First Pacific Company Limited

Good day, everyone. Thank you for joining this online briefing to discuss First Pacific 2023 full-year financial and operating results. The results presentation is available on First Pacific's website, www.firstpacific.com, under the investor relations session presentation page. Please note this result briefing is being recorded and the replay will be available on First Pacific's website in the investor relations session as well. For participants from the media, please note that Q&A session is open for investors and analysts only. If you would like to raise questions, please contact us when the meeting finishes. Today we have with us Mr. Chris Young, our Executive Director, Mr. Joseph Ng, Chief Financial Officer and Associate Director, Mr. John Ryan, our Associate Director and Head of Investor Relations, Mr. Stanley Young, our Associate Director and Head of Public Development, and other senior executives from the head office of First Pacific. Over to you, John, for the presentation.

Thank you, everyone, for joining us. We're very proud of our results today, but we'll begin with a brief reminder of who we are. On page two of this presentation, you've got some logos of some of our more well-known assets, including the core holdings of PLDT, Metro Pacific, and New Food, and Pacific Light Power, which I'll refer to as PLP during this presentation. Over on the next page, we've got a year-end 2023 snapshot of our gross asset value. You can see we've got our four core holdings holding up most of that pie chart. All of them are at market prices except for two. MPIC is there at the price we paid at its delisting on the 9th of October last year. And PLP is down at book value. That's the money we paid for our stake in that company. Now over to the results. On the next page, I think what we've got is a third successive high in contribution from operations. It was up 18% to just over $700 million. And as the numbers cascade over to recurring profit, as you can see visualized in the column chart on the right-hand side, you can see that NPIC and PLP were the most significant contributors to the increase in our recurring profit in 2023. Looking at this page, you see there's a lot written in red and in bold font. It's an experiment we're trying. Please share your views. A lot of highest evers and record highs. Earnings per share up 19%, 14.24 U.S. cents a share. And this comes down to a final distribution to our shareholders of 12.5 Hong Kong cents a share and bringing the full year payout to 23 Hong Kong cents a share, up a penny from the 2022 payout. Looking ahead, management is confident of continuing earnings growth. Broadly, our core holdings, the four of them, we expect over the medium term to deliver continuing earnings growth going from strength to strength, and we'll discuss this in the course of this presentation. Now, let's move on to our investment-grade credit ratings and our interest coverage ratio. 4.4 times at the end of the year, we're investment-grade rated by S&P and Moody's. We've got at the top left here a maturity table chart, rather, of our borrowings due dates. And please note that the $210 million falling due in 2024 is pretty much all taken care of. We've got committed facilities in place pushing those borrowings out to a more distant horizon. So the details and the bullet points on the right will already be a little bit out of date. The average maturity is by now going to be greater than the 3.2 years it was at the end of 2023. Unchanged, really, are our gross debt and net debt numbers of $1.5 and $1.4 billion, and our blended interest costs higher than it was a year ago at 5.4%, but extremely manageable. Particularly if you look at our dividend income column chart there on the bottom left, we can see that $324 million we've received from our investee companies is a record high, featuring the maiden contribution from PLP, colored in gold on that column chart. Now, let's finish this page with just a snapshot of the ratio of fixed rate to floating borrowing. It's about 50-50 of the $1.5 billion we owe, and the bulk of it is in bank loans with just one bond remaining at $350 million. Our CFO, Joseph Fink, can discuss the prospects of further potential bond issuances if you'd like to bring it up in the Q&A. Now, very, very briefly on page six, We had a smashing equity market performance in 2023, and that may be a factor behind the great number of people attending our call today. Up by a third for the full year, and so far in 2024, I think per specific share price is up about 22% for the second year in a row, beating our peers and major indices globally and regionally. And even more briefly on page seven, you'll see that our head office greenhouse gas emissions have fallen quite extraordinarily in 2023, and that's because we've managed to have carbon neutral scope to emissions thanks to Hong Kong Electric selling us some carbon certificates. We'll try to continue that going forward to set an example for our investee companies and to show we have decent bona fides in the sustainability space. This is not at the top of mind when our top people are looking at potential investments going forward, but it's a factor we consider when we regard the future and what it means for us. Now, to our biggest holding, Indofood saw record high net sales, record high core profit, and its consumer branded products division on the next page also saw record high sales. You can see there's some details here in the column chart on the right-hand side. The overall performance of Indofood was driven by consumer-branded products. It's in the separately listed ICBP company. And if you look at the EBIT margin comparison in the blue box down there on the bottom right, you might notice that the noodles margin in full year 2023 was the highest it has ever been. The noodles business is going from strength to strength, has been in the past few years, and we expect it to continue doing so going forward. We are very, very pleased with Indofood. And now let's have a look at its biggest business, Indufood CBP, on page nine. Again, we've got a river of record highs flowing downstream towards you. I have a particular affection for that chart on the bottom left, which shows how extraordinary its sales have grown over the past, what, oh, 13, 14 years or so. from under 20 trillion rupiah to just under 70 billion rupiah over that time span. They had a terrific year, as the bullet points describe. And looking ahead, Indofood told their analyst briefing, I think it was yesterday, that 2024 is going to look pretty good, too, with sales up 5% to 8%, and EBIT margins remaining quite strong. Now, we're going to jump forward to Metro Pacific Investments on page 12. Let me remind you that this was delisted in the second half of 2023 at a price of 5.2 pesos per share. That's the holding company which owns all these assets, the major ones being Moralco in the power generation and distribution business, the Toll Roads business, which is expanding fast across Southeast Asia, and the biggest water company in the Philippines, Mainalad, plus the biggest healthcare network, 23 hospitals now, and several others smaller but also interesting investments. So how did NPIC assets perform? Let's skip over page 13 and go to page 14, where we can see there are some more record highs. Core profit, record high. Contribution from operation, record high. Moralco, as you can see in the column chart on the bottom left, had a fantastic year. Again, record highs there. The water business, after years of tussle with MWSS, its regulator saw the beginning of tariff increases, long delay, begin to come through in 2023. I think overall it was about 16% last year. And then in January this year, they got another bump of about 17%. I may have those numbers swapped around, but they're broadly accurate. Very quickly over to Moralco. You'll see that in this investor handout on page 15, we've got expanded pages devoted to MPIC. And that's simply because as a privately held company, it's more difficult for fund managers to get a look at what exactly is going on there. So we're increasing our transparency over the MPIC assets from 2023 full year and going forward. Now, briefly about Moralco, as I said, it has the highest ever revenues, highest ever core profit, and highest ever core EBITDA. The generation contribution in terms of dollars and gigawatt hours are there in two of the blue boxes, and we expect all of these numbers to show improvement in 2024. Now, let's move forward to page 17, where we've got a brief mention of the toll roads business. If you've been typing MPTC into your Google search box in recent months, you'll see that they have been rather active in expansion abroad. We can go over that more in the Q&A. Stanley Yang, our head of corporate development, can discuss this if that is your great interest. Average daily vehicle entries now are well over a million vehicles a day, cars and trucks, across its networks in the region, and that drove them to record high revenues for profit and traffic. Moving over to page 19, a very brief word about Mainalad. Record high revenues, very strong rise to core profit. They had in the distant past had higher core profit, I think back in 2013 or 14, so not a record high there. Their earnings growth is mostly due to the increase in tariffs that was mentioned just a moment ago. Now, let us move towards the largest telco in the Philippines on page 21. PLDT saw record high service revenues and record high EBITDA. How did it all work out? Again, as it has happened over the past few years, earnings growth has been driven by data, as you can see in the column chart on the bottom right-hand side of this page. Wireless data and SMS fixed line data all showing strong growth. and it's the legacy businesses, that solitary black box of 2.3 billion pesos, being the only thing restraining the service revenue growth to just over 200 million pesos. This year, they see the core profit rising in mid-single digits to at least 35 billion pesos for the full year, and CapEx will be coming down to the range 75 to 78 billion I think it's the second year in a row of coming down for CapEx. It was as high as 50% of service revenues, and I think it's going to be somewhere around 42% for 2024. Now, let's move to a very interesting small business, which is making its first visit to our investor handout on page 23. That's Maya. That's the fintech that PLDT owns 38% of. It is the only telco to have a digital banking license in the Philippines, and it's quite small, as you can see, but it is growing very, very fast. Bank deposit numbers doubled last year. Deposit balances went up almost threefold, and the cumulative loan dispersal was up almost sevenfold over the course of 2023. In a country where two-thirds or more of all the population are unbanked, Maya's growth is something to keep an eye on. It's 38% owned by PLDT. Yes, it lost money again in 2023, but they think they are going to turn into the green by the fourth quarter of this year. We will be keeping you apprised of how that's going. Now, on to page 25, Pacific Light Power, our fourth and youngest of the core holdings. Lots of record highs and highest evers here, revenues and EBITDA. They managed to deliver an enormous dividend to its two shareholders. At the same time, their net debt fell by more than two-thirds over the course of the year. They've really had a very, very strong 2023. And over the next few years, that will prove to probably be hard to duplicate, but the earnings will continue to be strong. Looking ahead, Pacific Light Power, PLP, has got a project to put together a scheme to export solar power from Bulan Island, that's part of Indonesia, via undersea cable to Singapore for feeding the data centers that are fast-growing in that little city-state. It's an exciting project, and Stan, again, can speak to this if that comes up in the Q&A. Now, very briefly, our last major holding is Felix Mining on page 26. Many of you have long known that it's currently operating. PadCal Mine has been scheduled for closure. I think it was originally going to be 2020, and then they keep moving it out, moving it out, moving it out. And it's now going to be operating at least until the end of 2027, because the mining people there have figured out how to get the diminishing ore grades to remain profitable. As you can see, the earnings are down in 2023, but they're still positive. And that's good news because the cash flow from PADPAL is handy to have as development of the new, much richer grades mine in Salangan, down in the south of the country, works towards opening commercial operations later in 2025. That's coming really sooner than we would think. So... We have had a very, very good 2023. That's just been a very rapid overview of how it has looked. And I want to wind up the introductory narrative with a glance to page 29. The left-hand column, as you see, is the very familiar NAV per share description that we put in all of our financial statements. These are the end-year numbers. So the share price of 311 is a little bit out of date. You can see it's towards the bottom of that column chart there. And our NAV discount at the end of the year was about 55%. With the current increase in our share price year-to-date, I think it's closer to 45 today. But what I'd like to draw your attention to on this page is the valuation of MPIC. Our $1,371 million valuation is the price it was worth at 520 a share when it was delisted. CLSA reckons that it's worth a bit more than that when you're doing a look-through valuation at what its assets are worth. Remember, there's Moralco listed, Mainland, the toll road business, MPTC, and others. So they've increased their valuation of MPIC to a bit under $2 billion, and then – In the couple of months before it was delisted, there were six analysts who were covering MPIC at the time who did their own look through valuations. And they came up with a larger number. Well, of course, I put this in our presentation. What does this all boil down to? The $7 per share NAV in the blue box at the bottom that we had at the end of 2023 looks to be different numbers from these differing perspectives. Over $8 NAV per share. These are Hong Kong dollars. according to the CLSA view, and a bit under $10 NAV per share, according to what those analysts were saying. This is all food for thought, but perhaps the more conservative among you will want to bear in mind that First Pacific Management is extremely confident about overall broad earnings growth among our core holdings filtering through the head office over the next three years. And that's it for the introduction.

Thanks, John. We are now ready for questions.