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Stock Commentary

JG Summit Q2 profit up 335% y/y, up 190% q/q

Merkado Barkada
JG Summit Q2 profit up 335% y/y, up 190% q/q
Yikes. That’s a real “dog’s breakfast” of a quarter for one of the country’s leading conglomerates.
Merkado Barkada

(Corrected: 11:48 a.m.) JG Summit [JGS 55.05 1.38%] [link], the Gokongwei Family’s diversified conglomerate, posted a Q2 net income of P2.5 billion, up 335% y/y from Q2/21’s P578 million in profit, and up 190% q/q from Q1/22’s net loss of P2.79 billion.

Here are the net incomes attributable to each of JGS’s main business units from best to worst: Robinsons Land [RLC 19.06 1.38%] (P3.3 billion; +154% q/q), Universal Robina [URC 124.90 0.79%] (P2.7 billion; -23% q/q), Cebu Pacific [CEB 45.35 0.66%] (-P1.9 billion; +75% q/q), and JG Summit Olefins [JGSO] (-P3.2 billion; -52% q/q).

While CEB continues to (predictably) drag on JGS’s profitability, the reopening of the economy has bumped passenger volumes and allowed it to slash the loss to the point where it wasn’t even the largest money-loser in the stable. That crown now belongs to JGSO, which actually saw losses accelerate in Q2 due to the near-doubling of input costs, and the shutdown of its petrochemicals plant in late May due to “high customer inventories going into 2Q22”, “weak overall demand”, and “bearish margins“. JGS doesn’t plan to reopen the facility until sometime in September.

MB BOTTOM-LINE

That’s a real “dog’s breakfast” of a quarter for one of the country’s leading conglomerates. It’s easy to look past the JGSO result because that’s the only major private subsidiary that contributes materially to JGS’s earnings (all the rest are public companies), but it’s lost P5.3 billion so far this year, and the plant is going to be closed for the majority of Q3, so the losses aren’t going to stop any time soon.

Even if the plant were to re-open for Q4, their own outlook for this business is bleak; low demand, high competition, expensive inputs with volatile pricing. RLC and URC are doing fine, but the conglomerate’s overall exposure to first-order inflation risk through JGSO, and second-order inflation risk through CEB and RLC, make the next few quarters crucial to a broader understanding of the medium-term JGS narrative.

When will inflation peak? What will the peak look like? What policy moves will we have made to address that peak? How will those moves change demand for housing and travel? What will happen to commodity prices that will rise and fall independently of those moves?

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CEBU AIR INC.

JG SUMMIT HOLDINGS INC.

ROBINSONS LAND CORP.

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