Metro Pacific Investments
Posted by bong on Thursday, June 2, 2011
Metro Pacific Investments Corporation or MPI is a holding company incorporated in March, 2006 whose business interest is real estate and infrastructure projects.
Business Details:
1. Tollroads - owned 99.85% of Metro Pacific Tollways Corporation, the concession holder of North Luzon Expressway (NLEX). As of Mar. 3 , 2011, the said company has been waiting for the formalization of turned over of Subic-Clark-Tarlac Expressway(SCTEx). Upcoming project is the NLEx to SLEx Connector Road Project. It also has minority interest in Citra(Skyway).
2. Water Utilities - owned 56.8% of Maynilad Water Services Inc., a concession that covers the west zone of Metro Manila and a large part of Cavite Province.
3. Power Distribution - owned 35% of Meralco shares.
4. Hospital - the following are the hospital subsidiary owned by MPI: Riverside Medical Center in Bacolod (51% owned), East Manila Hospital Manager's Corporation (100% owned), Makati Medical Center (35% owned), Davao Doctors Hospital (35% interest).
Business Performance:
My first reaction when I saw the revenue chart of MPI is "Wow!". The Revenue has grown like a perfect staircase.
The same case with the Net Income and Operating Cash Flow. Note that MPI was incorporated only in 2006, which explains its negative net income and cash flow at the initial year(it is normal for start-up business to lose initially). Also, the operating cash flow is significantly higher than the net income from 2008 up to 2010. The reason is because MPI is very active in acquisitions and so cash from operations are used up resulting to lower net income.
For 2010, MPI's revenues increased by 15% compared to previous year while Net Income increased by 21.6% mainly due to first full-year contribution from Meralco and increased income contribution of other operations. Contribution from income is as follows: Water (44%), Toll Fee (26%), Meralco (27%) and hospitals (3%).
Profitability:
ROE = 4.40%
Average ROE for 5 years = 4.0%
OCF/Equity = 21.73% (operating cash flow to equity ratio)
Net Profit Margin = 28.61%
At first look, MPI seems less profitable since its Return of Equity is only 4.40% (ROE of 15% is good). However, as mentioned in the Business Performance Review in Part 1, MPI have massively accumulating new assets these past few year thus increasing its asset fast while resulting to lower net income (ROE = net income /equities....where equities = assets-liabilites). The operating cash flow to equity ratio speaks the profitability of the company as it shows 21.73%.
Growth:
Annual Net Income Growth Rate = 57.33% (2007 to 2010)
Disregarding the starting year, the annual net income is growing fast mainly due to acquisitions. More growth are expected in the future with the upcoming projects. Also, the company are planning to actively participate in the Public-Private Partnership Program for the improvement of the infrastructure in the Philippines. Note that the NLEx is a model for successful PPP which MPI is involved.
Risk and Debt:
DE Ratio = 101%
Current Ratio = 0.8
Just like most companies which are growing fast by acquisitions, leveraging is required to provide the necessary fund. This resulted to high debt as shown in its DE Ratio (DE Ratio below 100% is good). On the other hand, MPI have improved a lot is leverage level by lowering its DE Ratio from 734% in 2006 up to this level (101%).
Liquidity risk is also high for the said company since its current ratio is only 0.8 (current asset to current liabilities ratio of 1.5 or higher is considered healthy). This should be addressed soon by the management.
Dividend:
Dividend Yield = 2.57%
Other Factors: The effect of Bond Swap
Recently, MPI made an announcement about the conversion of MPHI bonds into 2,030M MPI common shares. This is a 10% dilution to the current outstanding shares (20,160 M shares). However, this is the conversion of P6.6 Billion worth of bonds not additional shares. It has a positive effect of reducing the debt and future interest expenses of the company...assuming that the bond's interest rate is at 10%, this bond if not converted is equal to P7.26 Billion (debt +10% interest) only after 1 year and this will be higher in the succeeding years. However, if converted to shares, at a current price of P3.67 per share, the total value is P7.45 Billion. Therefore converting this bond is more beneficial to the company as a whole in the medium term.
Valuation:
PE Ratio = 26.21
PB Ratio = 1.13
Intrinsic Value = 9.3
Current Price = 3.67
Upside = 152.86%
Using discounted cash flow analysis, intrinsic value is calculated based on 2010 Annual Report. Cash Flow is projected to grow at a conservative rate of 12% and discounted at 15% worst case, minimum risk interest rate (based on historical Philippine 91-day T-Bills rate plus margin of safety).
Conclusion:
Despite the recent uproar about the possible dilution of shares, MPI is still a good buy given its potential for high growth and lucrative possible stocks appreciation.
Business Details:
1. Tollroads - owned 99.85% of Metro Pacific Tollways Corporation, the concession holder of North Luzon Expressway (NLEX). As of Mar. 3 , 2011, the said company has been waiting for the formalization of turned over of Subic-Clark-Tarlac Expressway(SCTEx). Upcoming project is the NLEx to SLEx Connector Road Project. It also has minority interest in Citra(Skyway).
2. Water Utilities - owned 56.8% of Maynilad Water Services Inc., a concession that covers the west zone of Metro Manila and a large part of Cavite Province.
3. Power Distribution - owned 35% of Meralco shares.
4. Hospital - the following are the hospital subsidiary owned by MPI: Riverside Medical Center in Bacolod (51% owned), East Manila Hospital Manager's Corporation (100% owned), Makati Medical Center (35% owned), Davao Doctors Hospital (35% interest).
Business Performance:
My first reaction when I saw the revenue chart of MPI is "Wow!". The Revenue has grown like a perfect staircase.
The same case with the Net Income and Operating Cash Flow. Note that MPI was incorporated only in 2006, which explains its negative net income and cash flow at the initial year(it is normal for start-up business to lose initially). Also, the operating cash flow is significantly higher than the net income from 2008 up to 2010. The reason is because MPI is very active in acquisitions and so cash from operations are used up resulting to lower net income.
For 2010, MPI's revenues increased by 15% compared to previous year while Net Income increased by 21.6% mainly due to first full-year contribution from Meralco and increased income contribution of other operations. Contribution from income is as follows: Water (44%), Toll Fee (26%), Meralco (27%) and hospitals (3%).
Profitability:
ROE = 4.40%
Average ROE for 5 years = 4.0%
OCF/Equity = 21.73% (operating cash flow to equity ratio)
Net Profit Margin = 28.61%
At first look, MPI seems less profitable since its Return of Equity is only 4.40% (ROE of 15% is good). However, as mentioned in the Business Performance Review in Part 1, MPI have massively accumulating new assets these past few year thus increasing its asset fast while resulting to lower net income (ROE = net income /equities....where equities = assets-liabilites). The operating cash flow to equity ratio speaks the profitability of the company as it shows 21.73%.
Growth:
Annual Net Income Growth Rate = 57.33% (2007 to 2010)
Disregarding the starting year, the annual net income is growing fast mainly due to acquisitions. More growth are expected in the future with the upcoming projects. Also, the company are planning to actively participate in the Public-Private Partnership Program for the improvement of the infrastructure in the Philippines. Note that the NLEx is a model for successful PPP which MPI is involved.
Risk and Debt:
DE Ratio = 101%
Current Ratio = 0.8
Just like most companies which are growing fast by acquisitions, leveraging is required to provide the necessary fund. This resulted to high debt as shown in its DE Ratio (DE Ratio below 100% is good). On the other hand, MPI have improved a lot is leverage level by lowering its DE Ratio from 734% in 2006 up to this level (101%).
Liquidity risk is also high for the said company since its current ratio is only 0.8 (current asset to current liabilities ratio of 1.5 or higher is considered healthy). This should be addressed soon by the management.
Dividend:
Dividend Yield = 2.57%
Other Factors: The effect of Bond Swap
Recently, MPI made an announcement about the conversion of MPHI bonds into 2,030M MPI common shares. This is a 10% dilution to the current outstanding shares (20,160 M shares). However, this is the conversion of P6.6 Billion worth of bonds not additional shares. It has a positive effect of reducing the debt and future interest expenses of the company...assuming that the bond's interest rate is at 10%, this bond if not converted is equal to P7.26 Billion (debt +10% interest) only after 1 year and this will be higher in the succeeding years. However, if converted to shares, at a current price of P3.67 per share, the total value is P7.45 Billion. Therefore converting this bond is more beneficial to the company as a whole in the medium term.
Valuation:
PE Ratio = 26.21
PB Ratio = 1.13
Intrinsic Value = 9.3
Current Price = 3.67
Upside = 152.86%
Using discounted cash flow analysis, intrinsic value is calculated based on 2010 Annual Report. Cash Flow is projected to grow at a conservative rate of 12% and discounted at 15% worst case, minimum risk interest rate (based on historical Philippine 91-day T-Bills rate plus margin of safety).
Conclusion:
Despite the recent uproar about the possible dilution of shares, MPI is still a good buy given its potential for high growth and lucrative possible stocks appreciation.