Alliance Global Group, Inc. (ALGGY) Earnings Call Transcript & Summary

Welcome back, everyone. To continue with our program, we now turn the spotlight to Alliance Global Group, Inc. Leading today's presentation is Ms. Caroline Kabigting, the Head of Investor Relations. She will later be joined in the Q&A session by Mr. Andy Dela Cruz, Head of Investor Relations at Megaworld Corporation; and Mr. Kenneth Nerecina, Head of Investor Relations at Emperador Inc. Over to you, Ms. Caroline.

Thanks, Cami. Good afternoon, everyone. Let me welcome you to the PSE STAR Investor Day featuring Alliance Global Group, Inc. or AGI. I am Carol Kabigting, and I'm here to discuss with you AGI's first half 2025 financial and operating performance. Before I start with the discussions on AGI's first half results, I would just like to let you know about a key transaction that happened in the first quarter, particularly involving Golden Arches Development Corp., or GADC, where AGI retains a 49% interest. GADC was deconsolidated in the financial statements of AGI starting on March 17 this year and is now treated as an associate after securing a 20-year license term from McDonald's Corporation. The deconsolidation resulted in significant gains of PHP 3.4 billion, which was recorded in the first quarter and also created some distortions in the financial statements, which made the comparisons from prior year's levels not apples-to-apples. So on the left-hand side, what you will see here is the reported performance of AGI in the first half with consolidated revenue of PHP 100.9 billion, a decline of 6% year-on-year, pre-minority income of PHP 19.2 billion. That's an increase -- very sharp increase of 39%, while attributable profit stood at PHP 14 billion, a significant increase of 60% year-on-year. Now on the right-hand side, you will see AGI's normalized performance, which excludes GADC's impact on prior periods results for comparability. AGI posted first half results, showing consolidated revenue of PHP 87.1 billion, that's a 3% improvement. Pre-minority income of PHP 15.1 billion, an increase of 19% year-on-year, while attributable profit amounted to PHP 10.1 billion, an increase of 23% year-on-year. In our view, this shows the real trend on AGI's performance during the period. As for the results of its major subsidiaries in the first half, Megaworld's revenue rose by 10% year-on-year to PHP 43.1 billion while net income went up by 25% to PHP 10.7 billion. Emperador registered revenue of PHP 28.2 billion, down by 2%, while its net profit grew by 4% to PHP 3.9 billion. Travellers reported gross revenue of PHP 18.9 billion, down by 6%, while net income stood at PHP 315 million, down by 27%. Megaworld remained the biggest contributor to group revenue and profit in the first half, accounting for 49% of total revenue, followed by 32% for Emperador and 18% for Travellers. Now in terms of profit contribution, Megaworld contributed the lion's share of 69%, followed by Emperador with 29% and Travellers with 2%. And now to present to you AGI's interim financial performance as we have reported. So in the second quarter, consolidated revenue amounted to PHP 45.6 billion, reflecting a 20% year-on-year decline, while attributable net income grew by 23% year-on-year to PHP 5.6 billion. Note that the second quarter performance already reflected the full quarter impact of the GADC deconsolidation, which makes year-on-year and Q-on-Q comparisons not on apples-to-apples basis. In the first half, consolidated revenue of AGI stood at PHP 100.9 billion, down by 6% year-on-year while attributable net income grew markedly by 60% to PHP 14 billion, inclusive of onetime gains of PHP 3.4 billion as a result of the GADC deconsolidation. To allow for comparability, we have decided to also present to you AGI's normalized performance, which excluded GADC in the consolidated numbers. And following this, in the second quarter, AGI's consolidated revenue stood at PHP 45.3 billion, that's flattish year-on-year, but indicates an increase of 8% Q-on-Q, while attributable profit reached PHP 5.3 billion, an increase of 25% year-on-year and 12% Q-on-Q. In the first half, AGI's consolidated revenue reached PHP 87.1 billion, an increase of 3% year-on-year while net income amounted to PHP 10.1 billion, up 23%. All margin metrics also improved. As for the P&L contribution of key subsidiaries, we have Megaworld, we saw its share of revenue in the second quarter go up by 6% Q-on-Q to PHP 22.1 billion, driven largely by higher residential project completion, improved office take-up as well as robust mall and hotel revenues. Its share of group profit grew at a faster 10% clip on modest cost increases and unrealized FX gains. In the first half, Megaworld's revenue contribution grew by 10% year-on-year to PHP 42.9 billion while its share of profit jumped by 28% to PHP 7.9 billion. Emperador share of revenue in the second quarter went up by 13% Q-on-Q to PHP 15 billion, amid a recovery in brandy revenues, while whiskey sales also improved primarily in the U.K., Africa and Middle East markets despite prevailing global uncertainties and this brought its revenue share in the first half slightly weaker at PHP 28.2 billion, while its profit contribution went up by 3% to PHP 3.4 billion, helped by some cost efficiencies as well as lower taxes and financial charges. Travellers share of revenue in the second quarter grew by 6% Q-on-Q to PHP 8.1 billion, supported by steady mass GGR, while the VIP segment was soft, coupled with stable non-gaming revenues. Its net income contribution more than doubled mainly due to ongoing cost management measures. Now in the first half, Travellers' revenue contribution fell by 4% year-on-year to PHP 15.7 billion, while its share of profit declined weighed by higher depreciation and interest charges. Meanwhile, EBITDA grew at double-digit pace, benefiting from enhanced cost efficiencies. AGI's level of consolidated debt as of end June amounted to PHP 250 billion, broadly steady from end 2024 level as increases in borrowings of Emperador and parent were offset by declining debt levels of Megaworld and Travellers. And this brought AGI's consolidated gross debt to equity down to 58% from 60% in end 2024, while its net debt to equity went up to 44% from 42%. As for the net gearing of its major subsidiaries as of end June, only Megaworld's net debt to equity declined, hitting 30% from 32% in end 2024, having reduced its debt. Meanwhile, you have Emperador, Travellers and parent's net debt to equity increased. Emperador's net debt to equity stood at 25% from 24%, following an increase in its debt level. Travellers net debt to equity went up to 115% from 113%, having used up its cash to pay down its debt, while parent net debt to equity moved up to 6% from 4% with the increase in its debt level. AGI has allocated a CapEx budget of PHP 59 billion for this year, and this is distributed as follows: we have PHP 50 billion for Megaworld for its residential development and investment property projects; PHP 4 billion for Emperador to continue with its capacity expansions, mainly for Whyte and Mackay in Scotland; and PHP 5 billion for Travellers for its projects in Newport World Resorts and Westside City. In the first half, about PHP 23 billion of the budget was spent, representing 40% of this year's total. AGI also continues to implement measures to enhance shareholder values. As at end of June, our PHP 11 billion share repurchase program, which will run up to December 2026 is about 84% utilized. Both Emperador and Megaworld already declared dividends for this year. Emperador declared a PHP 0.19 dividend per share equivalent to close to almost 50% of prior year's income, while Megaworld also declared quite recently over PHP 0.09 dividend per share, reflecting a 15% increase from its level the year before. Earlier, AGI also disclosed its planned issuance of warrants, which will be covered by some 2.2 billion underlying common shares of AGI with an exercise price of PHP 12 per share. The warrants will be made available to existing AGI shareholders as of a certain record date. Full details of the terms of the warrants issue will be disclosed after we have secured proper regulatory approvals. Now let's move on to Megaworld. So for the second quarter of the year, Megaworld saw its consolidated revenue grow by 10% year-on-year and 6% Q-on-Q to PHP 22.2 billion, driven by the strong performance across all its operating segments. Its real estate sales rose by 10% year-on-year and 7% Q-on-Q to PHP 14 billion amid sustained construction activity and higher contribution from projects within its townships in Taguig, Parañaque and Pasig in Metro Manila as well as in Batangas, Bulacan and Bacolod. Office rentals grew at a robust pace of 18% year-on-year to PHP 3.7 billion on steady occupancy of 87%, high renewal rate of 68% and built-in rental escalations. Revenues for MICE Lifestyle Malls went up by 9% year-on-year to PHP 1.7 billion, helped by increased foot traffic and tenant sales, favorable tenant mix and steady occupancy rate of 93%. Hotel revenues also sustained its growth, improving by 12% year-on-year to PHP 1.4 billion, boosted by increased domestic tourism and MICE activities and continued improvement in average daily rates on system-wide occupancy of 61%. Net income grew by 35% year-on-year to PHP 5.6 billion on improving margins and unrealized FX gains during the period compared to FX losses the year before. Now in the first half, Megaworld's consolidated revenue increased by 10% year-on-year to PHP 43.1 billion, while its net profit grew by 26% to PHP 10.7 billion. Looking at Megaworld's core businesses only that represents the residential development, office and mall rentals and hotels and excludes interest and other items, we note that Megaworld's core revenue and EBITDA have seen sustained growth over the past 6 quarters. In the first half, core revenue grew by 11% to PHP 40.7 billion, while EBITDA went up by 7% to PHP 18.8 billion. Megaworld's net profit over the past 6 quarters have also indicated sustained improvement, marked by the peso movement versus the U.S. dollars, which in the first 2 quarters of the year went on the company's favor. And this allowed its net income in the second quarter to grow by 35% year-on-year to PHP 5.6 billion, bringing its first half net income higher by 25% year-on-year to PHP 10.7 billion. Likewise, Megaworld's operating margins have been mostly steady over the last 6 quarters. Residential GP margin was largely stable at 50%. Rental EBITDA margin was also steady at 88%, while hotel EBITDA margins have been broadly stable at 14%, especially in the first 2 quarters of the year. Now let me introduce to you Megaworld's 36th township called NASCALA Coast, that's a 116-hectare beachside township in Nasugbu, Batangas by Global-Estate Resorts, Inc. or GRE. It will feature residential villages, beachside condos, commercial hubs and leisure destinations, all designed to highlight the picturesque views of Nasugbu Bay and nearby mountains. There's an initial investment of PHP 5 billion development is set over the next 5 years. Megaworld now has 36 townships in its portfolio, which spans 5,670 hectares throughout the country. It plans to add maybe 1 or 2 more townships before the end of the year, which should serve to drive its future growth. It plans to undertake project launches worth PHP 20 billion this year, of which PHP 10 billion have already been launched. It is also targeting to hit reservation sales of PHP 130 billion. And in the first half, presales stood at PHP 55 billion. It is allocating a total of PHP 50 billion in CapEx, of which about PHP 20 billion has been spent in the first half. And this CapEx should fund Megaworld's various projects aimed at expanding its office GLA by 99,500 square meters and its mall GLA by 151,000 square meters by 2026. It is also planning to add 3,580 hotel room keys by 2029 to reinforce Megaworld's position as the country's biggest hotel developer and operator. Now just recently, Megaworld announced that it is venturing into the ultra-high-end real estate space. That's a market that remains robust and resilient despite economic headwinds. The Megaworld SIGNATURE COLLECTION is a curated portfolio of one-of-a-kind residences and which marks the company's foray into the highest tier of luxury living. This collection includes bespoke developments in rare, coveted locations across the Philippines, along with select homes featuring groundbreaking innovations, world-class amenities and distinctive collaborations or partnerships. Highly exclusive, these properties will be released in limited numbers and only in select locations or once or twice a year. Moving on to Travellers. So in the second quarter, total gross revenue of Travellers declined by 6% Q-on-Q to PHP 9.2 billion with gross gaming revenue or GGR falling by 5% Q-on-Q to PHP 7.5 billion amid soft VIP GGR of PHP 3.4 billion on stable hold rate, while the mass segment remained steady at PHP 4.1 billion. Promotional expenses fell sharply by 18% Q-on-Q, and that allowed net gaming revenue to stay flattish Q-on-Q to PHP 5.8 billion. Non-gaming revenue mainly from hotels were broadly steady at PHP 1.7 billion on occupancy rates of 90% to 91%. As Travellers significantly reduced its costs and operating expenses during the period, EBITDA rose by 20% Q-on-Q to PHP 2.5 billion. Management has indicated they will continue to implement cost discipline in a bid to further improve its operating leverage moving forward. Even with the higher depreciation and interest charges, Travellers managed to end the quarter with a twofold Q-on-Q jump in net income to PHP 217 million. All margin metrics were also higher on a Q-on-Q basis. Now in the first half, Travellers posted total gross revenue of PHP 18.9 billion, lower by 6% year-on-year. With cost efficiencies, though, EBITDA grew by 11% to PHP 4.5 billion. Net profit stood at PHP 315 million, lower by 29%, weighed by higher depreciation and interest charges. If we look at Travellers total gross revenue over the past 6 quarters, we note that GGR, which accounts for over 80% of total, has been quite soft in recent quarters while non-gaming revenue, which covers the balance, remained quite steady throughout the period. In the first half, total gross revenue declined by 6% year-on-year to PHP 18.9 billion with GGR down by 6% and non-gaming revenue lower by 5%. But supported by its ongoing cost management measures, Travellers continued to post an expansion in EBITDA. In the second quarter, it hit PHP 2.5 billion, that's an increase of 21% Q-on-Q, and this brought its first half EBITDA to PHP 4.5 billion, reflecting an increase of 11% year-on-year. Now if we break down Travellers GGR into mass and VIP, you will note that the mass business has been quite resilient since last year amid stable hold rate. Mass continued to contribute over 50% of total GGR and the VIP segment remained quite soft with lower rolling volume, but cushioned by stable VIP win rate. On the right-hand side, you will see that the Newport World Resorts complex also managed to sustain its high average daily footfall with over 44,000 average daily visitors in the first half, lured by its highly rated restaurants, good theater shows and attractive MICE facilities. Travellers is pursuing the following projects as part of its ongoing expansion plans. The Westside City commercial complex is envisioned as the future Broadway of Asia. It will feature a grand opera house with 2,000 seating capacity as well as a vibrant mix of retail, dining, gaming, entertainment and business spaces, all designed to complement the luxury hotels and integrated resort facilities within the area. The Westside City complex is positioned as the Philippines next world-class lifestyle and entertainment hub. Travellers is also planning to develop 2 boutique style integrated resorts, one in Cebu, the Mactan World Resorts in Mactan Newtown where the company has already secured a certificate of no objection from the Mactan LGU and is just awaiting the official granting of the PAGCOR license. The other one is the Boracay World Resorts, which will rise in Megaworld's 150-hectare Boracay Newcoast township in Malay, Aklan. Travellers have planned capital investments of about $300 million for each of these developments. AGI remains the country's biggest player in the leisure and tourism sector with a total of 8,140 room keys in its portfolio spanning 20 local and international hotels from Megaworld and Travellers International. The group targets to bring this number to a total of 12,000 room keys by 2029 in key tourist destinations like Boracay, Iloilo, Bacolod, Palawan and even in Pampanga. The group is also developing the PHP 1.5 billion Mactan Expo Center in Mactan Newtown in Cebu with 2,500 seating capacity. Once completed, this should bring AGI's overall MICE capacity to close to 8,000 seats. Now on Emperador. So in the second quarter, Emperador's consolidated revenue grew by 14% Q-on-Q to PHP 15 billion as both its brandy and whiskey segments recovered. Brandy revenue rose by 13% Q-on-Q to PHP 9.8 billion, driven by resilient domestic spending, while its overseas sales have expanded to include markets in Africa, Canada and other countries in Europe. Whiskey revenue also grew by 14% Q-on-Q to PHP 5.2 billion despite challenges in the global market brought about by the U.S. tariff issues. So exceptions were markets in the U.K. and the Middle East and Africa, which showed very good sales results. Gross profit of Emperador improved by 23% Q-on-Q to PHP 4.5 billion on moderate increases in inventory costs, bringing overall GP margin higher to 31%. The brandy segment saw its gross profit grow by 35% Q-on-Q to PHP 2.6 billion, allowing its GP margin to expand to 26%. The whiskey segment also recorded a 10% Q-on-Q growth in gross profit to PHP 1.8 billion, keeping GP margin stable at 37%, supported by the continued popularity of its more premium single malt brands. With lower depreciation, interest charges and income taxes, Emperador managed to post a 13% Q-on-Q growth in net profit to PHP 2.1 billion. Now in the first half, Emperador's total revenue reached PHP 28.2 billion, slightly lower by 2% year-on-year. Net profit still grew by 4% to PHP 3.9 billion as higher input costs and A&P were cushioned by lower financial charges and taxes. The past 6 quarters have seen some volatility in Emperador's revenue and profit, but we note a more solid improvement in the past 2 quarters. During that period, brandy and whiskey revenues have both recovered, allowing Emperador's total revenue in the first half to remain broadly stable above the PHP 28 billion level. Meanwhile, supported by lower depreciation and income taxes, net income in the half grew by 4% year-on-year to PHP 3.9 billion. Comparing the sales and GP margin trends between whiskey and brandy segments in the past 6 quarters, we note that whiskey sales have been quite volatile since last year, largely affected by various challenges in the global spirits market that prompted changes in the sales mix. And this brought whiskey GP margin in the second quarter to hit 36% or at the lower end of the 36% to 44% range over the past 6 quarters. Meanwhile, brandy revenues and gross profit have been recovering, bringing second quarter GP margin to 27% or at its highest level over the past 6 quarters. Emperador's Whyte and Mackay launched just last May, The Dalmore Luminary No.3, the culminating release in The Dalmore's prestigious Luminary Series created in partnership with V&A Dundee and leading architects. The Dalmore Luminary Series 3 features 2 exceptional single malts. The Rare, which is a 52-year-old expression with only 2 bottles ever produced and the Collectible, a 17-year-old limited edition of 20,000 bottles matured in a complex array of casks, including Calvados, Sherry, Bordeaux red wine barrels. This release reflects a fusion of masterful whiskey craftsmanship and visionary design. Emperador has allocated CapEx of PHP 4 billion this year to fund its ongoing expansion projects in Scotland. It is expanding its Dalmore distillery to double production capacity by the end of this year to address future demand for The Dalmore single malt whiskey brand. It is also undertaking the expansion of the maturation complex of its Invergordon distillery. The plan is to double its footprint to 92 hectares and then build 120 warehouses for whiskey aging. This should enable the grain distillery to house an additional 1.5 million casks of maturing whiskey. So just to leave you with our key takeaways before I end this presentation. So you've seen that AGI delivered another strong performance in the first half, driven mainly by robust real estate and mall sales, higher take-up in office spaces, sustained demand for hospitality and leisure activities as well as increasing popularity of its premium spirits in the local and global markets. And encouraged by these, AGI continues to push the envelope with more grand and bespoke offerings benefiting its position as a premium lifestyle conglomerate. So these undertakings include its entry into the luxury real estate market segment through Megaworld SIGNATURE COLLECTION. We have the construction of luxury hotels and world-class facilities, including the Narra Palm Hotel and Villa at the Newport World Resorts Complex and the introduction of more premium spirits in the international market like The Dalmore Luminary Series. AGI's undertakings will be supported by a CapEx budget of PHP 59 billion for this year, only 40% of which has been spent. And alongside these ventures, AGI vows to maintain its cost discipline to allow for further improvement in margins and profitability as we expect the economy to sustain its recovery. That ends my presentation, and let me now turn you over to [ Aaron Wei ] for the Q&A segment.

Thank you, Ms. Carol. I would like to invite Ms. Carol, Kenneth and Andy for the Q&A. For the Q&A, we'll be starting with the questions sent by earlier participants. For -- let's start with Megaworld. How do you plan to deal with the current oversupply in the Metro Manila residential market? And how has this affected your project launches?

Thank you for the question, [ Aaron ]. So we -- at Megaworld, we have been very deliberate with our launch strategy. Actually, over the past few years, we have already focused a significant portion of our launches towards provincial areas. And also, rather than launching aggressively, we have focused on moving existing inventory and timing our new launches based on where we see demand in Metro Manila. So for example, in Metro Manila, Taguig continues to perform very well. Like Uptown Bonifacio, it remains a very strong market, which is why we continue to launch in this area. For example, Uptown Modern, one of the phases of its second tower is just launched this year. So for us, there will be pockets of these trends all across Metro Manila, and we will capture those. Then looking at the other side, we are also seeing strong pickup in provincial townships. So that one, we also aim to benefit from that. So our approach simply is to stay selective. We will launch where demand is the strongest and ensure that we have good sales while also protecting our margins.

Okay. Next question. Will capital spending accelerate in the coming quarters to meet the PHP 50 billion CapEx target of Megaworld? And what key projects will drive this?

Well, yes, there is scope for us to accelerate CapEx in the coming quarters to meet the PHP 50 billion target. I think especially as when looking at the breakdown of our CapEx budget for this year is PHP 50 billion, 80% of that or PHP 40 billion is allocated for project development. And on that front, we are spending as expected and have spent already about half of the target as of June 2025, so just in line. The remaining 20% or PHP 10 billion is for opportunistic land banking. And this is where we can ramp up CapEx as we have only spent maybe less than 10% of the budget so far this year. So to answer the question, yes, but it will be on opportunistic land banking when there is an attractive land that we have to acquire.

Also for Megaworld, with your entry into the ultra-luxury residential market, how much could this contribute to residential sales in the near term? And what profit margins are you aiming for?

Okay. So our entry into the ultra-luxury segment is still in very, very early stages. We have just announced this very recently, but we definitely expect very meaningful contributions to start coming in as soon as we begin launching our projects under this new category. So our maiden project is expected to be launched soon. And this project as well as other projects under this ultra-luxury line will be highly limited in number. So we will maybe launch 1 or 2 projects a year but these will carry very strong price points and definitely margins as well compared to our usual products. So while it's still too early to give a margin or specific contribution to our reservation sales, given the high value of these projects, definitely, these will be accretive to not only to residential margins, but also as a portion of our full reservation sales and residential revenues given the scarcity of the locations and the premium positioning of these projects.

For -- the next question would be on Travellers. What are you doing to reinvigorate VIP performance while sustaining growth in the mass market segment?

Let me answer that. So admittedly, the gaming sector has been experiencing some challenges, especially after the POGO ban. And -- but despite this, we believe that Travellers has done a good job in terms of limiting the decline in our revenue versus industry experience. And this is because we think we have pursued a number of initiatives that have been yielding good results. So for instance, we -- instead of relying purely on the junkets, we have a more active direct international business development team that has been set in place. We have more -- we have been more aggressive in terms of bringing in mass and premium mass players to support our revenue. We have also been experimenting with more creative marketing programs supported by our attractive Epic Rewards program such that we are able to compete more aggressively in the market. And I guess I'd like to add also that we hope to be able to see an even bigger contribution from our online gaming platform once this gains good traction with our customers.

Thank you, Ms. Carol. The next question would be on Emperador. What initiatives are you putting in place to sustain and fuel the brandy sales and the whiskey sales?