Noodles, Telecom, Mining And Utilities Will Achieve Future Success

Key Takeaways

• Strong sales growth in Indofood's Noodles division and international markets could boost revenue and profitability, impacting net margins positively.
  
• Contributions from Metro Pacific’s utilities and early fintech expansion by PLDT support anticipated revenue and earnings growth potential.
  
• Various operational and market challenges, including declining resource grades and financial pressures, could negatively impact First Pacific's revenue, profitability, and shareholder returns.

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.

• Indofood's Noodles division has achieved record-high EBIT margins, and with expectations of continued strong sales growth, especially in international markets, there is potential for increased revenue and profitability in 2025. This could positively impact net margins and earnings.
  
• Metro Pacific is experiencing strong contributions from power, water, and toll roads, driven by higher tariffs and increased electricity production. Continued strength in these areas suggests a positive outlook for revenue and net profit in 2025 and 2026, supporting earnings growth.
  
• PLDT’s main businesses have shown record sales and service revenues, with significant growth in mobile and fixed-line data. The ongoing expansion in fintech, especially its profitable digital bank, Maya, could enhance future revenue streams and positively impact future earnings.
  
• Philex Mining anticipates initiating production at its Silangan mine in 2026, with higher grades of copper and gold expected. This development should contribute to revenue growth and increased earnings as the mine ramps up.
  
• The IPO of Maynilad, coupled with tariff increases and efficiency improvements, is expected to drive higher revenues and operating profits, making it a catalyst for enhanced future earnings and potentially increasing First Pacific's overall valuation.

First Pacific Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming First Pacific's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 7.2% in 3 years time.
• Analysts expect earnings to reach $789.0 million (and earnings per share of $0.18) by about July 2028, up from $600.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.4x on those 2028 earnings, up from 5.6x today. This future PE is lower than the current PE for the HK Food industry at 16.9x.
• Analysts expect the number of shares outstanding to grow by 0.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.91%, as per the Simply Wall St company report.

First Pacific Future Earnings Per Share Growth

Risks

• The power market in Singapore experienced exceptional profit levels in 2023 due to specific market conditions which are not expected to persist, potentially leading to lower future margins for PacificLight Power, impacting its revenue and profit growth.
  
• Philex Mining Corporation faces declining grades at its Padcal mine until 2028 and the future reliance on the Silangan mine starting in 2026 introduces production risks, which could negatively affect revenue and profitability.
  
• The Maynilad IPO and associated dilution of Metro Pacific Investments Corporation’s (MPIC) stake could potentially reduce First Pacific’s share in dividend incomes, affecting net margins and shareholder returns.
  
• The increasing interest rate environment combined with planned large capital expenditures such as the PLP power plant might increase the cost of capital, impacting financial flexibility and net margins.
  
• High non-revenue water levels at Maynilad could pressure operational efficiency and profitability if not effectively reduced, affecting both revenue potential and earnings.

Valuation

• The analysts have a consensus price target of HK$6.991 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 $10.9 billion, earnings will come to $789.0 million, and it would be trading on a PE ratio of 6.4x, assuming you use a discount rate of 9.9%.
• Given the current share price of HK$6.15, the analyst price target of HK$6.99 is 12.0% 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.