Electricity Generating

Electricity Generating Plc (EGCO)

 

- Seeking new projects to add profit both in short and long term  

According to the analyst meeting, EGCO planned to add profit to its existing projects and invest in new projects, both greenfield and M&A. Regarding maintenance shutdowns of power plants, there was an unplanned shutdown in 1Q15, starting from Unit 1 of BLCP, which would continue in 2Q15 for Unit 2, and a maintenance shutdown of Quezon Power (QPL) and Masinloc (MPPCL) in the Philippines may be longer than planned. In addition, there was an unplanned shutdown of SEG, a geothermal power plant, in 2Q15 as a result of heavy rain and land slide, which would take around three to four months. 

- FY2015 forecast slashed to reflect unplanned shutdowns  

We revise down FY2015 normalized profit forecast by 11.4% to reflect 1) the abovementioned more-than-expected unplanned shutdowns of BLCP, QPL, MPPCL, and SEG power plants and 2) a projected decline in earnings of Boco Rock Wind Farm (BRWF) to lower than B150m in 2015 after the project faced B10m net loss in 1Q15. Under the new forecast, EGCO’s profit is projected to decrease 7.3%yoy in 2015 before reverting to growth in 2016. However, in the short term, 2Q15 profit would improve from 1Q15 owing to a seasonal effect and full operation resumption of MPPCL and QPL in the Philippines. 

- New fair value is B184, implying 21.5% upside  

Under the new forecast, FY2015 fair value (DCF) is B184 (previously B188). We reiterate BUY due to EGCO’s potential for strong growth in the long run. Despite an adverse impact on profit in 2015, there is still hope from dividend yield of 4.1%.