Philippine Infradev Holdings Q2 profit up

Philippine Infradev Holdings [IRC 1.33 6.40%] posted a Q2/21 profit of P5.95 billion, up 28,674% from Q2/20 net loss of P0.02 billion, and up 71,938% from Q1/21 net loss of P0.01 billion. The Antonio Tiu-led IRC reported ?7.95 billion in revenues, which it said were “mainly due to the fair value gain on investment property”.

Digging into the Income Statement, IRC actually declared no income from sales, and would have declared yet another net loss had it not restated the value of its investment property. The company said that it has spent over P300 million in the first 6 months of the year on acquiring land and paying contractors and consultants related to its Makati City Subway project. IRC attributes the majority of the fair value gain that it booked on its investment property to lots purchased as part of the Makati City Subway project.

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IRC’s notes say that the company’s investment properties are carried at fair value “as determined by an independent firm of appraisers”, and that this value is arrived at using the “income approach” which tries to imagine all of the future cash flows and expenses related to the future development of the empty lot, and then reduce that to a single (discounted) present value. IRC said that the valuations of its lots are reviewed annually by its appraiser, so it’s not immediately clear whether the massive change in the fair value Makati City Subway project lots was something that just happened all of a sudden to lots that had been held by IRC for some time, or if the fair value jump is attributable to the land acquired by IRC earlier this year.

Either way, the key thing to remember here is that there is an awful lot of assumption and guesswork that goes into arriving at that fair value figure, and that even small adjustments to IRC’s business plan could have material positive or negative impacts on that value. We don’t know a whole lot about IRC’s subway plan, so the valuation exercise is something of a black-box to us investors. Until something changes, we have to consider that fair value to be the “target” that IRC can beat or miss based on its execution of the subway plan. 

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