First Pacific Company Limited (142) Earnings Call Transcript & Summary

All right. 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 section 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 the Q&A session is open for investors and analysts only. If you would like to raise questions, please contact us when the briefing is finished. 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 Yang, our Associate Director and Head of Public Development; and other senior executive on 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 2 of this presentation, we've got some logos of some of our more well-known assets, including the core holdings of PLDT, Metro Pacific, Indofood and PacificLight 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 4 core holdings holding up most of that pie chart. All of them are at market prices except for 2. MPIC is there at the price we paid at its delisting on the ninth 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 MPIC 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 so please share your views, a lot of highest evers and record highs. Earnings per share up 19% to USD 0.1424 a share. And this comes down to a final distribution to our shareholders of HKD 0.125 a share and bringing the full year payout to HKD 0.23 per share, up HKD 0.01 from the 2022 payout. Looking ahead, management is confident of continuing earnings growth broadly our core holdings, the 4 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 of 4.4x. 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 and 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 billion and $1.4 billion. And our blended interest cost 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 the $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 Ng, 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 6. 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 1/3 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 7, you'll see that our head office greenhouse gas emissions has fallen quite extraordinarily in 2023, and that's because we've managed to have carbon neutral scope 2 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 bonafides 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 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 are 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. It 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 Indofood CBP on Page 9. Again, we've got a river of record high 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 13, 14 years or so from under IDR 20 trillion to just under IDR 70 billion over that time spent. 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 PHP 5.2 per share. That's the holding company, which owns all these assets. The major ones being Meralco 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, Maynilad; plus the biggest health care network, 23 hospitals now and several other smaller but also interesting investments. So how did MPIC 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 operations, record high. Meralco, as you can see in the column chart on the bottom left had a fantastic year, again, record high there. The water business, after years of tussle with NWSS, it's regulator, saw the beginning of tariff increases, long delayed, begin to come through in 2023. I think overall, it's about 16% last year and 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 Meralco. 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 Meralco. 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 2 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 1 million vehicles a day, cars and trucks across its networks in the region, and that drove them to record high revenues, core profit and traffic. Moving over to Page 19, a very brief word upside Maynilad, 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, SMS, fixed-line data, all showing strong growth and it's the legacy businesses, that solitary black box of PHP 2.3 billion being the only thing restraining the service revenue growth to just over PHP 200 million. This year, they see the core profit rising in mid-single digits to at least PHP 35 billion for the full year. And CapEx will be coming down to the range PHP 75 billion to PHP 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 number of -- the cumulative loan dispersal is up almost sevenfold over the course of 2023. In a country where the 2/3 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, PacificLight Power, our fourth and youngest of the core holdings, lots of record highs and highest ever here. Revenues and EBITDA. They managed to deliver an enormous dividend to its shareholders. At the same time, their net debt fell by more than 2/3 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, PacificLight 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 from the Q&A. Now very briefly, our last major holding is Philex 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 kept 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 Padcal is handy to have as development of the new much richer grades mine in Silangan down in the south of the country works towards opening commercial operations later in 2025, and that's coming really sooner than we would think. So we've 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 HKD 3.11 is a little bit out of date. You can see it 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 $5.20 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 asset are worth. Remember, there's Meralco listed, Maynilad, the Toll Roads 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 6 analysts who were covering MPIC at a 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 different perspectives, over $8 NAV per share, these are Hong Kong dollars, according to the CLSA view and a bit under $10 net 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 holdings filtering through the head office over the next 3 years. And that's it for the introduction.

Thanks, John. We are now ready for questions.

We have a question here. What is the NAV as of today? Can we get an update? I looked at it yesterday, and it was about 45%. But look, I've got my e-mail, I got a new number, 44.4% at today's market close. That is the NAV discount of First Pacific at today's closing price of 3 82. Jeff, unmute yourself and ask your question, please, Jeff.

So basically, I have 2 big questions. So the first one would be about the latest dividend policy, which I see you have put some wording like progressive absolute dividends going forward. So I just want to see, first of all, how do we decide the amount for the final dividend this time? And how should we think about this going forward? And assuming a little bit, just want to get your latest thought on capital allocation at the Holdco level. How do we strike a balance between potential investments, dividends, buybacks or debt reduction going forward? And I have one question after that.

I'll give a brief introduction and then hand it over to Joseph for more details. The dividend policy unlinks the distribution to our shareholders from the profit numbers, which, as you've seen, keep growing from record high to record high year after year. And the distribution is based on -- well, funded by the dividend income that we have. So what we wanted to do is stop an increasingly tenuous link to the profit linking the cash income to the profit and replace it with an assurance that over time, our aim is to show distribution increases to our shareholders. And now for more detail, I think Joseph can help.

Well, I mean, maybe I answer the second part of your question, which is capital allocation. If you go to Page 31 of the presentation where we get a sense of the cash flow that we have shown. In 2023, you see that while we had quite a bit of dividend income from the units and the record $324 million and then taking all those items you are having $235 million, but if you take out the dividend, I mean, that we pay in the course of the year, then you probably have something like PHP 110 million, that sort of figure, PHP 120 million, that would make quite a good investment. So for the full year, we are in the negative store. So we would think about the capital allocation point where we get into 2024 if we could maintain that level of dividend, say, [ 300-something ] million network, then we probably have a service case of PHP 80 million, PHP 90 million, then we keep into the kind of the thinking about capital allocation between what you say, increasing a dividend or we're serving some of the cash for future investments. Remember that we also wanted parties of investing in this Singapore, Indonesian renewable energy project, even though we're still in the process of finalizing what the necessary arrangements with the government and the other parties. So we need to be up a little bit kind of help reserve for that as well. So the investment, the return to shareholders and debt reduction. But we are talking about getting in 2024, maybe somewhere around 70 million, 80 million if we could have that sort of service cash starting in 2024.

Patrick has the second question.

Hang on. Let's go to others before we do that. Our current voting stake is asked. Stan, can you help with that question?

Sure. From an economic perspective, it's 46% after the delisting and the share placement at MPIC. From a voting perspective, there are voting preference shares in Metro Pacific that [ BHI ] has a holding company and that brings us to a majority shareholding on a voting basis. I'm not sure if that's publically disclosed. But -- so it's at 58%.

Okay. Thank you, Stan. Joseph, can you briefly explain that I mentioned the potential for issuing dollar bonds. Can you give more color on that? I don't want to be -- to have misled anyone.

Yes. We go back to the debt maturity programs around page 5, and that said the maturity of the bonds and the bank loans. As mentioned by John earlier, we already lined up committed facilities to fully repay the 210 million due in second quarter 2024. Actually, we have very strong responses from the market to the extent that we may be able to raise a bit more on the 400 million due in 2026, triple [indiscernible] ready and then also turmoil of a significant portion of the 400 million. Now the next question coming up into what are we going to do with the remaining long balance due in 2026 and also the 2027 bond. Now we have then -- after we're prepaying the loans in 2024, we have a clear kind of 18 months or so, at least for us to observe the market, the interest rate environment, DC market and design what we want to do. And clearly, our preference, if we want to balance the solo credit on the bond market and the bank market than preference will be going for a bond, which gives us 10, at least 7 years, if not 10 years, so we term it up. But I mean, we have time to observe the market and see where the market behave and interest rate environment evolve. So we are quite conservative, but we have time. And then if the market is good and the rate is good, then clearly, we'll go for some new bond issuance in the next 18 months or so.

Thank you very much, Joseph. We've been joined by our Managing Director and Chief Executive, Manny Pangilinan. Manny, there's a question about Toll Roads developments going forward, but perhaps you might use that as a lever to discuss what sort of thinking we've got about our corporate developments going forward?

Well, in terms of Toll Roads, I think quite recently, we've gotten fresh adjustments on our tariffs. So we're looking forward to a upgraded profit picture for our toll ways in the Philippines, particularly, and that is shown in the first 2 months, profit is also the toll which are higher quite significantly aware what it was last year. And there are several of the tollways projects in the Philippines that are nearing completion within the year, part of it is the [indiscernible] the third phase of it, which is a 2-lane highway in the middle of the [indiscernible]. So I said we will now have 6-lane -- it will become a 6-line highway, tollway is connecting 1 particular province in the North and Metro Manila. The other Calamba Laguna Expressway, the 2 legs in the province of Laguna, which has been completed. And -- but the Cavite project has just been started because of rights-of-way issue. Last -- yesterday, Monday I had dinner with the -- hosted dinner for the Governor of Cavite Province and he has promised to sort out the rights-of-way issue -- so we anticipate the priority next assuming we can do that in the next few months, I believe we can finish cavitate lane by the middle of next year, which is probably what can be done as quickly as we can. In which case, the Calax project should be finished. Segments of it can be finished within the year the Cavite lane and the final segments will be completed by the middle of next year. In Indonesia, we are the highest bidder for a 35% stake in the Trans Java tollways, 35%. 65% will be retained by Jasa Marga, which is the Indonesian government's tollways company that builds most of these tollways in that country. So we -- actually, the Board of Jasa Marga approved the bid of Metro Pacific tollways for the 35%. And I think that goes through several government formalities before the award is given to us. So we should anticipate getting the formal award from the Indonesian government within a month from today.

I talk about the annual merchant. Maybe. Yes, Manny.

Well, there are ongoing discussions between Metro Pacific Investments and San Miguel Corporation itself about combining the 2 tollways into 1 significant consequential tollways company. And in principle, we have shook hands with San Miguel about this particular merger. The basis that it will be a 50/50 joint venture between ourselves and San Miguel, combining their Philippine operations. They're only in the Philippines. And in the case of Metro Pacific tollways, both the Philippines operations and the Indonesia operations, especially after the inclusion of Trans Java in the portfolio of Metro Pacific Corporation. Now from the looks of it, on an EBITDA basis, the combined EBITDA of the Philippines and Indonesia operations would be slightly larger than the EBITDA of the tollways of San Miguel which are confined to the Philippines. But the deal with San Miguel, it's an agreement with them, it will be a 50-50. So any differential will be settled by way of cash and our assets acceptable to the receiving party involved. We're in the process of engaging financial advisers to sort out the numbers and the exchange ratio between the 2, I would guess that the transaction is subject to developing Competition Commission. So this will be -- this would take a bit of time, maybe in the next 4 to 6 months before we were able to complete. Of course, we could sign an agreement subject to conditions, and we should be able to do that after the gas banks are probably have been finished. So I think this -- the joint EBITDA of the 2 would total about 52 billion attributable to both MPTC, Metro Pacific Tollways and to the San Miguel Tollways Group. So that will be a significant compare. The intention is to float it. If you're able to complete the merger this year, perhaps as early as 2025.

Thank you very much, Manny. Let me briefly mention a question here at the bottom about the dividends, we received $324 million, but the payout was only 5% up after the $324 million was up 43% from a year earlier. I think the answer begins on Page 4, the bottom right-hand chart, where you've got opening cash of $97 million and closing cash of $71 million. Our cash was used up in this way, the single biggest expenditure was net investments, and that was the delisting of MPIC, and that was followed by the distributions we paid. But more broadly speaking, I think Joseph Ng, CFO, can speak policy towards dividends going forward.

Yes, I think John has pointed out basically the increase that you pointed out, I mean the increase to 43% of $95 million from the last year's $226 million [indiscernible]. And in terms of increase in recurring earnings is about 18%. But I mean, John has pointed out correctly that the bulk of that increase of 98 million is usually capital investment, unlocking the value of MPIC through delisting at subsequent -- subscriptionable shares. So as to maintain our 46% in the delisted MPIC and there are a lot of value to us on throw up the First Pacific shareholders I think that's the kind of basis of setting an increase in dividend and still giving the shareholders kind of a decent return of 6% plus even based on the leaders in share because we based on the earlier the year-end share price, I think, clearly even higher. So I think when we get into 2024. It's a function of whether we have any significant capital investment, as I mentioned. We need to think about future and we are involved in the new energy for Singapore Indonesia, probably need to be a bit more cash to cater for the capital investments there. But nothing is analyzed yet. So we tend to be a bit on the conservative side, but we're still giving 5% increase in the dividend per share. And then I think the yield is 6% versus I think that's in line with kind of the other market players out there.

Okay. Thank you, Joseph. There's a question here about closing the gap to NAV, mentioning, especially Indofood and CBP. Will -- at the Hong Kong level, the focus more is on First Pacific's own NAV discount. You can see that it has narrowed by about 10 percentage points so far this year. And as we move deeper into 2024, 1 of the most significant things we can do to narrow that discount as it's described here is the transparency, the oxygen of Sunshine. We've got expanded presentation materials. We've got expanded ambitions to see non-shareholders and our current shareholders, of course, in April and May, we're making our first ever visit to Mainland China to see Mainland fund managers in the middle of that month. All of you who are on the call, you want to see us when we hit the road, please drop me a note. And I think as we continue to report our company's their quarterly numbers beginning in May and then our half year numbers that we report in August. We will bed down the sentiment that First Pacific is strong and getting stronger, and the NAV discount is increasingly unwarranted with that closing rate of 10 percentage points over the course of less than 3 months, we're feeling pretty good about it. But we will be unstinting in our effort to ensure that our shareholders see the full value of the asset they own in 142 HK. There's a question about consumer branded products about the 2024 EBIT margin being a bit lower than 2023. While they do forecast fair stability in commodity prices for 2024, and think here wheat and palm oil. The folks over at Indofood, they tend to be conservative with their forecasts so that they can feel comfortable that they'll hit them. I think that's probably the main reason that they're suggesting that EBIT margin might be a bit lower than 2023. They're giving themselves a little bit of buffer. Now about the IndoAgri ISPO compliance for their palm oil duction. That's a quality and environmental standard made by the Indonesian government. It's very related closely similar to the RSPO international standard. It would take 20 minutes to give a full answer to this question. I believe I will see the questioner later in April, and we can get into more detail there. ISPO is very highly regarded. And I think they'll hit that 2025 target of 100% certification. And to know they're not out of regulation by not being there yet. There's a question asking about nonrecurring losses. May I please ask our Financial Controller, Richard Chan, to break down those nonrecurring numbers?

So John, on the current item of about 120 million, mainly from price of an impairment provision for our ICBP investment in [indiscernible] and the impairment is principally arising on the significant depreciation of gel currency or during our 2023. I guess the external depreciation is the about 50%. And the other major significant items included on the current losses is the write-off of the computerized subscriber acquisition cost at PLDT level instead of its trend home subscriber.

Okay. Thank you very much. Stan, there are some questions here about the solar project of PLP. Noelle, can you show Stan these questions?

Sure. I'll take that one. So the -- there's a consortium which consists of the shareholders of PacificLight and 2 other groups of Metro, energy out of Indonesia and Gallant Ventures, which together form the project consortium and the -- for the PLP shareholding side, it's a 37% interest in this project. I can't share the total CapEx. We haven't disclosed that, and it is a process where there are other bids involved in the EMA process. But we are going through it. There is a conditional approval on the EMA side, and an MOU was recently signed on the Indonesia side, and there's an element that we're trying to progress ahead in terms of these discussions. But it's still early in the process, but in terms of the capital requirement though, of the 37%, then there's also a joint venture between MGen power generation unit and First Pacific on a 58% to MGen and 42% to for Pacific. So the attributable interest Therefore, the share of any equity requirement would be approximately 15% to 16%. That's the level.

Okay. And there's a question about the retail contracts and what they look like now, ones that have been renewed last year.

Sure. In the past, retail contracts were typically on a 1-year basis. I think as the market has changed and also given some of the fluctuations in the price in the last couple of years. Then there's been a move in a shift into longer-dated contracts. And so in this case, you're seeing 2 year, 3 year and sometimes even well above that. And so that's definitely a change in terms of the portfolio. I would say that PLP has signed up a number that are 3 years or more, say, a significant component now of the retail contracts. And so the market, I think, as we mentioned earlier, the performance of last year is not the fact that margins were in excess of $100 per megawatt hour is not a long-term level that we would expect. It's well below the vesting levels which historically have been $50 per megawatt hour level. That's a long-term benchmark for the long-run marginal cost. And so on that basis, I think the market, though, still remains quite robust. And in terms of the margins, that would be still in this market, though it's not quite the $100, but it's in a $70 to $80 level in terms of the nonfuel margins.

Okay. Thank you very much, Stan. Now PLP has been in profit for 3 years in a row after many years of losses. So your commentary there, what does it suggest for the next few years for PLP?

Well, one thing to remember is one of the problems of PLP was in the past a very unfavorable LNG contract. It was a generator that had the highest cost base and was in a very bad position relative to other generators. And since the 2020 debt restructuring and that also there was a fuel restructuring that took place as well that year. then PLP has reversed, and it's now actually in a quite favorable position on the gas procurement side. So that's one element that helps the business. And these are long term. And so this is a benefit that will be with PLP for at least the next 5 years. Now the market is changing. The government is looking at centralized procurement system. That's something that EMA is evaluating. But for at least the next 5 years, there's definitely a good position on the gas supply for PLP. And so I think when we think about the market dynamics, then I think given that there is continued demand growth, there is strong support in terms of the technology sector and electronic sector. For capacity. I think that from our perspective, that will be beneficial in terms of keeping levels certainly in excess of the vesting levels for the next few years. I think longer term, that will be a function of how much more new capacity comes into the market. And for Singapore, it's the balance of the players as well in the market, including ours. So I think what helps also with PLP is that when we started the debt restructuring, the debt at that time was around SGD 700 million. With the cash flows and the benefit of the group. That debt level end of last year was SGD 230 million and so it's significantly improved and will continue to improve from the leverage side of the business. And so from a debt to EBITDA level, for example, it's well below 1x at the moment. And so that's putting the business in much more secure hands, not just to benefit the profit even as margins decline, but also to continue to pay off attractive evidence.

Okay. Thank you, Stan. Tony Watson, your hand is raised. Please unmute and ask your question.

I've got a couple of questions on different areas. So I'll ask one and then jump back into queue. Can you just talk to us a little bit about your debt strategy whether you're looking to deleverage further, extend your maturity profile given falling interest rates? What your thoughts are around local currency bonds, fixed versus floating. Just -- if you could just walk us through your thinking around that whole topic would be great. Well, obviously, we're debt investors. So that's very helpful.

Well, I have sent I mean should I answer that first? Or you have other questions? Maybe I just addressed that exactly. There's no immediate plan for us to place and ahead. And we're quite comfortable with the existing $1.4 billion, roughly $1.5 billion debt. And of course, if there's the opportunity for us to pay down the debt, but then it's a question of tying up of where do we get the kind of funds to do that. for bearing down the debt in a kind of a meaningful manner. And basically, now we are having a 50-50 fixed floating. I mean, it's a very broad interest rate environment and there are signs that well, the interest rate may go down a little bit, some in the second half of 2024. That would help us because 75% of our -- of these bank loans, 30% floating, so that would help us. So I think currently, we are comfortable to 50-50 fixed and floating, but tying to the earlier point that I made about looking into a bond, I think that's basically help us diversify the credit resources going forward because we only have 1 bond outstanding in the portfolio of $350 million, which is 25% of what we have. So another bond may help us to term it out and also help to balance the credit resources between bank loan and bond investors. So we want to do the market. We've got a credit rating in early 2022. So at some point, we probably would like to use it, but we are patient. And as I mentioned earlier, that maturity profile, we are quite comfortable because we are having line up. There's nothing due until 2026 after paying down the -- or fully repaid the bond down in second half or the second quarter. And you make a good part of our local currency bonds. It's basically the Philippine market or the Indonesia market. And I think we look into that. But at the end, I think in terms of liquidity, raising the money, that I think declared the U.S. dollar as market has more liquidity, more investors there. And also, I mean, you need to pay a premium above and beyond the U.S. dollar. So it's kind of a balancing issues to really take a bond investor. And on the other hand, when you take the bond market [indiscernible] bond market, you need to think about whether, I mean, cannibalizing the economy credit resources for our local units there because a lot of our operations are also located at the Philippine infrastructure projects, water project, the Toll Road project and others. So there are a number of things that we need to take into consideration about the raising local currency bonds if say if I look at Philippine market or the Indonesian market. So overall, I think -- we have been in the bond market for quite a number of years, actually about first bond was issued back in 2010, 2-0-1-0-. So we are quite experienced and we're not a new issue to that market. So I think we will make use of that market when the timing is right.

Okay. That's great. And just sort of related to that, and you did touch a little bit. But if you could just walk us through your capital management policies, particularly as they relate to debt. So do you have like debt to capital, EBITDA to interest, maturity profile targets that you like to manage your debt exposure around?

Yes. I think in terms of the so called debt to a valuable asset, I think we have something like 5 billion simply based on the market value of the assets that we hold, we have over 5 billion worth of assets. And when you think about that, our net debt, something like 1.3, 1.4. So it's roughly 25% of that figure. But we don't have any cover like that. We don't, because the value of the asset is a function of many things, right? The foreign exchange rate, rupiah and peso exchange rate as well as share price of the underlying assets. So we don't tie ourselves to a single ratio that we should not be having any debt more than 20%, 25% or 30% because it's not something we should not control, but we do pay a lot of attention. And that's why it's highlighted in one of the John's slides about interest coverage ratio because that's really cash. We'll deficit our interest servicing capability. So we focus on that a lot. And then we have a recorded kind of historical high at 4.4x interest coverage ratio. We have certain loan covenants tied to that but it's much, much lower than that. So it's actually below 2x in some of our loan covenants. And of course, there are certain peso set by the credit agencies as that what we should make, but it's well below the 4.4x. So I think we are quite comfortable with versus 4.4x. Now with the interest rate is going to decline starting second half 2024, at least as the market view at least. So in the interest expenses will come down. And at the same time, it's a function of what kind of dividend that we could receive from the unit. So it's kind of something that we are monitoring closely. And for us, I think that's the key kind of debt measurement ratio, if you like, at the First Pacific headquarters level.

Thank you, Joseph. If we turn to Page 16 of this investor handout, there's a question about the potential CapEx in the SPNEC project, and Stanley Yang, our Head of Corporate Development, has some thoughts on that.

Sure. SPNEC, just for those who aren't familiar, is a project that is a Terra solar project. It's a very ambitious 3,500 megawatt because solar build-out. This is one that MGen invested into at the end of last year. It is the one that -- once completed, will be the largest single site in terms of solar projects globally. And it's a scale that takes advantage of the land that has been accumulated which, in total, once it's completed, will require 3,500 hectares. Now on this project, Terra Solar itself has been benefited by having a 20-year power supply agreement that has been awarded with Meralco. And so with the tariff that was secured through that PSA, that will help underpin the long-term returns and the attractiveness of this project in terms of the economics. And given the size, 3,500 megawatts, it's a very large PHP 200 billion is the rough CapEx on a 100% total basis. which equates to about USD 3.6 billion. Now there's a lot of interest from financing banks because it's renewables, and it's backed by the 20-year PSA. And so discussions are underway on the project financing element of it. And when it comes to the equity component, we are also in discussions with some interested parties who would look at a minority investment into this project. I think this is a discussions that have been taking place in the recent weeks. And so we will look at that option as well in terms of how to partner together on this particular project going forward. But given the scale, given the importance of renewables into the fuel energy mix in the Philippines, we think this is a great one, especially given the benefit of the PSA.

There are a couple of questions here about the Toll Roads business and the Power business under MPIC. So I've just asked Manny to say a few words to -- about his thinking for these for MPIC going forward over the next few years.

Well, the biggest investment of MPIC is Meralco. And I think in many ways, I think Stan has alluded to the solar project, which is the biggest single site project in the world that we're building. Not a simple project is panning out. It's to be built on 3,500 hectares or approximately 10,000 acres. So but our people -- we've organized a group to execute the project, and they have been going around China to take a look at the supply chain of both the EVs and the batteries, talking to potential EPC contractors. They visited other countries in the process. And we're on a way in terms of detailed engineering, transmission issues related to the connection with national grid and of course, the plant itself. So -- but that is a $4 billion project approximately, and we will need to have investors to invest in the Terra Solar or in the project itself don't but that could be transformative for Meralco and for the country moving forward. The next big project in power generation is the interest that we have acquired from San Miguel in their gas plants. Basically, there are 4 components to the gas plants of San Miguel. Number one is the regas facility, initially about 3 million [ tonnes ] to supply the existing 2 plants there. The second is the our D2 plants, an operating plant in Iligan, which is about 1,260 megawatts. And a second plant, a gas plant being built about 1,300 nearby adjacent to the existing plant. And they -- no problem with the grid connection because it's already there. The third component is the property company [indiscernible] will be on with the same shareholders. It is leased to the -- to both the regas and the gas plants. So the partners are Aboitiz, ourselves and Meralco and San Miguel. San Miguel will retain a 33% interest in the solar project, and we have formed a special purpose vehicle at the top 60% -- 67%, sorry, that will own the gas plants in regas and the land. And the 67% split into 60-40 in favor of Meralco. So our effective interest is about 40.2% -- so we will be the second largest shareholder of this particular gas plant. With respect to the distribution unit, I think it is -- as you can see in last year's profit is also rather steady as you go, about 8% increase in their profitability. But the first 2 or 3 months of this year, build volume on the distribution side has grown by about 8% to 11%. So we're quite optimistic about the economy in general and about prospect order auto itself because of the significant increase in inpatient capability and profits and continuing stable earnings on the distribution side. In tollways, we spoke about our expansion in the Philippines and in Indonesia, principals [indiscernible] and the potential merger with Meralco. And we think it will be income accretive for both MPIC and First Pacific. On the water side, profits were up significantly last year on account of a modest increase in tariff which flow through and some increase in volume -- in bill volume at the water side. This year, we will get a significant increase in tariffs starting January of 2024. About 18%?

20%.

About 20% increase in tariffs. So that should flow through in the accounts [indiscernible]. I think last year, the profit was about PHP 9.8 billion, and this year certainly exceed PHP 12 billion of income for Maynilad lands. So what else should we get to the industry about.

That's the bulk. That's the bulk. Thank you very much.

Here a few small ones, we run other milk for Carmen West, and we are now acquiring 1 or 2 new day farms, give but existing daily firms with significant amounts of to provide the input for times best. Our greenhouse project in north of the Philippines should be operational by the end of the year. Actually, it's recovering from its disaster last year, we managed to bring down the price and they need to be doing much, much better this year.

Thank you very much, Manny. Tony Watson, you've got another question.

One of our high-level strategic question. So your portfolio is looks like it's -- portfolio of companies looks like it's already pretty well bedded down. Are you looking just to work those assets going forward or grow the portfolio by M&A to expand those existing businesses or -- and/or are you looking to widen out the portfolio breadth a bit to include new businesses. I know that you guys are dipping your toe into the fintech area. So if you just talk to us around that a little bit, that would be great.

Chris, do you want to start and Manny will finish, yes?

I think the most of the M&A activity would actually happen at the operating company level. I think, in particular, that's where the expertise resides. Manny outlined quite a number of investments and other corporate finance initiatives, which are underway at MPIC and I think Stan went into detail about Pacific Light and Power. So I think you can expect that activity to be at the operating company rather than for Pacific itself. In terms of fintech, again, I think that would be concentrated at the operating company level. That's where the resources are to utilize digital initiatives most efficiently. So PayMaya is probably the most visible or -- sorry, Maya is probably the most visible of these initiatives. But if you look at PLDT, Meralco MPIC, they are working on quite a number of digital initiatives themselves, which we think will create value for the group going forward. Similarly, Indofood and ICBP have quite a number of digital initiatives, which they are working on, which should create volume for the group as we move forward. So I think that's the broad picture.

Thank you very much, Chris. I'm sorry.

Look forward to seeing you when you're in Manila and the next month.

Are you in Manila? .

Yes. We'll be in Manila end of next month. I think we were talking to somebody on your side about setting up a meeting.

All right. Yes, that's being taken care of Tony. Okay. Thank you for your questions. I'm sorry, Manny has left for his 6:00 meeting. I'll just remind you all that First Pacific management or visiting investors in Europe and North America, beginning after the Easter holiday. Let us know drop us a line if you'd like us to come visit you and we will make every effort that we can. I think there are no more questions. So Chris, may I ask you please to just sum up where we stand today and where we're going to go?

Okay. Thank you, John. I think what you will have heard from the presentation that 2023 was an excellent year First Pacific. However, this is not a one-off. This was really built on strong operating and profit performances in 2022 and 2021. So given that strong base that we've seen over the last 3 years, and the strong start to 2024, I think we see a continuation of these encouraging trends going into this year 2025, 2026. I think that's the broad picture. It just remains for me to thank you for joining us today. We look forward to you joining us again for the first half results of 2024, which I think will be held towards the end of August this year. So thanks again to everyone for joining us.

Thanks, Chris. Thanks again for joining today's online briefing. Bye.

Thanks, everybody.