International Container Terminals Inc: 1Q15 earnings exceed COL forecast on higher than expected revenues

ICT’s 1Q15 recurring net income rose 37.8% y/y to US$54Mil, beating estimates, representing 27.4% and 29.1% of COL and consensus forecast, respectively. Core income beat estimates mainly due to higher than expected revenues and lower than expected interest expense. Revenues were above COL estimate, with 1Q15 gross port revenues up 18.9% to US$296.1Mil or 26.2% of our full year forecast.

Revenues above COL estimate as higher yield offsets weaker than expected volume. 1Q15 revenues were above COL forecast due to higher than expected yield/TEU. Container volume grew by 12.8% to 1.98Mil TEU, representing only 23.4% of our full year forecast. Container volume of flagship Manila International Container Terminal (MICT) rebounded after the port congestion last year, growing by 7% y/y. Container volume growth was also boosted by the continuous ramp up in the port in Mexico, Honduras, Ecuador, as well as the first time contribution of ICT’s port in Iraq. However, container volume still fell short of estimates due to a sharp decline in the port in Portland , Davao and Madagascar . Nevertheless, revenues still exceeded forecast as ICT’s lower than expected volume throughput was offset by ICT’s higher than expected yield as blended yield/TEU increased 5.4% to US$149.3/TEU. The said value is 11.7% above our forecast. This was mainly due to improving yield of MICT and ports in Mexico, Honduras and Subic. 

EBITDA margin in line with estimate. Cash operating profits as measured by EBITDA grew 23.1% in 1Q15 to US$127.5Mil, equivalent to 26% of our full year forecast. The growth in EBITDA was due to the higher than expected 18.9% increase in revenues as a result of rising yield/TEU. Meanwhile, rise in ICT’s cash operating expenses was in line with estimates, increasing by 11% to US$119.7Mil, representing 25.4% of our full year forecast. Consequently, EBITDA margin improved 150 basis points to 43.1%, in line with our forecast. 

Maintaining HOLD rating. We currently have a HOLD rating on ICT with a FV estimate of Php110.6/sh. While near term earnings growth outlook waned due to rising cost pressures, we still like the company’s long term outlook given its successful track record of growing its port portfolio through acquisitions and greenfield projects, and its focus on emerging economies which have a favorable long term growth outlook compared to overall global economy, However, valuations are not compelling at this point. Based on ICT’s current price of Php110/sh, the stock is already fairly valued. 

- COLfinancial