AC Energy Philippines, Inc.

WED 07 OCT 2020

Raising estimates on earlier than

expected injection of domestic
power assets
Given the earlier than expected asset injection of the group’s domestic power assets into
HOLD
ACEN, we are raising our 2020E earnings forecast for ACEN by 169% to Php2.95Bil. We are
raising our FV estimate on ACEN by 8.8% to Php3.2/sh. Despite the increase in our earnings TICKER: ACEN
estimates, we are downgrading our rating on ACEN from BUY to HOLD. FAIR VALUE: 3.20
CURRENT PRICE: 3.06
Earlier than expected asset injection of domestic power assets. ACEN disclosed that
UPSIDE: 4.58
last June 22, the SEC approved the issuance of additional primary shares to AC Energy,
Inc. to implement the asset-for-share swap that added 176 MW of attributable capacity
to ACEN. The company recognized earnings from these assets retroactively given the SHARE PRICE MOVEMENT
recent regulatory approval. The assets that were injected into ACEN include additional 35%
stake in the 240MW SLTEC coal plant, the 52MW Northwind Project, the 81MW Pagudpud
Wind Project and the 18MW Monte Solar Energy Project. Given the earlier than expected
150

asset injection of the group’s domestic power assets into ACEN, we are raising our 2020E 140

earnings forecast for ACEN by 169% to Php2.95Bil. 130

120
Injection of overseas assets will continue to fuel income growth. In addition to 110
the aforementioned asset injection, it is expected that ACEN will also acquire Presage
Corporation from AC Energy Inc. before the end of the year. Presage holds all of AC
100

Energy’s international renewable energy assets and investments with a potential to boost 90

ACEN’s attributable capacity by 750MW in the next 2 years. A total of 16.7Bil shares will be 80

issued to AC Energy Inc. in exchange for the assets. We expect that these assets will boost
8-Jul-20 8-Aug-20 8-Sep-20 8-Oct-20

ACEN’s 2021E earnings by 118% to Php6.4Bil. ACEN PSEi

FORECAST SUMMARY ABSOLUTE PERFORMANCE

Year to Dec. 31 2016 2017 2018 2019 2020E 2021E 2022E 1M 3M YTD
Sales 15,477.9 17,020.2 15,123.4 15,306.7 16,331.2 17,601.7 17,601.7 ACEPH 13.33 36.61 37.22
% change y/y 14.9 10.0 (11.1) 1.2 6.7 7.8 0.0 PSEi 2.17 -3.64 -24.37
EBIT 1,358.6 451.4 (108.2) (399.8) 4,249.0 8,932.3 10,591.7
% change y/y (10.5) (66.8) (124.0) 269.7 (1162.7) 110.2 18.6
EBIT Margin (%) 8.8 2.7 (0.7) (2.6) 26.0 50.7 60.2
MARKET DATA
EBITDA 1,771.7 831.6 276.2 427.0 5,654.9 10,345.7 12,012.7
% change y/y (7.5) (53.1) (66.8) 54.6 1224.2 83.0 16.1 Market Cap 99,948.04Mil
EBITDA Margin (%) 11.4 4.9 1.8 2.8 34.6 58.8 68.2 Outstanding Shares 32,662.76Mil
Net Profits 1,402.2 353.8 (560.5) (416.9) 2,945.2 6,419.1 8,115.1 52 Wk Range 1.39 - 3.30
% change y/y 53.9 (74.8) (258.4) (25.6) (806.4) 118.0 26.4 3Mo Ave Daily T/O -
NPM (%) 9.1 2.1 (3.7) (2.7) 18.0 36.5 46.1
EPS (Php) 0.29 0.07 (0.11) (0.06) 0.39 0.197 0.248
% change y/y 52.6 (75.9) (257.1) (49.6) (806.4) (49.8) 26.4

RELATIVE VALUE
P/E(X) 10.6 43.7 -27.8 -55.2 7.8 15.6 12.3
P/BV(X) 11.2 11.0 12.0 12.3 10.2 1.4 1.3
ROE(%) 15.6 3.9 -6.7 -3.8 23.1 8.5 9.8 George Ching
Dividend yield (%) 1.3 2.6 1.3 0.0 0.0 1.3 1.3 Senior Research Manager
BVPS(P) 0.27 0.28 0.25 0.25 0.30 2.23 2.43 george.ching@colfinancial.com
*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.
 COMPANY UPDATE I ACEN: RAISING ESTIMATES O N EARLIER THAN EXPECTED INJECTION OF
DOMESTIC POWER ASSETS

WED 07 OCT 2020

Earlier than expected asset injection of domestic power

assets

ACEN disclosed that last June 22, the SEC approved the issuance of additional primary
shares to AC Energy, Inc. to implement the asset-for-share swap that added 176 MW
of attributable capacity to ACEN. The company recognized earnings from these assets
retroactively (to the beginning of the year) given the recent regulatory approval. The
assets that were injected into ACEN include additional 35% stake in the 240MW SLTEC
coal plant, the 52MW Northwind Project, the 81MW Pagudpud Wind Project and the
18MW Monte Solar Energy Project. Based on ACEN’s previously disclosure, ACEN will
issue 6.2Bil new common shares to parent AC Energy Inc. in exchange for these assets.
The new shares represent 82% of ACEN’s previous outstanding shares. Given the earlier
than expected asset injection of the group’s domestic power assets into ACEN, we are
raising our 2020E earnings forecast for ACEN by 169% to Php2.95Bil.

Injection of overseas assets will continue to fuel income

growth

In addition to the aforementioned asset injection, it is expected that ACEN will also
acquire Presage Corporation from AC Energy Inc. before the end of the year. Presage
holds all of AC Energy’s international renewable energy assets and investments with a
potential to boost ACEN’s attributable capacity by 750MW in the next 2 years. A total of
16.7Bil shares will be issued to AC Energy Inc. in exchange for the assets. We expect that
these assets will boost ACEN’s 2021E earnings by 118% to Php6.4Bil.

Raising estimates, but downgrading to HOLD

As a result of increasing our 2020E earnings estimate for ACEN, we are raising our FV
estimate on ACEN by 8.8% to Php3.2/sh. Despite the increase in our earnings estimates,
we are downgrading our rating on ACEN from BUY to HOLD. We continue to like ACEN
given it is in an excellent position to expand its power generation portfolio following
parent firm AC Energy’s injection into ACEN all of its domestic power assets. Furthermore,
AC Energy subsequently announced it will inject all of its international renewable energy
assets into ACEN. The combined attributable capacity of these assets could boost ACEN’s
capacity by 2,780MW, representing more than five times ACEN’s existing capacity.
However, ACEN’s stock price has increased by 39% YTD, outperforming the PSEI’s 24%
decline for the period. At Php3.09/sh, upside to our FV estimate is limited at 3.6%.

COL Financial Group, Inc. 2

 COMPANY UPDATE I ACEN: RAISING ESTIMATES O N EARLIER THAN EXPECTED INJECTION OF
DOMESTIC POWER ASSETS

WED 07 OCT 2020

AC Energy Philippines, INCOME STATEMENT (IN PHPMIL)

Inc. (ACEN)
2017 2018 2019 2020E 2021E 2022E
Revenues 17,020 15,123 15,307 16,331 17,602 17,602
% Growth 10.0 (11.1) 1.2 6.7 7.8 -
COMPANY BACKGROUND EBIT 451 (108) (400) 4,249 8,932 10,592
% Growth (66.8) (124.0) 269.7 (1,162.7) 110.2 18.6
Company description. AC Energy
EBITDA 831.6 276.2 427.0 5,654.9 10,345.7 12,012.7
Philippines, Inc, (ACEN), formerly PHINMA % Growth (53.1) (66.8) 54.6 1,224.2 83.0 16.1
Energy Corporation and Trans-Asia Oil and Interest Expense (513.6) (433.6) (882.0) (1,338.0) (3,270.7) (3,234.1)
Energy Corporation, is one of the power Other Income/Expense 105.6 120.3 716.1 240.0 1,019.3 1,019.3
Pretax Income 43.5 (421.6) (565.7) 3,151.0 6,680.9 8,377.0
generation subsidiaries of AC Energy
Tax Expense (303.7) 171.6 (148.8) 205.8 261.8 261.8
Inc, which is the holding company of the Net Income 353.8 (560.5) (416.9) 2,945.2 6,419.1 8,115.1
Ayala Corporation’s (AC) investments in % Growth (74.8) (258.4) (25.6) (806.4) 118.0 26.4
power generation business. The company EPS 0.1 (0.1) (0.1) 0.4 0.2 0.2
% Growth (0.8) (2.6) (0.5) (8.1) (0.5) 0.3
has interest in coal, wind, geothermal
and thermal power generation plants BALANCE SHEET (IN PHPMIL)
with a total power generation capacity of 2017 2018 2019 2020E 2021E 2022E
609MW (beneficial capacity of 437MW), Cash & Equivalents 1,301 1,022 8,582 14,466 58,768 66,277
representing ~ 2.5% of the country’s total Trade Receivables 2,738 2,627 2,728 2,837 3,058 3,058
Inventories - - - - - -
capacity.
Other Current Assets 3,184 1,516 1,371 1,371 1,371 1,371
PPE 6,130 5,761 21,564 20,278 18,985 17,684
REVENUE BREAKDOWN Other Non-Current Assets 7,405 7,998 5,476 5,476 58,079 58,079
Total Assets 20,759 18,925 39,721 44,429 140,261 146,469
0.10% Accounts Payable 2,759 2,269 3,788 1,857 1,764 1,764
ST Debts - 400 34 34 34 34
Other Current Liabilities 285 294 652 5,652 661 661
LT Debts 6,622 6,071 20,192 20,192 58,171 57,571
Other Non-Current Liabilities 1,953 1,519 3,951 3,951 3,951 3,951
Total Liabilities 11,619 10,553 28,616 31,685 64,580 63,980
Total Equity 9,140 8,371 11,105 12,743 75,680 82,489
Total Liabilities & Equity 20,759 18,925 39,721 44,429 140,261 146,469
BVPS 0.3 0.3 0.2 0.3 2.2 2.4

CASHFLOW STATEMENT (IN PHPMIL)

2017 2018 2019 2020E 2021E 2022E
99.90%
Net Income 354 (560) (417) 2,945 6,419 -
Depreciation & Amortization (561) 482 1,061 1,406 1,413 -
Other Non-Cash Exp (Gains) - - - - - -
Power Sales Others
Interest Expense (Income) 514 434 882 1,338 3,271 3,234
Decrease (Increase) in Working Cap -531 -925 -728 2,960 -5,304 -
Operating Cash Flow -739 -1,004 -83 7,311 2,528 -
Capex -125 -119 -81 -120 -120 -
Other Investments 2,138 1,777 2,696 - -52,603 -
Investing Cash Flow 2,014 1,657 2,614 -120 -52,723 -
Proceeds (Payment) Debts -171 -115 3,261 - 37,979 -
Payment of Cash Dividends -270 -193 - 1,307 1,307 -
Others 71 -627 1,769 -2,613 55,211 -
Financing Cash Flow -370 -935 5,030 -1,307 94,497 -
Change in Cash 905 -279 7,559 5,639 44,301 -

COL Financial Group, Inc. 3

 COMPANY UPDATE I ACEN: RAISING ESTIMATES O N EARLIER THAN EXPECTED INJECTION OF
DOMESTIC POWER ASSETS

WED 07 OCT 2020

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019 2020E 2021E 2022E
AC Energy Inc. to focus on turnaround
GPM (%) - - - - - -
of ACEN
EBITDA Margin (%) 4.9% 1.8% 2.8% 26.3% 58.8% 68.3%
Following the acquisition of a majority OPM (%) 2.7% -0.7% -2.6% 17.7% 50.8% 60.2%
stake (currently at 72% stake) by AC Energy NPM (%) 2.1% -3.7% -2.7% 6.5% 36.5% 46.1%
Inc. in June of this 2019, the company said Times Interest Earned (X) 0.9 (0.2) (0.5) 2.2 2.7 3.3
that it is committed to the turnaround Current Ratio (X) 2.4 1.7 2.8 2.3 25.2 28.2
of ACEN. This involves consolidating of Net D/E Ratio (X) 0.6 0.7 1.0 0.6 0.0 (0.1)
some of AC Energy Inc. assets into ACEN, Days Receivable 58.7 63.4 65.1 63.4 63.4 63.4
Asset T/O (%) 82.0% 79.9% 38.5% 37.9% 12.7% 12.1%
mitigating and reducing pricing mismatch
ROAE (%) 3.9% -6.4% -4.3% 9.4% 15.0% 0.0%
for ACEN’s RES contracts, focusing ACEN’s
diesel portfolio on ancillary and energy MAJOR CORPORATE DEVELOPMENTS (5-YEARS)
markets, and increasing plant availability
and capacity of its power plants.
AC Energy Inc. acquires a 51% stake in PHEN for Php6.3Bil Sep-19

Energy trading losses from RES to

AC Energy Inc. acquires a 15% of PHEN's outstanding shares from minority
diminish with new contract
shareholders
We expect losses from ACEN’s RES contracts
to decline beginning 2020. In September AC Energy Inc. announced injecting key Philippine assets into ACEPH in
Oct-19
of this 2019, ACEN secured a new 200MW exhange for 6.185Bil shares
10-year contract with Meralco (under CSP
AC Energy Inc. announced injecting Presage into ACEPH in exchange for
rules) at Php4.75/kwh (~30% higher than Mar-19
16.7Bil shares
previous pricing under RES). We expect the
new contract will reduce ACEN’s trading
losses and help ACEN return to profitability
in 2020.

Excellent growth story

ACEN is in an excellent position in expanding
its power generation portfolio. Following
the acquisition by AC Energy Inc., the new
management already announced its plans to
inject into ACEN its 35% stake in SLTEC and
all of its renewable energy power generators
in the Philippines. Furthermore, AC Energy
subsequently announced it will inject all of
its international renewable energy assets
into ACEN. The combined attributable
capacity of these assets could boost
ACEN’s capacity by 2,780MW, representing
500% of ACEN’s existing capacity. We also
estimate these projects could potentially
boost ACEN’s 2021E earnings by 507%.

COL Financial Group, Inc. 4

 COMPANY UPDATE I ACEN: RAISING ESTIMATES O N EARLIER THAN EXPECTED INJECTION OF
DOMESTIC POWER ASSETS

WED 07 OCT 2020

Valuation NAV COMPUTATION

Methodology Value (PhpMil) Value (Php/Sh) % of GAV % of NAV Valuation Methodology

ACEPH Original Assets 39,447 1.2 39.3% 37.8%
Assets from AC Energy-ACEPH Exchange 28,055 0.9 28.0% 26.9% DCF
Presage Assets 32,813 1.0 32.7% 31.4% DCF
Total Operating Assets 100,316 3.1 100.0% 96.1%
Less: Net Debt -4,061 -0.1 -3.9%
Equity Value 104,376 3.2 100.0%
Less: Holding Company Discount 0 0.0
FV Estimate 104,376 3.2

COL Financial Group, Inc. 5

 COMPANY UPDATE I ACEN: RAISING ESTIMATES O N EARLIER THAN EXPECTED INJECTION OF
DOMESTIC POWER ASSETS

WED 07 OCT 2020

I MP OR TA NT R AT ING 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.

I MP OR TA NT DISC L AIM ER
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.

C O L R E S EAR C H T EAM

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 SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

C O L F INANC IAL G R O UP, I NC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 6