Aboitiz Equity Ventures: 1Q15 earnings decline on lower contribution of banking and power businesses

AEV’s 1Q15 core earnings declined 7.3% y/y to Php4.07Bil, representing 19.2% of full year consensus forecast. The decline in AEV’s profits for the period was largely due to the lower earnings contribution of its banking and power subsidiaries which together account for the bulk of AEV’s profits. 1Q15 earnings contribution of the banking business declined 47.7% to Php382Mil, while earnings contribution of power subsidiary AP fell by 1.2% to Php3.33Bil. On the other hand, earnings of food subsidiary Pilmico foods rose by 22.7% to Php416Mil. 

UBP earnings decline in 1Q15. UBP reported Php1.48Bil in earnings during the first quarter of 2015, down 39% from its 1Q14 earnings of Php2.41Bil. The decline was primarily due to slower trading revenues, which fell from Php1.07Bil to Php0.54Bil. While UBP’s loan portfolio grew 5% year-on-year to Php149Bil, total interest earning assets fell 12% to Php330Bil. This led to a 5% decline in net interest income to Php2.5Bil, weaker than our forecast of a 4% growth for 2015. Compared to estimates, the bank’s 1Q15 results ended significantly lower, representing just 19.4% and 19% of COL and consensus estimates respectively. 

AP 1Q15 core operating performance weaker than forecast. AP’s 1Q15 core earnings declined 1.2% to Php4.3Bil, representing 25.9% of COL forecast, but only 23.5% of consensus forecast. The decline in earnings was brought about by the expiration in the income tax holiday of the Magat hydro plant, as well as lower sales volume of the Tiw-Makban geothermal plant. While AP’s core income was in line with COL forecast, its operating performance as measured by its EBITDA was weaker than expected. 1Q EBITDA of AP’s power generation business declined 3.9% to Php7.2Bil, representing only 22.5% of our full year forecast, while the EBITDA of the power distribution business rose 14% to Php1.26Bil, representing 21.4% of our full year forecast. 

Pilmico earnings rise on feeds business, offsets flour and farm businesses’ lower earnings. AEV’s food subsidiary Pilmico Foods posted a 22.7% y/y increase in 1Q15 net income to Php416Mil. Earnings rose primarily due to higher earnings contribution from the feeds segments, and the first time contribution from its feeds business in Vietnam, tempered by the drop in earnings from the flour and farm businesses.

Consensus HOLD rating. Consensus rating on AEV is a HOLD with a FV estimate of Php65.05/sh. 

- COLfinancial