November 07, 2014

MPI’s profit growth slows in 3Q14 but within expectations

Metro Pacific Investors Corp (MPI) yesterday reported a 14% YoY increase in consolidated net income to P5.99b in 9M14. Excluding non-core expenses, core income grew 15% to P6.46b from P5.61b a year ago. As anticipated, profit growth was slowest in 3Q14 with quarterly core earnings up 9% to P1.82b, compared with 20% (P2.40b) in 2Q14 and 15% (P2.24b) in 1Q14. The third quarter is seasonally the weakest for utilities MER and Maynilad given the onset of the rainy season. Travel volume is also relatively lower during the wet season, thereby resulting in lower sequential profits for the toll road business.

MPI’s major operating units continue to post strong growth led by Manila Electric Co (MER, Hold), with core earnings contribution up 22% to P2.48b in 9M14 owing to the 5% growth in MER’s own core income and MPI’s higher stake in MER to ( 27.48% from 24.98%).

Despite delays in the implementation of tariff adjustments, MPI’s water and toll road units both contributed higher core earnings of P3.18b (+8%) and P1.59b (+17%), respectively, due largely to higher volume sales and MPI’s higher stake in Thai tollroad operator Don Muang Tollway Public Co Ltd (to 29.45% from 7.36%).

The hospital group also posted higher stand-alone core earnings of P769m, up 15%, but actual profit contribution declined by 8% to P400m after MPI sold a 14.4% interest in the conglomerate’s hospital holding company to GIC in July.

MPI declared a P0.04/sh special one-off dividend of P0.04/sh. Together with the interim dividends declared in April and August of P0.022/sh and P0.026/sh, respectively, total dividends declared for the year totaled P0.088/sh. Effective yield, based on yesterday’sclosing price, is 1.75%.

Our take: The results were within expectations with 9M14 core income representing 75% of MPI’s core profit guidance of P8b. Uncertainty on the regulatory front may continue to weigh on the share price in the near term, which so far has underperformed the market this year by 6.7 bps. Maynilad’s arbitration case should be resolved by early next year (no later than Jan 2015 as per company estimate) but MER’s performance-based rate adjustment could be delayed.

Looking forward, pre-development expenses related to certain projects such as the automated fare collection system (AFCS), in which MPI has a 20% stake, and Harbour Link may also weigh down on earnings but should start contributing to bottomline by 2015E. Construction continues on the first stage of the 8-km NLEX Harbour Link connecting the NLEX to the Manila Port in two segments (Segment 9 and 10) and is expected to have its first stage (2.4-km Segment 9) open in 2015. Meanwhile, the AFCS is expected to be operational by Sept 2015. – WealthSec