Quarterly Report October 25, 2016 CIDMEGA Market Outperformer 12m FWD Price Target P$51 Price 44.0 12M Price Range 37.5 / 50 Shares Outstanding 68 Market Cap (Mill) 2,976 Float 27% Net Debt (Mill) 1,823 EV (Mill) 5,431 Outperformer 2 Dividend Yield 0.0% 2015 2016e 2017e Revenues 1,868 2,154 2,145 EBITDA 480 658 673 Net Profit 189 365 440 Free CF -398 563 326 EPS 2.8 5.4 6.5 P/E 15.8 8.1 6.8 EV/EBITDA 11.3 7.4 6.8 P/BV 0.8 0.7 0.7 P$51.0 Luis R. Willard lrwillard@gbm.com.mx +52(55) 5480 5886 Héctor Vázquez Montoya hrvazquez@gbm.com.mx +52(55) 5480 5800 ext. 4528 Improved operating figures slightly below our expectations; still positive on the name. Broadly below our estimates, CIDMEGA reported improved operating results. Despite shy occupancy rate improvements, favorable currency swings, and higher ADRs in Cozumel and the Mayan Riviera saved the day. Moreover, top management's merchant skills seem to be gradually imbibing the operation with a profitable approach to conduct the business, hence expanding operating and EBITDA margins during the quarter. We are reiterating our Market Outperformer rating and our 12M FWD price target of P$51.0. After these quarterly results, our view on the company remains unchanged, considering the following positives: CIDMEGA has an attractive business model that has led it to gain more than 30% market share. Profitability improvements are attributed to the company s efforts to tighten expenses, coupled with ongoing improvements in occupancy rates and ADRs. Growth opportunities in CIDMEGA s land bank. 3Q16 Highlights: Undoubtedly, the strong MXN depreciation and the firm s commercial strategies have caused CIDMEGA s consolidated top line to increase by 19.4% YOY. We should recall that since last quarter, the company has been focusing on renewing its reservation system to attract higher volume. Thus, we saw strong improvement mainly in the hotel and timeshare division, where revenues increased by 13.5 and 27.7%, respectively. We should mention that the timeshare division was completely benefited by the MX N depreciation (as all of its revenues are USD denominated), coupled with the company s efforts to attract new prospects mainly from the international front. Profitability levels continued their expansionary trend. Operating and EBITDA margins expanded 310 and 390 bps to 23.5 and 30.9%, boosted mainly by higher ADR s in the hotel division and the MXN depreciation, which completely benefited operating figures, particularly in the hotel segment and timeshare division. Nonetheless, and as we mentioned in our previous reports, we believe that increasing ADRs for the following quarters may not be sustainable for the long term. Strong CAPEX investments drove the company to burn P$15 million in FCF, as a result of higher CAPEX (P$135.3 million) related mainly to rooms and swimming pool renovation and new air conditioning systems. Moreover, net debt to EBITDA ratio moved from 3.1 to 2.9x on a QOQ basis due to a favorable FX effect within CIDMEGA S cash position, coupled with strong operating figures. GBM Grupo Bursatil Mexicano, S.A. de C.V., Casa de Bolsa ( GBM ), and its affiliates, may carry out and seek to do business with companies covered in its research reports. Investors should not consider this report as a single factor in making their investment decisions. These
Quarterly Report October 25, 2016 Main figures Snapshot: Mazatlan Mayan Riviera Cozumel Rooms Available 56,323 57,999-2.9% Rooms Occupied 48,000 50,456-4.9% Occupancy Rate 85% 87% -2.0% ADR USD $ 111 $ 108 2.8% Rooms Available 24,656 27,366-9.9% Rooms Occupied 20,685 20,651 0.2% Occupancy Rate 84% 75% 11.2% ADR USD $ 181 $ 177 2.3% Rooms Available 2,835 2,910-2.6% Rooms Occupied 2,300 2,362-2.6% Occupancy Rate 81% 81% 0.0% ADR USD $ 90 $ 78 15.4% * Consolidated Figures 2015 2014 Var Rooms Available 83,814 88,275-5.1% 337,569 326,116 3.5% Rooms Occupied 70,985 73,469-3.4% 271,792 250,327 8.6% Occupancy Rate 85% 83% 1.8% 81% 77% 4.9% ADR USD $ 131 $ 126 4.0% $ 123 $ 122 0.8% CIDMEGA s Land Bank -sq. mt. Mazatlan 2008 2009 2010 2011 2012 2013 2014 2015 9M 2016 Land Bank 535,158 524,236 515,068 498,800 482,984 473,221 463,925 440,037 424,278 Sales 10,922 9,168 16,268 15,816 9,763 9,296 23,888 15,759 7,020 Mayan Riviera Land Bank 500,098 500,098 500,098 500,098 500,098 500,098 500,098 500,098 500,098 Sales 0 0 0 0 0 0 0 0 0
Valuation 2016e 2017e 2018e 2019e 2020e Perpetual CF EBITDA 624,113 660,484 686,572 737,567 760,681 787,305 WORKING CAPITAL -157,549-178,210-80,589-74,595-8,179-58,868 TAXES -54,824-183,502-199,445-213,267-229,733-231,376 OPERATING CASH FLOW 411,740 298,773 406,538 449,704 522,770 497,060 CAPEX -283,820-100,000-100,000-100,000-100,000-90,000 FREE CASH FLOW 127,920 198,773 306,538 349,704 422,770 407,060 WACC 13.0% TOTAL PRESENT VALUE 3,565,365 Adj. Net Debt 1,887,769 Equity Value (P$) 1,593,001 Shares Outstanding (000's) 67,637 THEORETICAL PRICE PER SHARE $ 23.6 *Data does not contain real estate sales SQ.Mt Value Per share Mazatlan 449,128 15.5 El Anhelo 447,984 5.7 Puerto Morelos 270,000 5.5 Total 1,167,113 $ 26.7 Operating assets Value $ 23.6 Total value $ 50.3
GBM Fact Sheet Financials (P$ Mill) 2015 2016e 2017e 2018e Operating Figures 2015 2016e 2017e 2018e P&L Av. Rate (US Dollars) 120 120 121 127 Revenue 1,868 2,154 2,145 2,224 Ocupancy Rate 80.4% 84.4% 84.5% 87.0% Var (%) 17.6% 15.3% -0.4% 3.7% Gross Profit 973 1,144 1,119 1,164 Gross Mg. 52.1% 53.1% 52.2% 52.3% Operating Profit 336 504 538 559 Valuation 2015 2016e 2017e 2018e Operating Mg. 18.0% 23.4% 25.1% 25.1% EPS 2.79 5.40 6.50 7.05 EBITDA 480 658 673 699 P/E 15.8x 8.1x 6.8x 6.2x Var (%) 25.5% 37.1% 2.3% 3.9% EV/EBITDA 11.3x 7.4x 6.8x 5.9x EBITDA Mg. 25.7% 30.5% 31.4% 31.4% P/B 0.8x 0.7x 0.7x 0.7x Interest 6 (57) (105) (137) P/Sales 1.6x 1.4x 1.4x 1.3x Taxes (109) 15 (187) (203) Net Profit 189 365 440 477 Return 2015 2016e 2017e 2018e Var (%) 33.7% 93.5% 20.4% 8.5% ROA 2.8% 4.2% 4.9% 5.3% Net Mg. 10.1% 17.0% 20.5% 21.4% ROE 4.1% 7.3% 8.1% 8.1% Balance Sheet ROIC 3.5% 6.7% 7.0% 7.2% Cash 135 38 113 356 FCF Yield -13.4% 18.9% 10.9% 15.6% Accounts Receivable 1,724 1,894 2,156 2,156 Inventory 405-10 -19-30 Dividend yield 0.0% 0.0% 0.0% 0.0% Fixed Assets 4,387 6,716 6,592 6,640 Buyback yield 0.0% 0.0% 0.0% 0.0% Total Assets 6,757 8,729 8,936 8,936 Accounts Payables 277 509 508 517 Leverage 2015 2016e 2017e 2018e Debt 1,941 1,780 1,553 1,338 Debt/Equity 0.4x 0.4x 0.3x 0.2x Total Liabilities 3,341 3,454 3,227 3,195 Net Debt/EBITDA 3.8x 2.6x 2.1x 1.4x Equity 4,612 4,998 5,437 5,914 Interest Coverage -58.9x 8.8x 5.1x 4.1x FCF Operating Profit 336 504 538 559 Liquidity 2015 2016e 2017e 2018e +Depreciation 143 154 135 141 Current Ratio 8.6x 4.0x 4.6x 4.4x +Interests (6) 57 105 137 Quick Ratio 6.7x 3.8x 4.5x 4.9x +Cash tax (29) (65) (187) (203) +Working Capital (736) 196 (165) (70) +CAPEX (107) (284) (100) (100) Free Cash Flow -398 563 326 464
Investment Risks In addition to the risks related to the macroeconomic aspects in the US and Mexico, we believe the most relevant risks for the company s divisions are: 1) The increase in energy commodities, which make it more costly to travel; 2) The Increase in insecurity and violence could start scaring off international visitors; 3) With an important exposure in revenues and liabilities to the USD, the company s financials could be affected by the fluctuations in the exchange rate; 4)Natural disasters could cripple the hotel operation. 60.0 Stock Price Performance vs Analyst Estimates 50.0 40.0 CIDM EGA 28/07/2015 43.50 M arket Outperformer CIDM EGA 28/10/2015 51.00 M arket Outperformer 30.0 20.0 10.0 0.0 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Price Price Target Important Disclosures: Up to this date, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa together with its affiliates, beneficially own, directly or indirectly, over 1% of the equity of CIDMEGA. The analyst or analysts involved in the creation of this document hereby certify that the views expressed in this document accurately reflect their personal opinions and that they have not and will not receive direct or indirect compensation for expressing specific recommendations or views in this report. This report has been prepared by GBM and is subject to change without notice. GBM and employees shall have no obligation to update or amend any information contained herein. This report is for informational purposes only, based upon publicly available information, which we believed is reliable, but its accuracy and completeness cannot be guaranteed. GBM makes no express or implied representations or warranties that such information is accurate or complete and, therefore, GBM and employees shall not in any way be liable for related claims. This report does not constitute an offer to buy or sell any security or participate in any trading strategy. The information and analyses contained herein are not intended as tax, legal, or investment advice and may not be suitable for your specific circumstances. Each investor shall make their own determination of the suitability of an investment of any securities referred to herein and should consult their own tax, legal, investment, or other advisors, to determine such suitability. This report may discuss numerous securities, some of which may not be qualified for sale in certain countries or states therein and may therefore not be offered to investors in such countries or states. This report or any portion hereof may not be reproduced, reprinted, sold or distributed without the written consent of GBM. The current document is not issued with the purpose of ensuring a future business relationship with the Issuer; thereby, said document constitutes no promise or guarantee.