DMCI Holdings, Inc.

THU 14 NOV 2019

DMC’s 9M19 core net income

in line with COL forecast
Excluding one-offs, DMC’s 9M19 core profits declined 10.8% to Php9.3Bil, in line with COL
forecast (73.8%) but lower than consensus forecast (59%). SCC and Maynilad delivered in BUY
line results, while DMC Homes’ earnings exceeded forecasts. Meanwhile, the net income
TICKER: DMC
contribution from its construction business was below forecasts.
FAIR VALUE: 11.09
CURRENT PRICE: 8.05
Real estate earnings ahead of estimates. Profits of DMCI Homes under the recently
UPSIDE: 37.76
adopted PFRS 15 (changed the company’s revenue process and determination of actual
costs incurred and recognition of sellers’ commission as cost of sales) increased by 0.2% to
Php1.8Bil. This represents 86.2% of our full year forecast. Revenues rose 3.2% to Php15.2Bil, SHARE PRICE MOVEMENT
representing 95.2% of our full year forecast, while operating expense increased 2.5% to
12.9Bil, representing 101% of our full year forecast. Meanwhile, sales and reservations
110

declined 8% to Php30.7Bil.
100

Construction business earnings missed forecast on revenues. DMC’s construction

business generated profits of Php664Mil in 9M19, 30% lower y/y. Net income for the period 90

represents 61% of COL’s full year forecast. Revenues rose 17% to Php12.28Bil, representing
71% of our full year forecast. Cost of service increased 25% to Php10.9Bil, representing 80

75% of our full year forecast.

14-Aug-19 14-Sep-19 14-Oct-19 14-Nov-19
DMC PSEi

FORECAST SUMMARY
ABSOLUTE PERFORMANCE
Year to Dec. 31 2016 2017 2018 2019E 2020E 2021E
1M 3M YTD
Sales 64,899 80,703 82,843 75,596 84,529 85,821
DMC -12.22 -13.57 -38.18
% change y/y 13.5 24.4 2.7 -8.7 11.8 1.5
PSEI 1.24 2.04 6.45
EBIT 16,911 21,476 19,314 16,480 20,189 20,626
% change y/y 0.3 27.0 -10.1 -14.7 22.5 2.2
EBIT Margin (%) 26.1 26.6 23.3 21.8 23.9 24.0
EBITDA 10,947 21,476 19,314 16,480 20,189 20,626 MARKET DATA
% change y/y -14.2 96.2 -10.1 -14.7 22.5 2.2
EBITDA Margin (%) 16.9 26.6 23.3 21.8 23.9 24.0 Market Cap 120,161.00Mil
Net Profits 12,185 14,765 14,513 12,612 14,187 14,565 Outstanding Shares 13,277.47Mil
% change y/y -5.1 21.2 -1.7 -13.1 12.5 2.7 52 Wk Range 7.43 - 13.86
NPM (%) 18.8 18.3 17.5 16.7 16.8 17.0 3Mo Ave Daily T/O 200.30Mil
EPS (cents) 0.92 1.11 1.09 0.95 1.07 1.10
% change y/y -5.1 21.2 -1.7 -13.1 12.5 2.7

RELATIVE VALUE
P/E(X) 9.9 8.1 8.3 9.5 8.5 8.2
P/BV(X) 1.8 1.6 1.5 1.4 1.3 1.2
ROE(%) 14.6 15.8 14.9 11.6 11.6 10.8 George Ching
BVPS(P) 5.1 5.8 5.9 6.5 7.1 7.8 Senior Research Manager
Dividend yield(%) 5.1 4.9 5.3 5.3 4.7 4.8 george.ching@colfinancial.com
*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 COL Financial website as these may be subject to tampering or unauthorized alterations.
 EARNINGS ANALYSIS I DMC: DMC’S 9M19 CORE NET INCOME IN LINE WITH COL ESTIMATES

THU 14 NOV 2019

DMC’s 9M19 core net income in line with COL forecast

Excluding one-offs, DMC;s 3Q19 core net income rose 23.9% to Php2.58Bil. This brought
9M19 core profits to Php9.3Bil down 10.8%, in line with COL forecast (73.8%) but lower
than consensus forecast (59%). SCC and Maynilad delivered in line results, while DMC
Homes’ earnings exceeded forecasts. Meanwhile, the net income contribution from its
construction business was below forecasts.

Exhibit 1: DMC 3Q19 results summary

% of FY Forecast
in PhpMil 3Q18 3Q19 %Change 9M19
COL
Net Income 1,921 2,831 47.4 9,309 73.8
source: DMC, COL estimates

Exhibit 2: DMC Earnings Breakdown

PhpMil 3Q18 3Q19 %Change 9M18 9M19 %Change
SCC 567 1,209 113.2 5,427 4,662 (14.1)
Construction 276 224 (18.8) 952 664 (30.3)
Real estate 668 612 (8.4) 1,801 1,797 (0.2)
Water 456 457 0.2 1,476 1,569 6.3
Nickel mining -88 -86 (2.3) 133 87 (34.6)
Parent and others 83 59 (28.9) 171 185 8.2
source: DMC, COL estimates

SCC 9M19 net income in line with forecast

SCC’s 3Q19 earnings increased 268.8% to Php2.6Bil. This brought 9M19 net income to
Php8.25Bil, down 4.7% y/y, in line with COL forecasts, representing 77.4% of COL forecast,
but below consensus forecast (64.11%). Total revenues during 9M19 before eliminations
increased 1.8% y/y to Php36.6Bil, higher than forecasts (90.4% of COL full year forecast).
Revenues from the coal mining segment rose 13.16% to Php25.75Bil, representing 94.3%
of our full year forecast. Meanwhile, power generation revenue declined by 17.7% to
Php10.8Bil, representing 82.4% of our full year forecast. Earnings were in line as the coal
segment’s better than expected results were offset by lower than expected profits of
Calaca 1 and 2.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I DMC: DMC’S 9M19 CORE NET INCOME IN LINE WITH COL ESTIMATES

THU 14 NOV 2019

Maynilad’s miss in revenues offset by lower than expected

operating expense

Water distribution subsidiary Maynilad reported a 6% increase in 9M19 core earnings to

Php6.5Bil, in line with forecast, representing 76.9% of our full year forecast. Revenues
rose 9% to Php12.2Bil, representing 70.6% of our forecast. Sales volume grew 2% y/y to
402MCM, representing 69.3% of our full year forecast, while, effective tariff rose 8.4% to
Php45.5/cu.m, 1% higher than forecast. The lower than expected revenues were offset
by Maynilad’s lower than expected operating expense. Operating expense rose 8.3% to
Php7.5Bil, representing only 61.54% of our full year forecast.

Real estate earnings ahead of estimates

Profits of DMCI Homes under the recently adopted PFRS 15 (changed the company’s
revenue process and determination of actual costs incurred and recognition of sellers’
commission as cost of sales) increased by 0.2% to Php1.8Bil. This represents 86.2% of our
full year forecast. Revenues rose 3.2% to Php15.2Bil, representing 95.2% of our full year
forecast, while operating expense increased 2.5% to 12.9Bil, representing 101% of our full
year forecast. Meanwhile, sales and reservations declined 8% to Php30.7Bil.

Construction business earnings missed forecast on

revenues

DMC’s construction business generated profits of Php664Mil in 9M19, 30% lower y/y.
Net income for the period represents 61% of COL’s full year forecast. Revenues rose 17%
to Php12.28Bil, representing 71% of our full year forecast. Cost of service increased 25%
to Php10.9Bil, representing 75% of our full year forecast.

Maintain BUY rating on DMC

We have a BUY rating on DMC with a FV estimate of Php11.09./sh. We like DMC as it is

poised to benefit from its investment in SCC and its construction business will be the key
beneficiary of the government’s rising infrastructure spending. At DMC’s current market
price of Php8.05/sh, upside to our FV estimate is significant at 40.4%.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I DMC: DMC’S 9M19 CORE NET INCOME IN LINE WITH COL ESTIMATES

THU 14 NOV 2019

DMCI Holdings, Inc. INCOME STATEMENT (IN PHPMIL)

(DMC) Revenues
FY15
57,204
FY16
64,899
FY17E
80,703
FY18E
82,843
FY19E
75,596
FY20E
84,529
% Growth 1.1% 13.5% 24.4% 2.7% -8.7% 11.8%
COMPANY BACKGROUND EBIT 16,853 16,911 21,476 19,314 16,480 20,189
% Growth 60.9% 0.3% 27.0% -10.1% -14.7% 22.5%
DMCI Holdings, Inc. is a
EBITDA 12,835 12,185 14,765 14,513 12,612 14,187
conglomerate with business ventures
% Growth 96.4% -14.2% 96.2% -10.1% -14.7% 22.5%
in water, mining, power, construction Operating Profit
and real estate. The Company’s primary % Growth
sources of earnings are its 25% stake in Interest Expense (29) (78) (509) (426) (344) (741)
Maynilad Water Services Inc., a 58% stake Other Income/Expense 3,753 3,403 3,127 4,085 3,378 3,537
in Semirara Mining Corp, 100% ownership Pretax Income 20,528 19,805 24,177 23,054 19,116 22,984
Tax Expense 3,605 2,278 3,262 3,205 2,220 4,243
in D.M. Consunji, Inc. and 100% ownership
Net Income 12,835 12,185 14,765 14,513 12,612 14,187
in DMCI Homes. Maynilad provides water
% Growth 19.1% -5.1% 21.2% -1.7% -13.1% 12.5%
delivery and sewerage/sanitation services EPS 0.97 0.92 1.11 1.09 0.95 1.07
in the West Zone of Metro Manila through % Growth 19.1% -5.1% 21.2% -1.7% -13.1% 12.5%
its exclusive concession agreement with the
MWSS. Semirara explores, develops, and BALANCE SHEET (IN PHPMIL)

mines the coal resources in Semirara Island FY15 FY16 FY17E FY18E FY19E FY20E
located in Caluya, Antique. Semirara also Cash & Equivalents 19,151 18,738 25,324 15,482 30,877 39,923
Trade Receivables 12,837 15,529 21,985 16,745 13,488 14,750
operates the Calaca coal-fired plants (unit
Inventories 34,408 38,235 34,699 44,692 46,727 51,853
1 to 4). 0.4% Other Current Assets 9,122 8,733 9,492 18,971 20,868 22,955
PPE 49,440 55,752 55,701 57,087 62,572 57,362
REVENUE BREAKDOWN Other Non-Current Assets 23,599 21,047 24,614 29,428 29,002 32,313
29.0% 30.9%Assets
Total 148,557 158,034 171,815 182,405 203,535 219,157
0.4%
0.4% Accounts Payable 15,176 18,079 18,757 22,041 22,094 24,518
ST Debts 14,999 5,815 5,698 13,358 13,358 13,358
9.0% 29.0% Other Current Liabilities 10,655 11,857 10,701 9,914 9,914 9,914
30.9% 30.9%
LT Debts 11,360 13,258 14,469 10,043 19,144 19,144
Other Non-Current Liabilities 7,188 7,864 9,241 9,550 9,676 9,807
Total Liabilities 73,782 74,685 78,208 85,325 94,605 97,160
2.4%
Total Equity 74,775 83,349 93,607 97,079 108,930 121,997
Total Liabilities & Equity 148,557 158,034 171,815 182,405 203,535 219,157
2.4%
16.0% BVPS 6.3 8.0 8.8 9.4 10.6 11.9
16.0%
2.4% 21.3% CASHFLOW STATEMENT (IN PHPMIL)
21.3%
FY15 FY16 FY17E FY18E FY19E FY20E
16.0% Net Income 12,835 12,185 14,765 14,513 12,612 14,187
Mining
21.3% Nickel Mining Depreciation & Amortization 4,094 5,964 8,247 10,261 8,261 8,955
Mining Nickel Mining
Construction Real estate sales Other Non-Cash Exp (Gains) 2,273 3,578 4,190 3,033 2,650 3,159
Construction Mechandise, sales and others
Electricity sales Real Interest Expense (Income)
estate sales (29) (78) (509) (426) (344) (741)
Electricity sales Decrease
Mechandise, sales (Increase) in Working Cap
and others (5,040) (1,551) (4,561) (8,923) 2,465 (6,472)
g Nickel Mining
Operating Cash Flow 14,133 20,097 22,131 18,458 25,645 19,089
Capex (6,328) (6,691) (8,153) (13,044) (13,746) (3,746)
ruction Real estate sales
Other Investments (142) (1,537) 2,373 3,905 (685) (753)
icity sales Mechandise, sales and others
Investing Cash Flow (6,470) (8,228) (5,779) (9,139) (14,431) (4,499)
Proceeds (Payment) Debts 3,296 (3,674) 2,570 2,106 9,101 -
Payment of Cash Dividends (6,373) (6,374) (6,377) (4,011) (5,045) (5,675)
Others (727) (2,125) (5,955) (17,311) 125 131
Financing Cash Flow (3,804) (12,172) (9,763) (19,216) 4,181 (5,543)
Change in Cash 3,859 (303) 6,590 (9,897) 15,395 9,046

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I DMC: DMC’S 9M19 CORE NET INCOME IN LINE WITH COL ESTIMATES

THU 14 NOV 2019

INVESTMENT THESIS: KEY RATIOS

Semirara - Major beneficiary of recovery FY15 FY16 FY17E FY18E FY19E FY20E
GPM (%) 44.4% 40.9% 42.7% 37.4% 38.0% 38.4%
in power demand
EBITDA Margin (%) 22.3% 16.9% 26.6% 23.3% 21.8% 23.8%
DMCI has a 58% stake in Semirara Mining OPM (%) 29.5% 26.1% 26.6% 23.3% 21.8% 23.8%
Corp. SCC is the only vertically integraded NPM (%) 22.4% 18.8% 18.3% 17.5% 16.7% 16.7%
coal power plant in the country. This gives Times Interest Earned (X) 215.5 33.2 50.4 56.1 22.2 27.2
Current Ratio (X) 1.45 2.09 2.30 1.86 2.17 2.39
SCC a significant cost advantage to produce
Net D/E Ratio (X) 0.35 0.27 0.19 0.36 0.26 0.14
power and enables it to obtain a higher level Days Receivable 81.9 87.3 99.4 73.8 65.1 63.7
of bilateral supply agreement with power Asset T/O (%) 38.5% 41.1% 47.0% 45.4% 37.1% 38.6%
distributors. Power generation capacity is ROAE (%) 9.0% 7.9% 9.0% 8.2% 6.5% 6.7%
expected to increase from 550MW in FY13
to 1,200MW by 2020. Given the expansion
in its power generation business, we expect
Semirara’s earnings to soar by a 4-year
CAGR of 14.9%.

Maynilad: Huge underserved population

and favourable concession agreement
translate to attractive earnings growth
potential
Maynilad’s billed volume has huge growth
potential given that it only serves 92%
of the population of its concession area.
Maynilad also benefits from a highly-
favorable concession agreement wherein
it currently is allowed to increase tariffs
and earn a 7.89% after-tax return on
operating expenses, capital maintenance
and investment expenditures. It is also
protected against inflation and forex risk
through annual inflation adjustments and
quarterly forex adjustments on its water
rates.

Beneficiary of the rising infrastructure

spending
DMC will be one of the major beneficiaries
of the government’s plan to boost
infrastructure spending given its 100%
interest in D.M. Consunji Inc., which is one
of the biggest construction companies in
the country.

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I DMC: DMC’S 9M19 CORE NET INCOME IN LINE WITH COL ESTIMATES

THU 14 NOV 2019

NAV COMPUTATION
Value (PhpMil) Value (Php/Sh) % of GAV % of NAV Valuation Methodology
Maynilad 28,758 2.2 18.5% 17.1% DCF
Semirara 74,943 5.6 48.2% 44.6% DCF
Construction/PIDC 23,166 1.7 14.9% 13.8% DCF
Nickel Mining 9,830 0.7
DMCI Homes 18,785 1.4
Total 155,483 11.7 100.0% 92.5%
Less: Net Debt -12,519 -0.9
Equity Value 168,001 12.7
Less: Holding Company Discount 20,740 1.6
FV Estimate 147,261 11.1

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I DMC: DMC’S 9M19 CORE NET INCOME IN LINE WITH COL ESTIMATES

THU 14 NOV 2019

IMPORTANT RATING 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.

IMPORTANT DISCLAIMER
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.

COL RESEARCH TEAM

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 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

COL FINANCIAL GROUP, INC.

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