First Gen projects higher earnings in next 2 years

MANILA, Philippines — Lopez-led First Gen Corp. may book higher earnings in the next two years on the back of positive developments in its 414-megawatt (MW) San Gabriel project and in its subsidiary Energy Development Corp. (EDC).

In a research note, F. Yap Securities Inc. said it raised its topline estimates for the Lopez-led firm for 2018 and next year.

It said the upgraded outlook was attributed to the upsides unlocked following the interim relief granted by the Energy Regulatory Commission (ERC) to the power supply agreement (PSA) between San Gabriel and Manila Electric Co. (Meralco) “that enabled default implementation of the accord.”

It also cited the continued recovery of EDC’s Leyte operations, which severely suffered from natural calamities that struck the area in July last year.

“Our earnings outlook for 2018 has been raised to P186 billion (+16 percent vs. initial forecast) and P211 billion for 2019 (+19 percent vs. initial forecast),” F. Yap Securities said.

This is compared with the P134.42 billion net income registered in 2017, which was a 33 percent drop from P199.59 billion in the previous year.

The stock brokerage firm also adjusted its forecasted earnings per share outlook EPS to $0.043 (P2.29) for 2018 and $0.050 (P2.652) for 2019.

The ERC earlier granted an interim relief to First NatGas Power Corp., First Gen’s subsidiary, and Meralco, allowing them to implement the six-year power supply deal until Feb. 23, 2024. Both parties have the option to extend the PSA upon mutual agreement “in the event that liquefied natural gas (LNG) becomes available.”

The ERC has approved an effective rate of P3.7121 per kilowatt-hour (kwh), which would result in a decrease in Meralco’s generation cost by P0.0619 per kwh.

Supply will be sourced from the 414-MW San Gabriel combined-cycle gas-fired power plant in Batangas.

“With the interim relief in place, San Gabriel and Meralco may now implement their PSA conditioned to an effective rate of P3.7121 per kwh, lower than what was originally sought at P3.7712 per kwh. Nonetheless, this is a positive development since (First Gen) would be able to utilize more of its capacity which would lead to increased contribution from San Gabriel,” F. Yap Securities said.

Meanwhile, the stock brokerage firm also said the voluntary delisting of EDC is seen as a favorable development for First Gen since the market’s attention would be geared on the parent company.

“The stock’s business model will be enhanced, in light of current operations plus angles on geothermal and renewable assets. Extra pluses might come from its prospective venture into LNG,” F. Yap Securities said.

EDC announced it is targeting to delist from the Philippine Stock Exchange on Nov. 29 as part of its corporate strategy to gain greater flexibility.