Electricity Generating

Electricity Generating Plc (EGCO)

- Enters PSA for Quezon expansion
San Buenaventura Power Ltd. Co. (SBPL), 49%-owned by EGCO and 51%-
owned by MPG Corp (Meralco Power Gen Corporation) entered into a Power
Supply Agreement (PSA) with Manila Electric Company for the sale and
purchase of 455 MW capacity and electric output from a new coal-fired power
plant located in Mauban, Quezon, the Philippines. The term of the PSA is 20
years from Commercial Operation Date (COD); the commercial run is expected
to start by 4Q18. The effectiveness of the PSA will be subject to the review and
approval of the Energy Regulatory Commission (ECC) of the Philippines.
- To boost profit by 10%p.a from 2019 on
Quezon expansion project has initially been included as an EGCO's investment
plan, previously waiting for the long-term agreement. Quezon expansion
project is valued at B39bn (B19bn for EGCO's proportion). EGCO will invest on
Quezon expansion project by B1.8bn in 2014 and B3.7bn in 2015. The project
would grant around B1-1.7bn/year additional profit, boosting EGCO's net profit
by 10%p.a from 2019 on. EGCO's current cash flow is B7bn, with D/E ratio as
low as 0.42x; sufficient for the investment.
- B6.3 added value. New fair value is B154.50
Under the new forecast, we revise up FY2014 fair value (DCF) from B148.20 to
B154.50, with expected P/E ratio of 9.9x (lower than the sector's average and
the regional average of 12x). Moreover, the company announced that the
dividend yield would not be lower than in 2013 (averagely 4.6%p.a). We
reiterate to buy.