Financial Adviser: 5 Things to Know About Jaime Zobel De Ayala’s Ayala Land After its 2025 Financial Results and How to Profit from It

Global financial markets today are once again being shaped not by earnings reports, but by geopolitics. The sudden escalation of military conflict in the Middle East has injected a new layer of uncertainty into already fragile markets.

Oil prices surged sharply following attacks near the Strait of Hormuz, a critical passage that carries roughly one-fifth of global oil supply, which raised fears of renewed inflation and slower global growth.

Historically, markets react to war in predictable ways. Investors initially flee risk assets as capital rotates toward traditional safe havens such as gold and the U.S. dollar. Recent trading sessions reflected exactly this pattern, with Asian stock markets declining as energy prices spiked and shipping disruptions threatened global supply chains.

The Philippine stock market has not been immune. The market expects domestic shares to trade cautiously as global investors reassess risk exposure. Yet history also shows that periods of geopolitical stress often create the most compelling long-term investment opportunities, especially in fundamentally strong companies tied to domestic growth rather than global exports.

In emerging markets like the Philippines, foreign funds typically reduce exposure first, which creates temporary price dislocations even in companies whose long-term earnings remain intact. For patient investors, this disconnect between price and intrinsic value becomes an opportunity.

Geopolitical shocks often trigger broad market sell-offs as investors rush to reduce risk. This environment can create opportunities for long-term investors. Blue-chip companies such as Ayala Land, Inc. (PSE: ALI) are often among the first to be repriced during periods of global uncertainty, even when their long-term business fundamentals remain largely unchanged.

Over the past year, ALI’s share price has declined alongside broader market caution, which is now trading around P20–21 per share, well below its 52-week high of about P30 and nearly 60 percent lower than its pre-pandemic peak above P50 reached in 2019.

Today, ALI carries a market capitalization of roughly P300 billion and trades at around 10 times earnings and below book value, which are levels that historically appeared during periods of market stress rather than during earnings expansion.

At moments when market fear drives prices lower, the more important question is not why a stock has declined, but whether the underlying business has materially changed.

Has the company’s earning power weakened, or has sentiment simply turned cautious? Are its cash flows deteriorating, or are investors reacting primarily to global uncertainty beyond the company’s control? These are the questions investors must answer before deciding whether a falling stock represents risk to avoid or opportunity to consider.

Against this backdrop, here are five things every investor should know about Ayala Land’s 2025 financial results and how investors may potentially profit from them:

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ALI’s 2025 financial results show continued expansion in overall income, although a closer reading of the numbers reveals that growth came from a shift in earnings composition rather than pure development acceleration.

Total revenues reached P190.2 billion in 2025, which grew by 5.2 percent from P180.7 billion in 2024. Over the past two years, ALI’s total consolidated revenues increased by approximately P41.4 billion, which represented a cumulative growth of about 28 percent, or an average annual increase of roughly 13 percent.

A deeper look at the revenue mix, however, shows an important development. Real estate revenues, which remain the company’s core business, slightly declined to P174.5 billion in 2025 from P176.5 billion in 2024, although still significantly higher than P145.5 billion in 2023.

The modest year-on-year softness could be due to timing differences in project completion and revenue recognition rather than weakening demand, which is a common occurrence in large-scale property development where income realization depends on construction milestones.

What ultimately lifted total revenues was the sharp increase in other income, which surged to P12.6 billion in 2025 from only P1.3 billion in 2024. Based on disclosures in the notes to the financial statements, this increase largely came from gains related to asset disposals, fair value adjustments, and capital recycling initiatives.

The improvement in revenues translated strongly to the bottom line. Net income attributable to equity holders of ALI rose by 38.6 percent to P39.1 billion in 2025 from P28.2 billion in 2024. Over two years, ALI’s shareholder earnings have grown by an average increase of about 26 percent.

Based on ALI’s financial performance over the past three years, the company appears to be entering a period of normalized growth following its earnings recovery phase.

A conservative projection for ALI’s 2026 performance may be derived by focusing on its core real estate operations while assuming normalization of non-recurring income. Real estate revenues, which remain the company’s primary earnings driver, expanded at an average rate of about 10 percent over the past two years despite timing differences in project recognition.

If we apply this historical trajectory, ALI’s total real estate revenues could reach approximately P192 billion in 2026. Assuming that the unusually high P12.6 billion in other income recorded in 2025 normalizes closer to historical levels, total consolidated revenues are estimated at around P198 billion for 2026. Using Ayala Land’s historical net profit margin of roughly 16.5 percent, projected net income attributable to shareholders would amount to approximately P33 billion, which represents a year-on-year increase of seven percent.

A company’s earnings story becomes meaningful only if supported by a balance sheet capable of sustaining operations through economic cycles.

ALI’s 2025 financial position shows that it continues to expand while maintaining manageable financial risk. With P449.2 billion in current assets against P282.8 billion in current liabilities, ALI enjoys a current ratio of about 1.6 times, which indicates that its short-term obligations are adequately covered by liquid and near-liquid assets.

ALI’s liquidity is supported by its substantial accounts receivable totaling over P225 billion, which largely represents installment collections from residential buyers.

ALI’s expansion during 2025 was partly financed through additional borrowings. Total liabilities rose by 9.2 percent to P612.3 billion, while total equity increased by 7.5 percent to P385.1 billion which put its debt-to-equity ratio at about 1.6x.

Although leverage increased, this level remains typical for large integrated property developers whose business model requires heavy upfront capital investment. More importantly, the company maintains a bias toward long-term financing, with P259.8 billion classified as long-term debt, which helps reduce refinancing pressure in the near term.

Over the past three years, ALI’s operating cash flow has expanded by roughly 36 percent, which indicates its improving cash generation from core operations despite fluctuations in project timing.

A comparison between ALI’s consolidated net income and operating cash flow provides important insight into earnings quality. In 2025, the company reported P45.6 billion in net income, yet generated only P29 billion in operating cash flow, which translates to a cash conversion ratio of approximately 64 percent, lower from 91 percent in 2024.

The decline was largely driven by substantial increases in receivables and inventories as project revenues were recognized ahead of cash collections. As operating cash inflows lagged accounting profits, ALI relied more heavily on borrowings to finance ongoing developments and capital expenditures. The pattern suggests that while profitability remains strong, cash realization has slowed during the current expansion phase, which is a typical for property developers operating under long project cycles.

Beyond earnings growth and revenue expansion, investors must eventually ask a more fundamental question: is ALI generating returns that justify the capital entrusted to it? This is best evaluated through Return on Invested Capital (ROIC), which measures how efficiently the company converts both debt and equity funding into operating profits.

Unlike return on equity, which considers only shareholder funds, ROIC evaluates returns produced from all long-term financing sources, which makes it particularly useful for capital-intensive industries such as real estate development.

The computation begins with operating profit after tax, commonly referred to as Net Operating Profit After Tax (NOPAT). This represents the profit generated purely from business operations, independent of financing decisions. In practice, NOPAT is derived by taking income before tax and adjusting it for the company’s effective tax rate, which reflects the earnings available to all capital providers.

The second component is invested capital, which represents the total funds actively employed in the business. This typically includes shareholders’ equity and interest-bearing debt, less excess cash balances that are not required for operations. The objective is to measure how much capital management has actually put to work in generating operating income.

ROIC is then obtained by dividing NOPAT by invested capital. The resulting percentage indicates how many pesos of operating profit are produced for every peso invested in the company’s assets.

A higher ROIC suggests more efficient capital deployment, while a declining ROIC may indicate that additional investments are generating weaker returns.

Based on its 2025 financial statements, ALI’s estimated ROIC improved steadily over the past three years, from roughly 5 percent in 2023, rising to about 5.6 percent in 2024, and reaching approximately 6.6 percent in 2025.

The upward trend suggests that investments made during earlier development cycles are beginning to mature and contribute meaningfully to operating income. In property development, capital is deployed years before earnings are realized, so rising ROIC typically signals that previously funded projects are transitioning from construction to income generation.

However, ROIC reflects returns generated by all historical capital, including assets still under development. A more revealing measure is Return on Incremental Invested Capital (ROIIC), which focuses only on the returns earned from newly deployed investments. In essence, ROIIC answers a forward-looking question: how productive is each additional peso the company reinvests today?

Estimating incremental performance shows that ALI generated approximately 17 percent returns on new capital invested between 2024 and 2025, calculated by comparing the increase in after-tax operating profit against the additional capital deployed during the period.

This higher return suggests that recently completed estates, commercial assets, and residential developments are generating stronger economics than the company’s legacy capital base.

The significance of ROIIC becomes clearer when compared with the company’s weighted average cost of capital (WACC), the minimum return required to compensate both debt holders and equity investors.

We can estimate ALI’s WACC by combining the cost of equity and after-tax cost of debt using market-value capital weights. Assuming a Philippine 10-year government bond yield of about 5.9 percent as the risk-free rate, an emerging-market equity risk premium of roughly 7.5 percent, and Ayala Land’s market beta of 1.42, the company’s cost of equity is estimated at approximately 16.6 percent.

Based on a market capitalization of roughly P300 billion and total interest-bearing debt of about P318 billion, Ayala Land’s financing mix consists of approximately 48 percent equity and 52 percent debt.

Applying these weights results in an estimated weighted average cost of capital of about 10.4 percent.  The true test of whether corporate growth creates shareholder value lies in comparing incremental returns with the company’s cost of capital.

Based on ALI’s incremental investments, the company generated estimated returns of about 17 percent, which is significantly higher than the company’s estimated weighted average cost of capital of 10.4 percent. This implies a positive spread of roughly 6.6 percentage points, which means that each additional peso reinvested by the company earns returns materially above the minimum required by both lenders and shareholders.

In economic terms, this spread represents economic value creation. When ROIIC exceeds WACC, growth adds value rather than merely expanding the company’s asset base.

The simplest way to judge whether ALI is cheap is not to compare it with other stocks, but to compare it with itself. Over long periods, companies tend to trade within a range of “normal” valuation multiples that reflect how investors view their risk profile, growth and earnings durability.

When a stock’s valuation falls far below its own historical pattern, without a corresponding collapse in earnings, it usually signals that market sentiment has turned unusually pessimistic.

Today, ALI trades at roughly 10.8 times earnings based on the past 12-month earnings. If we compare this to ALI’s historical P/E in the past years, the stock has often traded at much higher multiples which is above 20x multiples during more stable market conditions.

Even in years when growth was not spectacular, the market typically assigned the company a premium multiple because of its long-duration land bank, recurring income properties, and the perceived defensiveness of its integrated estate model. If we price ALI at its historical P/E of 20x, our target price should be P31.6 per share.

Relative to the current market price of around P21 per share, this suggests a potential upside of approximately 50 percent. What makes this observation compelling is that such upside does not depend on aggressive assumptions. It does not require exceptional earnings growth, a property boom, or expansion into new markets. The valuation simply assumes that Ayala Land eventually trades again at levels consistent with its own long-term history once market sentiment stabilizes.

From a technical perspective, ALI’s price movement over the past two years also provides important context for investors evaluating current valuation levels. The stock appears to have already undergone a full corrective cycle following its post-pandemic recovery highs near P39.

The subsequent decline unfolded in a classic three-wave structure. The initial drop toward the P22 level marked Wave A, reflecting the first phase of distribution as rising global interest rates began pressuring property valuations. This was followed by a relief rally toward approximately P30, forming Wave B, where optimism briefly returned but ultimately failed to establish a new uptrend.

The final leg, Wave C, drove prices down sharply toward the P19 area, a move characteristic of capitulation selling often associated with foreign fund outflows and broad risk reduction across emerging markets.

Since reaching this low, price action has shifted noticeably. Rather than continuing downward, ALI has begun trading sideways within the P20 to P22 range. Under wave principles, such behavior typically signals exhaustion of the prior downtrend and the start of a time-based correction.

Markets do not always recover immediately through rising prices; often, they stabilize first as selling pressure diminishes and long-term investors gradually accumulate positions. The current consolidation phase suggests that the stock may already be transitioning from a declining trend into an accumulation base.

Price geometry analysis reinforces this interpretation. The steep downward price angle that dominated the decline from the P39 peak has weakened, with prices now stabilizing near equilibrium levels around P20–P21.

Historically, this zone represents a balance area where supply and demand begin to normalize. As long as ALI holds above the P19 support level, which is the apparent cycle low, the probability increasingly favors base formation rather than continuation of the bear trend.

In practical terms, this implies that the stock may spend some time consolidating before a sustained advance emerges. A decisive move above P23.50 would likely confirm a trend reversal, opening the path toward the P26 level and eventually to P32 range, which coincides closely with valuation estimates derived from our fundamental analysis.

If the stock price weakens toward the P20 level, price action may be more of an accumulation phase than the beginning of another major decline, which shows that near-term volatility could provide opportunities to build positions ahead of a potential longer-term rerating cycle.

Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888