Electricity Generating

Electricity Generating Plc (EGCO)

- EGCO acquired the 630 MW Masinloc coal-fired power plant in the
Philippines. Thus, we revise up 2014-2015 profit forecast by 4% and
17%, respectively, resulting in new 2014 fair value of B160.
- EGCO takes stake in Masinloc coal power plant in Philippines
EGCO acquired a 40.95% stake in Masinloc Power Partners Co., Ltd.
(MPPCL), an owner of the 630 MW Masinloc coal-fired power plant (two
units of 315 MW each) in Zambales province, the Philippines, from AES
Corporation. The transaction value is US$453m or around B15bn. Previously
the government’s facility, Masinloc power plant started operating under AES
management since 2008, selling totaling 589 MW power under contract to
1) Manila Electric Company (Meralco) at 70%, 2) electric corporations at
20%, and 3) industrial customers at 10%. The share acquisition and
transfer would complete by 3Q14.
- Up 2014-2015 forecast by 4% and 17%
We revise up 2014-2015 net profit forecast by 3.9% and 17.3% to reflect
the Masinloc acquisition, under an assumption that 90% of the investment
comes from bank loans and 10% from internal cash flow, which would make
EGCO’s debt to equity (D/E) ratio increase from 0.4x to 0.7x. However,
MPPCL planned to have two new power plant units built by 2019, with a
total capacity of 660 MW (still not included in our forecast).
- New fair value is B160, implying 19% upside
Under the new forecast, 2014 fair value (DCF) is B160 (from B154.5). We
reiterate to buy EGCO for its strong growth potential in the long run. 2014
P/E ratio is only 9.8x, lower than the sector’s average.