JG Summit Holdings Inc., the flagship of the Gokongwei Group, is considering various options to reduce its exposure to the massive losses of its petrochemical business—including possible divestment.
According to Abacus Securities Corporation, JG Summit "implied that all options are on the table" regarding JG Summit Olefins Corporation (JGSOC), acknowledging its drag on profitability.
Abacus added, "when we asked if there has been any discussion of divesting from petrochem, the reply was ‘we have been evaluating various strategic options to minimize the risks related to our petrochemical exposure. We will make the necessary announcements in due course."
The stock brokerage interprets this to mean the groundwork for potential corporate action has been ongoing for some time, and a decision will be made relatively soon (six months or less).
"What kind of corporate action remains to be seen, but recall that we advocated for a sale of JGSOC as early as 18 months ago. There are, of course, other options, but just as a thought exercise, the conglomerate will likely take a big loss on a potential sale. In exchange, however, the drag will be gone and profitability will jump. On a pro-forma basis, nine-month 2024 core net income would have been P23.6 billion (instead of P12.4 billion), and the full-year number will probably be close to P32.0 billion," Abacus said.
It also noted that JG Summit's support for JGSOC will total P50.3 billion from the fourth quarter of 2022 until the last quarter of next year.
Despite this cash drain, JG Summit’s net debt has decreased in the past few years because it has received over P40 billion in dividends from Universal Robina Corporation, Manila Electric Company, PLDT Inc., Robinsons Land Corporation, and other firms since 2022.
JG Summit posted a 16 percent year-on-year (YoY) improvement in net income to P17.9 billion for the first nine months of 2024, driven by double-digit topline expansion and gains realized from merging Robinsons Bank with the Bank of the Philippine Islands (BPI).
Despite persistent inflation headwinds in the third quarter, the group delivered a 10 percent YoY consolidated topline growth to P277 billion in the first nine months of 2024.
This was fueled by healthy demand for travel and leisure activities, a higher preference for value food and beverage products, and increased utilization rates in JG Summit's petrochemical plants.
Improving contributions from core investments, widening EBITDA (earnings before interest, taxes, depreciation, and amortization) margins for most core businesses, and the gain from the bank merger earlier this year allowed core profits to rise 39 percent YoY to P20.3 billion.
In the third quarter of 2024, consolidated revenues remained steady at P89.1 billion, but net income dropped 39 percent YoY to P3.1 billion.
The drop was primarily caused by larger losses from JGSOC, with the prolonged trough in the global petrochemical industry cycle.
Unfavorable global market conditions continued to prevail for JGSOC, undermining the larger volumes it saw versus last year. Industry-wide polymer spreads dropped to historic lows and weighed on JGSOC’s EBITDA, closing the period at a P3.8 billion loss. Including higher financing costs and depreciation, net losses widened to P11.4 billion.