THU 07 MAY 2020

Metro Pacific Investments Corporation

1Q20 core earnings in line with forecast

MPI’s 1Q20 core net income declined 6.3% to Php3.4Bil, in line with forecasts, representing
23.9% of COL forecast and 23.3% of consensus forecast. Overall earnings contribution of
subsidiaries declined 5% to Php4.7Bil, brought about by a decline in earnings from Maynilad,
BUY
toll roads and healthcare, offset by higher earnings contribution from the power subsidiaries.
Maynilad and Healthcare group’s earnings trailed estimates, while toll roads and power TICKER: MPI
subsidiaries earnings beat estimates. FAIR VALUE: 6.39
CURRENT PRICE: 2.78
Maynilad’s earnings missed forecast due to lower than expected revenues. Water
distribution subsidiary Maynilad reported an 11.75% decline in 1Q20 core earnings to UPSIDE(%): 129.86
Php1.6Bil, below COL forecast, representing 22.2% of our full year forecast. Revenues rose
0.5% to Php5.7Bil, below forecast, representing 21% of our forecast. Sales volume grew 2%
y/y to 131.3MCM, representing 22% of our full year forecast, while, effective tariff declined SHARE PRICE MOVEMENT
2% to Php43.5/cu.m, 3.2% lower than forecast. Operating expense rose 6% to Php2.77Bil,
representing only 19% of our full year forecast. Management disclosed that it expects sales 120
volume to be flattish to slightly lower during the duration of the ECQ, as higher usage
from residential segment offsets decline in consumption from commercial and industrial 110

accounts. 100

Toll road group earnings in line with forecast. 1Q20 core income of MPI’s toll road 90

subsidiary MPTC declined 17.6% to Php924Mil, representing 26.2% of our full year 80
forecast. Revenues were flat at Php4.2Bil, higher than forecast, representing 29.6% of our
full year forecast. Average daily traffic of NLEX declined 11% as a result of the Luzon 70

ECQ implemented beginning March, while Cavitex’s volume rose 2%. While revenues beat 60
estimates, the group’s operating expenses were also higher than expected. Operating 7-Feb-20 7-Mar-20 7-Apr-20 7-May-20

expense for the toll roads declined 1.3% y/y to Php2.2Bil, representing 34% of our full year MPI PSEi
forecast. Despite the toll road group’s higher than expected revenues in 1Q20, 2Q20 results
will likely weaken further due to the full impact of the ECQ. Management indicated that the
toll roads’ traffic volume has declined 90% initially from pre-ECQ level, but has recovered
towards the end of April(-78% from pre-ECQ). ABSOLUTE PERFORMANCE
1M 3M YTD
FORECAST SUMMARY
MPI 9.88 -13.40 -20.11
Year to Dec. 31 2016 2017 2018 2019 2020E 2021E
PSEi 1.23 -25.75 -27.84
Sales 44,820.0 62,512.0 83,029.0 73,499.0 84,942.1 93,201.3
% change y/y 20.4 39.5 32.8 (11.5) 15.6 9.7
EBIT 24,196.0 29,057.0 36,416.0 37,350.0 38,384.5 41,164.2
% change y/y 19.9 20.1 25.3 2.6 2.8 7.2
MARKET DATA
EBIT Margin (%) 54.0 46.5 43.9 50.8 45.2 44.2
EBITDA 27,154.0 32,121.0 39,733.0 39,873.0 39,214.5 44,843.2 Market Cap 87,397.57Mil
% change y/y 15.1 18.3 23.7 0.4 (1.7) 14.4 Outstanding Shares 31,437.97Mil
EBITDA Margin (%) 60.6 51.4 47.9 54.2 46.2 48.1 52 Wk Range 2.28- 5.28
Net Profits 12,492.5 13,151.0 14,130.0 23,856.0 14,348.1 16,714.1
3Mo Ave Daily T/O 153.40Mil
% change y/y 30.9 5.3 7.4 68.8 (39.9) 16.5
NPM (%) 27.9 21.0 17.0 32.5 16.9 17.9
EPS (Php) 0.397 0.418 0.449 0.759 0.456 0.532
% change y/y 30.9 5.3 7.4 68.8 (39.9) 16.5

RELATIVE VALUE
P/E(X) 7.0 6.6 6.2 3.7 6.1 5.2
P/BV(X) 0.6 0.5 0.5 0.5 0.4 0.4
ROE(%) 8.2 8.2 8.2 12.5 7.1 7.7
Dividend yield (%) 3.6 3.6 4.0 4.0 4.0 4.0
George Ching
BVPS(P) 4.84 5.13 5.51 6.07 6.43 6.86 Senior Research Manager
*So urce: COL estimates george.ching@colfinancial.com

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: 1Q20 CORE EARNINGS IN LINE WITH FORECAST

THU 07 MAY 2020

1Q20 core earnings in line with forecast

MPI’s 1Q20 core net income declined 6.3% to Php3.4Bil, in line with forecasts, representing
23.9% of COL forecast and 23.3% of consensus forecast. Overall earnings contribution
of subsidiaries declined 5% to Php4.7Bil, brought about by a decline in earnings from
Maynilad, toll roads and healthcare, offset by higher earnings contribution from the
power subsidiaries. Maynilad and Healthcare group’s earnings trailed estimates, while toll
roads and power subsidiaries earnings beat estimates. Interest expense declined 11.5%
to Php2.77Bil, exceeding forecast, representing 27.5% of our full year forecast, as the
MPI decided to maintain higher cash level in light of the Covid-19 Enhanced Community
Quarantine(ECQ).

Exhibit 1: MPI 1Q20 core earnings in line with forecast

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

Net Income (core) 3,660 3,430 -6.3 23.9
source: MPIurce:

Exhibit 2: Earnings contribution of Subsidiaries

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

Maynilad 902 859 -4.8 22.2
Toll roads 1,113 918 -17.5 26.2
Meralco and GPC 2,690 2,870 6.7 32.3
Healthcare 242 54 -77.7 15.4
Total 4,947 4,701 -5.0 28.3

source: MPI

MER core earnings beat forecasts on higher than expected

distribution revenues

MER’s 1Q19 net income declined by 53.8% to Php2.6Bil. This was mainly due to the
booking of Php2.7Bil impairment charge related to its gas generation plant in Singapore
(Pacific Light). Excluding non-recurring items, MER’s 1Q20 core profits rose 2.3% to
Php5.7Bil, ahead of COL (29.6%) and consensus forecast (25.9%). Earnings beat estimates
mainly due to higher than expected net distribution revenues. MER’s 1Q20 net distribution
revenues rose by 9.1% to Php15.6Bil, above estimates (1Q normally accounts for 21-22%
of full year net distribution revenues), representing 25% of our full year forecast. FY19
sales volume grew by 4.8% to 10,879 Gwh, representing 24.8% of our full year forecast.
Distribution tariff rose 4.5% Php1.43/kwh, 2.9% higher than forecast.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I MPI: 1Q20 CORE EARNINGS IN LINE WITH FORECAST

THU 07 MAY 2020

The company’s disclosed that sales volume has declined by ~ 27% since the ECQ was
implemented mid-March.

Maynilad’s earnings missed forecast due to lower than

expected revenues

Water distribution subsidiary Maynilad reported an 11.75% decline in 1Q20 core earnings
to Php1.6Bil, below COL forecast, representing 22.2% of our full year forecast. Revenues
rose 0.5% to Php5.7Bil, below forecast, representing 21% of our forecast. Sales volume
grew 2% y/y to 131.3MCM(brought about by an increase residential volume, more than
offsetting a decline in industrial and commercial consumption), representing 22% of
our full year forecast, while, effective tariff declined 2% to Php43.5/cu.m, 3.2% lower
than forecast. Operating expense rose 6% to Php2.77Bil, representing only 19% of our
full year forecast. Maynilad’s earnings missed estimates primarily due to lower than
expected tariff as the increase in sales volume was skewed towards residential customers
(which has lower tariff compared to industrial and commercial customers), and as all the
planned inflation tariff adjustment has been postponed.

Management disclosed that it expects sales volume to be flattish to slightly lower during
the duration of the ECQ, as higher usage from residential segment offsets decline in
consumption from commercial and industrial accounts.

Toll road group earnings in line with forecast

1Q20 core income of MPI’s toll road subsidiary MPTC declined 17.6% to Php924Mil,
representing 26.2% of our full year forecast. Revenues were flat at Php4.2Bil, higher
than forecast, representing 29.6% of our full year forecast. Average daily traffic of NLEX
declined 11% as a result of the Luzon ECQ implemented beginning March, while Cavitex’s
volume rose 2%. While revenues beat estimates, the group’s operating expenses were
also higher than expected. Operating expense for the toll roads declined 1.3% y/y to
Php2.2Bil, representing 34% of our full year forecast.

Despite the toll road group’s higher than expected revenues in 1Q20, 2Q20 results will
likely weaken further due to the full impact of the ECQ. Management indicated that the
toll roads’ traffic volume has declined 90% initially from pre-ECQ level, but has recovered
towards the end of April(-78% from pre-ECQ).

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I MPI: 1Q20 CORE EARNINGS IN LINE WITH FORECAST

THU 07 MAY 2020

Hospital group earnings below estimates

1Q20 core income from the hospital group attributable to MPI declined 77.7% y/y to
Php54Mil, representing 15.4% of our full year forecast. The sharp decline was mainly
due to MPI’s lower effective stake in the hospital group after reducing its ownership
to 20% from 60%. Furthermore, the hospital group’s bed occupancy and admissions
also declined during the period as a result of the impact of Covid-19 (as most patients
postponed scheduled procedures).

Maintaining BUY rating on MPI

We have a BUY rating on MPI with a FV estimate of Php6.39/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 Php2.78/sh, the company is trading at a 61% discount to its NAV
which implies that Maynilad, its toll road business and its stake in the hospital business
are already worthless. MPI is even trading at a discount to the value of its 45.5% stake in
Meralco (MER’s value is equivalent to 116% 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 109% to Php5.80/sh.

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I MPI: 1Q20 CORE EARNINGS IN LINE WITH FORECAST

THU 07 MAY 2020

Metro Pacific INCOME STATEMENT (IN PHPMIL)

Investments Revenues
2015
37,239
2016
44,820
2017
62,512
2018
83,029
2019E
73,499
2020E
84,942
Corporation (MPI) % Growth 10.1% 20.4% 39.5% 32.8% -11.5% 15.6%
EBIT 20,180 24,196 29,057 36,416 37,350 38,385
COMPANY BACKGROUND % Growth 18.1% 19.9% 20.1% 25.3% 2.6% 2.8%
EBITDA 23,587 27,154 32,121 39,733 39,873 39,215
Metro Pacific Investments Corporation % Growth 18.4% 15.1% 18.3% 23.7% 0.4% -1.7%
(MPI) is the Philippine investment arm of Interest Expense (4,465) (4,911) (7,372) (8,892) (9,543) (9,145)
Hong Kong-based First Pacific Company Other Income/Expense 6,198 8,460 11,036 12,734 (11,634) 7,979
Ltd. focused on the country’s infrastructure Pretax Income 16,899 20,937 24,676 29,185 5,001 29,076
Tax Expense (1,825) (4,158) (5,649) (7,008) (4,743) (6,566)
industry. MPI holds interest in companies
Net Income 9,546 12,492 13,151 14,130 23,856 14,348
engaged in water distribution, toll roads,
% Growth 20.2% 30.9% 5.3% 7.4% 68.8% -39.9%
power distribution and hospitals. EPS 0.30 0.40 0.42 0.45 0.76 0.46
% Growth 20.2% 30.9% 5.3% 7.4% 68.8% -39.9%
REVENUE BREAKDOWN
BALANCE SHEET (IN PHPMIL)

8% 2015 2016 2017 2018 2019E 2020E

Cash & Equivalents 26,350 21,901 53,364 52,942 79,708 94,513
8% Trade Receivables 4,441 5,171 10,899 12,495 14,624 14,624
20% Inventories 0 0 0 0 0 0
8%
20% 45% Other Current Assets 5,555 4,728 10,432 12,892 10,905 10,905
45% PPE 8,016 10,480 67,606 71,926 58,591 57,690
20% Other Non-Current Assets 257,818 309,322 361,200 406,441 447,950 453,411
45% Total Assets 302,180 351,602 503,751 557,946 611,778 631,144
Accounts Payable 14,757 14,965 27,142 31,951 36,363 36,363
27%
27% ST Debts 12,699 5,510 19,452 16,081 24,097 24,097
Other Current Liabilities 6,457 6,569 8,283 8,230 14,658 14,658
27% LT Debts 83,433 99,945 185,277 210,866 233,690 233,690
Other Non-Current Liabilities 34,057 36,532 47,918 51,815 56,925 56,925
Water Toll roads andHospital
others and others Others
OthersTotal
Water Toll roads Hospital Liabilities 151,403 163,521 288,072 318,943 365,733 365,733
Water Toll roads Hospital and others Others Total Equity 150,777 188,081 215,679 239,003 246,045 265,411
Total Liabilities & Equity 302,180 351,602 503,751 557,946 611,778 631,144

CASHFLOW STATEMENT (IN PHPMIL)

2015 2016 2017 2018 2019E 2020E
Net Income 9,546 12,492 13,151 14,130 23,856 14,348
Depreciation & Amortization 4,318 4,890 7,277 9,265 22,988 17,478
Other Non-Cash Exp (Gains) 1,794 (2,836) (2,406) 516 (14,211) (8,116)
Interest Expense (Income) 4,465 4,911 7,372 8,892 9,543 9,145
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 49,288 32,776
Capex -42,485 -24,308 -81,160 -51,867 -57,802 -25,348
Other Investments -5,422 -12,807 68,312 26,426 -7,012 10,522
Investing Cash Flow -47,907 -37,115 -12,848 -25,441 -64,814 -14,826
Proceeds (Payment) Debts 26,719 9,385 26,682 23,576 27,976 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 5,596 314
Financing Cash Flow 28,107 17,183 11,720 -783 30,114 -3,144
Change in Cash -1,256 -1,014 25,380 5,772 14,588 14,805

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I MPI: 1Q20 CORE EARNINGS IN LINE WITH FORECAST

THU 07 MAY 2020

INVESTMENT THESIS: KEY RATIOS

2015 2016 2017 2018 2019E 2020E
Major beneficiary of government’s PPP
GPM (%) - - - - -
initiatives
EBITDA Margin (%) 63.3% 60.6% 51.4% 47.9% 54.2% 46.2%
We believe that MPI would be one of the OPM (%) 54.2% 54.0% 46.5% 43.9% 50.8% 45.2%
biggest beneficiary of the government’s PPP NPM (%) 25.6% 27.9% 21.0% 17.0% 32.5% 16.9%
initiatives given its focus on infrastructure Times Interest Earned (X) 4.5 4.9 3.9 4.1 3.9 4.2
and strong financing capability. We Current Ratio (X) 1.07 1.18 1.37 1.41 1.40 1.60
believe that MPI’s expertise in operating Net D/E Ratio (X) 0.9 1.0 1.5 1.6 1.5 1.1
Days Receivable 43.5 42.1 63.6 54.9 72.6 62.8
infrastructure companies like MNTC,
Asset T/O (%) 12.3% 12.7% 12.4% 14.9% 12.0% 13.5%
Maynilad and Meralco will give it an edge in
ROAE (%) 3.6% 3.8% 3.1% 2.7% 4.1% 2.3%
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. 6

 EARNINGS ANALYSIS I MPI: 1Q20 CORE EARNINGS IN LINE WITH FORECAST

THU 07 MAY 2020

Valuation NAV VALUATION

Methodology
Valuation
Value (PhpMil) Value (Php/Sh) % of GAV % of NAV Methodology
Maynilad 23,547 0.7 11.5% 10.6% DCF
Tollways 69,434 2.2 33.9% 31.2% DCF
Meralco/Beacon 101,696 3.2 49.6% 45.6% DCF
Healthcare 5,930 0.2 2.9% 2.7% P/E
LRT 4,289 0.1 2.1% 1.9% DCF
Total 204,896 6.5 100.0% 91.9%
Less: Net Debt -17,987 -0.6
Equity Value 222,884 7.1
Less: Holding Company Discount 22,251 0.7
FV Estimate 200,632 6.39
so urce: COL estimates

COL Financial Group, Inc. 7

 EARNINGS ANALYSIS I MPI: 1Q20 CORE EARNINGS IN LINE WITH FORECAST

THU 07 MAY 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