Philippine Markets Newsletter

This alliance continues to be innovative even after the pandemic, achieving a Uniform ROA of 5%, not 3%

November 2, 2022

What was once a glass-containing manufacturer became one of the Philippines’ largest conglomerates decades ago, bouncing back from the negative effects of the pandemic. Although its as-reported metrics showed little to no added shareholder value, this conglomerate’s diversity allowed it to generate a more profitable Uniform return on assets (ROA).

Also below, Uniform Accounting Embedded Expectations Analysis and the Uniform Accounting Performance and Valuation Tearsheet for the company.

Philippine Markets Newsletter: 
Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus
Powered by Valens Research

One of Andrew Tan’s dreams was to put up a small grocery store. Little did he know that 30 years later, he would go on to become one of Forbes’ richest men in the Philippines, owning some of the country’s biggest and most successful companies to date.

After establishing his real estate business through Megaworld Corporation (MEG:PHL), Andrew Tan would begin to work on his holding company in Alliance Global Group, Inc. (AGILPHL). 

Starting as a glass-containing manufacturer, it would eventually change its primary operations and become a holding company, holding numerous industries including real estate through Megaworld, and liquor brandy through Emperador Inc. (EMI:PHL)

The company also holds interests in the tourism industry through Travellers International Hotel Group and the food industry through Golden Arches Development Corporation (GADC), which are known for operating Resorts World Manila and the McDonald’s franchise, respectively.

Despite having this diversified portfolio through well-known brands, the Alliance Global Group was negatively affected during the pandemic, with an 18% shrinkage in total revenues in 2020.

Then, as the economy reopened with easing quarantine restrictions, the company’s revenues would recover to 14% in 2021.

Although the global supply chain disruptions and rising inflation are the main growth risks for the company in 2022, the company’s strategy to innovate and grow its portfolio positions it to withstand such risks. For starters, its 2022 capex budget is at PHP 60 billion, around 33% higher than in 2021. 

Majority of the company’s capex will be for its real estate development and investment activities. By launching more townships and 14 other projects in the pipeline, the company has a healthy real estate operation going forward.

As for its liquor brandy segment, with Emperador’s successful secondary listing in the Singaporean Exchange last July, the world’s largest brandy company increased its exposure to the global market.

Meanwhile, its tourism and food companies are looking to expand their customer base. In 2022, the conglomerate as a group has benefited as pent-up customer sales and demand drive its revenues.

Looking at as-reported metrics, it appears that Alliance Global Group has only produced below cost of capital levels, with return on assets (ROAs) rebounding to only 3% in 2021.

In reality, the company’s financial performance is closer to pre-pandemic levels, with Uniform ROAs performing at 5%.

One of the said distortions stems from how Philippine Financial Reporting Standards (PFRS) classifies interest expense. 

According to PFRS, interest expense is an operating cash flow. In reality, interest expense represents the cost of debt and is rightfully a financing cash flow. As such, in Uniform Accounting, interest expense is added back to earnings.

Specifically, in 2021, Alliance Global Group recorded interest costs at PHP 7.2 billion. Adding back this expense because it is not an operating expense, along with many other necessary adjustments made by Valens, leads to a PHP 24.2 billion net income and a 5% Uniform ROA, higher than its PHP 16.9 billion as-reported net income and 3% as-reported ROA.

Alliance Global’s earning power is stronger than you think

As-reported metrics distort the market’s perception of the firm’s recent profitability. If you were to just look at as-reported ROA, you would think that Alliance Global’s profitability has been recently weaker than real economic metrics highlight.

Through Uniform Accounting, we can see that the company’s true ROAs have been understated over the past decade. For example, as-reported ROA was 3% in 2021, but its Uniform ROA was actually higher at 5%. 

Alliance Global’s earnings margins are less profitable than you think

Trends in Uniform ROA have been driven by trends in Uniform earnings margins. For more than two decades, as-reported metrics have overstated Alliance Global’s earnings margin, a key driver of profitability.

Moreover, as-reported EBITDA margin has reached 32%. In comparison, Uniform margins have yet to eclipse 20% over the same time period, making Alliance Global appear to be a more profitable business than real economic metrics highlight.

SUMMARY and Alliance Global Group, Inc. Tearsheet

As our Uniform Accounting tearsheet for Alliance Global Group, Inc. (AGI:PHL) highlights, the company trades at a Uniform P/E of 14.0x, below the global corporate average of 17.8x, and its historical P/E of 22.2x.

Low P/Es require low EPS growth to sustain them. In the case of Alliance Global, the company has recently shown a 344% Uniform EPS growth.

Sell-side analysts provide stock and valuation recommendations that in general provide very poor guidance or insight. However, sell-side analysts’ near-term earnings forecasts tend to have relevant information.

We take sell-side forecasts for Philippine Financial Reporting Standards (PFRS) earnings and convert them to Uniform earnings forecasts. When we do this, Alliance Global’s sell-side analyst-driven forecast is to see Uniform earnings shrink by 10% in 2022, and growth of 36% in 2023.

Based on current stock market valuations, we can use earnings growth valuation metrics to back into the required growth rate to justify Alliance Global’s PHP 8.78 stock price. These are often referred to as market embedded expectations.

The company is currently being valued as if Uniform earnings were to shrink by 7% annually over the next three years. What sell-side analysts expect for Alliance Global’s earnings growth is below the current stock market valuation in 2022, but above the requirement in 2023.

Moreover, the company’s earning power is below the long-run corporate average. Moreover, cash flows and cash on hand are below total obligations—including debt maturities, capex maintenance, and dividends. Together, this signals moderate credit risk.

To conclude, Alliance Global’s Uniform earnings growth is in line with its peer averages, and in line with its average peer valuations.

About the Philippine Markets Newsletter
“Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus”

Some of the world’s greatest investors learned from the Father of Value Investing or have learned to follow his investment philosophy very closely. That pioneer of value investing is Professor Benjamin Graham. His followers:

Warren Buffett and Charles Munger of Berkshire Hathaway; Shelby C. Davis of Davis Funds; Marty Whitman of Third Avenue Value Fund; Jean-Marie Eveillard of First Eagle; Mitch Julis of Canyon Capital; just to name a few.

Each of these great investors studied security analysis and valuation, applying this methodology to manage their multi-billion dollar portfolios. They did this without relying on as-reported numbers. 

Uniform Adjusted Financial Reporting Standards (UAFRS or Uniform Accounting) is an answer to the many inconsistencies present in GAAP and IFRS, as well as in PFRS. 

Under IFRS, each company’s financial statements are rebuilt under a consistent set of rules, resulting in an apples-to-apples comparison. Resulting UAFRS-based earnings, assets, debts, cash flows from operations, investing, and financing, and other key elements become the basis for more reliable financial statement analysis. 

Every Wednesday, we focus on one Philippine-listed company that’s particularly interesting from a UAFRS vs as-reported standpoint. We highlight one adjustment that illustrates why the as-reported numbers are unreliable. 

This way, we gain a better understanding of the factors driving a particular stock’s returns, and whether or not the firm’s true profitability is reflected in its current valuations. 

Hope you’ve found this week’s Uniform Earnings Tearsheet on a Philippine company interesting and insightful. 

Stay tuned for next week’s Philippine company highlight!


Angelica Lim

Research Director
Philippine Markets Newsletter
Powered by Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683