FRIDAY, 03 JUNE 2016

Metro Pacific Investments Corporation:

Positive impact of new power investments offset
SHARE DATA
by negative ERC resolution
Rating BUY
We are raising our 2016E and 2017E EPS forecast for MPI by 1% and 2.7% to Php0.393 and Ticker MPI
Php0.381, as the reduction in our net income estimate for MER and the earnings dilution resulting Fair Value (Php) 6.56
from MPI’s issuance of new shares will be more than offset by the increase in earnings brought about Current Price 6.09
by its larger ownership of Beacon and the latter’s acquisition of GBPC. Despite the increase in our Upside (%) 7.72
earnings estimates, we are reducing our FV estimate for MPI by 4.4% to Php6.56/sh. Although the
new acquisitions in the power industry are value accretive, the increase is not enough to offset the
negative impact of ERC resolution No. 11 on the value of MER shares.

• MPI increasing its investments in power. On May 27th, MPI announced its plans to boost SHARE PRICE MOVEMENT
its power investments through a series of transactions. First, it increased its stake in Beacon 110

Electric Holdings (Beacon) from 50% to 75% through the acquisition of PLDT’s stake in Beacon.
To finance these transactions, MPI issued 3.6Bil primary shares to GT Capital (equivalent to
100
11.4% of MPI’s expanded capital) at Php6.10/sh raising Php21.96Bil in fresh capital for the
Company. Bulk of the amount raised (77.4% or Php17Bil) was paid to PLDT to acquire its 25%
stake in Beacon. Meanwhile, to raise its own capital to fund the acquisition of GBPC, Beacon 90
sold Php7.0 Bil worth of preferred shares to MPI and PLDT (50% each) and it borrowed Php11.0
Bil.
80
3-Mar-16 3-Apr-16 3-May-16 3-Jun-16
• GBPC and Beacon deals have positive overall impact on MPI. Based on our estimates, the MPI PSEi
GBPC and Beacon deals have an overall positive impact on MPI in terms of both earnings (EPS)
and FV estimate. Although MPI issued 3.6Bil in primary shares to GTCAP at an 11.1% discount
to our FV estimate, this was more than offset by the attractive price at which MPI acquired its
additional 25% stake in Beacon and the significant discount at which Beacon purchase of a
majority stake in GBPC. ABSOLUTE PERFORMANCE

1M 3M YTD
• To be negatively affected by ERC resolution No. 11. Based on our estimates, the ERC’s
MPI 7.41 0.00 17.12
resolution No.11 (and information provided by MER of its RES unit) will reduce MER’s 2016E
PSEi 5.82 12.38 7.37
earnings by 2.8% to Php20.3Bil, and 2017E earnings by 4.1% to Php14.3Bil. We also reduced
our FV estimate for MER by 9.9% to Php295.5/sh given our assumption that MER’s RES
business will cease to operate in three years. Given MPI’s 41.2% effective stake in MER, this
development resulted to a 5.5% or Php0.38/sh reduction on our FV estimate for MPI.
MARKET DATA
FORECAST SUMMARY Market Cap 191,457.26Mil
Year to Dec. 31 2012 2013 2014 2015 2016E 2017E
Outstanding Shares 31,437.97Mil
Sales 27,806.8 30,877.0 33,832.0 37,239.0 43,531.2 49,101.0
% change y/y 26.0 11.0 9.6 10.1 16.9 12.8 52 Wk Range 4.29 - 6.35
EBIT 13,491.1 15,057.0 17,094.0 20,180.0 25,535.5 27,948.3 3Mo Ave Daily T/O 153.40Mil
% change y/y 16.2 11.6 13.5 18.1 26.5 9.4
EBIT Margin (%) 48.5 48.8 50.5 54.2 58.7 56.9
EBITDA 16,890.8 18,291.7 19,919.0 23,587.0 28,493.5 31,012.3
% change y/y 16.8 8.3 8.9 18.4 20.8 8.8
EBITDA Margin (%) 60.7 59.2 58.9 63.3 65.5 63.2
Net Profits 6,388.2 7,209.0 7,940.0 9,546.0 11,640.6 11,982.3
% change y/y 37.9 12.8 10.1 20.2 21.9 2.9
NPM (%) 23.0 23.3 23.5 25.6 26.7 24.4
EPS (Php) 0.20 0.23 0.25 0.30 0.3928 0.3811
% change y/y 37.9 12.8 10.1 20.2 29.3 (3.0)

RELATIVE VALUE
George Ching
P/E(X) 30.0 26.6 24.1 20.1 15.5 16.0 george.ching@colfinancial.com
P/BV(X) 2.4 2.0 1.8 1.6 1.4 1.3
ROE(%) 8.0 7.6 7.7 8.0 8.3 7.9
Dividend yield (%) 0.4 0.5 1.4 1.6 1.6 1.6
BVPS(P) 2.53 3.00 3.30 3.81 4.46 4.85
*Source: COL est imat es
 PHILIPPINE EQUITY RESEARCH

MPI increasing its investments in power

On May 27th, MPI announced its plans to boost its power investments through a series of transactions.
First, it increased its stake in Beacon Electric Holdings (Beacon) from 50% to 75% through the
acquisition of PLDT’s stake in Beacon. Note that Beacon is a holding company which owns 35% of
Meralco. MPI and PLDT each had a 50% stake in Beacon prior to the transaction. The additional
Beacon stake was acquired for Php26.2Bil, with Php17Bil payable upfront and the balance payable
in four years.

In addition to increasing its stake in Beacon, MPI increased its investment in the power sector
indirectly as Beacon acquired a controlling 56% interest in GBPC from GT Capital for Php22.06Bil.
GBPC is one of Visayas’ biggest power generation companies, with a total power generation capacity
of 661.5MW (beneficial capacity of 513MW). Coal fired power plants account for around 77% of its
generation capacity. The earnings outlook of GBPC is also very positive as it is planning to boost its
capacity by 128% or 850MW in the next five years.

To finance these transactions, MPI issued 3.6Bil primary shares to GT Capital (equivalent to 11.4%
of MPI’s expanded capital) at Php6.10/sh raising Php21.96Bil in fresh capital for the Company. Bulk
of the amount raised (77.4% or Php17Bil) was paid to PLDT to acquire its 25% stake in Beacon.
Meanwhile, to raise its own capital to fund the acquisition of GBPC, Beacon sold Php7.0 Bil worth of
preferred shares to MPI and PLDT (50% each) and it borrowed Php11.0 Bil.

GBPC and Beacon deals have positive overall impact on MPI

Based on our estimates, the GBPC and Beacon deals have an overall positive impact on MPI in
terms of both earnings (EPS) and FV estimate. Although MPI issued 3.6Bil in primary shares to
GTCAP at an 11.1% discount to our FV estimate, this was more than offset by the attractive price at
which MPI acquired its additional 25% stake in Beacon and the significant discount at which Beacon
purchase of a majority stake in GBPC. Based on the Php26.2Bil acquisition cost of the 25% stake in
Beacon (which holds a 35% stake in MER), the implied per share price of MER is Php281/sh. This is
4.9% below to our FV estimate for MER of Php295.5/sh. Meanwhile, Beacon acquired a 56% stake
in GBPC for Php22.06Bil, 20.6% below our NAV estimate for the company.

To be negatively affected by ERC resolution No. 11

Also on May 27, the ERC issued resolution No. 11 (series 26), effectively restricting power distribution
utilities such as MER from participating in the country’s retail electricity supply (RES) industry and
forcing MER to wind down its RES businesses within three years from the effectivity of the rules.
Based on our estimates, the ERC’s resolution No.11 (and the additional information provided by MER
of its RES business) will reduce MER’s 2016E earnings by 2.8% to Php20.3Bil, and 2017E earnings
by 4.1% to Php14.3Bil. We also reduced our FV estimate for MER by 9.9% to Php295.5/sh given our
assumption that MER’s RES business will cease to operate in three years.

FRIDAY, 03 JUNE 2016 MPI I COMPANY UPDATE page 2

 PHILIPPINE EQUITY RESEARCH

Given MPI’s 41.2% effective stake in MER, this development resulted to a 5.5% or Php0.38/sh
reduction on our FV estimate for MPI.

Reducing FV estimate, downgrading to HOLD

In light of the latest series of developments, we are raising our 2016E and 2017E EPS forecast
for MPI by 1% and 2.7% to Php0.393 and Php0.381, as the reduction in our net income estimate
for MER and the earnings dilution resulting from MPI’s issuance of new shares will be more than
offset by the increase in earnings brought about by its larger ownership of Beacon and the latter’s
acquisition of GBPC.

Despite the increase in our earnings estimates, we are reducing our FV estimate for MPI by 4.4%
to Php6.56/sh. Although the new acquisitions in the power industry (Beacon and GBPC) are value
accretive, the increase is not enough to offset the negative impact of ERC resolution No. 11 on the
value of MER shares.

We are also downgrading our rating on MPI to HOLD from BUY. Fundamentally, we like MPI due to
its focus on businesses that have massive growth potential due to underinvestment and population
growth. However, during the past month, shares of MPI increased by 7.4% as it is expected to be
a major beneficiary of the incoming administration’s plans to accelerate infrastructure development.
As a result, valuations are no longer attractive. Based on our FV estimate of Php6.56/sh, capital
appreciation potential is limited at 8%.

FRIDAY, 03 JUNE 2016 MPI I COMPANY UPDATE page 3

 PHILIPPINE EQUITY RESEARCH

Investment Rating Definitions

BUY HOLD SELL

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
twelve months.
Stocks that have a HOLD rating have either We dislike both the valuations and
1.) attractive fundamentals but expensive fundamentals of stocks with a SELL rating.
valuations; 2.) attractive valuations but We expect the share price to underperform in
near term earnings outlook might be poor the next six to twelve months.
or vulnerable to numerous risks. Given the
said factors, the share price of the stock may
perform merely inline or underperform the
market in the next six to twelve months.

Important Disclaimers

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 it 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 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 ans/or its employees not involved in the preparation of this report may have investments in securities or derivatives of securities of
securities of the companies mentioned in this report, and may trade them in ways different from those discussed in this report.

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FRIDAY, 03 JUNE 2016 MPI I COMPANY UPDATE page 4