First Pacific Company Limited ($142)

Hello, and welcome to the 30th Deutsche Bank Deposit Receipts Virtual Investor Conference, DB Vic. My name is Zafar Aziz, the DR Investor Relations advisory team at Deutsche Bank. I'm pleased to announce that our next presentation will be from First Pacific. Before handing over to our presenter, some points to note -- please submit your questions at any time throughout the presentation. Finally, all of today's presentations will be recorded and can be accessed by the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome our speaker, from First Pacific .

Thank you very much, Zaf, and Deutsche Bank for hosting us and VialixDigital for giving us the technical capacity to connect to all of you. Now I'm going to walk through a very long presentation. We've got about half an hour for this whole show. And this means we can only touch upon a few slides that I regard as the most relevant. You will always be able to find the most up-to-date version of this presentation on our website, and I urge you, if you would like to learn more about First Pacific to study it fairly closely because I reckon inside those 58 or so pages, there is the answer to every question that I have ever heard in my 16 years over at First Pacific. Okay. Now let's begin. When you download that document, anything that looks underlined and in blue, that's a link that you can click on. Sometimes it's to external websites for further information. Now to remind us all what is First Pacific. We're a holding company stock code 142HK listed again in Hong Kong. And these are the logos of some of our most important assets that we're invested in. We generally stick to 4 areas of the economy, and we color code them throughout this presentation. Consumer Food products infrastructure, telecommunications and natural resources. Under consumer food products, we own a majority of Indofood, the world's biggest maker of wheat-based instant noodles and 1 of personally 1 of my own very favorite companies. Under infrastructure, we own 49.9% of Metro Pacific investments. That's a company we delisted from the Philippine Stock Exchange about 2.5 years ago. And it is a big or controlling investor and many of the most important companies in the Philippines, such as Meralco, the biggest electricity distributor and its 100% owned subsidiary, MGen, which is fast, fast, fast, rolling out natural gas-powered and solar generation capacity, which will be going forward, a big driver of earnings growth there. Pacific Light Power is an LNG-fueled power plant company in Singapore, and they've already got a second fast-start reactor, and they're building another natural gas plant to go online in 2029. So that's a company that performs very well and has a bright future. Under telecommunications, PLDT's got largest market share in fixed line, a little under half of wireless and maybe 70-or-so percent in the data center space. It's 100% owned subsidiary smart is its mobile telecommunications brand. And Maya is its 38% owned digital bank and the talk in Manila is that sometime in the next year, 1.5 years, they will IPO this digital bank, which has been growing very, very fast, and I will touch upon it a little later on. Under Natural Resources, our 46% owned Felix Mining Company is in the next few weeks or a couple of month going to open a brand-new gold and copper mine down in the south of the Philippines and Mindanel now, while continuing to extract copper and gold from its, oh, I think it's about a 60-year old mine called Padcal up in the north in Luzon. And then IndoAgri is the plantations holding company underneath Indofood, which supplies palm oil for the noodles business and for selling to in the wholesale and retail market to folks as cooking oil. Now at the end of 2025, what we owned looked a bit like this, USD 5.3 billion. The biggest asset, as you can see is Indofood, followed by -- looks like MPIC than PLDT than the Philex group and then PLP. We've had a pretty good decent run. As you can see, since the end of 2003, we've had CAGR of 7% in our gross asset value. And we've had a CAGR of 15% in the dividend income that we get. And perhaps the most important bullet point in this entire presentation is the last 1 on this page. We are confident of continuing earnings growth over the short to medium term in our companies. And I'm going to jump ahead to a particular little slide to explain our confidence. Here we go. This is Page 7 of the presentation. And on the left-hand side, you can see our profit and exchange rates of our 2 main currencies, the Philippine peso and the Indonesia rupia set to 100 in 2018. And then this line chart displays how they've changed over the following 7 or 8 years to the end of 2025. And as you can see, the peso is down 14% over that period and the rupee is down 11%. And this really is the illustration of the concern people have about investing into emerging markets, FX risk. Well, as you can see, they are down over those several years, but look at our profit, this is a U.S. dollar figure over the same period. It's up more than 2.5x. And if you ask yourself, what's going on here? Well, the International Monetary Fund has kind of an answer for you, and that's illustrated in the chart on the bottom right. Now we've taken the data from their world economic outlook of last October. They've updated it earlier this month, but we haven't had a chance to put those numbers into our presentation. And as you can see, the IMS is forecasting that these economies of Indonesia and the Philippines will double in size in the 10 years from 2020. Now let's go back to our regular programming. Over the full year of 2025, we established for the nth year in a row, some very good strong records. We've got a seventh year in a row of earnings growth. The past five have been successive record highs. Our dividend policy very important to shareholders is a progressive one, which means every year, we commit to giving you more money than we gave you last year. And the distribution for 2025 was at a record high on a per share basis. And given that our policies every year, it will be bigger, you can expect that every year is going to be a successive record high. Now if we look at the middle graphic here, what was responsible for the big jump in our recurring profit, 10% in 2025, very well done from $673 million to $740 million. Well, as you can see in that middle chart, PLPs contribution declined a bit. That's our power plant in Singapore. And so did the phone company, very interesting, we'll drill into that number. And then a little bit more from Philex, our mining company. Thank you, high gold prices. Lower spending at head office, mostly because of interest, I believe, off the top of my head. And then Indofood and Wow, MPIC is responsible for the lion's share of the increase in our profit in 2025. We'll drill into those companies as time goes by. Now our cash flow is displayed in column chart at the bottom of this page. And you can see we began the year with $121 million, about $311 million of dividend and fee income. And look, the biggest outgoing, of course, is money handed straight back to our shareholders. And then, of course, our interest bill, which show up until recent events in the Middle East, we expected would be declining. But -- if interest rates are going up, that interest bill is not going to go down. Details on the next page. We invested some new money into our Singapore power plant. That's the 46.4% you see there. and that's to take care of our portion of the equity contribution to the construction cost of that power plants, and then we got some overheads and stuff like that. Now we have got 2 investment-grade credit ratings from Moody's and S&P, and we've had those investment-grade ratings for 3, maybe 4 years or so now. The column chart at the left -- top left of this page shows our maturity profile. And as you can see, we have nothing falling due until September 2027 when our only outstanding bond matures. And it is our preference in the 1.5 years until then to refinance it with a new bond offering. If you look down at the pie charts at the bottom of this page, you can see that bank loans make up about 3/4 or more of all of our borrowings and the bond is a little less than 1/4. We generally have a preference for a 50-50 split -- and it looks like this today because that's what the market has been dictated -- has been dictating in recent years. It's just been cheaper to go with the bank loans. And in any case, you can see in that other pie chart, the fixed and floating ratio is pretty close to 50-50. Now bottom right, we've got our dividend income. Over the past few years, 2023 was a record high, thanks to a maiden contribution from PLP in Singapore. And then for '24, '25, comfortably over $300 million, and that's kind of a level that we're getting used to. Our interest coverage ratio is the first measure we look to when we consider how comfortable we are with our cash flows and balance sheet. And at 4.5x, we feel pretty well set -- our gross debt is a bit under $1.5 billion, as you see described on the right-hand side and then net debt about $1.3 billion. Now average maturity is quite short, 3.2 years. Now if we come back and speak to each other in 1.5 years, and we've issued a new bond, then that 3.2% is going to be a much greater number. Very important to understand of all the companies that we're invested in we guarantee none of their borrowings, none of them have any recourse whatsoever to First Pacific. No guarantees, nothing like that. Now in the many pages of this booklet, you will see described some borrowing figures for all of these companies. And you can take it on faith that all of these numbers are what you get. And we don't mess around, if anything, off balance sheet or troublesome like that. Now let's go on to the companies very quickly because we're already 12 minutes into this presentation. Indofood saw record high sales, record high core profit but it was an increase of only 1%. The Consumer Branded Products business, which is inside separately listed ICBP, also had record high sales -- and frankly, that small growth in profit was driven by the agri business and to a lesser extent by the flower business. And that is hinted at in the EBIT margins that you see in the bottom right here. The Noodles margin fell a little bit. Bogasari is our wheat and flower business. Their margins increased by about 0.7 percentage point. and agri business stayed strong. Those are the guys driving most of the earnings at Indofood. Very quickly, I see BP, that's 80% owned by Indofood separately listed on in Jakarta -- and as you can see, record high sales. The core profit was down a bit because they had a big increase in cost of goods sold. Now looking ahead for Indofood and ICBP -- over the medium term, we expect demand for instant noodles to have steady upward pressure, and we're confident that we'll return to a path of generally speaking, earnings growth over the medium term. Now we're going to skip over to MPIC, which is itself a little bit of a complicated company. In the pie chart that we showed you on -- earlier in this presentation, we value our 49.9% of MPIC at $1.3 billion. And that is because it's the valuation it had when it was privatized, delisted in October 2023. Many of the assets that owns are listed such as Meralco that's listed in Manila. MPIC has about 48% of that. I described it earlier. MPTC, which we own about 93% of is the biggest privately owned toll road operator in all of Southeast Asia. There are some toll road operators, which are bigger, but they're government-owned or controlled -- and Maynilad is the biggest water company in the Philippines if you're going by a number of customers, and they've got about 1.6 million customers there. Now the hospitals business, which we began building up, I think, in 2008 with 1 hospital is now up to 29. Several years ago, we sold down to 20%, selling 80% to JKR some big investors and to GIC of Singapore. And we've got some other investments in MPIC, but they are negligible contributors as we can see here on this actually will, on a subsequent slide, pardon me. Now MPIC, as you can see, we own 49.9%, and it's about 1/4 of our gross asset value as measured at that price of $1.3 billion. Now later on in this presentation, you can see that analysts at CLSA and Citi have much higher numbers for the valuation of MPIC. And we will get to that. But let's have a quick look at their earnings. As you can see in the pie chart, Meralco, the power company generates the lion's share of the contribution to profit growth. And as you can see, the change in contribution in 2025, the increase was driven by Meralco followed by the water business, others. And toll roads was a very tiny increase, and that's to a great extent because we reduced our stake in it from 100% to, I think it's 93.3% or 0.6. Because these are utilities, we feel that MPIC is a very defensive company to be invested in. And as you can see in the earnings column chart on the bottom right that has had steady increase in earnings since a low point owing to the pandemic crisis several years ago. And we expect, over the medium term, good continuing strong growth from MPIC. Now that's all we're going to say about MPIC earnings and those of its companies, because we've got a very condensed time line here. I do invite you please to look over this presentation in some detail and then come back to me with any questions that you might have. Now over to PLDT, which we regard as the biggest telco in the Philippines with its big market shares in fixed and data centers and also in the mobile space. Service revenues every year keep going up to a record high. And as you can see in the breakdown there, data is an important part of those revenues. Data consumption grows ever higher every single year. I suppose that's true to have most telco markets. And it's definitely true by the Philippines. But it's competitive and people on a unit basis are paying, generally speaking, less for data every year as time goes by. Wonderful if your consumer, a bit tough if you're a telco. EBITDA itself was up at a record high, up 3%. Core profit was up by 1%. So that's similar to the Indofood performance, isn't it? And that is because of a big contribution from Maya. What is Maya. Maya is a digital bank. It has a banking license from the BSP, the Central Bank of the Philippines. And it is the only telco-owned fintech to have a banking license and I regard it as an extremely exciting company. PLDT is, in many ways, a typical telco offering you, an excellent dividend yield year in, year out and generally not having the kind of fast growth that you would expect from other kinds of investments, for example, Maya, let's have a look at what's going on there. My shareholdings are down in the fine print at the bottom, and they're a very, very good list to have if you're talking about a fintech, Tencent of China earns 15%, and KKR previously mentioned, they own 30%. And the management team that we've had at Maya for the past few years has really done a quite impressive job. I mean, look at the number of bank depositors we've got. We're up to more than 10 million depositors rising very fast over the past few years. Deposit balance showing a similar rate of increase and then loans outstanding, very high growth to maybe 40%, 45% proportion of all the deposits that we have outstanding. Now you know instantly that this is an emerging market business, because the net interest margin, and that's the difference between the cost of money when we lend it out and the price of money when we pay our depositors to put their money into Maya. It's 20% net interest margin. So if I'm giving you 10% on your deposit, the implication is, I'm charging someone 30% on their loan. And when you think that's quite a scary look a number, you have to consider that this is a market where half maybe 70% of all the adults don't have a bank account. And borrowing is -- has been in the informal economy, which can be rather less pleasant, shall we say, than borrowing from a bank. And Maya seems to be performing pretty well on that score because the gross nonperforming loan percentage, as you can see, is at a healthy 6.1%. And I believe that is lower or very comparable to the long-established brick-and-mortar banks that we have in the Philippines. Now I think I may have mentioned May is expected by many to have an IPO in the next year or 1.5 years. I believe it's CLSA, who recently issued a research report on fintech in the Philippines, and they put a valuation of $2 billion United States on Maya, which compares quite curiously with the market capitalization of its 38% owned parent PLDT, which is about $4.6 billion. Now let's go to PLP, which is our power plant in Singapore. They had a terrific year in 2023, then the market tightened up a little bit, and it's more competitive, more power plants coming online and it is a little bit less profitable than that record-setting year of 2023. It is a strong payer of dividends to us and we're very pleased, and we're very happy to be contributing some of our cash flow towards construction of that new 670-megawatt power project, which will come online in a few years' time. Now I confess I'm a little bit of a gold bug. Philex Mining, we've got an economic interest of about 46% in this copper and gold mining company. And if you look at the statistics here, it's not terribly impressive. You can see the operating cost to produce 1 ounce of gold was $2,500 last year, and that's pretty dug-on expensive until you understand that is a very, very old mine. So of course, the grades will have been declined from much better levels of decades past. And gold price has been healthily above $2,500 an ounce -- but the excitement of Philex, really is in the new mine that it will open in to commercial production over the next few weeks or months. That's called Silangan. And the grades, you can compare them on these 2 pages of gold and copper are much higher at Silangan. It's a very exciting project. I can't wait for them to open commercial operations. And once things get settled down, I am very much looking forward to taking a handful of fund managers, if they're interested, down deep into that mine to see how it's all working. Initial production is set to be 2,000 tonnes of ore being processed every single day. Now we're 22 minutes into this presentation. Let's talk about some valuation thoughts. Now NAV per share over the past few years has increased, as you can see, on this column chart, we've got data from the end of '22, '23, '24 and 2025. So that's 1, 2, 3, 4 years of data of the value of First Pacific. Now these numbers for Indofood, PLDT and PIC, et cetera, these are valuations of the stakes we own in those companies. So at the closing stock market price of December 31, 2022, our 50.05% of Indofood was worth about $1.9 billion. So that's how these numbers are working. For those assets of ours, which are listed, FPM Power -- you can see it was $150 million, then up to $350 million, $370 million and then $400 million. We generally value our stake in PLP, 42% interest at the money that we've put into it. Certainly, in the past 3 years, we've done that. We put in a little more this year. That's why it went from $374 million to $400 million. MPIC, we value again at that privatization price around $1.3 million. Now with the improvement in our share price, you can see our NAV discount, the very bottom number here has tumbled from 60% to 17%. Now let's have a look at who covers us. We've got 3 analysts in Mainland China covering us. And if you read Putong Hat, send me a note and also forward you their research. In the English language, it's Citi and CLSA. Now Citi-and CLSA, as you can see, in these blue out numbers, they value MPIC at a much higher level than we do. Ours is 1.3. And that is because the assets under MPIC have -- well, Meralco is listed separately and its market cap is around $12 billion. First Pacific has an economic interest there of about a quarter. So our stake in Meralco, $3 billion is already more than 2x how we value our stake in MPIC. So you can see that these analysts have -- they've got some pretty solid grounds for their higher valuations of MPIC and these feed down into their price targets of $7.30 at Citi and $7.20 at CLSA. These are Hong Kong dollar numbers. Now we've hit the 25-minute mark, and I need to give you folks an opportunity to ask some questions. So please go ahead and type those in. And I'm going to move to a very important page, which is a page that shows our economic interest in all of the assets underneath us. So please send your questions to me. Okay. Sorry, I needed to click on a button to see what's going on.

Someone's asking me to recommend a broker for specific shares. I can't -- I'm so sorry. I have no idea. Our gold mine was scheduled to open in the first quarter that has ended, and it's still not open. And my understanding is there are some deliveries and construction running a little bit late. I think it's only going to be a couple of months or so, not something at all that I worry about. Another correspondent ask what I think the market is missing about First Pacific. Well, I think a lot of the market isn't as understanding of what we are as we would prefer. Hence, our very strong efforts at investor outreach. For many people, our liquidity isn't what they would like or our market cap is smaller than they would want to have. And still others, they would rather not get a basket of emerging Asia stocks when they buy First Pacific, but to pick and choose their own. So if they don't want a food company, they would go in and buy PLDT direct or Meralco direct. I think that's what's going on. But with the big increase in equity analyst coverage from Mainland China, we expect that group of shareholders to increase beyond where they are now. This page in our book, we update from time to time. And as you can see, China securities depository and clearing a lot more fund managers based in Mainland China owned First Pacific now than they did a few years ago. And I think that number is going to keep growing over time. Another question asked about the balance between new deals, debt reduction, dividends and buybacks. Let's go backwards from that, buybacks. In an environment of rising share price, I don't even dare bring up buybacks to the Board Directors because why making new shareholders compete for our shares and then pay a higher number. Our dividend policy was back in the day linked to our recurring profit, but our profit was going through much faster growth in our cash income hence, the change to a progressive dividend policy where it's a flat commitment to hire every year. Regarding debt reduction, we've had the same level of debt, pretty much unchanged for the past several years. And simply, we're comfortable with where it is. We're not looking currently either to increase debt or reduce debt. Now the last item, new deals. You'll have seen in recent history that those have been done mostly at the operating company level, not at first specific level, and that's likely to continue going -- to be true going forward. Now with several years of record profit, record dividends and investment-grade ratings reaffirmed do you feel First Pacific is now positioned to step up capital returns even more. Well, frankly, yes, every single year, we're committed to giving you a higher dividend than in the previous year. And that pretty much is where we sit on that. Now for those of you who want to ask a question off-line, please send me an e-mail. You can WhatsApp me. My WhatsApp numbers at the very back of this presentation. Keep checking back from time to time because we do update this next update will probably have end March shareholder breakdown. I'm very grateful to all of you for attending this presentation and again to the folks behind it who have allowed us to present to all of you. I urge you all to reach out, keep your eye on First Pacific. In my 16 years at this company, I've never been so happy or excited to be doing the job that I have. So thank you very much, investor community for making this a very fun experience. Have a great day, everybody.