Lisbona shared this view, saying that “the current focus is on AC’s Ayala Land, Inc. (ALI), which was allegedly paying significantly lower lease rates to the University of the Philippines (UP) on the UP-Ayala Land Technohub.”

“ALI is responsible for 41% of AC’s income, thus if the allegations prove true, ALI’s income (and consequently AC’s) will be affected negatively,” he said in a separate e-mail interview.

In December last year, President Rodrigo R. Duterte threatened to file economic sabotage cases against water companies, which included Manila Water, over alleged onerous provisions in their contracts with the government. New contracts are being drafted by the government.

Meanwhile, Mr. Duterte said in a speech in Davao on Jan. 17 that separate companies led by Fernando Zobel de Ayala and Manuel V. Pangilinan were getting the most of their contracts with the government. Rep. Eric G. Yap filed a resolution last Monday that seeks to investigate the alleged onerous agreement between the government and LRMC.

Following this, LRMC, the operator of Light Rail Manila that operates the Light Rail Transit Line 1, last week said it was ready to cooperate with the government should it push through with an investigation into an alleged irregularity in its concession contract.

LRMC is a joint venture company of Pangilinan-led Metro Pacific Investments Corp.’s (MPIC) Metro Pacific Light Rail Corp., Ayala Corp.’s AC Infrastructure Holdings Corp., and the Philippine Investment Alliance for Infrastructure’s Macquarie Infrastructure Holdings (Philippines) PTE Ltd.

After Malacañang Spokesman Salvador S. Panelo floated the idea of a UP-Ayala Land Technohub contract review in a radio interview on Jan. 19, ALI said it welcomed a transparent review of its partnership with UP.

Mr. Panelo said on Tuesday that Mr. Duterte approved the review of that agreement.

Ayala Corp., the holding company of the Ayala group, has business interests in real estate and hotels; financial services and insurance; telecommunications; water infrastructure; electronics solutions and manufacturing; industrial technologies; automotive; power generation; infrastructure; health care; education; and technology ventures.

In the third quarter last year, the conglomerate’s net income attributable to equity holders of the parent company went up 6.8% to P8.32 billion, taking the nine-month tally to P46.16 billion.

For this year, COL Financial’s Mr. Laneda expects Ayala Corp. to reach a bottom line of P37.8 billion due to higher earnings from ALI, Globe Telecom, Inc., Bank of the Philippine Islands and AC Energy, Inc.

PNB Securities’ Mr. Lisbona sees the conglomerate to net P55 billion in 2020.

“This translates to an earnings per share of about P87.90 which works out to price to earnings ratio of 8.41 times at current price of P740 per share,” he said.

For this week, Mr. Laneda placed the stock’s support and resistance at P690 and P804, respectively.

Mr. Lisbona gave its support levels between P700 and P695.50 and resistance at P800. — Edwin C. Aruta, Jr.