Significant quarterly declines due to the revenue mismatch in 4Q20, combined with an expense growth that affected the REIT's profitability
Faced with a challenging start to the year, the transmission sector proved resilient, with a 0.6% y/y increase in demand, supporting better performance going forward as the economy recovers
Transported volumes showed a defensive performance, although profitability declined. FCFE recorded annual reductions, slightly higher than anticipated. This is mainly due to the recognition of MXN 212.4 million revenues corresponding to this quarter in 4Q20, as a fiscal strategy to comply with the minimum distribution by law. Nevertheless, and despite a complicated beginning of the year, demand would have increased marginally by 0.6% y/y, highlighting that a positive annual variation unseen since 1Q20 has already been registered, and it should be remembered that the average y/y increase of the regulated tariff is 2.04% in 2021. That being said, electricity transmission revenues grew 2.6% y/y. However, the amount of reimbursements to CFE Transmisión rose 5.1% y/y, resulting in 18.5% of the annual budget being exercised. Taking into account the above, FCFE revenues amounted to MXN 465 million, a 37.4% y/y drop, in line with expectations. On the other hand, a 29.0% y/y rise in maintenance expenses (mainly due to auditors' fees) exacerbated the larger-than-estimated declines in EBITDA of 39.7% y/y and FFO of 39.5% y/y to MXN 432 million and MXN 435 million, respectively. Thus, margins contracted y/y by 3.6pp and 3.3pp to 93.0% and 93.6%, each.
Higher growth is expected going forward. On a simpler comparative basis, from 2Q21 onwards we will see improved demand performance (+3.4% y/y in 2021), which will also be driven by increased economic dynamism. This would support the continued generation of attractive cash distributions (1Q21 distribution of 8.2% y/y). Therefore, we reiterate our Buy recommendation.