Cemex Holdings Philippines, Inc.

WED 05 MAY 2021

1Q21 operating EBITDA below COL

estimates on lower-than-expected
revenues
1Q21 operating EBITDA below COL estimates on lower-than-expected revenues.
CHP’s 1Q21 core earnings grew 147.8% y/y to Php355Mil. Note that this excludes forex BUY
losses, other income, and a one-time tax expense amounting to Php117Mil related to
the revaluation of deferred tax assets. The growth in core earnings was attributable to
lower net financial expenses during the quarter. 1Q21 net financial expenses dropped by TICKER: CHP
77.6% to Php63Mil due to lower debt levels and lower interest rates. Meanwhile, operating FAIR VALUE: 1.70
performance, as measured by operating EBITDA, dropped by 5.2% y/y to Php1.0Bil due to
lower revenues. This is below COL estimate accounting for 22.9% of our full year forecast CURRENT PRICE: 1.17
but in line consensus estimates at 26.2%. The miss in our estimate was mainly due to lower- UPSIDE: 45.30
than-expected revenues.
Revenues decline on lower volumes and ASP. CHP’s 1Q21 revenues dropped by 7.6% y/y SHARE PRICE MOVEMENT
to Php5.2Bil due to both lower volumes and ASP. 1Q21 volumes dropped by 4% y/y due to
the pandemic. On a sequential basis, volumes grew 14% as construction activity gradually
improved. Meanwhile, 1Q21 ASP declined by 4% y/y due to the higher proportion of pick- 110

up sales in the sales mix. Moving forward, we expect volumes to slightly decline with the
re-imposition of the enhanced community quarantine (ECQ) in the National Capital Region
(NCR) and neighboring provinces. Nevertheless, we remain optimistic that construction
100

activity will pick up again in the second half of the year with the eventual easing of
restrictions. 90

ASP to remain weak due to intense competition from imports. We expect ASP to remain
weak due to intensifying competition mainly from cement imports. Specifically, cement 80

products from Vietnam are allegedly entering the Philippine market at dumped prices.
Even with the imposition of safeguard duty, the imports are being sold here at prices lower 70
than the normal value in its home country. Moreover, it is estimated that the imports are 5-Feb-21 5-Mar-21 5-Apr-21 5-May-21
undercutting prices of domestic cement by as much as 24%. The Department of Trade and
Industry (DTI) said that it will be conducting a probe on this and on the possible imposition
CHP PSEi

of anti-dumping duty on imported cement.

Maintain BUY rating. Accordingly, we are reducing our FV estimate on CHP to Php1.7/ ABSOLUTE PERFORMANCE
sh. Although the cement industry is facing some challenges such as persisting lockdown
and competition from imports, we believe these are only expected to be temporary. We 1M 3M YTD
remain optimistic on the construction industry’s recovery as the government ramps up
infrastructure building and as property firms resume their deferred projects this year. At its CHP -4.88 -16.43 -19.31
current price of Php1.20/sh, upside potential to our FV estimate remains significant at 42%. PSEi -4.41 -10.25 -11.77
As such, we are maintaining our BUY rating on CHP.
FORECAST SUMMARY
Year to Dec. 31 2017 2018 2019 2020 2021E 2022E MARKET DATA
Revenues 21,784 23,418 23,596 19,707 20,445 22,939
% change y/y (12.2) 7.5 0.8 (16.5) 3.7 12.2 Market Cap 15,782.40Mil
EBIT 1,760 1,324 2,350 1,777 1,584 2,065 Outstanding Shares 13,489.2Mil
% change y/y (61.9) (24.8) 77.5 (24.4) (10.9) 30.3
52 Wk Range 0.86 - 1.84
EBIT Margin (%) 8.1 5.7 10.0 9.0 7.7 9.0
Net Profit 659 -930 1,280 985 805 1,224 3Mo Ave Daily T/O 4.91Mil
% change y/y (53.4) (241.2) (237.6) (23.0) (18.3) 52.0
NPM (%) 3.0 (4.0) 5.4 5.0 3.9 5.3
Core net income 952 -556 818 845 805 1,224
% change y/y (69.4) (158.5) (247.0) 3.3 (4.7) 52.0
NPM (%) 4.4 (2.4) 3.5 4.3 3.9 5.3
EPS 0.13 -0.18 0.25 0.08 0.06 0.09
% change y/y (74.0) (238.5) (238.9) (68.0) (25.4) 52.0

RELATIVE VALUE Frances Rolfa Nicolas

P/E(X) 9.2 (6.7) 4.8 15.0 20.1 13.2
P/BV(X) 0.2 0.2 0.2 0.3 0.4 0.4
Research Analyst
ROE(%) 2.3 (3.2) 4.4 2.7 1.9 2.8 rolfa.nicolas@colfinancial.com
BVPS(P) 5.7 5.6 5.7 3.5 3.2 3.3
so urce: CHP

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 CHP: 1Q21 OPERATING EBITDA BELOW COL ESTIMATES ON
LOWER-THAN-EXPECTED REVENUES

WED 05 MAY 2021

1Q21 operating EBITDA below COL estimates on lower-

than-expected revenues

CHP’s 1Q21 core earnings grew 147.8% y/y to Php355Mil. Note that this excludes forex
losses, other income, and a one-time tax expense amounting to Php117Mil related to the
revaluation of deferred tax assets. The growth in core earnings was attributable to lower
net financial expenses during the quarter. 1Q21 net financial expenses dropped by 77.6%
to Php63Mil due to lower debt levels and lower interest rates. Meanwhile, operating
performance, as measured by operating EBITDA, dropped by 5.2% y/y to Php1.0Bil due to
lower revenues. This is below COL estimate accounting for 22.9% of our full year forecast
but in line consensus estimates at 26.2%. The miss in our estimate was mainly due to
lower-than-expected revenues.

Exhibit 1: Results Summary

% of estimates
in PhpMil 1Q20 1Q21 % change COL consensus
Net Sales 5,630 5,202 (7.6) 23.5 24.4
Gross Profit 2,354 2,023 (14.1) 22.3 -
Gross margin (%) 41.8 38.9 - - -
Operating EBITDA 1,082 1,026 (5.2) 22.9 26.2
EBITDA margin (%) 19.2 19.7 - - -
Net Income 89 205 130.6 - -
Core Net Income 143 355 147.8 33.5 58.8
Net Margin (%) 2.5 6.8 - - -
source: COL estimates, CHP, Bloomberg

Revenues decline on lower volumes and ASP

CHP’s 1Q21 revenues dropped by 7.6% y/y to Php5.2Bil due to both lower volumes and
ASP. 1Q21 volumes dropped by 4% y/y due to the pandemic. On a sequential basis,
volumes grew 14% as construction activity gradually improved. Meanwhile, 1Q21 ASP
declined by 4% y/y due to the higher proportion of pick-up sales in the sales mix. Moving
forward, we expect volumes to slightly decline with the re-imposition of the enhanced
community quarantine (ECQ) in the National Capital Region (NCR) and neighboring
provinces. Although all essential public and private construction projects were allowed
to operate at full capacity during the ECQ, management said that the heightened risk of
COVID-19 infection still affected construction activity, particularly residential construction.
Nevertheless, we remain optimistic that construction activity will pick up again in the
second half of the year with the eventual easing of restrictions.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I CHP: 1Q21 OPERATING EBITDA BELOW COL ESTIMATES ON
LOWER-THAN-EXPECTED REVENUES

WED 05 MAY 2021

ASP to remain weak due to intense competition from

imports

We expect ASP to remain weak due to intensifying competition mainly from cement
imports. Specifically, cement products from Vietnam are allegedly entering the Philippine
market at dumped prices. Even with the imposition of safeguard duty, the imports are
being sold here at prices lower than the normal value in its home country. Moreover, it
is estimated that the imports are undercutting prices of domestic cement by as much as
24%. The Department of Trade and Industry (DTI) said that it will be conducting a probe
on this and on the possible imposition of anti-dumping duty on imported cement.

EBITDA margin improves on lower distribution costs

CHP’s 1Q21 cost of sales dropped by 2.9% y/y to Php3.2Bil mainly due to lower volumes.
Meanwhile, input costs slightly increased due to higher electricity rates partially offset by
lower fuel cost resulting from the use of more cost-efficient fuel mix. Recall that majority
of the company’s coal requirements for the year have already been hedged at 2020 prices.
Moreover, distribution expenses declined by 22.1% to Php830Mil due to lower volumes
and other initiatives to increase operational efficiency. This led to an improvement in
EBITDA margin, up by 0.5 pp to 19.7% during the quarter. Moving forward, we expect
distribution expenses to continue to decline as the company continues to further
increase the proportion of its pick up sales. Also, recall that most of the company’s fuel
requirements for transport were already locked-in in advance.

Revising estimates

In light of the weaker-than-expected 1Q21 results, we are reducing our revenues estimate
by 7.7% in 2021 and by 7.7% in 2022. We are also lowering our interest expense estimate
by 44.6% in 2021 and by 24.7% in 2022. Furthermore, we are reducing our effective
interest tax rate from 24% to 21% in 2021 and from 21% to 18% in 2022 to factor in
the impact of the CREATE law. These reduced our net income forecasts by 24.2% to
Php805Mil in 2021 and by 22.3% to Php1.2Bil in 2022

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I CHP: 1Q21 OPERATING EBITDA BELOW COL ESTIMATES ON
LOWER-THAN-EXPECTED REVENUES

WED 05 MAY 2021

Exhibit 2: Changes in forecast summary

2021 2022
in PhpMil
Old New % change Old New % change
Revenues 22,162 20,445 (7.7) 24,866 22,939 (7.7)
Gross profit 9,086 7,922 (12.8) 10,337 9,176 (11.2)
Net interest expense 751 417 (44.6) 759 572 (24.7)
Net income 1,062 805 (24.2) 1,574 1,224 (22.3)

source: COL estimates

Maintain BUY rating

Accordingly, we are reducing our FV estimate on CHP to Php1.7/sh. Although the cement
industry is facing some challenges such as persisting lockdown and competition from
imports, we believe these are only expected to be temporary. We remain optimistic
on the construction industry’s recovery as the government ramps up infrastructure
building and as property firms resume their deferred projects this year. At its current
price of Php1.20/sh, upside potential to our FV estimate remains significant at 42%. As
such, we are maintaining our BUY rating on CHP.

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I CHP: 1Q21 OPERATING EBITDA BELOW COL ESTIMATES ON
LOWER-THAN-EXPECTED REVENUES

WED 05 MAY 2021

Cemex Holdings INCOME STATEMENT (IN PHPMIL)

Philippines, Inc. (CHP) Revenues

2017
21,784
2018
23,418
2019
23,596
2020
19,707
2021E
20,445
2022E
22,939
% Growth -12.2% 7.5% 0.8% -16.5% 3.7% 12.2%
COMPANY BACKGROUND Gross Profit 9,384 9,111 9,683 8,092 7,922 9,176
“Cemex Holdings Philippines, Inc. (CHP) % Growth -27.4% -2.9% 6.3% -16.4% -2.1% 15.8%
EBITDA 3,262 2,766 4,308 4,115 4,025 4,861
is a subsidiary of CEMEX Asian South East
% Growth -47.4% -15.2% 55.8% -4.5% -2.2% 20.8%
Corporation, which is indirectly owned by Operating Profit 1,987 1,366 2,342 1,808 1,584 2,065
CEMEX, S.A.B. de C.V., (CEMEX) one of the % Growth -59.8% -31.2% 71.4% -22.8% -12.3% 30.3%
largest cement companies in the world. It Interest Expense (858) (920) (1,252) (506) (402) (517)
is the third largest cement producer in the Other Income/Expense (226) (43) 9 (30) - -
Philippines with aggregate installed annual Pretax Income 798 41 1,499 1,321 1,167.8 1,492.8
capacity of 5.7Mil MT of cement. The Tax Expense 140 971 219 336 362 269
Net Income 659 (930) 1,280 985 806 1,224
company owns two cement plants, the APO
% Growth -53.4% -241.2% -237.6% -23.0% -18.2% 52.0%
cement plant in Cebu and the Solid cement
EPS 0.13 (0.18) 0.25 0.08 0.06 0.09
plant located in Rizal. CHP primarily sells % Growth -74.0% -238.5% -238.9% -68.0% -25.4% 52.0%
gray ordinary Portland cement, masonry or
BALANCE SHEET (IN PHPMIL)
mortar cement, blended cement and ready-
mix concrete. 2017 2018 2019 2020 2021E 2022E
Cash & Equivalents 1,058 1,814 1,399 6,139 1,680 2,475
Trade Receivables 833 709 893 700 814 885
REVENUE BREAKDOWN
Inventories 3,258 3,488 3,013 2,350 3,829 2,917
Other Current Assets 1,502 2,744 2,211 1,984 2,053 2,284
2%
PPE 15,583 15,617 19,938 21,699 25,938 24,979
2% Other Non-Current Assets 29,517 31,482 31,352 30,887 30,887 30,887
Total Assets 51,752 55,854 58,806 63,760 65,202 64,428
Accounts Payable 2,319 4,935 4,796 4,282 3,443 3,304
ST Debts 2,273 1,609 1,660 1,512 1,644 1,795
Other Current Liabilities 2,281 3,536 3,681 2,376 5,857 7,591
LT Debts 13,600 13,489 11,181 10,567 8,553 4,847
Other Non-Current Liabilities 1,855 3,413 7,823 2,113 1,990 1,952
Total Liabilities 22,329 26,982 29,141 20,850 21,486 19,487
Total Equity 29,422 28,872 29,665 42,911 43,716 44,940
96%
Total Liabilities & Equity 51,752 55,854 58,806 63,760 65,202 64,428
BVPS 5.7 5.6 5.7 3.5 3.2 3.3
Cement Other business Insurance
CASHFLOW STATEMENT (IN PHPMIL)
2017 2018 2019 2020 2021E 2022E
Net Income 659 (930) 1,280 985 806 1,224
Depreciation & Amortization 1,269 1,416 1,886 2,364 2,441 2,796
Other Non-Cash Exp (Gains) (849) (228) (1,272) (787) - -
Interest Expense (Income) 998 1,029 795 (528) 417 572
Decrease (Increase) in Working Cap 40 526 287 753 (2,258) 750
Operating Cash Flow 2,118 1,812 2,976 2,788 1,405 5,343
Capex - - (3,122) (2,962) (6,680) (1,838)
Other Investments (1,529) (3,336) (8) 56 - -
Investing Cash Flow (1,529) (3,336) (3,130) (2,906) (6,680) (1,838)
Proceeds (Payment) Debts (15,458) - - (7,742) 1,860 (2,014)
Payment of Cash Dividends - - - - - -
Others 14,591 2,306 2,586 14,003 (417) (572)
Financing Cash Flow (867) 2,306 2,586 6,261 1,443 (2,586)
Change in Cash (279) 783 2,432 6,142 (3,832) 919

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I CHP: 1Q21 OPERATING EBITDA BELOW COL ESTIMATES ON
LOWER-THAN-EXPECTED REVENUES

WED 05 MAY 2021

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019 2020 2021E 2022E
Beneficiary of the growing construction
GPM (%) 43.1% 38.9% 41.0% 41.1% 38.7% 40.0%
industry EBITDA Margin (%) 15.0% 11.8% 18.3% 20.9% 19.7% 21.2%
CHP is poised to benefit from the Philippines’ OPM (%) 9.1% 5.8% 9.9% 9.2% 7.7% 9.0%
growing construction industry due to NPM (%) 3.0% -4.0% 5.4% 5.0% 3.9% 5.3%
the country’s strong GDP growth and the Times Interest Earned (X) 2.1 1.4 1.9 3.5 3.9 4.0
Current Ratio (X) 1.0 0.9 0.7 1.4 0.8 0.7
government’s plan to boost infrastructure
Net D/E Ratio (X) 0.4 0.4 0.3 0.1 0.2 0.2
spending in the following years. The Days Receivable 13.8 12.6 13.4 13.0 13.5 13.5
government dubbed the next few years Days Inventory 89.7 85.5 91.5 107.1 104.3 104.3
as the golden age of infrastructure with Days Payable 74.2 100.2 103.8 169.1 130.4 104.3
Asset T/O (%) 0.4 0.4 0.4 0.3 0.3 0.4
the implementation of projects ranging ROAE (%) 0.0 0.0 0.0 0.0 0.0 0.0
from road networks, airport and seaport
modernization. MAJOR CORPORATE DEVELOPMENTS (5-YEARS)

Capacity expansion to meet rising CHP raised Php12.8Bil through a stock rights offering 03/04/2020

demand
CHP is well positioned to take advantage
of the growing cement demand as it is
expanding its production capacity in its
Solid plant in Rizal by 1.5Mil MT. This will
bring the company’s total capacity to 7.2Mil
MT. Moreover, this is expected to increase
the company’s market share, specifically
in Luzon, which accounts for 65% of total
country demand.

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I CHP: 1Q21 OPERATING EBITDA BELOW COL ESTIMATES ON
LOWER-THAN-EXPECTED REVENUES

WED 05 MAY 2021

Valuation RELATIVE VALUATION

Methodology 2020E
P/E
2021E 2020E
EPS Growth
2021E
Eagle Cement Corporation 9.5 8.0 -12.0% 19%
Indocement Tunggal Prakarsa Tbk PT 28.5 24.6 -14% 16%
Anhui Conch Cement Co. Ltd. 8.1 8.0 -2% 2%
Lucky Cement Ltd. 40.4 17.3 -70% 131%
Siam City Cement PCL 13.3 11.8 2% 13%
Asia Cement Corp. 9.6 9.0 -21% 6%
Sement Indonesia Persero Tbk PT 24.2 18.4 -4% 31%
Cemex Holdings Philippines Inc. 15.0 20.1 -68% -25%
Industry Ave 18.6 14.6 -24% 24%
Industry Median 14.1 14.5 -13% 15%

VALUATION ASSUMPTIONS
For DCF
Risk Premium 6.5%
Risk Free Rate 4.0%
Beta 1.20
Cost of Equity 11.8%
Cost of Debt 4.8%
Tax Rate 25.0%
WACC 9.5%
Terminal Growth Rate 3.0%

PV (FY21E-FY25E) 3,248
PV of Terminal Value 22,047
Enterprise Value 25,295
Less: Net Debt -4,567
Add: Other Investments 0
Equity Value 20,727
O/S 12,282.10
FV Estimate 1.70

COL Financial Group, Inc. 7

 EARNINGS ANALYSIS I CHP: 1Q21 OPERATING EBITDA BELOW COL ESTIMATES ON
LOWER-THAN-EXPECTED REVENUES

WED 05 MAY 2021

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, CFA
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