Metro Pacific Investments Corporation THU 05 SEPT 2019

MPI files for Php83Bil IPO of hospital

group, adding MPI to COLing the Shots
stock picks
MPI files for Php83Bil IPO of hospital group. MPI’s hospital business arm, Metro Pacific
Hospital Holdings Inc. (MPHHI) has filed a prospectus with the Securities and Exchange
BUY
Commission (SEC) for the initial public offering (IPO) of MPHHI. The IPO consists of primary
shares up to 35.8Mil common shares and secondary shares up to 381.3Mil shares with an TICKER: MPI
overallotment option of up to 40.8Mil shares. The shares will be offered at a maximum FAIR VALUE: 8.19
price of Php182/sh. The final offer price will be announced by November 14, while the
offer period is from November 18 to 22. Its shares are expected to be listed on December CURRENT PRICE: 4.99
2 under the ticker HOSP. UPSIDE: 64.13
Based on the details available, the IPO puts MPHHI’s market capitalization (pre-IPO,
assuming maximum price) at Php111.2Bil, in line with MPI’s previous estimate of US$2Bil.
We estimate that MPI will be selling its entire stake in the hospital group business, and SHARE PRICE MOVEMENT
potentially raising Php66.7Bil from the IPO. The amount will enable MPI to fund investments
in the toll road business worth Php100Bil over the next five years. 120

Maintaining BUY rating on MPI, adding to COLing the Shots stock picks. We are
maintaining our BUY rating on MPI with a FV estimate of Php8.19/sh. MPI’s share price 110
has declined by 8.4% in the past 12 months, underperforming the PSEi which is up by
0.1% during the same period. We believe that the underperformance was mainly due to
regulatory concerns surrounding its water and toll roads businesses. However, we believe 100

that these concerns are overblown. Maynilad has already won its second arbitration case
against the government. Meanwhile, MPTC has already secured the first tranche of toll hike 90
this year for the NLEX and SCTEX, and is awaiting approval for the toll hike application
for its other toll roads. Moreover, valuations are already very attractive. Based on MPI’s
current market price of Php5.0/sh, the company is trading at a 46% discount to its NAV. 80

The toll road business and Maynilad are nearly worthless as investors are only paying for 5-Jun-19 5-Jul-19 5-Aug-19 5-Sep-19

MPI’s 45.5% stake in Meralco (representing 93% of MPI’s market value). MPI is now trading MPI PSEi
at only 9.9X 2019E P/E, a discount relative to the 14.6X average P/E of its industry peers.
Lastly, we are adding MPI to our COLing the Shots stock picks. We believe that the pending
IPO of MPHHI has further unlocked the value of MPI. Furthermore, this would alleviate
concerns that MPI would need to raise new equity to fund its expansion in the toll road ABSOLUTE PERFORMANCE
business. Based on its current market price, upside to our FV estimate of Php8.19/sh is 1M 3M YTD
significant at 63.8%.
MPI 3.96 11.38 6.17
FORECAST SUMMARY PSEi -3.55 -1.31 5.02
Year to Dec. 31 2016 2017 2018 2019E 2020E 2021E
Sales 44,820.0 62,512.0 83,029.0 82,849.2 88,316.1 96,618.3
% change y/y 20.4 39.5 32.8 (0.2) 6.6 9.4
EBIT 24,196.0 29,057.0 36,416.0 41,782.0 39,600.1 43,091.1
MARKET DATA
% change y/y 19.9 20.1 25.3 14.7 (5.2) 8.8 Market Cap 156,875.49Mil
EBIT Margin (%) 54.0 46.5 43.9 50.4 44.8 44.6
EBITDA 27,154.0 32,121.0 39,733.0 44,305.0 40,430.1 46,770.1
Outstanding Shares 31,437.97Mil
% change y/y 15.1 18.3 23.7 11.5 (8.7) 15.7 52 Wk Range 4.11- 5.35
EBITDA Margin (%) 60.6 51.4 47.9 53.5 45.8 48.4 3Mo Ave Daily T/O 153.40Mil
Net Profits 12,717.9 13,151.0 14,130.0 15,802.2 12,294.2 15,108.8
% change y/y 33.2 3.4 7.4 11.8 (22.2) 22.9
NPM (%) 28.4 21.0 17.0 19.1 13.9 15.6
EPS (Php) 0.405 0.418 0.449 0.503 0.391 0.481
% change y/y 33.2 3.4 7.4 11.8 (22.2) 22.9

RELATIVE VALUE
P/E(X) 12.3 11.9 11.1 9.9 12.8 10.4
P/BV(X) 1.0 1.0 0.9 0.8 0.8 0.7 George Ching
ROE(%) 8.4 8.2 8.2 8.5 6.3 7.2 Senior Research Manager
Dividend yield (%) 2.0 2.0 2.2 2.2 2.2 2.2
george.ching@colfinancial.com
BVPS(P) 4.84 5.13 5.51 5.92 6.21 6.69
*So urce: COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of the
COL Financial website as these may be subject to tampering or unauthorized alterations.
 COMPANY UPDATE I MPI: MPI FILES FOR PHP83BIL IPO OF HOSPITAL GROUP,
ADDING MPI TO COLING THE SHOTS STOCK PICKS

THU 05 SEPT 2019

Metro Pacific INCOME STATEMENT (IN PHPMIL)

Investments Revenues
2015
37,239
2016
44,820
2017
62,512
2018
83,029
2019E
82,849
2020E
88,316
Corporation (MPI) % Growth 10.1% 20.4% 39.5% 32.8% -0.2% 6.6%
EBIT 20,180 24,196 29,057 36,416 41,782 39,600
COMPANY BACKGROUND % Growth 18.1% 19.9% 20.1% 25.3% 14.7% -5.2%
EBITDA 23,587 27,154 32,121 39,733 44,305 40,430
Metro Pacific Investments Corporation % Growth 18.4% 15.1% 18.3% 23.7% 11.5% -8.7%
(MPI) is the Philippine investment arm of Interest Expense (4,465) (4,911) (7,372) (8,892) (10,837) (10,938)
Hong Kong-based First Pacific Company Other Income/Expense 6,198 8,460 11,036 12,734 9,456 5,122
Ltd. focused on the country’s infrastructure Pretax Income 16,899 20,937 24,676 29,185 30,811 28,499
industry. MPI holds interest in companies Tax Expense (1,825) (4,158) (5,649) (7,008) (7,070) (7,717)
Net Income 9,546 12,718 13,151 14,130 15,802 12,294
engaged in water distribution, toll roads,
% Growth 20.2% 33.2% 3.4% 7.4% 11.8% -22.2%
power distribution and hospitals. EPS 0.30 0.40 0.42 0.45 0.50 0.39
% Growth 20.2% 33.2% 3.4% 7.4% 11.8% -22.2%
REVENUE BREAKDOWN
BALANCE SHEET (IN PHPMIL)

8% 2015 2016 2017 2018 2019E 2020E

Cash & Equivalents 26,350 21,901 53,364 52,942 68,796 82,175
8% Trade Receivables 4,441 5,171 10,899 12,495 12,495 12,495
20% Inventories 0 0 0 0 0 0
8%
20% 45% Other Current Assets 5,555 4,728 10,432 12,892 12,892 12,892
45% PPE 8,016 10,480 67,606 71,926 70,013 67,975
20% Other Non-Current Assets 257,818 309,322 361,200 406,441 413,097 419,394
45% Total Assets 302,180 351,602 503,751 557,946 578,543 596,181
Accounts Payable 14,757 14,965 27,142 31,951 31,951 31,951
27%
27% ST Debts 12,699 5,510 19,452 16,081 16,081 16,081
Other Current Liabilities 6,457 6,569 8,283 8,230 8,230 8,230
27% LT Debts 83,433 99,945 185,277 210,866 210,866 210,866
Other Non-Current Liabilities 34,057 36,532 47,918 51,815 51,815 51,815
Water Water
Toll roads Toll roads andHospital
Hospital others and others Others
OthersTotal Liabilities 151,403 163,521 288,072 318,943 318,943 318,943
Water Toll roads Hospital and others Others Total Equity 150,777 188,081 215,679 239,003 259,600 277,238
Total Liabilities & Equity 302,180 351,602 503,751 557,946 578,543 596,181

CASHFLOW STATEMENT (IN PHPMIL)

2015 2016 2017 2018 2019E 2020E
Net Income 9,546 12,718 13,151 14,130 15,802 12,294
Depreciation & Amortization 4,318 4,890 7,277 9,265 10,063 6,030
Other Non-Cash Exp (Gains) 1,794 (3,062) (2,406) 516 (10,010) 2,147
Interest Expense (Income) 4,465 4,911 7,372 8,892 10,837 10,938
Decrease (Increase) in Working Cap -1,579 -539 1,114 -807 7,112 -79
Operating Cash Flow 18,544 18,918 26,508 31,996 33,804 31,329
Capex -42,485 -24,308 -81,160 -51,867 -14,806 -12,680
Other Investments -5,422 -12,807 68,312 26,426 0 -2,126
Investing Cash Flow -47,907 -37,115 -12,848 -25,441 -14,806 -14,806
Proceeds (Payment) Debts 26,719 9,385 26,682 23,576 0 0
Payment of Cash Dividends -3,144 -3,144 -3,144 -3,458 -3,458 -3,458
Others 4,532 10,942 -11,818 -20,901 314 314
Financing Cash Flow 28,107 17,183 11,720 -783 -3,144 -3,144
Change in Cash -1,256 -1,014 25,380 5,772 15,854 13,379

COL Financial Group, Inc. 2

 COMPANY UPDATE I MPI: MPI FILES FOR PHP83BIL IPO OF HOSPITAL GROUP,
ADDING MPI TO COLING THE SHOTS STOCK PICKS

THU 05 SEPT 2019

INVESTMENT THESIS: KEY RATIOS

Major beneficiary of government’s PPP 2015 2016 2017 2018 2019E 2020E
GPM (%) - - - - -
initiatives
EBITDA Margin (%) 63.3% 60.6% 51.4% 47.9% 53.5% 45.8%
We believe that MPI would be one of the
OPM (%) 54.2% 54.0% 46.5% 43.9% 50.4% 44.8%
biggest beneficiary of the government’s PPP NPM (%) 25.6% 28.4% 21.0% 17.0% 19.1% 13.9%
initiatives given its focus on infrastructure Times Interest Earned (X) 4.5 4.9 3.9 4.1 3.9 3.6
and strong financing capability. We Current Ratio (X) 1.07 1.18 1.37 1.41 1.70 1.93
believe that MPI’s expertise in operating Net D/E Ratio (X) 0.9 1.0 1.5 1.6 1.3 0.9
infrastructure companies like MNTC, Days Receivable 43.5 42.1 63.6 54.9 55.0 51.6
Asset T/O (%) 12.3% 12.7% 12.4% 14.9% 14.3% 14.8%
Maynilad and Meralco will give it an edge in
ROAE (%) 3.6% 3.9% 3.1% 2.7% 2.8% 2.1%
participating in the PPP projects. It also has
an advantage in obtaining cheap financing
MAJOR CORPORATE DEVELOPMENTS (5-YEARS)
given it is an affiliate of First Pacific Ltd of
HK. Acquired PLDT's remaining 25% stake in Beacon for Php21.8Bil 06/01/2017

Maynilad: Huge underserved population Sold 4.2% stake in MER @Php250/sh. 06/01/2017
and favourable concession agreement
translate to attractive earnings growth Acquired PLDT's 25% stakein Beacon 05/01/2016
potential
Maynilad’s billed volume has huge growth Sold 3.6Bil shares to GT Capital (11.4% of expanded capital) 05/01/2016

potential given that it only serves 92%

Acquired 10% stake in MER from Beacon for Php26.5Bil 04/01/2015
of the population of its concession area.
Maynilad also benefits from a highly-
Raised Php8.8Bil via top up placement (1.8Bil common shares) 02/01/2015
favorable concession agreement wherein
it currently is allowed to increase tariffs
Acquired 5% stake in MER from Beacon at Php13.24Bil 06/01/2014
and earn a 7.89% after-tax return on
operating expenses, capital maintenance
Sold 40% of hospital business for Php11.2Bil 05/01/2014
and investment expenditures. It is also
protected against inflation and forex risk Sold via top up placement 1.33Bil common shares at PHp4.60/sh 01/01/2013
through annual inflation adjustments and
quarterly forex adjustments on its water
rates.

MER: Higher GDP growth to boost power

demand
MPI has an effective 41.2% stake in MER.
We like MER given that it will be the main
beneficiary of the country’s rising power
demand, resulting from the country’s
accelerating GDP growth Meralco believes
that there is a high correlation between
the country’s GDP growth and power
consumption.

COL Financial Group, Inc. 3

 COMPANY UPDATE I MPI: MPI FILES FOR PHP83BIL IPO OF HOSPITAL GROUP,
ADDING MPI TO COLING THE SHOTS STOCK PICKS

THU 05 SEPT 2019

Valuation NAV VALUATION

Methodology
Valuation
Value (PhpMil) Value (Php/Sh) % of GAV % of NAV Methodology
Maynilad 49,408 1.6 16.3% 17.0% DCF
Tollways 84,876 2.7 28.0% 29.2% DCF
Meralco/Beacon 146,137 4.6 48.3% 50.3% DCF
Healthcare 17,958 0.6 5.9% 6.2% P/E
LRT 4,289 0.1 1.4% 1.5% DCF
Total 302,668 9.6 100.0% 104.2%
Less: Net Debt 12,113 0.4
Equity Value 290,555 9.2
Less: Holding Company Discount 33,412 1.1
FV Estimate 257,143 8.2
so urce: COL estimates

COL Financial Group, Inc. 4

 COMPANY UPDATE I MPI: MPI FILES FOR PHP83BIL IPO OF HOSPITAL GROUP,
ADDING MPI TO COLING THE SHOTS STOCK PICKS

THU 05 SEPT 2019

I MP OR TA NT R AT ING DEFINITIONS
BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the
next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might
be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the
next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

I MP OR TA NT DISC L AIM ER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may
be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are
subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of
a security. COL Financial and/or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies
mentioned in this report and may trade them in ways different from those discussed in this report.

C O L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG

SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU
RESEARCH ANALYST
adrian.yu@colfinancial.com

C O L F INANC IAL G R O UP, I NC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 5