Semirara Mining Corporation FRI 07 MAY 2021

1Q21 net income above expectation

SCC’s 1Q21 earnings increased 93.4% to Php2.3Bil, above COL forecasts (40.9%), and
consensus forecast (32%). Earnings beat estimates due to the coal business’ better than
expected earnings, but this was partially offset by the power generation business’ lower than
BUY
expected profits. TICKER: SCC

Coal business earnings beat forecast on higher sales volume and ASP. Coal mining FAIR VALUE: 31.26
revenues in 1Q21 rose 15.7% y/y to Php7.1Bil, equivalent to 30.4% of our full year forecast. CURRENT PRICE: 12.70
Sales volume for the period rose 21% to 3.9Mil MT (representing 30% of our full year UPSIDE: 146.14
forecast) as China eased its import quota restriction and as export sales to other markets
such as Korea and Cambodia increased. SCC’s average selling price for coal declined 4%
to 1,829/MT, but was still 1.6% higher than our ASP forecast for the year. As a result, ABSOLUTE PERFORMANCE
the coal segment’s net income amounted to Php1.95Bil(+22% y/y), exceeding forecast,
1M 3M YTD
representing 74% of our full year forecast. We are raising our FY21 ASP forecast by 5.6%
to Php1,900/MT in light of the better than expected outlook for coal pricing this year. This SCC 6.21 6.53 -51.82
increased our net income forecast for the coal mining business by 42% to Php3.7Bil. PSEi 7.84 -0.33 -19.08

SCPC results disappoint on unit 2 unplanned outage. 1Q21 revenue from Calaca units 1
and 2 (SCPC) declined 30% to Php1.05Bil, representing only 11.7% of our full year forecast. MARKET DATA
This was mainly due the unplanned outage of unit 2 since December 2020. Energy sales
declined 36% to 286Gwh (12% of full year forecast), while average selling price rose 9% to Market Cap 54,116.55Mil
Php3.66/kwh (2.7% lower than forecast). SCPC sold 15% of its output to the spot market at Outstanding Shares 4,250.55MIl
an average price of Php2.77/kwh (-6% lower y/y). Meanwhile, operating cost declined by 52 Wk Range 8.30 - 23.90
26% to Php1.15Bil, equivalent to 19% of our full year forecast. As a result, SCPC posted a 3Mo Ave Daily T/O 58.28Mil
net loss of Php163Mil during 1Q21 (full year net income forecast of Php1.9Bil).

FORECAST SUMMARY

Year to Dec. 31 2017 2018 2019 2020E 2021E 2022E

Sales 43,943 41,969 44,252 37,041 39,572 45,737
% change y/y 20.1 -4.5 5.4 -16.3 6.8 15.6
EBIT 15,403 13,349 10,240 7,130 8,734 14,608
% change y/y 19.5 -13.3 -23.3 -30.4 22.5 67.3
EBIT Margin (%) 35.1 31.8 23.1 19.3 22.1 31.9
EBITDA 22,242 22,017 17,633 12,882 14,745 20,879
% change y/y 29.3 -1.0 -19.9 -26.9 14.5 41.6
EBITDA Margin (%) 50.6 52.5 39.8 34.8 37.3 45.6
Net Profits 14,209 12,025 9,679 4,764 6,746 11,204
% change y/y 18.0 -15.4 -19.5 -50.8 41.6 66.1
NPM (%) 32.3 28.7 21.9 12.9 17.0 24.5
EPS (cents) 3.33 2.82 2.27 1.12 1.58 2.63
% change y/y 18.0 -15.4 -19.5 -50.8 41.6 66.1

RELATIVE VALUE
P/E(X) 3.8 4.5 5.6 11.4 8.0 4.8
P/BV(X) 1.4 1.4 1.2 1.2 1.1 1.0 George Ching
ROE(%) 39.5 31.0 23.0 10.5 14.0 21.2 Senior Research Manager
Dividend yield(%) 15.7 17.7 8.9 9.8 6.2 10.4 george.ching@colfinancial.com
*So urce: COL estimates

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 EARNINGS ANALYSIS I SCC: 1Q21 NET INCOME ABOVE EXPECTATION

FI 07 MAY 2021

1Q21 net income above expectation

SCC’s 1Q21 earnings increased 93.4% to Php2.3Bil, above COL forecasts (40.9%), and
consensus forecast (32%). Earnings beat estimates due to the coal business’ better than
expected earnings. Total revenues during 1Q21 before eliminations rose 19.2% y/y to
Php9.9Bil, in line with forecasts (25.9% of COL full year forecast). Revenues from the
coal mining segment increased 15.7% to Php7.1Bil, representing 30.4% of our full year
forecast. Meanwhile, power generation revenue rose by 28.9% to Php2.8Bil, representing
18.8% of our full year forecast. Earnings beat estimates due to the coal business’ better
than expected earnings, but this was partially offset by the power generation business’
lower than expected profits.

Exhibit 1: SCC 1Q21 Results Summary

% of COL
in PhpMil 1Q20 1Q21 %Change
FY forecast
Revenue (gross) 8,310 9,902 19.2 25.9
Coal (gross) 6,139 7,104 15.7 30.4
Power (gross) 2,171 2,798 28.9 18.8
Operating Income 1,219 2,419 98.4 30.6
Operating Margin (%) 14.7 24.4 9.8 N/A
Net Income 1,192 2,305 93.4 40.9
Net Margin (%) 14.3 23.3 8.9 N/A

source: SCC, COL estimates

Coal business earnings beat forecast on higher sales volume

and ASP

Coal mining revenues in 1Q21 rose 15.7% y/y to Php7.1Bil, equivalent to 30.4% of our full
year forecast. Sales volume for the period rose 21% to 3.9Mil MT (representing 30% of
our full year forecast) as China eased its import quota restriction and as export sales to
other markets such as Korea and Cambodia increased. Sales volume to local customers
rose 11% to 1.8Mil MT, while export sales rose 31% to 2.1Mil MT. SCC’s average selling
price for coal declined 4% to 1,829/MT, but was still 1.6% higher than our ASP forecast
for the year. Average selling price would have been higher if not for the 600,000MT
deferred shipment from December 2020 (which was based on 3Q20 coal pricing) that
was delivered during 1Q21. Operating cost rose 15% to Php5.1Bil, representing only
24% of our full year forecast. As a result, the coal segment’s net income amounted to
Php1.95Bil(+22% y/y), exceeding forecast, representing 74% of our full year forecast.
We are raising our FY21 ASP forecast by 5.6% to Php1,900/MT in light of the better than
expected outlook for coal pricing this year. This increased our net income forecast for the
coal mining business by 42% to Php3.7Bil.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I SCC: 1Q21 NET INCOME ABOVE EXPECTATION

FI 07 MAY 2021

SCPC results disappoint on unit 2 unplanned outage

1Q21 revenue from Calaca units 1 and 2 (SCPC) declined 30% to Php1.05Bil, representing
only 11.7% of our full year forecast. This was mainly due the unplanned outage of unit 2
since December 2020. Energy sales declined 36% to 286Gwh (12% of full year forecast),
while average selling price rose 9% to Php3.66/kwh (2.7% lower than forecast). SCPC sold
15% of its output to the spot market at an average price of Php2.77/kwh (-6% lower y/y).
Meanwhile, operating cost declined by 26% to Php1.15Bil, equivalent to 19% of our full
year forecast. As a result, SCPC posted a net loss of Php163Mil during 1Q21 (full year net
income forecast of Php1.9Bil).

SLPGC earnings above forecast on higher than expected

output and selling price

Revenues generated by the Calaca unit 3 and 4 (SLPGC) rose 160% to Php1.75Bil,
representing 29.6% of our full year forecast. Total volume sold increased 107% to
510Gwh mainly due to better plant availability as unplanned outage hours declined.
1Q21 sales volume represents 28% of our full year forecast. Average selling price rose
25% to Php3.43/kwh mainly due to higher contracted capacity level, as well as better
WESM prices. 21% was output was sold to the WESM. Cost of power generation rose18%
to Php1.2Bil, representing 31% of our full year forecast. As a result, SLPGC posted a net
income of Php553Mil during 1Q21, representing 49% of our full year forecast.

Coal mining business’ outlook improves on higher pricing

Management said that the outlook for its coal mining business has improved for this
year as China’s (accounting for 85% of SCC’s coal exports) coal consumption increases
due to its sharp economic rebound. Meanwhile, production constraints due to the water
seepage issue in the Molave Mine since 4Q20 have already been addressed, and the
company is in line to meet its coal production target of 13-13.5Mil MT this year.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I SCC: 1Q21 NET INCOME ABOVE EXPECTATION

FI 07 MAY 2021

Maintaining BUY rating

In light of the increase in our estimates for SCC’s coal mining business and in line with
the passage of the CREATE Bill, we are increasing our FY21E earnings forecast by 19.8%
to Php6.75Bil, and our FY22E forecast by 14.4% to Php11.2Bil. We are also raising our FV
estimate by 9.2% to Php31.26/sh. We are maintaining our BUY rating on SCC. Despite
the poor outlook of its power generation business due to unplanned outages, we believe
that much of the negative news is already priced-in. Meanwhile, the selling price of
coal have already recovered. If the higher coal price is sustained, this will improve the
earnings outlook of SCC’s coal mining business going forward. The stock is the trading
at only 4.8X 22E P/E, below the industry average of 12.6X. Capital appreciation is also
significant at 146% based on our fair value estimate.

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I SCC: 1Q21 NET INCOME ABOVE EXPECTATION

FI 07 MAY 2021

Semirara Mining INCOME STATEMENT (IN PHPMIL)

Corporation (SCC) Revenues

2017
43,943
2018
41,969
2019
44,252
2020
37,041
2021E
39,572
2022E
45,737
% Growth 20.1% -4.5% 5.4% -16.3% 6.8% 15.6%
COMPANY BACKGROUND
EBIT 15,403 13,349 10,240 7,130 8,734 14,608
Semirara Mining Corp. is a vertically- % Growth 19.5% -13.3% -23.3% -30.4% 22.5% 67.3%
integrated power generation company, EBITDA 22,242 22,017 17,633 12,882 14,745 20,879
engaged in both coal mining and power % Growth 29.3% -1.0% -19.9% -26.9% 14.5% 41.6%
Interest Expense (622) (814) (1,034) (1,188) (1,188) (1,188)
generation. The company owns the right
Other Income/Expense 683 220 178 205 205 205
to mine the coal resources of Semirara Pretax Income 15,464 12,755 9,384 6,148 7,752 13,626
Island in Caluya, Antique, until July 14, Tax Expense 1,255 730 (295) 1,384 1,005 2,421
2027, through its Coal Operating Contract Net Income 14,209 12,025 9,679 4,764 6,746 11,204
with the Department of Energy (DOE). In % Growth 18.0% -15.4% -19.5% -50.8% 41.6% 66.1%
2016, the company produced 12Mil MT EPS 3.33 2.82 2.27 1.12 1.58 2.63
of coal, representing more than 90% of % Growth 18.0% -15.4% -19.5% -50.8% 41.6% 66.1%

the country’s total coal production. In BALANCE SHEET (IN PHPMIL)

December 2009, Semirara evolved into 2017 2018 2019 2020 2021E 2022E
a vertically-integrated power generation Cash & Equivalents 8,471 1,903 6,457 23,645 28,996 36,035
company following its acquisition of the Trade Receivables 6,475 7,301 3,642 5,150 5,501 6,358
Calaca coal-fired plant. It currently has a Inventories 5,914 12,363 10,220 3,632 3,703 3,732
total power generation capacity of 850MW. Other Current Assets 3,474 4,172 1,285 1,475 1,576 1,822
PPE 43,014 43,520 47,631 45,479 43,068 40,397
Other Non-Current Assets 1,249 1,790 2,975 1,016 1,085 1,254
Total Assets 68,596 71,049 72,209 80,396 83,929 89,599
REVENUE BREAKDOWN
Accounts Payable 10,851 9,946 8,451 8,180 8,339 8,407
ST Debts 3,556 10,426 5,529 5,529 5,529 5,529
Other Current Liabilities - - 14 14 14 14
LT Debts 14,469 10,043 13,068 19,144 19,144 19,144
39.4% Other Non-Current Liabilities 2,041 701 911 911 911 911
39.4% Total Liabilities 30,917 31,116 27,973 33,778 33,938 34,005
Total Equity 37,679 39,933 44,236 46,618 49,991 55,593
59% Total Liabilities & Equity 68,596 71,049 72,209 80,396 83,929 89,599
59% BVPS 8.8 9.4 10.4 10.9 11.7 13.0

CASHFLOW STATEMENT (IN PHPMIL)

2017 2018 2019 2020 2021E 2022E
Net Income 14,209 12,025 9,679 4,764 6,746 11,204
Mining Power
Depreciation & Amortization 6,839 8,669 7,392 5,752 - -
Mining Power
Other Non-Cash Exp (Gains) 273 526 652 1,188 7,199 7,458
Interest Expense (Income) -622 -814 -1,034 -1,188 -1,188 -1,188
Decrease (Increase) in Working Cap -2,492 -10,903 7,449 4,618 -364 -1,065
Operating Cash Flow 18,207 9,503 24,138 15,134 12,394 16,410
Capex -6,314 -9,528 -11,634 -3,600 -3,600 -3,600
Other Investments -968 956 -741 1,960 -69 -169
Investing Cash Flow -7,282 -8,572 -12,375 -1,640 -3,669 -3,769
Proceeds (Payment) Debts 1,312 2,333 -1,923 6,077 0 0
Payment of Cash Dividends -10,652 -9,571 -5,313 -2,382 -3,373 -5,602
Others -100 -252 -12 0 0 0
Financing Cash Flow -9,440 -7,490 -7,248 3,695 -3,373 -5,602
Change in Cash 1,485 -6,559 4,515 17,188 5,351 7,039

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I SCC: 1Q21 NET INCOME ABOVE EXPECTATION

FI 07 MAY 2021

INVESTMENT THESIS: KEY RATIOS

Cheapest power play in the sector 2017 2018 2019 2020 2021E 2022E
Despite the very challenging earnings GPM (%) 53.7% 50.3% 39.8% 34.4% 37.4% 45.4%
outlook of the company, we believe that EBITDA Margin (%) 50.6% 52.5% 39.8% 34.8% 37.3% 45.6%
OPM (%) 35.1% 31.8% 23.1% 19.3% 22.1% 31.9%
much of the negative news is already
NPM (%) 32.3% 28.7% 21.9% 12.9% 17.0% 24.5%
priced-in. The stock is the cheapest among
Times Interest Earned (X) 24.8 16.4 9.9 6.0 7.4 12.3
all power companies, trading at only 6.2X Current Ratio (X) 1.69 1.26 1.55 2.47 2.87 3.44
21E P/E based on our revised earnings Net D/E Ratio (X) 0.25 0.46 0.27 0.02 -0.09 -0.20
forecast. Days Receivable 53.8 63.5 30.0 50.7 50.7 50.7
Asset T/O (%) 64.1% 59.1% 61.3% 46.1% 47.1% 51.0%
Vertical integration a key advantage ROAE (%) 21.2% 17.2% 13.5% 6.2% 8.2% 12.9%

over competitors
The Calaca plant sources coal from
Semirara’s existing mining operations,
allowing it to save on fuel cost compared
to its peers. Furthermore, SCC will enjoy
even higher cost savings from Calaca
unit 3 and 4 due to their abilities to
utilize waste coal in generating power.

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I SCC: 1Q21 NET INCOME ABOVE EXPECTATION

FI 07 MAY 2021

Valuation NAV VALUATION

Methodology Value (PhpMil)

Valuation
Value (Php/Sh) % of GAV % of NAV Methodology
Mining 41,492 9.74 31.9% 31.1% DCF
Calaca 64,354 15.10 49.5% 48.3% DCF
Calaca expansion phase 1 and 2 24,129 5.66 18.6% 18.1% DCF
Total 129,974 30.50 100.0% 97.6%
Less: Net Debt -3,240 -0.76
Equity Value 133,215 31.26
Less: Holding Company Discount 0 0.00
FV Estimate 133,215 31.26
Source: COL estimates

COL Financial Group, Inc. 7

 EARNINGS ANALYSIS I SCC: 1Q21 NET INCOME ABOVE EXPECTATION

FI 07 MAY 2021

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 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, CFA
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

COL FINANCIAL GROUP, INC.

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

COL Financial Group, Inc. 8