Metro Pacific Investments Corporation THU 06 AUG 2020

1H20 core earnings trail forecast

MPI’s 1H20 core net income declined 38.4% to Php5.3Bil, below forecasts, representing 45.3%
of COL forecast and 44.2% of consensus forecast. Earnings trailed forecasts mainly due to BUY
higher than expected interest expense. Overall earnings contribution of subsidiaries declined
31% to Php7.7Bil, as all of MPI’s businesses were negatively affected by the impact of Covid-19. TICKER: MPI
FAIR VALUE: 6.90
CURRENT PRICE: 3.20
Maynilad’s earnings beat forecast on lower than expected operating expense. Water UPSIDE(%): 115.63
distribution subsidiary Maynilad reported a 22% decline in 1H20 core earnings to Php3.6Bil,
above COL forecast, representing 57.1% of our full year forecast. Revenues declined 6% to SHARE PRICE MOVEMENT
Php11.4Bil, below forecast, representing 45.2% of our forecast. Sales volume was flat y/y to
269MCM, representing 48% of our full year forecast, while, effective tariff declined 6.6% to 150

Php42.44/cu.m, 5.6% lower than forecast. Earnings beat forecast mainly due to the lower 140

than expected operating expense. Operating expense rose 4.7% to Php5.3Bil, representing 130

only 36% of our full year forecast. 120

110

Toll road group earnings trail estimates on higher than expected operating and 100
interest expense. 1H20 core income of MPI’s toll road subsidiary MPTC declined 62.3% 90
to Php915Mil, representing only 34% of our full year forecast. Revenues declined 31% 80
to Php6.15Bil, but still higher than forecast, representing 55.5% of our full year forecast. 6-May-20 6-Jun-20 6-Jul-20 6-Aug-20

While revenues beat estimates, the group’s profits trail forecast mainly due to higher than MPI PSEi

expected operating and interest expense. Operating expense for the toll roads declined
18% y/y to Php3.7Bil, representing 56% of our full year forecast. Meanwhile, interest
ABSOLUTE PERFORMANCE
expense rose 21% to Php1.2Bil, representing 89% of our full year forecast.
1M 3M YTD
FORECAST SUMMARY MPI -13.51 15.11 -8.05
PSEi -6.73 4.67 -24.47
Year to Dec. 31 2017 2018 2019 2020E 2021E 2022E
Sales 62,512.0 83,029.0 73,499.0 79,687.0 88,838.9 94,189.0
% change y/y 39.5 32.8 (11.5) 8.4 11.5 6.0
EBIT 29,057.0 36,416.0 37,350.0 32,976.7 36,137.0 39,328.6
MARKET DATA
% change y/y 20.1 25.3 2.6 (11.7) 9.6 8.8
EBIT Margin (%) 46.5 43.9 50.8 41.4 40.7 41.8 Market Cap 100,601.52Mil
EBITDA 32,121.0 39,733.0 39,873.0 33,806.7 39,816.0 42,177.6 Outstanding Shares 31,437.97Mil
% change y/y 18.3 23.7 0.4 (15.2) 17.8 5.9
52 Wk Range 2.28- 5.28
EBITDA Margin (%) 51.4 47.9 54.2 42.4 44.8 44.8
3Mo Ave Daily T/O 153.40Mil
Net Profits 13,151.0 14,130.0 23,856.0 11,774.2 14,234.4 16,325.3
% change y/y 5.3 7.4 68.8 (50.6) 20.9 14.7
NPM (%) 21.0 17.0 32.5 14.8 16.0 17.3
EPS (Php) 0.418 0.449 0.759 0.375 0.453 0.519
% change y/y 5.3 7.4 68.8 (50.6) 20.9 14.7

RELATIVE VALUE
P/E(X) 7.6 7.1 4.2 8.5 7.1 6.2
P/BV(X) 0.6 0.6 0.5 0.5 0.5 0.4
ROE(%) 8.2 8.2 12.5 5.9 6.8 7.3 George Ching
Dividend yield (%) 3.1 3.4 3.4 3.4 3.4 3.4 Senior Research Manager
BVPS(P) 5.13 5.51 6.07 6.35 6.70 7.12 george.ching@colfinancial.com
*Source: COL est imat es

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.
 EARNINGS ANALYSIS I MPI: 1H20 CORE EARNINGS TRAIL FORECAST

THU 06 AUG 2020

1H20 core earnings trail forecast

MPI’s 2Q20 core net income declined 61.9% to Php1.9Bil. This brought 1H20 core net
income to Php5.3Bil, down 38.4%, below forecasts, representing 45.3% of COL forecast
and 44.2% of consensus forecast. Earnings trailed forecasts mainly due to higher than
expected interest expense. Interest expense rose 5.4% to Php5.95Bil, higher than
expected, representing 59% of our full year forecast. Overall earnings contribution of
subsidiaries declined 31% to Php7.7Bil, as all of MPI’s businesses were negatively affected
by the impact of Covid-19. Earnings contribution from the power business and Maynilad
exceeded forecast, offset by the toll road, healthcare and LRT’s weaker than expected
performance.

Exhibit 1: MPI 2Q20 results summary

in PhpMil 2Q19 2Q20 % Change 1H20 % of FY COL Forecast

Net Income (core) 5,008 1,907 -61.9 5,337 45.3

source: MPI

Exhibit 2: Earnings contributionof Subsidiaries

in PhpMil 2Q19 2Q20 % Change 1H20 % of FY COL Forecast

Maynilad 1,398 950 -32.0 1,809 57.1
Toll roads 1,312 -3 -100.2 915 34.0
Meralco and GPC 3,372 2,351 -30.3 5,221 59.7
LRT and others 238 -282 -218.5 -236 -151.2
Total 6,240 3,298 -47.1 7,709 52.3
source: MPI

MER core earnings exceed forecast despite weaker than

expected sales volume

Excluding non-recurring items, MER’s 1H20 core net income declined 14% to Php10.56Bil.
The 1H20 results are ahead of COL forecast, representing 54.5% of COL full year forecast,
but lags behind consensus forecast (47.7%). Despite a 7.4% decline in sales volume,
MER’s 1H20 net distribution revenues rose by 2.8% to Php33.4Bil, above estimates,
representing 53.4% of our full year forecast. This was mainly due to a 19% increase in
distribution tariff to Php1.58/kwh (14% above COL forecast) as the sales volume during
1H20 was skewed toward residential customers (which have a higher tariff level). MER
said that it has already made provisions to account for possible downward adjustments
in tariff for the future in light of the change in sales mix. Meanwhile, 1H20 sales volume
declined by 7.4% to 21,139 Gwh, lower than forecast, representing 48.1% of our full year
forecast.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I MPI: 1H20 CORE EARNINGS TRAIL FORECAST

THU 06 AUG 2020

Maynilad’s earnings beat forecast on lower than expected

operating expense

Water distribution subsidiary Maynilad reported a 22% decline in 1H20 core earnings to
Php3.6Bil, above COL forecast, representing 57.1% of our full year forecast. Revenues
declined 6% to Php11.4Bil, below forecast, representing 45.2% of our forecast. Sales
volume was flat y/y to 269MCM(brought about by an increase residential volume, more
than offsetting a decline in industrial and commercial consumption), representing 48% of
our full year forecast, while, effective tariff declined 6.6% to Php42.44/cu.m, 5.6% lower
than forecast. The decline in tariff was the result of sales volume being skewed towards
residential customers (which has lower tariff compared to industrial and commercial
customers), Earnings beat forecast mainly due to the lower than expected operating
expense. Operating expense rose 4.7% to Php5.3Bil, representing only 36% of our full
year forecast.

Toll road group earnings trail estimates on higher than

expected operating and interest expense

1H20 core income of MPI’s toll road subsidiary MPTC declined 62.3% to Php915Mil,
representing only 34% of our full year forecast. Revenues declined 31% to Php6.15Bil, but
still higher than forecast, representing 55.5% of our full year forecast. Average daily traffic
of NLEX declined 35% as a result of the Luzon-wide quarantine implemented beginning
March. The Cavitex’s volume declined 35%, while the SCTEX’s volume declined 40%.
While revenues beat estimates, the group’s profits trail forecast mainly due to higher
than expected operating and interest expense. Operating expense for the toll roads
declined 18% y/y to Php3.7Bil, representing 56% of our full year forecast. Meanwhile,
interest expense rose 21% to Php1.2Bil, representing 89% of our full year forecast.

Management indicated that the toll roads’ traffic volume (NLEX) declined substantially to
as low as 16% of pre-ECQ level (in February), but has steadily increased during May (33%
of pre-ECQ), June (70% of pre-ECQ) and July (90% of pre-ECQ). However, with the return
of the NCR to MECQ this month, management expects traffic volume to decline again by
25% from its July level.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I MPI: 1H20 CORE EARNINGS TRAIL FORECAST

THU 06 AUG 2020

Hospital group earnings below estimates

1H20 core income from the hospital group attributable to MPI declined 98% y/y to
Php9Mil, representing 3% of our full year forecast. The sharp decline was mainly due
to the drop in the hospital group’s bed occupancy and admissions (as most patients
postponed scheduled procedures due to Covid-19), and as personnel and medical
supplies costs increased due to the impact Covid-19.

Maintaining BUY rating on MPI

We are raising our FV estimate for MPI by 7.1% to Php6.9/sh after cutting our risk free
rate assumption to 4% from 6%, and after we rolled over our estimates to 2021. We
are maintaining our BUY rating on MPI. While near term sentiment on MPI will most
likely remain negative due to the uncertainties on Maynilad, we believe that concerns
are overblown given MPI’s depressed valuation. Based on MPI’s current market price
of Php3.07/sh, the company is trading at a 60% discount to its NAV which implies that
Maynilad and its toll road business are already worthless. MPI is trading at a discount of
its 45.5% stake in Meralco, (equivalent to 118% of MPI’s current market capitalization).
Even if we assumed the worst-case scenario where Maynilad would become worthless,
capital appreciation potential based on MPI’s current price is still 107% to Php6.35/sh.

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I MPI: 1H20 CORE EARNINGS TRAIL FORECAST

THU 06 AUG 2020

Metro Pacific INCOME STATEMENT (IN PHPMIL)

Investments Revenues
2017
62,512
2018
83,029
2019E
73,499
2020E
79,687
2021E
88,839
2022E
94,189
Corporation (MPI) % Growth 39.5% 32.8% -11.5% 8.4% 11.5% 6.0%
EBIT 29,057 36,416 37,350 32,977 36,137 39,329
COMPANY BACKGROUND % Growth 20.1% 25.3% 2.6% -11.7% 9.6% 8.8%
EBITDA 32,121 39,733 39,873 33,807 39,816 42,178
Metro Pacific Investments Corporation % Growth 18.3% 23.7% 0.4% -15.2% 17.8% 5.9%
(MPI) is the Philippine investment arm of Interest Expense (7,372) (8,892) (9,543) (9,145) (9,145) (9,145)
Hong Kong-based First Pacific Company Other Income/Expense 11,036 12,734 (11,634) 7,827 7,666 8,835
Ltd. focused on the country’s infrastructure Pretax Income 24,676 29,185 5,001 23,668 26,731 30,320
Tax Expense (5,649) (7,008) (4,743) (4,990) (5,653) (6,787)
industry. MPI holds interest in companies
Net Income 13,151 14,130 23,856 11,774 14,234 16,325
engaged in water distribution, toll roads,
% Growth 5.3% 7.4% 68.8% -50.6% 20.9% 14.7%
power distribution and hospitals. EPS 0.42 0.45 0.76 0.37 0.45 0.52
% Growth 5.3% 7.4% 68.8% -50.6% 20.9% 14.7%
REVENUE BREAKDOWN
BALANCE SHEET (IN PHPMIL)

8% 2017 2018 2019E 2020E 2021E 2022E

Cash & Equivalents 53,364 52,942 79,708 90,682 104,541 121,339
8% Trade Receivables 10,899 12,495 14,624 14,624 14,624 14,624
20% Inventories 0 0 0 0 0 0
8%
20% 45% Other Current Assets 10,432 12,892 10,905 10,905 10,905 10,905
45% PPE 67,606 71,926 58,591 57,690 56,664 55,512
20% Other Non-Current Assets 361,200 406,441 447,950 453,411 458,513 463,257
45% Total Assets 503,751 557,946 611,778 627,313 645,247 665,636
Accounts Payable 27,142 31,951 36,363 36,363 36,363 36,363
27%
27% ST Debts 19,452 16,081 24,097 24,097 24,097 24,097
Other Current Liabilities 8,283 8,230 14,658 14,658 14,658 14,658
27% LT Debts 185,277 210,866 233,690 233,690 233,690 233,690
Other Non-Current Liabilities 47,918 51,815 56,925 56,925 56,925 56,925
Water Toll roads andHospital
others and others Others
OthersTotal
Water Toll roads Hospital Liabilities 288,072 318,943 365,733 365,733 365,733 365,733
Water Toll roads Hospital and others Others Total Equity 215,679 239,003 246,045 261,580 279,514 299,903
Total Liabilities & Equity 503,751 557,946 611,778 627,313 645,247 665,636

CASHFLOW STATEMENT (IN PHPMIL)

2017 2018 2019E 2020E 2021E 2022E
Net Income 13,151 14,130 23,856 11,774 14,234 16,325
Depreciation & Amortization 7,277 9,265 22,988 17,478 6,507 7,219
Other Non-Cash Exp (Gains) (2,406) 516 (21,058) (9,373) (11,354) (4,351)
Interest Expense (Income) 7,372 8,892 9,543 9,145 9,145 9,145
Decrease (Increase) in Working Cap 1,114 -807 5,691 -79 13,297 6,430
Operating Cash Flow 26,508 31,996 41,020 28,944 31,829 34,768
Capex -81,160 -51,867 -57,802 -25,348 -21,407 -12,680
Other Investments 68,312 26,426 34,342 10,522 6,581 -2,146
Investing Cash Flow -12,848 -25,441 -23,460 -14,826 -14,826 -14,826
Proceeds (Payment) Debts 26,682 23,576 36,326 0 0 0
Payment of Cash Dividends -3,144 -3,458 -3,458 -3,458 -3,458 -3,458
Others -11,818 -20,901 -23,824 314 314 314
Financing Cash Flow 11,720 -783 9,044 -3,144 -3,144 -3,144
Change in Cash 25,380 5,772 26,604 10,974 13,859 16,798

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I MPI: 1H20 CORE EARNINGS TRAIL FORECAST

THU 06 AUG 2020

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019E 2020E 2021E 2022E
Major beneficiary of government’s PPP
GPM (%) - - -
initiatives
EBITDA Margin (%) 51.4% 47.9% 54.2% 42.4% 44.8% 44.8%
We believe that MPI would be one of the OPM (%) 46.5% 43.9% 50.8% 41.4% 40.7% 41.8%
biggest beneficiary of the government’s PPP NPM (%) 21.0% 17.0% 32.5% 14.8% 16.0% 17.3%
initiatives given its focus on infrastructure Times Interest Earned (X) 3.9 4.1 3.9 3.6 0.0 0
and strong financing capability. We Current Ratio (X) 1.4 1.4 1.4 1.5 0.0 0
believe that MPI’s expertise in operating Net D/E Ratio (X) 1.5 1.6 1.5 1.1 0.9 0.8
Days Receivable 63.6 54.9 72.6 67.0 60.1 56.7
infrastructure companies like MNTC,
Asset T/O (%) 12.41% 14.88% 12.01% 12.70% 13.77% 14.15%
Maynilad and Meralco will give it an edge in
ROAE (%) 3.07% 2.66% 4.08% 1.90% 2.24% 2.49%
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. Sold 40% of hospital business for Php35.3Bil 10/01/2019

Maynilad: Huge underserved population Acquired PLDT's remaining 25% stake in Beacon for Php21.8Bil 06/01/2017
and favourable concession agreement
translate to attractive earnings growth Sold 4.2% stake in MER @Php250/sh. 06/01/2017

potential
Acquired PLDT's 25% stakein Beacon 05/01/2016
Maynilad’s billed volume has huge growth
potential given that it only serves 92%
Sold 3.6Bil shares to GT Capital (11.4% of expanded capital) 05/01/2016
of the population of its concession area.
Maynilad also benefits from a highly-
Acquired 10% stake in MER from Beacon for Php26.5Bil 04/01/2015
favorable concession agreement wherein
it currently is allowed to increase tariffs
Raised Php8.8Bil via top up placement (1.8Bil common shares) 02/01/2015
and earn a 7.89% after-tax return on
operating expenses, capital maintenance Acquired 5% stake in MER from Beacon at Php13.24Bil 06/01/2014
and investment expenditures. It is also
protected against inflation and forex risk Sold 40% of hospital business for Php11.2Bil 05/01/2014
through annual inflation adjustments and
quarterly forex adjustments on its water Sold via top up placement 1.33Bil common shares at PHp4.60/sh 01/01/2013
rates.

MER: Higher GDP growth to boost power

demand
MPI has an effective 46% 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. 6

 EARNINGS ANALYSIS I MPI: 1H20 CORE EARNINGS TRAIL FORECAST

THU 06 AUG 2020

Valuation NAV VALUATION

Methodology
Valuation
Value (PhpMil) Value (Php/Sh) % of GAV % of NAV Methodology
Maynilad 21,937 0.7 10.0% 9.1% DCF
Tollways 74,640 2.4 33.9% 31.0% DCF
Meralco/Beacon 114,162 3.6 51.9% 47.4% DCF
Healthcare 5,930 0.2 2.7% 2.5% P/E
LRT 3,198 0.1 1.5% 1.3% DCF
Total 219,869 7.0 100.0% 91.3%
Less: Net Debt -20,987 -0.7
Equity Value 240,856 7.7
Less: Holding Company Discount 23,547 0.7
FV Estimate 217,309 6.91
so urce: COL estimates

COL Financial Group, Inc. 7

 EARNINGS ANALYSIS I MPI: 1H20 CORE EARNINGS TRAIL FORECAST

THU 06 AUG 2020

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, CFA 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 KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@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. 8