Ayala Corporation: The sum is more than the discount - Priced for pain, Auto optionality for free

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Ayala Corporation: The sum is more than the discount - Priced for pain, Auto optionality for free

rm headwind. We are also cognizant of the possible deletion of ALI from the

MSCI Philippine Standard index during the upcoming August rebalancing,

which could mean a US$80-90m net outflow or 20x ADV; this could happen

in the event ALI’s share price is unable to recover back to PHP15/sh as its free-

float market cap is 5-10% below the cut-off threshold. ALI accounted for about

⅓ of AC’s NAV value.

• Why OW still holds: Unlisted Auto Optionality via AC Mobility. A key

differentiator for AC vs other conglomerates, in our view, is its embedded

exposure to the unlisted, high-growth auto business, AC Mobility, which holds

the exclusive BYD franchise in the country. BYD has been outselling all other

auto brands since 2023, scaling its position to ~5% market share or the 3rd best

selling auto brand. AC Mobility is targeting to achieve profitability on or

before 2027. Local currency weakness is a headwind, but we think the strength

of demand has allowed the brand to execute selective price adjustments

without materially hurting volumes. We believe the auto business represents a

good idiosyncratic growth lever and is not fully captured in the multiples given

its size relative to the rest of the AC portfolio.

• Why OW still holds: Capital allocation management. We have been

encouraged by AC’s more proactive approach to portfolio rationalization and

capital deployment in recent years. Initiatives to rationalize the parent

company cost structure are also laudable. The strategic prioritization of one of

its flagship business units (ALI ) is encouraging, with the concentration of the

8th generation Ayala family leadership, aiming to drive an operational re-set of