SB Equities Inc., a unit of Security Bank Corp., has tempered its income target assumptions on property developer Ayala Land Inc. (ALI) due to the company’s upward revision on its operating cost projections.
In its research note, the company also slashed its target share price on the company by 4 percent to P22 apiece. Ayala Land shares closed last week at P15.54 apiece, or just half of its price compared with last year’s level.
‘Downside risks include further weakness in property development, elevated costs and leverage, and execution risks on funding support.’
It said while costs and expenses moderated in the second quarter, operating costs remained above its projections, prompting the company attributable income estimates by 5.6 percent this year and 2.2 percent next year. ‘The revisions also reflect our more cautious view on the timing of residential and estate lot revenue recognition,’ SB Equities said.
However, it retained its buy rating on the stock given the 39 percent upside potential.
Ayala Land currently trades at 9.3 times of this year’s forward price-to-earnings ratio, below its 10-year historical average of 17.9 times.
‘Leverage remains a key downside risk despite planned capital recycling through AREIT (Inc.’s) asset infusions. While these remain within internal guardrails and covenants, the combination of weaker earnings, higher capex, and elevated leverage are limiting near-term balance sheet flexibility.
‘Downside risks include weaker-than-expected residential take-up, higher cancellation rates, delayed project completions, slower leasing ramp-up and execution risks surrounding capital recycling,’ it said.
The company’s board has recently approved the infusion of four malls and three hotels with a total amount of P20 billion to Areit. This infusion would expand Areit’s assets under management to P179 billion, but also further diversify its asset base across malls, offices, hotels and industrial land.
The company’s capital expenditures for the first half stood at P39.5 billion, a decline of 2 percent year-on-year. Capex for leasing businesses grew 17 percent from a year ago to P13.2 billion, directly supporting the completion and ramp-up of key recurring-income assets this year.
Anna Ma. Margarita Bautista-Dy, the company’s president and CEO, said the company targets to spend P60 billion this year, higher than its earlier pronouncements of about P50 billion.