Metro Pacific Investments Corporation: 1Q15 earnings in line with COL forecast, operating performance of subsidiaries lower than expected

MPI’s 1Q15 core earnings rose 14.4% y/y to Php2.56Bil, representing 25.6% of COL and 27.3% of consensus full year forecasts. Earnings met COL forecast and exceeded consensus forecast mainly to due to the group’s lower interest expense booked during the period, amounting to Php1.1Bil, representing only 18.2% of our full year forecast. Operating performance of major subsidiaries missed our forecast, with earnings contribution reaching Php3.01Bil or 22.9% of our full year forecast.

MER 1Q15 disappoints on lower than expected revenues. Meralco’s 1Q15 core net profit rose 8% to Php4.4 Bil, trailing estimates, representing only 21.8% and 24.3% of COL and consensus forecast, respectively. Earnings likely missed estimates due to lower than expected sales volume growth and tariff. 1Q15 sales volume grew 2.3%, slower than our 3.5% growth forecast. Meanwhile, average tariff declined 5% to Php1.55/kwh, 1.9% lower than our full year average forecast.

Maynilad beat estimates on lower than expected costs. Water distribution subsidiary Maynilad reported a 6.7% increase in 1Q15 core earnings to Php2.25Bil, representing 31.3% of our full year forecast. Despite failing to get approval for the implementation of the tariff increase won from the arbitration panel in January, Maynilad’s earnings still beat estimates due to lower than expected expenses. Total operating cost declined 2.03% to Php1.69Bil, representing only 14.3% of our full year forecast. Billed volume grew by 3%, lower than our 5% growth forecast.

MPTC revenues below expectation due to regulatory hurdles. 1Q15 core income of MPI’s toll road subsidiary MPTC rose 15% to Php683Mil, representing 21.8% of our full year forecast. Earnings missed estimates mainly due to lower than expected revenues, which rose 7.8% to Php2.27Bil, but representing only 20.2% of our full year forecast, mainly due to the prolong delay in the implementation the MNTC and Cavitex’s tariff increase. MNTC’s traffic volume rose 8% y/y, slightly above our 7% growth forecast, while the Cavitex’s volume grew 9% y/y, exceeding our 4% growth forecast.

Maintain BUY rating. We are reducing our FY15E net income forecast for MPI by 4.3% to Php9.57Bil to account for the lower earnings contribution of its toll road business. The impact of the lower net income on MPI’s FV estimate is minimal, reducing it by only 1.07% to Php6.49/sh to Php6.42/sh. We have a BUY rating on MPI. We like MPI due to its focus on businesses that have massive growth potential due to underinvestment and population growth. Valuations are also attractive; given a potential upside of 37.5% based on our FV estimate of Php6.42/sh.

- COLfinancial