SAFRA Equity Research Earnings Review ISA CTEEP Utilities 1Q18 results: EBITDA in line with consensus May 15, 2018 Quick view – ISA CTEEP reported regulatory EBITDA of R$623mn (+321% YoY), 33% above TRPL4 Rating Neutral our estimates and in line with consensus. Regulatory bottom line was R$302mn (+248% Price (05/14/2018) R$68.33 YoY), 6.3% above estimated and 32% above consensus. We expect a neutral market 12M Target Price R$73.4 Total Return 7.5% reaction on in line EBITDA with consensus. 1Q18 results –EBITDA beat to our estimates is explained by higher than expected revenues (R$141mn above our estimates) explained by higher RBSE (R$448mn versus R$375mn Kaique Vasconcellos expected). The PMS (Personnel, Material and third-party Services) was ok, increasing 5% +55 11 3175 4369 YoY (versus LTM inflation of 2.68%) driven by consolidation of IEnne. Net debt reached [email protected] R$1.201mn, a reduction of 9.5% versus 4Q17. We have a Neutral rating for ISA CTEEP as we see the company trading at fair levered real IRR of 7.9% and the main catalyst for the stock is the potential increase in dividends distribution. ISA CTEEP – 1Q18 Results (R$ million, regulatory) 1Q18A 1Q18E Var. % 1Q18E Var. % 4Q17A Var QoQ % 1Q17A Var YoY % Safra Consensus Net Revenues 696 594 17.1% 632 10.0% 551 26.2% 254 174.3% EBITDA 559 451 24.0% 455 23.0% 470 19.1% 107 423.4% EBITDA Margin 80% 76% 85% 42% D&A (147) (25) (148) (18) Financial Results (32) (32) 22 (30) Equity Income 1 12 4 13 Pre-tax Income 382 406 348 72 Taxes (145) (131) (117) (11) Minorities (4) (5) (4) (5) Net Income 233 270 -13.9% 277 -16.1% 227 2.6% 55 321.4% Source: Company, Bloomberg and Safra 1 SAFRA Equity Research Earnings Review Safra Analysis – R$ Million ISA CTEEP P&L Regulatory 2017A 2018E 2019E 2020E 2021E YoY Growth Rates 2017A 2018E 2019E 2020E 2021E Net Revenye 1,778 2,469 2,572 2,668 2,803 Net Revenye 86.2% 38.9% 4.2% 3.7% 5.0% Operating Expenses (445) (542) (563) (586) (609) EBITDA 191.1% 44.7% 4.2% 3.6% 5.3% EBITDA 1,333 1,928 2,009 2,083 2,194 EBIT 153.4% 82.4% 4.4% 3.7% 5.5% EBITDA margin 75.0% 78.1% 78.1% 78.0% 78.3% Reported Net Profit 169.0% 89.6% 3.1% 0.8% 3.1% D&A (331) (101) (102) (104) (106) EBIT 1,002 1,827 1,907 1,978 2,087 Valuation EBIT Margin 56.4% 74.0% 74.1% 74.1% 74.5% EV/EBITDA 9.4 6.5 6.2 6.0 5.7 Financial Result (66) (130) (163) (236) (306) P/E 18.3 9.6 9.4 9.3 9.0 Equity Income 18 49 55 67 80 P/B 1.02 1.01 1.00 0.99 0.98 Pre Tax Profit 954 1,746 1,799 1,810 1,862 Dividend Yield 5.2% 8.8% 9.3% 9.8% 10.0% Taxes (319) (559) (574) (574) (587) DPS 3.55 6.03 6.39 6.72 6.85 Minorities (20) (21) (21) (22) (23) EPS IFRS 15.64 12.06 12.77 13.44 13.70 Reported Net Profit 615 1,167 1,203 1,214 1,251 Payout 23% 50% 50% 50% 50% Balance Sheet (BS) Leverage and BS Metrics Cash and Equivalents 617 866 1,303 1,046 486 Gross Debt 1,943 2,091 3,129 3,822 3,697 Accounts Receivable - - - - - Net Debt 1,326 1,225 1,827 2,776 3,211 Other Current Assets 2,027 2,028 2,030 2,032 2,033 Net Debt/EBITDA 1.0 0.6 0.9 1.3 1.5 Total Current Assets 2,644 2,894 3,333 3,078 2,519 EBITDA/Net Financial Result 20.2 14.8 12.3 8.8 7.2 Long-Term Assets 12,667 12,813 12,960 13,108 13,258 Permanent Assets 1,941 2,399 3,062 4,031 4,468 Company Data Total Assets 17,252 18,106 19,355 20,217 20,245 Allowed Revenue (RAP) 2,585 2,763 2,903 3,050 3,202 Suppliers 70 65 66 69 72 Short-Term Debt 451 486 727 888 859 Other Current Liabilities 268 806 863 922 949 Total Current Liabilities 789 1,356 1,655 1,879 1,881 Long-Term Debt 451 486 727 888 859 Other Long Term Liabilities 4,812 4,891 5,447 5,818 5,751 Total Long Term Liabilities 5,263 5,377 6,174 6,706 6,610 Minorities 215 215 215 215 215 Shareholders' Equity 10,985 11,159 11,310 11,417 11,540 Total Liabilities 17,252 18,106 19,355 20,217 20,245 Free Cash Flow Statement Net Income 615 1,167 1,203 1,214 1,251 Depreciation 331 101 102 104 106 Change in Debt 933 148 1,039 693 (125) Changes in working capital 129 (12) (2) 6 7 Cash from investing activities (249) (518) (680) (873) (451) SEFAZ (pension fund) (162) (145) (147) (148) (150) Dividends Cash Out (135) (450) (993) (1,052) (1,107) Investments - (41) (85) (200) (92) Others (1,186) - - - - Change in Cash 276 249 437 (256) (561) Source: Company and Safra 2 SAFRA Equity Research Earnings Review IMPORTANT GENERAL DISCLOSURES This report is provided for informational purposes only and does not constitute or should not be construed as an offer to buy or sell or solicitation of an offer to buy or sell any financial instrument or to participate in any particular trading strategy in any jurisdiction. 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