MPIC's Trans-Java Toll Road Acquisition Will Expand Future Revenue Streams

Key Takeaways

• Expanding in Asia and strategic acquisitions are set to drive strong long-term revenue and earnings growth for First Pacific.
  
• Favorable economic conditions, including margin improvements and reduced interest expenses, are likely to enhance profitability and financial performance.
  
• Currency fluctuations and high debt levels pose risks to First Pacific's earnings, while expansion efforts may strain resources and affect future profits.

Catalysts

An investment holding company, engages in the consumer food products, telecommunications, infrastructure, and natural resources businesses in the Philippines, Indonesia, Singapore, the Middle East, Africa, and internationally.

• Consistent growth in spending power per capita in emerging Asian markets is expected to drive revenue growth for First Pacific’s core businesses.
  
• Indofood is experiencing strong revenue and earnings growth, particularly due to high margins in its noodle segment and favorable commodity prices, signaling potential increased net margins.
  
• MPIC’s Trans-Java toll road acquisition is expected to contribute to instant revenue and earnings growth, enhancing future revenue streams.
  
• Expansion in PLDT’s digital banking services and the development of new data centers are likely to support long-term earnings growth and improve margins.
  
• Reduction in interest expenses over the next few years due to expectations of falling interest rates could improve net margins and increase earnings.

First Pacific Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Pacific's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $914.0 million (and earnings per share of $0.19) by about February 2028, up from $433.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.2x on those 2028 earnings, down from 5.3x today. This future PE is lower than the current PE for the HK Food industry at 14.6x.
• Analysts expect the number of shares outstanding to decline by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.23%, as per the Simply Wall St company report.

First Pacific Future Earnings Per Share Growth

Risks

• Currency fluctuations, particularly the weakening of the Rupiah and Peso, have negatively impacted net profit due to their effect on convertible bonds and could continue to pose risks for First Pacific's earnings.
  
• The company's high level of debt, particularly at subsidiaries like Metro Pacific Tollways, may limit financial flexibility and expansion capacity, potentially impacting net margins if debt servicing becomes costly.
  
• Philex Mining, despite high gold prices, faces operational challenges with lower volume milled and grades, which could impact revenue stability and growth potential from its mining operations.
  
• Rapid expansion efforts, such as the large-scale investments in Metro Pacific Tollways and potential acquisitions, carry execution risks and may strain financial resources, thereby affecting future earnings and net margins.
  
• The need to comply with new Hong Kong listing rules and ESG requirements may introduce additional costs and operational changes, potentially affecting net profits if these are significant or not managed effectively.

Valuation

• The analysts have a consensus price target of HK$6.401 for First Pacific based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.5 billion, earnings will come to $914.0 million, and it would be trading on a PE ratio of 5.2x, assuming you use a discount rate of 11.2%.
  
• Given the current share price of HK$4.23, the analyst price target of HK$6.4 is 33.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.