Philippines Property:Good growth in 2Q15

What’s New.

    1H15 net income for our property universe increased 15% YoY toPHP35b, maintaining growth posted in 1Q15. Ayala Land Inc (ALI)led with 19% profit growth because of solid revenue expansion inall segments. Together with SM Prime Holdings Inc (SMPH), the twocomprised 56% of the sector’s net income. The four other propertycompanies under our coverage (Robinsons Land Corp, RLC;Megaworld Corp, MEG; Filinvest Land Inc, FLI and Vista Land &Lifescapes Inc, VLL) increased core profit by 10-16%, mostly in linewith their guidance. Growth was evident across all segments of thebusiness although not as uniformly as in 1Q15. Residential revenueexpanded only 9% in 1H15 due to higher base effect in 2Q ascompared with 1Q15. Sales take-up increased only 8% with lessproject launches. Retail/mall revenue grew 10% due to sustainedsame-store-sales growth, increased rental rates and more mallspace. Office revenue was the outperformer, surging 22% onadditional office space, higher rental rates and occupancy. Hotelrevenue rose 9% on sustained average revenue per available room.

    What’s Our View.

    We maintain our OVERWEIGHT view on the property sector. We seesustained and strong demand for all segments, as was alreadyevident in 1H15 performances. In particular, we continue to beoptimistic on recurring income segments, especially office, aslandlords have increased their plans for additional space due togrowing demand from existing BPO locators who have expandedtheir operations in the country. On the retail side, we are seeingsustained growth that could further improve in 2H15 with theopening of additional space, particularly SMPH’s Seaside mall inCebu with 400K sqm in GLA. Expansion is geared towards provincialareas where there is more unserved demand. On the residentialfront, we may see sales take-up slowing down further asdevelopers timed new project launches following efforts to reduceinventory levels and this will have knock-on effects on futurerevenue. We have BUY recommendations for four of the sixcompanies in our universe. Our top pick remains ALI for strongperformance across all business segments. Our HOLD ratings arefor SMPH and RLC, both of which are dominated by recurringincome, since their share prices have held up well.