Top Stories (MPI, FGEN, EDC, SCC, AP, MER)

MPI submits highest bid for CALAX project. The government announced that MPI submitted the highest bid for the Cavite-Laguna Expressway (CALAX) Project. MPI submitted a bid Php27.3Bil, which is the premium that MPI will pay the government for the project on top of the construction cost of the project, topping San Miguel Corp’s Php22.2Bil bid. Construction for the Php35.4Bil, 45.5km road project is expected to begin in July 2016 and be completed in July 2020, while the operating and maintenance period will be from July 2020 to July 2050. 20% of the Php27.3Bil premium will be paid upon the signing of the contract, while the remainder of the balance will be paid over 10 years. The DPWH said it expects the award of the contract on June 4. The CALAX would be the biggest single biggest toll road investment in MPI’s portfolio and we believe that it should further boost MPI’s long term earnings growth outlook. In terms of funding for the project, MPI said that the initial premium payment of Php5.46Bil will be funded internally, but will raise debt in the succeeding years for the future premium payments and the construction cost of the project. We will be waiting for more details on this project from management to see the rationale for MPI’s bid (how to justify the increase from its last year’s bid of Php11.3Bil to PHp27.3Bil) and the level of return MPI expects for this project. 

Maintain BUY rating. 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 36.3% based on our FV estimate of Php6.42/sh.

FGEN earnings beat estimates due to EDC and hydro plant. FGEN’s 1Q15 net income rose 17.7% to US$50.5Mil. On a recurring basis, earnings rose 9.3% to US$49.5Mil, representing 31.3% and 25.5% of COL and consensus forecast. Earnings beat forecast mainly due to the better than expected performance of EDC and the Pantabangan-Masiway hydro plant. Earnings of the gas plants were also better than expected. The Sta. Rita and San Lorenzo gas plants reported total earnings of US$33.3Mil, up 5.3% y/y, representing 27.8% of our full year forecast. 

EDC results ahead of COL forecast on higher than expected revenues. EDC’s 1Q15 core net income rose 11.0% to Php2.46Bil, ahead of COL forecast (27.1%), but below consensus forecast (21.6%). Revenues rose 19.1% to Php8.5 Bil and were slightly stronger than expected at 26% of our full year forecast. EDC benefited from the stronger than expected revenues of the PantabanganMasiway Hydro plant, partially offset by weaker than expected revenues from Palinpinon-Tongonan and Bacman. Operating expenses rose 20.5% y/y to Php4.34Bil, representing 24.3% of our full year forecast. 

SCC benefits from coal mining segment’s better than expected performance. SCC’s 1Q15 earnings increased 24.2% to Php2.51Bil, equivalent to 24.2% of COL and 27.1% of consensus full year forecast. Earnings met COL’s forecast mainly due to the coal segment’s stronger than expected performance. Revenues from power generation increased 88.2% to Php19.31Bil, representing only 19.3% of our full year forecast, as the 300MW Calaca Expansion Project will begin operations in 2H15 which is later than expected. 

Core EBITDA of AP’s power generation and distribution businesses disappoint. AP’s 1Q15 core earnings declined 1.2% to Php4.3Bil, in line with COL’s forecast (25.9% of our full year forecast), but representing only 23.3% of consensus forecast. However, AP’s operating performance as measured by its EBITDA was weaker than expected. EBITDA of AP’s power generation business declined 3.9% to Php7.2Bil, representing only 22.5% of our full year forecast, brought about by the disappointing performance of its large hydro and geothermal plants. EBITDA of its power distribution business also disappointed, rising by 14% to Php1.26Bil, representing 21.4% of our full year forecast. 

MER results below estimates on lower than expected sales volume. Meralco’s 1Q15 core net profit rose 8% to Php4.4 Bil, representing only 21.8% and 24.3% of COL and consensus forecast, respectively. Earnings 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.

- COLfinancial