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Company Report

PHILIPPINE EQUITY RESEARCH

DMCI Holdings: Brownfield enhances future growth potential


Company Update
30 SEPTEMBER 2010

SHARE DATA Semirara to put up 600MW plant. DMCI will be an indirect play on the tight power demand supply
Rating BUY situation in Luzon given plans of its 59% owned Semirara Mining to build a 600 MW coal-fired plant.
Ticker DMC The brownfield plant, which is expected to cost US$800 Mil, is scheduled for completion n FY13 and
Price Target (Php) 33.00 will increase the power generating capacity of Semirara by 214.7% to 1,070MW.
Current Price 27.50
Upside (%) 20.00 Although the brownfield project is still undergoing feasibility studies, we believe there is a strong
likelihood that the project will push through. There is an expected power shortage in FY11. The
expected power shortage would ensure the high utilization rate of the plant and attractive selling
price. Nevertheless, Semirara plans to enter into a strategic partnership with Meralco to reduce
merchant risk. It is also in talks with Marubeni, which it plans to tap as a source of low cost funding
for the project.
ABSOLUTE PERFORMANCE (%)
1M 3M YTD Based on the assumption that the new plant will operated at an average capacity of 85%, and
DMC 28.81 54.93 183.51
that average selling price would be Php4.80/KWh, DMCI’s 2013 profits would grow by Php1.6Bil or
11.8%, due to the new plant. (see exhibit 1)
PSEi 14.97 21.57 34.31
Raising FV estimate to Php33/sh and reiterating BUY. We are increasing our FV estimate by
26.4% from Php26.10/sh to Php33.00/sh. The increase in our FV estimate was largely due to the
30.0% increase in our NAV estimate for Semriara. We also rolled over our forecast to end FY11.

We reiterate our BUY rating on DMC given its strong earnings growth potential. The company
continues to climb the value chain by capitalizing on its core competency of construction and
entering into businesses with attractive earnings growth prospects. DMCI’s valuation is also
MARKET DATA (Php)
attractive. At its current price of Php27.80/sh, the stock is trading at only 7.3X FY11 P/E. This is
Market Cap 73,026.09 Mil
well below the 14.0X average FY11 P/E of the market and the 13.0X average FY11 P/E of local
Outstanding Shares 2,655.49 Mil conglomerates. Although DMCI’s P/E is in line with its historical average of 7.5X, we believe a re-
52 Wk Range (Php) 8.50 - 30.00 rating is warranted. Earnings are expected to grow by a CAGR of 30.5% until FY13, significantly
3 Mo Ave Daily T/O 157.71 Mil higher than its historical average earnings growth of 12.9%. (see exhibit 2)

FORECAST SUMMARY
Year to Dec. 31 2008 2009 2010 2011 2012
Sales 21,158 29,711 48,219 49,962 53,234
% change y/y 49.3 40.4 62.3 3.6 6.6
EBIT 2,255 3,850 7,718 10,511 11,584
% change y/y 15.8 70.7 100.4 36.2 10.2
EBIT Margin (%) 10.7 13.0 16.0 21.0 21.8
EBITDA 3,822 5,343 10,378 13,429 14,651
% change y/y -0.8 39.8 94.2 29.4 9.1
EBITDA Margin (%) 18.1 18.0 21.5 26.9 27.5
Net Profits 1,688 4,683 7,469 10,041 11,597
% change y/y -25.8 177.4 59.5 34.4 15.5
NPM (%) 8.0 15.8 15.5 20.1 21.8
EPS (cents) 0.64 1.76 2.81 3.78 4.37
% change y/y -31.9 175.0 59.8 34.4 15.5

RELATIVE VALUE
P/E(X) 43.0 15.6 9.8 7.3 6.3
P/BV(X) 4.4 3.6 2.7 2.1 1.6
RESEARCH CONTACT ROE(%) 9.1 20.0 24.2 23.9 21.1
Paul Jeffrey Lu Dividend yield(%) 0.4 0.7 1.8 1.8 1.8
paul.lu@citiseconline.com *Source: CitisecOnline estimates
30 SEPTEMBER 2010

Exhibit 1: Calaca Expansion Key Assumptions


FY13
Effective Capacity 600MW
Estimated Cost US$800Mil
Ownership 50%
Average Utilization 85%
Contracted Price Php4.80/KWh
Source: COL estimates

Exhibit 2: Sum Of The Parts Valuation


Subsidiary/Investment Interest Total Value Effective Value NAV/sh
Maynilad 42% 86,940 36,515 13.75
Semirara 59% 69,977 41,286 15.55
Construction 100% 16,991 16,991 6.40
DMCI Homes 100% 12,663 12,663 4.77
186,570 107,455
Net Debt (4,449) (1.68)
Total NAV 103,006 38.79
Holding Company Discount (15,560) (5.86)
Discounted NAV 87,445 32.93
Source: COL estimates

DMC/Company Update/ page 2


Please see the Important Disclosures Section and Ratings Key at the end of this report.
30 SEPTEMBER 2010

INVESTMENT RATING DEFINITIONS

BUY HOLD SELL

Over the next six to twelve Over the next six to twelve Over the next six to twelve
months, we expect the share months, we expect the share months, we expect the share
price to increase by 15% or price move within a range of price to decline by more
more. +/- 15%. than 15%.

TOP PICK DEFINITION


A stock that is included in our “Top Pick” list has to meet the following criteria: 1.) It must belong to a sector with neutral to positive outlook; 2.) It must
have double digit earnings growth for the current and the succeeding fiscal year; 3.) Its share price appreciation potential must be above 15% as of the
date it was included in the list; and 4.) It must have an upward intermediate term trend.

IMPORTANT DISCLAIMERS
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incomplete or condensed. All opinions and estimates constitute the judgment of CitisecOnline’s Equity Research Department as of the date of the report
and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or
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DMC/Company Update/ page 3