Electricity Generating

Electricity Generating Plc (EGCO)

- 3Q13 net profit expands 28.8%qoq, thanks to main power plants
EGCO reported 3Q13 net profit at B2.36bn, growing 28.8%qoq – better than
expected, thanks to main power plants. KEGCO, REGCO, Quezon, EGCO cogen,
GEC, and NTPC plants could generate larger income, boosting total income of
EGCO by 3.3%qoq, while the expense increased only 1.4%qoq because the
maintenance expense in 3Q13 was lower than that of the prior quarter.
Accordingly, gross profit rose 6.5%qoq or a gross profit margin increasing from
36.3% in 2Q13 to 37.5%. However, share of profit from joint ventures declined
13.0%qoq to B1.73bn mainly because of lower profit of BLCP and GPG plants
as a result of a maintenance shutdown, while there was not share of profit from
Conal plant in 3Q13 because EGCO had sold its stake in the plant since early
July. Moreover, the company also booked a Fx loss of B13m in 3Q13. Overall,
9M13 profit stood at B6.4bn, plunging 37.4% from the same period last year,
in line with our FY2013 forecast.
- Up 2013 forecast to reflect better than expected profit in 3Q13
We revise up FY2013 profit forecast by 20% to reflect the better than expected
profit in 3Q13. However, earnings in 4Q13 are projected to weaken significantly
from 3Q13 due to a low season (winter, in which domestic electricity demand
usually decreases) and because most power plants have already run at their full
capacity according to the power purchase agreement since the first nine to
eleven months of the year, so the run rate in the fourth quarter would decline,
resulting in the lowest availability payment revenue of the year. Furthermore,
share of profit from BLCP (EGCO holds 50% stake) is projected to decrease
significantly from 3Q13 because of the plant’s one-month maintenance
shutdown. Moreover, profit in the next three years is trending down from 2013
as there will not be new investment projects to generate income for EGCO
(because most investment projects of EGCO are now under a construction
process as all of them are greenfield projects). In addition, income from the
main power plants REGCO and KEGCO is going to recede soon as they are in
the final period of the PPA contract. Nevertheless, EGCO’s earnings would be
able to rebound significantly again in 2017 after all investment projects are
completed, including new KEGCO (900 MW), Quezon expansion in the
Philippines (500 MW, EGCO to hold 50% stake) and three small power plants
(SSPs).
- Buy. Upside is 18%. High div yield of 4.8%p.a.
New FY2013 fair value (DCF) is B148.20/share. We reiterate to buy EGCO; the
current share price has 18% upside, while dividend yield can be expected at
4.8% p.a. (paying semi-annually).