Electricity Generating

Victory over IPP bid to increase 2013 FV by B15.28/share BUY

Electricity Generating Plc (EGCO)

To continuously recognize revenue from new projects, strengthening profit base

From the analyst meeting yesterday (13 March 2013), there's still no new factor for

EGCO. The company still has aimed to march toward continuous investment in new

projects to gradually help compensate the revenue from main plants, REGCO and

KEGCO, that would decline from expiration of the PPA in 2014 and 2016

respectively. Moreover, this would continuously boost the profit growth in the

future. For new projects that would begin commercial operation in 2013, there are

mostly alternative energy power plant projects like the solar power plant Solarco

(51percent stake held by EGCO) with the production capacity of 57 MW, the wind power

plant Teppana Windfarm or TWF (90percent stake held by EGCO) with the production

capacity of 6.9 MW, and the waste power plant GIDEC (50percent stake held by EGCO)

with the production capacity of 7 MW. For significant projects, they would begin the

commercial operation in 2016. In terms of Khanom new power plant, it has been

approved by the Ministry of Energy to start the construction in the same area of the

old plant to produce 900-MW electricity, currently in the discussion process for the

power purchase agreement or PPA and the conclusion is projected to be done in

2H13 and the construction would start in 2014. For 3 projects of SPP with the total

production capacity of 375 MW, the construction would be gradually finished during

2016-2017. In the Philippines, Quezon expansion of 500 MW is currently in the

process of discussion (EGCO projected to hold 50percent stake), planned to start

commercial operation in 2017 (not included in our forecast). Other than that, EGCO

is now bidding for a new IPP contract, projected to win the auction in mid-2013

because the company has high potential to win at least 1 plant (from 6 plants with

900 MW per each).

1Q13 norm profit projected to rebound QoQ due to full operation of every plant

EGCO's 1Q13 norm profit is projected to rebound from 4Q12 because every power

plant has fully resumed operation. Furthermore, the company has no plan for the

maintenance shutdown like that of 4Q12. For the overall look of 2013 norm profit,

it is projected to increase continuously by 16.3% YoY due to full-year revenue

recognition of Quezon at 98%. Although profit sharing from REGCO and KEGCO

tends to decline because they're entering a final period of the PPA contract with

EGAT, the increased income from SPP and alternative energy power plants would

compensate the mentioned likely-to-fall profit.

Recommend "BUY"… Victory over IPP bid would increase FV by B15.28/share

The fair value, using DCF, at end-2013 stands at B147.57/share. We reiterate our

recommendation of "BUY" for EGCO. At present, the current market price is already

close to 2013 fair value. In a short term, we recommend investing on the price's

weakness. For a long term, there's a positive factor from the investment expansion

(especially the IPP bid). Under the replacement cost method, EGCO's fair value is

projected to increase by around B15.28/share per 1 power plant from winning the

IPP bid. If the additional value from Quezon expansion projected at B7.07/share is

included, EGCO's upside would stand at 15.15percent from the current share price.