You are on page 1of 2

First Gen Corporation: TUE 30 MAY 2017

No quick turnaround seen for the


San Gabriel
No quick turnaround seen for the San Gabriel. After FGEN’s disappointing 1Q17 results, we
discussed with management regarding the outlook for the 414MW San Gabriel, as well as the
long term outlook of all of FGEN’s gas plants. The San Gabriel’s net loss during 1Q17 amounted UNDER REVIEW
to U$11.3Mil, as the plant’s capacity factor was only at 8% during 1Q17. This was mainly due
to the Malampaya shutdown in February, as well as a plant outage in March. With the current
WESM average selling price at above Php3.00/kwh, the San Gabriel is still enjoying positive gross TICKER: FGEN
margin above its fuel cost (from Malampaya) of Php2.42/kwh. However, its average selling price FAIR VALUE: N/A
is still not enough to cover for depreciation, interest and other operating costs. Management’s CURRENT PRICE: PHP19.48
main focus at this point is to make the San Gabriel less reliant on the WESM by entering into an
Ancillary Services Procurement Agreement (ASPA) with the NGCP and power supply agreements UPSIDE: N/A
with power distribution utilities and direct customers. Management admitted though that
might take a while to secure supply contracts with potential customers in light of the ongoing
reshuffling in the Energy Regulatory Commission (ERC) hierarchy. We estimated the San Gabriel SHARE PRICE MOVEMENT
and Avion to contributed US$34Mil in earnings in 2017E, representing 18% of our full year
earnings forecast of FGEN. 120

Long term outlook of gas plants rests on success of regasification facility. The gas sales 110
and purchase agreement between FGEN’s gas plants and Spex (Malampaya gas seller) will end
in 2024. To ensure that its existing gas plants would be able to continue operating beyond
2024, FGEN needs to build an LNG regasification terminal that will allow the plants to utilities 100
imported LNG as fuel. The estimated construction period for the regasification is 5 years, while
the capex requirement ranges from US$600Mil to US$1Bil, depending on the capacity of the 90
facility. Given the size of the capex requirement, FGEN is looking to entering into JV from the
regasification project. Funding for the project will be predominantly from debt, while the equity
portion of the investment will be from internally generated cash. Furthermore, to fund its future 80
capex requirement, management reiterated that it is open to selling up to 10.5% stake in EDC 30-Mar-17 30-Apr-17

(currently holds 50.5% of EDC). FGEN PSEi

Estimates under review. FGEN’s share price fell by more than 9% in reaction to its poor 1Q17
earnings performance. Given the low commodity prices (particularly coal) and ample power ABSOLUTE PERFORMANCE
supply in the country, we believe that it might take a while for the San Gabriel to maximize its
earnings potential and for the stock price of FGEN to rebound. We are currently reviewing our 1M 3M YTD
rating and FV estimate of FGEN for a potential downgrade in light of the recent developments. FGEN -9.40 -7.68 -11.45
PSEi 2.94 8.80 15.28
FORECAST SUMMARY
Year to Dec. 31 2014 2015 2016 2017E 2018E
Sales (US$Mil) 1,909 1,846 1,570 1,786 1,833
% change y/y -0.3 -3.3 -14.9 13.7 0.8 MARKET DATA
EBIT (US$Mil) 564 485 564 696 724
% change y/y 48.8 -14.0 16.3 23.4 0.7 Market Cap 71,315.00Mil
EBIT Margin (%) 29.5 26.3 35.9 39.0 39.5 Outstanding Shares 3,661.00Mil
EBITDA (US$Mil) 728 671 761 905 933 52 Wk Range 19.40 - 26.60
% change y/y 35.3 -7.8 13.5 18.9 0.5
EBITDA Margin (%) 38.1 36.3 48.5 50.7 50.9 3Mo Ave Daily T/O 45.33Mil
Net Profits (US$Mil) 193 167.3 199.6 186.5 204.4
% change y/y 63.6 -13.4 19.3 -6.6 2.4
NPM (%) 10.1 9.1 12.7 10.4 11.2
EPS (US$) 0.042 0.035 0.044 0.041 0.046
% change y/y 85.0 -16.9 27.2 -6.4 3.0

RELATIVE VALUE
P/E(X) 9.4 11.4 8.9 9.5 8.5 GEORGE CHING
P/BV(X) 0.75 0.72 0.69 0.65 0.58 Research Manager
ROE(%) 10.10 8.34 9.55 8.43 8.21
george.ching@colfinancial.com
Dividend yield(%) 1.80 1.80 3.52 4.48 4.55
*So urce: COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
FIELD NOTES I FGEN: NO QUICK TURNAROUND SEEN FOR THE SAN GABRIEL

TUE 30 MAY 2017

Important Rating Definitions


BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market
in the next six to 12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook
might be poor or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the
market in the next six to twelve months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

Important Disclaimer
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal
amount invested. Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy
and said information may be incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of
the date of the report and are subject to change without prior notice. This report is for informational purposes only and is not intended as an offer or
solicitation for the purchase or sale of a security. COL Financial and/or its employees not involved in the preparation of this report may have investments
in securities of derivatives of the companies mentioned in this report and may trade them in ways different from those discussed in this report.

COL Research Team

APRIL LYNN TAN, CFA


VP & Head of Research
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA


Deputy Head of Research Research Senior Manager Research Senior Manager
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG


Research Analyst Research Analyst Research Analyst
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com

KYLE JEMMRIC VELASCO JOHN MARTIN LUCIANO


Research Analyst Research Analyst
kyle.velasco@colfinancial.com john.luciano@colfinancial.com

Contact

COL FINANCIAL GROUP, INC.


2402-D East Tower, Philippine Stock Exchange Centre,
Exchange Road, Ortigas Center, Pasig City
1605 Philippines
Tel No. +632 636-5411
Fax No. +632 635-4632
Website: www.colfinancial.com

COL Financial Group, Inc. 2

You might also like