Robinsons Land’s 2022 Record Revenues and Income Bolstered Mainly by Consumer Credit Expansion

 

The world is full of foolish gamblers, and they will not do as well as the patient investor—Warren Buffett 

Robinsons Land’s 2022 Record Revenues and Income Bolstered Mainly by Consumer Credit Expansion 

 

What is the common denominator of Robinsons Land revenues, Robinsons Retail Sales, and the CPI? Answer: Consumer Credit. 

 

Bank Consumer Credit Powered 2022 Robinsons Retail Sales, Robinsons Land Revenues and the CPI 

 

"The whole is greater than the sum of its parts," the great Greek Philosopher Aristotle pointed out. 

 

Figure 1 

The 2022 annual performance of Robinsons Land [PSE: RLC], along with its sister retail chain, Robinsons Retail [PSE: RRHI], gives us a clue of the conditions of the real estate industry and consumers. 

 

A quick glimpse of their topline reveals that the 2022 consumer borrowing boom, primarily credit cards (+26.32%), financed consumer purchases.  

 

The rapid (+16.63%) sales growth of RRHI manifested part of this teeming consumer activity.  And the bristling retail sales coaxed entrepreneurs to take up more spaces at their RLC's malls, which spiked rental revenue growth by 42%. (Figure 1, topmost chart) 

 

Since the oscillations of all three factors—CPI, RRHI sales, and RLC rental revenues—have chimed since 2017, it implies an interrelationship—again, consumer spending fueled by intensified borrowing. (Figure 1, middle window) 

 

Meanwhile, the rental segments' profit margins have reverberated with the CPI growth today and in the 2017-2018 episode. (Figure 1, lowest diagram) 

 

Real Estate Sales: Bigger Share as Profit Margins Plummeted 

 

Manila Times, March 11: ROBINSONS Land Corp. (RLC) on Friday said it had posted record growth in 2022, exceeding pre-pandemic results following robust results across all business segments. Net income attributable to the parent company rose by 21 percent to P9.75 billion compared to 2021, and the result was also 12 percent higher than in 2019, the firm said in a disclosure. The Gokongwei-led firm's consolidated revenues totaled P45.51 billion, up 25 percent from 2021 due to sales recognition of residential projects, leasing activities and mall consumption recovery. 

 

Figure 2 

 

Nobody seems to question how the breakthrough in revenue and income ever occurs. (Figure 2, highest pane) It is all assumed as positive. The question is: are current developments sustainable? 

 

Unlike rents, real estate revenues generated marginal growth of 5.7% in 2022 to Php 20.104 billion.  Yes, in peso, it was also a record high.  But the growth rate has slowed from 60.5% and 31.3% in 2021 and 2020—the pandemic era.  (Figure 2, middle chart) 

 

The sector's % share of total revenues dropped from a high of 52.05% to 44.2% in 2021 but remained substantially higher compared to the pre-pandemic era.   

 

Having been prompted by the unmatched low-interest rate regime, many diverted savings toward real estate speculations during the pandemic. 

 

And due to rising costs, profit margins have plunged in the last two years.  That is to say, while real estate sales continue to grab a bigger segment of RLC's revenues, rising costs have compressed its margins.  (Figure 2, lowest window) 

 

Or, the RLC's record income was primarily a product of its rental business—dependent on consumer credit.  

 

Of course, the other contributors that helped boost the topline were the spillover effect of public spending and a small piece or a minor part of it, productivity gains. 

 

How will Robinsons Land’s Real Estate and Rental Business Fare with Higher Rates? 

 

Interestingly, the real estate GDP and bank loans seemingly echo RLC's operations.   

Figure 3 

 

As it is, seen from a macro dimension, the real estate GDP pie has been in a downtrend even as the share of bank loans remains close to the pinnacle—suggesting lower economic value added as leverage mounts. (Figure 3, upper chart) 

 

From RLC's perspective, debt grew 8.8% to Php 51.16 billion to approach its 2020 record of Php 53.6 billion even as the segment’s margins declined.  

 

That is, the economic value added for RLC from its Real Estate business resonates with the GDP—the segment is plagued by diminishing returns.

 

In the meantime, despite rising rates, RLC's interest rate expense slid 22% to a 2019 level of Php 1.23 billion.  (Figure 3, lower chart) The BSP's rate hikes have barely percolated into this segment. 

Figure 4 

 

Also, the growth slowdown in the BSP's consumer bank real estate borrowing appears to resonate with RLC's YoY decelerating sales growth. (Figure 4, upper window) 

 

So, aside from higher input costs, will higher BSP rates and increasing debt levels erode further the RLC's profit margins via the interest expense channel? (Figure 4, lower graph) 

 

And will mounting debt loads and or higher rates also scrape on consumer borrowing, which should impact adversely the retail chain sales and the FOMO in the rental occupancy?  Will the shopping mall and real estate industry see the same dynamic unfold?

 

And so, everyone's hope or bet is to see inflation and rates fall—The return of the easy money era. 

And that should make 2H 2023 fascinating. 

March Headline CPI Slipped to 7.6% as Core CPI Stormed to 22-Year Highs! DA Warns of Higher Rice Prices as OPEC Cuts Oil Production

 

It is the paper money created out of thin air that creates the unfair distribution of wealth that is making the middle class fall more behind and the poor more poor. Newly created money and credit in a paper money system benefits those that can access the money first and buy capital goods and real property at one price before the new money circulates and makes all prices go up. Wages also do not keep up with inflation and that creates another squeeze on the middle class—Kenneth Gerbino 

 

March Headline CPI Slipped to 7.6% as Core CPI Stormed to 22-Year Highs! DA Warns of Higher Rice Prices as OPEC Cuts Oil Production 

While March Headline CPI slowed, Core CPI raced to a 22-year high fueled by a boom in consumer credit.  The DA warns of higher rice prices while OPEC agreed to a production cut.

Headline CPI Slipped to 7.6% as Core CPI Stormed to 22-Year Highs! Credit Card and Salary Loans Soar! 

 

Reuters/Interaksyon.Philstar, April 5: Philippine annual inflation eased for a second straight month in March but still remained above target, the statistics agency said on Wednesday, reflecting slower increases in food and transport costs. The consumer price index PHCPI=ECI rose 7.6% in March, below the 8.0% forecast in a Reuters poll, and marked the slowest pace of price increase in six months. But core inflation, which strips out volatile food and fuel items, accelerated to 8.0% in March from February’s 7.8%, indicating price pressures remain. 

 

The following excerpt represents an update on my March post.  My conclusion: (bold and italics original) 

 

And yes, we may be seeing peak inflation for this second wave.  The first wave was in 2015-2018.  The cracks in bank lending have emerged while Treasury markets exhibit a sharp tightening. 

 

Furthermore, both banks and the BSP have scaled down their liquidity interventions.  The BSP has reversed most of the December injections. 

 

But the coming CPI slowdown may be a transition to a more potent third wave—all of which will be anchored on the path dependency politics of deficit spending by the executive branch and the priority of maintaining and expanding liquidity by the BSP. (Prudent Investor, 2023) 

 

Economics is thought-provoking.  It is not because of statistics.  Instead, the micro and macro domain exhibit part of the panorama of the complex interrelationships of human actions. 

 

For instance, we demonstrated here how the CORE CPI resonated with the consumer credit-driven surge in the record sales of Robinsons Retail [PSE: RRHI].  (Prudent Investor, 2023) 

 

This perspective provided a different angle from the supply-side inflation peddled by the mainstream. 

Figure 1 

 

Nonetheless, mainstream media covered it: headline inflation slowed to 7.6%, below the consensus expectations, but the Core CPI accelerated to a 22-year high! (Figure 1, top and middle windows) 

 

Its gist: Reduced pressures on food and energy prices while consumers bought up other items last March.  

 

Or, inflation has spread from the core (food and energy) to the periphery (all others).   

 

Without money funding it, there can't be a sustained generalized increase in the prices of goods and services.   

 

Sure enough, consumer credit, primarily bank credit card growth, continued with its string of record highs. 

 

Salary loan growth also reaccelerated to a new record (in %).  (Figure 1, lowest graph) 

 

The credit card and salary loan data also suggest strong topline performance for retail chain sales in the 1Q. 

Figure 2 

 

In any case, the BSP's recent spate of rate hikes has yet to percolate into credit card growth, although the blazing growth rates (MoM and YoY) seem to be rolling over. (Figure 2, higher window) 

 

Nonetheless, the slowing rate of total bank loan growth—from the industry—has coincided with the decline of the headline CPI.  (Figure 2, lower chart) That is, lesser money chasing fewer goods. 

 

Public Spending, BSP and Bank Net Claims and the USD Php; CORE CPI Segments 

 

How about the other sources of inflation? 

Figure 3 

 

January 2023’s 53.3% MoM plunge in public spending could have contributed to the slowing demand.  Public spending was almost unchanged (+.01% YoY) last February.  (Figure 3, topmost diagram) 

 

With the decline in public spending, direct financing of the deficit by the BSP (net claims on Central Government) also tumbled last March (-15.3% MoM, 46.3% YoY), effectively draining some liquidity from the system, thus partially resulting in the decline of the March CPI. (Figure 3, middle chart) 

 

Nonetheless, banks continue to fund the national government via net claims on the central government.  In February, net claims by banks rose by 17.44% YoY and 2.6% MoM to Php 4.48 trillion—slightly off the December record of Php 4.53 trillion. (Figure 3, lowest window) 

 

So, banks have infused liquidity into the system in lieu of the BSP but at a slower rate. 

Figure 4 

 

The recent firming of the peso or weakening of the USD has also contributed to the fall of the headline CPI. (Figure 4, topmost graph) 

 

Anent the CORE CPI, it is interesting to note that in the segment data of the CPI, declining oil prices have pulled the transport CPI lower, but furnishing, clothing, and personal care/Misc goods CPI accelerated last March. (Figure 4, middle and lowest charts) 

 

Rising Rice Prices and OPEC Oil Production Cuts, the Age of Inflation 2.0 Redux 

 

Figure 5 

 

And though the drop in food and beverage CPI was responsible for most of the decline, the Department of Agriculture recently warned of increases in rice prices.  The food and beverage segment has the largest weighting (37.75%) in the CPI basket.  Rice carries a 9.35% weight.

 

Since 2H 2022 through February 2023, Vietnamese rice prices, the biggest source of Philippine rice imports, have been on an uptrend. (Figure 5, topmost chart) 

 

A rice crisis 2.0 could be the next epicenter of the mainstream's version of inflation. (Prudent Investor, 2023) 

And there is also the reported spreading of the Asian Swine Flu, which may affect the supply of pork. 

It is as if these events have been designed to condition the public for a prolonged bout of inflation.

 

Further, with OPEC and Russia agreeing to a surprise 1.5 million barrels cut in crude oil production, against the interests of the US, this should either diminish the decline or put a floor in oil prices. (Figure 5, second to the highest pane) 

 

And a rebound in global economic growth should spur higher oil prices. 

 

Above all, should the impact of rate hikes, expressed by the falling CPI via reduced credit expansion, result in a sharp drop in the GDP, one should expect authorities to bail out the system through aggressive deficit spending and massive liquidity injections by the BSP—a template used during the pandemic. (Figure 5, second to the lowest pane) 

 

In this context, the sliding CPI should turn the corner and build upon the next upside momentum—to mark the third wave of this inflation subcycle which commenced in 2015. (Figure 5, lowest diagram) 

Consider, even when policy rates remain below the CPI and NGDP, monetary authorities have been signaling a pause.  It means authorities are still relying on bank credit expansion for their GDP.  So why would inflation not remain elevated? 

And this subcycle represents first among other subcycles, which may constitute the age of inflation 2.0. (Prudent Investor, 2023) 

____ 

References 

 

Prudent Investor Newsletters, Philippine Core CPI Forged a New 22-year High!  Signs of Peak 2nd Wave Inflation: Pullback in Bank Lending and BSP Injections, March 12, 2023 Substack, Blogger 

 

Prudent Investor Newsletters, Robinsons Retail’s Record-Breaking 2022 Performance Reveals the Shifting Nature of Inflation, April 3 2023 Substack, Blogger 

 

Prudent Investor Newsletters, Will Rice be the Next Source of Philippine Food Inflation? January 8, 2023 Substack, Blogger 

 

Prudent Investor Newsletters, The 56-Year Philippine Inflation Cycle, December Headline and Core CPI Reinforce the Return to the Age of Inflation, January 8, 2023 Substack, Blogger