Metro Pacific Investments Corporation THU 24 SEP 2020

Demand weakened in August

but posed to recover in September
The recovery in traffic volume for MPI’s domestic toll roads was not able to strengthen further
with the return to stricter MECQ in August. However, on a more positive note, volume recovery BUY
regained momentum in the first two weeks of September as traffic volume average increased
to 412,000/day, representing 81% of pre-ECQ level and only 10% decline y/y . TICKER: MPI
FAIR VALUE: 6.91
Domestic toll road volume stalls in August but recovers during first half of September. CURRENT PRICE: 3.40
The recovery in traffic volume was not able to strengthen further with the return to stricter UPSIDE(%): 102.94
MECQ in August. For the month of August, traffic volume average declined to 352,000/
day (representing 69% of pre-ECQ level and 30% lower y/y). However, on a more positive ABSOLUTE PERFORMANCE
note, volume recovery regained momentum in the first two weeks of September as traffic
1M 3M YTD
volume average increased to 412,000/day (representing 81% of pre-ECQ level and only
MPI 5.92 -12.37 -2.30
10% decline y/y) PSEi -1.65 -5.54 -25.20

MER sales volume recovery fails to sustain momentum with return to MECQ. Following
the shift to general community quarantine in June, total sales volume of MER recovered to
MARKET DATA
3,953GWH (representing already 104% of sales volume during the pre-ECQ level in February
and 8.8% lower y/y, from -26% y/y during April). However, the sales volume recovery was Market Cap 106,889.11Mil
Outstanding Shares 31,437.97Mil
not able to sustain its momentum in the following two months as the number of Covid-19
52 Wk Range 2.28- 5.28
cases in the country spiked up and forced the country to return to stricter quarantine
3Mo Ave Daily T/O 153.40Mil
measures. For the month of August, sales volume declined to 3,673GWH (representing
97% of pre-ECQ level and 7.8% lower y/y).

FORECAST SUMMARY
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
% 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
EBITDA 32,121.0 39,733.0 39,873.0 33,806.7 39,816.0 42,177.6
% change y/y 18.3 23.7 0.4 (15.2) 17.8 5.9
EBITDA Margin (%) 51.4 47.9 54.2 42.4 44.8 44.8
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) 8.1 7.6 4.5 9.1 7.5 6.5
P/BV(X) 0.7 0.6 0.6 0.5 0.5 0.5
ROE(%) 8.2 8.2 12.5 5.9 6.8 7.3 George Ching
Dividend yield (%) 2.9 3.2 3.2 3.2 3.2 3.2 Senior Research Manager
BVPS(P) 5.13 5.51 6.07 6.35 6.70 7.12 [email protected]
*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
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 FIELD NOTES I MPI: DEMAND WEAKENED IN AUGUST BUT POSTED TO RECOVER IN SEPTEMBER

THU 24 SEP 2020

Domestic toll road volume stalls in August but recovers

during first half of September

Following the shift to general community quarantine in June, domestic toll road (NLEX,
SCTEX, Cavitex) volume recovered further to an average of 359,000/day (representing
71% of pre-ECQ level and 30% lower compared to the same period in 2019). However,
the recovery in traffic volume was not able to strengthen further with the return to stricter
MECQ in August. For the month of August, traffic volume average declined to 352,000/
day (representing 69% of pre-ECQ level and 30% lower y/y). However, on a more positive
note, volume recovery regained momentum in the first two weeks of September as traffic
volume average increased to 412,000/day (representing 81% of pre-ECQ level and only
10% decline y/y)

MER sales volume recovery fails to sustain momentum

with return to MECQ

Following the shift to general community quarantine in June, total sales volume of MER
recovered to 3,953GWH (representing already 104% of sales volume during the pre-ECQ
level in February and 8.8% lower y/y, from -26% y/y during April). However, the sales
volume recovery was not able to sustain its momentum in the following two months as
the number of Covid-19 cases in the country spiked up and forced the country to return
to stricter quarantine measures. For the month of August, sales volume declined to
3,673GWH (representing 97% of pre-ECQ level and 7.8% lower y/y).

Maynilad sales volume higher than 2019 level

Based on the most recent data available (as of end-August), Maynilad’s sales volume
during the month was at 46MCM (higher than the 45MCM during pre-ECQ level in
February, and 45MCM in August 2019).

LRT daily passenger volume at 17% of pre-ECQ level

The LRT-1’s operation has resumed beginning June 1. During the first two weeks of
September, average passenger volume was ~ 79,000 per day, representing only 16%
of pre-ECQ level and 83% lower compared to September 2019. The main reason for
the weak recovery in passenger volume was the capacity restriction set by the Land
Transportation Franchising Regulatory Board (LTFRB) at 13% of the LRT-1’s capacity in
light of the current Covid-19 pandemic.

COL Financial Group, Inc. 2

 FIELD NOTES I MPI: DEMAND WEAKENED IN AUGUST BUT POSTED TO RECOVER IN SEPTEMBER

THU 24 SEP 2020

Maintaining BUY rating on MPI

We have a BUY rating on MPI with a FV estimate of Php6.91/sh. 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 Php3.47/sh, the company is trading at a 55% 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 105% 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 83%
to Php6.35/sh.

COL Financial Group, Inc. 3

 FIELD NOTES I MPI: DEMAND WEAKENED IN AUGUST BUT POSTED TO RECOVER IN SEPTEMBER

THU 24 SEP 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. 4

 FIELD NOTES I MPI: DEMAND WEAKENED IN AUGUST BUT POSTED TO RECOVER IN SEPTEMBER

THU 24 SEP 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. 5

 FIELD NOTES I MPI: DEMAND WEAKENED IN AUGUST BUT POSTED TO RECOVER IN SEPTEMBER

THU 24 SEP 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. 6

 FIELD NOTES I MPI: DEMAND WEAKENED IN AUGUST BUT POSTED TO RECOVER IN SEPTEMBER

THU 24 SEP 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
[email protected]

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
[email protected] [email protected] [email protected]

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
[email protected] [email protected] [email protected]

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
[email protected] [email protected]

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. 7