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THU 11 APR 2024

Top Stories:

CNPF: Higher sales and margins lift profits in 4Q23, above COL forecasts
FGEN: FY23 recurring earnings in line with forecast

Other news:
DD: Hotel 101 signs merger agreement with JVSPAC to publicly list in NASDAQ
Economy: BSP signals possible rate cut delay
Economy: US Consumer prices rose 3.5% from a year ago in March, more than expected

Market Summary:

Local shares were flat on the first day of the shortened trading week as investors looked ahead to the BSP’s policy rate decision after
market close and awaited the release of US CPI data later in the week.

The PSEi dropped by 4.39 points or 0.07% to close at 6,741.07. The top decliners were SCC (-11.00%), ALI (-2.78%), JGS (-2.08%),
ACEN (-1.86%), and URC (-1.45%). On the other hand, the top gainers were TEL (+3.88%), SMPH (+3.27%), CNVRG (+2.93%), JFC
(+2.61%), and MER (+1.13%).

Value turnover excluding block trades fell to Php4.2Bil from Php5.5Bil in the previous day. Meanwhile, foreigners continued to be net
sellers for the fourth consecutive session and disposed Php930.8Mil worth of shares.
Top Stories:
CNPF: Higher sales and margins lift profits in 4Q23, above COL forecasts
(HOLD; FV: Php29.6/sh)

Profits beat estimates on lower-than-expected costs in 4Q23. CNPF’s 4Q23 net profits rose by 29.9% y/y to Php948Mil, driven by
faster topline growth (+9.1%) and sustained margin expansion (EBIT margin +250bps y/y). This brought FY23 net profits to Php5.6Bil
(+12% y/y), above COL (105.2%) but in line with consensus (100.9%) estimates. Results beat our forecasts mainly from lower-than-
expected operating and tax expenses for the period. CNPF’s 4Q23 revenues rose by a faster clip at 9.1% y/y to Php16.7Bil, buoyed by
growth from the branded business (+7.0%) and recovery of OEM exports (+18%). Meanwhile, EBIT margins expanded by 250bps y/y
mainly from higher GPM (+490bps y/y), partly tempered by higher opex-to-sales (+240bps).

Exhibit 1: Results Summary

% of Forecast
in PhpMil 4Q22 4Q23 % Change FY22 FY23 % Change COL Consensus
Revenues 15,288 16,674 9.1 62,241 67,124 7.8 98.3 98.3
Gross Profit 2,852 3,925 37.6 14,360 16,137 12.4 100.8 100.4
Gross Margin (%) 18.7 23.5 - 23.1 24.0 - - -
Operating Income 758 1,239 63.4 5,666 6,898 21.7 103.3 99.9
EBIT Margin (%) 5.0 7.4 - 9.1 10.3 - - -
Net Income 730 948 29.9 4,952 5,579 12.0 105.2 100.9
Net Margin (%) 4.8 5.7 - 8.0 8.3 - - -
Source: COL Estimates

Branded revenues continue to post growth; OEM exports stage a turnaround. CNPF’s branded revenues rose by 7.0% y/y to
Php13.6Bil, mainly driven by double-digit growth from the Milk business while other categories such as Marine and Meat also saw an
increase. Market share trends were mixed as CNPF posted share gains for Meat (+130bps) and Milk (+200bps) but saw losses for
Marine (-60bps) as consumers continued to down trade. During the FY23 results briefing, management mentioned that consumption
trends have largely been positive for the Branded business, which saw volume-led, low double-digit growth in the first quarter.

On the other hand, sales of CNPF’s OEM export segment turned around, rebounding by 18% y/y to Php3.0Bil after two consecutive
quarters of decline. Management attributed this to the strong demand from spot buyers covering inventory following the correction in
tuna prices. Coconut exports were also boosted by strong demand from major customers like Vita Coco and other retailers. These
trends have been consistent into 1Q24.

Operating margins expand on strong GPM rebound. CNPF’s operating margins during the quarter expanded by 250bps y/y
following a rebound in GPM, but tempered by proportionally higher operating expenses. CNPF’s 4Q23 GPM jumped by 490bps y/y to
23.5% due to lower input costs, compared to 18.7% in 4Q22 and marking a new high for the fourth quarter since 26.3% in 4Q17.
Management also communicated that raw material supply lock-ins are largely covered until the middle of the year. For the most part,
input costs have also trended lower, except for Sardines, Coconut, and Meat. We also note that tuna prices have continued to trend
more favorably, with the average price of skipjack tuna lower by 12% in 1Q24 compared to the previous quarter. The expansion in GPM
was tempered by the faster increase in operating expenses, which jumped by 28.3% y/y (compared to +0.7% in 9M23) following
increased brand investments. CNPF’s opex-to-sales for the quarter stood at 16.1% (from 13.0% in 9M23).

Management reiterates positive earnings guidance for FY24. In addition to the positive 1Q24 earnings preview, management is
guiding low double-digit bottom-line growth for FY24, compared to COL and consensus forecasts of 12.2% and 16.5%, respectively.
This is based on management’s expectations of low double-digit top-line growth and margin improvement being reinvested into
innovations and demand-generating activities.

Estimates under review. We will be reviewing our forecasts in light of the stronger-than-expected 4Q23 earnings results. We currently
have a HOLD rating on CNPF with FV estimate of Php29.6/sh.

FGEN: FY23 recurring earnings in line with forecast

(BUY; FV: Php31.50/sh)

FY23 recurring earnings in line with forecasts. FGEN disclosed that excluding one-offs items, 4Q23 recurring net income declined
61% to US$28Mil. This brought FY23 recurring net income to US$277Mil, up 4.3% y/y, in line with COL forecast (103%) but below
consensus forecast (92%). EDC’s earnings exceeded forecast, offset by the gas plants’ earnings and FG Hydro’s weaker than expected
results.
Exhibit 1: FGEN 4Q23 results summary
in US$Mil 4Q22 4Q23 % Change FY23 % of FY COL forecast
Net revenues 671.4 583.9 -13.0 2,474.8 94.4
EBIT 95.3 73.8 -22.6 550.6 75.2
EBIT margin (%) 14.2 12.6 -1.6 22.2 -
Net Income 73.8 65.4 -11.3 312.2 116.2
Net margin (%) 11.0 11.2 0.2 12.6 -
Source: FGEN and COL estimates

Gas plants’ earnings below estimates. The recurring earnings contribution of FGEN’s gas plants (Sta. Rita, San Lorenzo, San
Gabriel and Avion) declined 4% to US$184Mil, below forecast, representing 94% of our full year forecast. The Santa Rita and San
Lorenzo’s earnings declined 5.5% y/y to US$147Mil, representing 85% of our full year forecast, mainly due by higher GAEX and
interest expense. The San Gabriel plant’s earnings rose 130% to US$25.3Mil, representing 122% of our full year forecast. The San
Gabriel’s operating income rose 27% due to higher dispatch while net income grew at a steeper pace due to lower provision for
deferred income tax. Meanwhile, the Avion gas plant reported net earnings of Php854Mil, up 2.4% y/y, mainly due to lower cost of
sales as consumption of liquid fuel was lower this year compared to the same period of last year.

EDC’s earnings beat forecast on higher than expected revenues. EDC’s FY23 recurring earnings rose 26.7% to Php14.2Bil, ahead
of forecast, representing 164% of our full year forecast. EDC’s revenues declined 3.1% to 47.2Bil, higher than forecast, representing
120% of our full year forecast. The decline in revenues was primarily due to a 8.3% drop in sales volume, but partially offset by higher
average WESM selling prices. EDC’s recurring earnings were also buoyed by lower cost of sales.

Hydro plant earnings below forecast. The Pantabangan-Masiway hydro plant’s FY23 net income declined 14.7% to Php325.6Mil,
representing 47% of COL forecast. Operating profit declined 32.8% to Php239.4Mil as revenues declined 47.5% to Php2.1Bil. The
decline in revenues was mainly due to lower water level during the period, as well as lower average selling price with the assignment of
a 100MW Meralco PSA to EDC in August 2022. The decline in revenues was partially offset by a 56% decline in cost of sales to
Php1.45Bil mainly due to lower replacement power purchases from WESM and lower water service fees during the period.

Maintaining BUY rating. We have a BUY rating on FGEN with a FV estimate of Php31.50/sh. We continue like FGEN given its
relatively stable cash flow since bulk of its capacity is contracted. Furthermore, with the Department of Energy’s moratorium on new
coal power plants, this could potentially push forward the projected power shortage beginning in 2024, increase in the competitiveness
of FGEN’s gas and renewables plants, and improve the feasibility of FGEN’s LNG regasification project which will enable its gas plants
to remain viable after the depletion of the Malampaya gas field. At FGEN’s market price of Php19.78/sh., upside to our FV estimate is
at 61.5%.

Other news:
DD: Hotel 101 signs merger agreement with JVSPAC to publicly list in NASDAQ

Singapore based Double Dragon subsidiary, Hotel 101 is set to merge with JVSPAC Acquisition Corp during the second half of the
year. If realized, this deal would value the hotel chain at US$2.3Bil and be the first Filipino company to list in NASDAQ. Subject to
regulatory and shareholder approval, the merger is mainly a business combination transaction to form an entity that would be listed
under the ticker “HBNB”. Hotel 101 management believes that through the NASDAQ listing, the company will be able to accelerate its
expansion and implement its standardized hotel chain business globally.

Economy: BSP signals possible rate cut delay

After holding the benchmark policy rate steady at 6.5% for a fourth straight meeting, the central bank has signaled that rate cuts may be
delayed amid increasing cost pressures. During a press briefing, BSP Governor Remolona said that he does not expect rate cuts in the
third quarter, attributing the BSP’s more hawkish stance to higher transport, food, energy, and oil prices. However, the BSP Governor
noted that a rate cut of no more than 25bps in the third quarter is still possible if the central bank felt dovish or if inflation returns to
target and exhibits weak growth. The central bank also raised its risk-adjusted inflation forecast this year to 4.0% from 3.9% previously,
but maintained its projections for 2025 at 3.5%. Similarly, the central bank hiked its baseline inflation forecast to 3.8% for 2024 from
3.6% but maintained its 3.2% forecast for next year. (Source: BusinessWorld)

Economy: US Consumer prices rose 3.5% from a year ago in March, more than expected

US consumer prices rose by 3.5% y/y (+0.4% m/m) in March, faster than 3.2% in February and the 3.4% consensus estimate. The
faster rate is attributable to higher energy prices (+1.1% y/y) and shelter costs (+5.7%). Based on CME Group calculations, traders in
the fed funds futures market have pushed back expectations for the first rate from June initially to September. (Source: CNBC)