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Electricity Generating

New power plant deal adds B5.5 to fair value Rec. : BUY

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 40.95percent 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 10percent 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.


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