Semirara Mining Corporation TUE 11 AUG 2020

1H20 net income trails forecast due

to poor performance of power
generation business
SCC’s 1H20 net income declined 60% to Php2.2Bil, below COL forecasts (47.6%), and
consensus forecast (24%). Total revenues during 1H20 before eliminations declined 41% y/y
BUY
to Php14.9Bil, lower than forecasts (40% of COL full year forecast). Earnings missed estimates TICKER: SCC
primarily due to the poor performance of the power generation business, but offset by the
better than expected earnings of the coal business, as well as lower than expected provision FAIR VALUE: 25.60
for income tax. CURRENT PRICE: 9.40
UPSIDE: 172.34
Coal business earnings beat forecast on lower than expected operating cost. Coal
mining revenues in 1H20 declined 42% y/y to Php10.16Bil, equivalent to 46% of our full
year forecast. Sales volume for the period declined 27% to 5.75Mil MT (representing only SHARE PRICE MOVEMENT
44% of our full year forecast) as the COVID-19 pandemic reduced export demand for coal.
SCC’s average selling price for coal declined 21% to 1,765/MT, 3.8% higher than our full
year forecast. Despite the coal business’ lower than expected revenues, earnings managed 130

to beat forecast mainly due to the lower than expected operating cost. Operating cost
declined 46% to Php6.6Bil, representing only 32% of our full year forecast. As a result, the
120

coal segment’s net income declined 59% to Php1.75Bil, representing 114% of our full year 110
forecast.
100

Calaca unit 3 and 4 earnings below forecast on lower than expected sales volume.
Revenues generated by the Calaca unit 3 and 4 declined 65% to Php1.43Bil, representing 90

28% of our full year forecast. Total volume sold declined 42% to 490Gwh as the Taal volcano 80
eruption disrupted the plants operation, and as overall power demand declined due to 11-May-20 11-Jun-20 11-Jul-20 11-Aug-20

the impact of Covid-19. 1H20 sales volume represents only 27% of our full year forecast. SCC PSEi
Average selling price declined 62% to Php2.92/kwh mainly due to the decline in WESM
prices. Cost of power generation declined 18% to Php1.64Bil, representing 46% of our full
year forecast. As a result, Calaca unit 3 and 4 posted a net loss of Php235Mil during 1H20,
lower than our full year net income forecast of Php600Mil. ABSOLUTE PERFORMANCE

1M 3M YTD
FORECAST SUMMARY SCC -21.01 -20.34 -57.27
Year to Dec. 31 2017 2018 2019 2020E 2021E 2022E PSEi -4.30 5.50 -24.11
Sales 43,943 41,969 44,252 37,041 41,261 44,424
% change y/y 20.1 -4.5 5.4 -16.3 11.4 7.7
EBIT 15,403 13,349 10,240 7,130 10,769 13,764
MARKET DATA
% change y/y 19.5 -13.3 -23.3 -30.4 51.0 27.8
EBIT Margin (%) 35.1 31.8 23.1 19.3 26.1 31.0 Market Cap 40,054.77Mil
EBITDA 22,242 22,017 17,633 12,882 16,781 20,034 Outstanding Shares 4,250.55MIl
% change y/y 29.3 -1.0 -19.9 -26.9 30.3 19.4
52 Wk Range 8.30 - 23.95
EBITDA Margin (%) 50.6 52.5 39.8 34.8 40.7 45.1
3Mo Ave Daily T/O 58.28Mil
Net Profits 14,209 12,025 9,679 4,764 7,641 9,796
% change y/y 18.0 -15.4 -19.5 -50.8 60.4 28.2
NPM (%) 32.3 28.7 21.9 12.9 18.5 22.1
EPS (cents) 3.33 2.82 2.27 1.12 1.79 2.30
% change y/y 18.0 -15.4 -19.5 -50.8 60.4 28.2

RELATIVE VALUE
P/E(X) 2.8 3.3 4.1 8.4 5.2 4.1
George Ching
P/BV(X) 1.1 1.0 0.9 0.9 0.8 0.7
ROE(%) 39.5 31.0 23.0 10.5 15.7 18.5 Senior Research Manager
Dividend yield(%) 21.3 23.9 12.1 13.3 9.5 12.2 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.
 EARNINGS ANALYSIS I SCC: 1H20 NET INCOME TRAILS FORECAST DUE TO POOR PERFORMANCE
OF POWER GENERATION BUSINESS

TUE 11 AUG 2020

1H20 net income trails forecast due to poor performance of

power generation business

SCC’s 2Q20 earnings declined 70.4% to Php1.06Bil. This brought 1H20 net income
to Php2.2Bil, down 60%, below COL forecasts (47.6%), and consensus forecast (24%).
Total revenues during 1H20 before eliminations declined 41% y/y to Php14.9Bil, lower
than forecasts (40% of COL full year forecast). Revenues from the coal mining segment
declined 42% to Php10.16Bil, representing 46% of our full year forecast. Meanwhile,
power generation revenue declined by 38.5% to Php4.7Bil, representing 31.7% of our full
year forecast. Earnings missed estimates primarily due to the poor performance of the
power generation business, but offset by the better than expected earnings of the coal
business, as well as lower than expected provision for income tax (which fell to 1% of pre-
tax income vs COL forecast of 23%).

Exhibit 1: SCC 2Q20 Results Summary

% of COL
in PhpMil 2Q19 2Q20 %Change 1H20
FY forecast
Revenue (gross) 14,388 6,586 (54.2) 14,896 40.2
Coal (gross) 9,443 4,024 (57.4) 10,163 46.0
Power (gross) 4,945 2,562 (48.2) 4,733 31.7
Operating income 3,750 1,430 (61.9) 2,649 37.2
Operating Margin (%) 26.1 21.7 (4.4) 17.8 N/A
Net Income 3,573 1,059 (70.4) 2,266 47.6
Net Margin (%) 24.8 16.1 (8.8) 15.2 N/A

source: SCC, COL estimates

Coal business earnings beat forecast on lower than expected

operating cost

Coal mining revenues in 1H20 declined 42% y/y to Php10.16Bil, equivalent to 46% of our
full year forecast. Sales volume for the period declined 27% to 5.75Mil MT (representing
only 44% of our full year forecast) as the Covid-19 pandemic reduced export demand for
coal. Sales volume to local customers was flat at 2.87Mil MT, while export sales declined
43% to 2.87Mil MT. SCC’s average selling price for coal declined 21% to 1,765/MT,
3.8% higher than our full year forecast. Despite the coal business’ lower than expected
revenues, earnings managed to beat forecast mainly due to the lower than expected
operating cost. Operating cost declined 46% to Php6.6Bil, representing only 32% of our
full year forecast. As a result, the coal segment’s net income declined 59% to Php1.75Bil,
representing 114% of our full year forecast.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I SCC: 1H20 NET INCOME TRAILS FORECAST DUE TO POOR PERFORMANCE
OF POWER GENERATION BUSINESS

TUE 11 AUG 2020

Calaca unit 1 and 2 results disappoint on lower than expected

selling price

1H20 revenue from Calaca units 1 and 2 declined 9% to Php3.3Bil, representing 33.3%
of our full year forecast. Energy sales rose 22% to 1,095Gwh (40% of full year forecast),
while average selling price declined 26% to Php3.02/kwh (17% lower than forecast).
Meanwhile, cost of sales declined by 45% to Php2.35Bil, equivalent to 41% of our full
year forecast. As a result, Calaca unit 1 and 2’s posted a net income of Php438Mil during
1H20 (17% of our full year net income forecast of Php2.6Bil).

Calaca unit 3 and 4 earnings below forecast on lower than

expected sales volume

Revenues generated by the Calaca unit 3 and 4 declined 65% to Php1.43Bil, representing
28% of our full year forecast. Total volume sold declined 42% to 490Gwh as the Taal
volcano eruption disrupted the plants operation, and as overall power demand declined
due to the impact of Covid-19. 1H20 sales volume represents only 27% of our full year
forecast. Average selling price declined 62% to Php2.92/kwh mainly due to the decline in
WESM prices. 76% was output was sold to the WESM due to the limited bilateral contracts
held by the units. Cost of power generation declined 18% to Php1.64Bil, representing 46%
of our full year forecast. As a result, Calaca unit 3 and 4 posted a net loss of Php235Mil
during 1H20, lower than our full year net income forecast of Php600Mil. Management
said it expects better overall performance for Calaca unit 3 and 4 in 2H20 as the units
will likely see fewer outages and as a new power supply contract will improve the units’
revenues.

Maintaining BUY rating

We have a BUY rating on SCC with a FV estimate of Php25.60/sh. Despite the very poor
earnings outlook of the company, we believe that much of the negative news is already
priced-in. The stock is the cheapest among all power companies, trading at only 5.7X 21E
P/E based on our earnings forecast. Capital appreciation is also significant at 150% based
on our fair value estimate.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I SCC: 1H20 NET INCOME TRAILS FORECAST DUE TO POOR PERFORMANCE
OF POWER GENERATION BUSINESS

TUE 11 AUG 2020

Semirara Mining INCOME STATEMENT (IN PHPMIL)

Corporation (SCC) Revenues

2017
43,943
2018
41,969
2019
44,252
2020E
37,041
2021E
41,261
2022E
44,424
% Growth 20.1% -4.5% 5.4% -16.3% 11.4% 7.7%
COMPANY BACKGROUND
EBIT 15,403 13,349 10,240 7,130 10,769 13,764
Semirara Mining Corp. is a vertically- % Growth 19.5% -13.3% -23.3% -30.4% 51.0% 27.8%
integrated power generation company, EBITDA 22,242 22,017 17,633 12,882 16,781 20,034
engaged in both coal mining and power % Growth 29.3% -1.0% -19.9% -26.9% 30.3% 19.4%
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 9,787 12,781
Island in Caluya, Antique, until July 14, Tax Expense 1,255 730 (295) 1,384 2,146 2,985
2027, through its Coal Operating Contract Net Income 14,209 12,025 9,679 4,764 7,641 9,796
with the Department of Energy (DOE). In % Growth 18.0% -15.4% -19.5% -50.8% 60.4% 28.2%
2016, the company produced 12Mil MT EPS 3.33 2.82 2.27 1.12 1.79 2.30
of coal, representing more than 90% of % Growth 18.0% -15.4% -19.5% -50.8% 60.4% 28.2%

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

December 2009, Semirara evolved into
2017 2018 2019 2020E 2021E 2022E
a vertically-integrated power generation
Cash & Equivalents 8,471 1,903 6,457 23,645 29,068 35,999
company following its acquisition of the Trade Receivables 6,475 7,301 3,642 5,150 5,736 6,176
Calaca coal-fired plant. It currently has a Inventories 5,914 12,363 10,220 3,632 3,681 3,693
total power generation capacity of 850MW. Other Current Assets 3,474 4,172 1,285 1,475 1,643 1,769
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 1,131 1,218
REVENUE BREAKDOWN Total Assets 68,596 71,049 72,209 80,396 84,327 89,252
Accounts Payable 10,851 9,946 8,451 8,180 8,290 8,317
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 33,889 33,916
Total Equity 37,679 39,933 44,236 46,618 50,438 55,336
59% Total Liabilities & Equity 68,596 71,049 72,209 80,396 84,327 89,252
59%
BVPS 8.8 9.4 10.4 10.9 11.8 13.0

CASHFLOW STATEMENT (IN PHPMIL)

2017 2018 2019 2020E 2021E 2022E
Net Income 14,209 12,025 9,679 4,764 7,641 9,796
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 -693 -551
Operating Cash Flow 18,207 9,503 24,138 15,134 12,959 15,516
Capex -6,314 -9,528 -11,634 -3,600 -3,600 -3,600
Other Investments -968 956 -741 1,960 -116 -87
Investing Cash Flow -7,282 -8,572 -12,375 -1,640 -3,716 -3,687
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 -3,820 -4,898
Others -100 -252 -12 0 0 0
Financing Cash Flow -9,440 -7,490 -7,248 3,695 -3,820 -4,898
Change in Cash 1,485 -6,559 4,515 17,188 5,423 6,931

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I SCC: 1H20 NET INCOME TRAILS FORECAST DUE TO POOR PERFORMANCE
OF POWER GENERATION BUSINESS

TUE 11 AUG 2020

INVESTMENT THESIS: KEY RATIOS

Cheapest power play in the sector 2017 2018 2019 2020E 2021E 2022E
Despite the very challenging earnings GPM (%) 53.7% 50.3% 39.8% 34.4% 40.3% 44.4%
outlook of the company, we believe that EBITDA Margin (%) 50.6% 52.5% 39.8% 34.8% 40.7% 45.1%
OPM (%) 35.1% 31.8% 23.1% 19.3% 26.1% 31.0%
much of the negative news is already
NPM (%) 32.3% 28.7% 21.9% 12.9% 18.5% 22.1%
priced-in. The stock is the cheapest among
Times Interest Earned (X) 24.8 16.4 9.9 6.0 9.1 11.6
all power companies, trading at only 6.2X Current Ratio (X) 1.69 1.26 1.55 2.47 2.90 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% 48.9% 49.8%
Vertical integration a key advantage ROAE (%) 21.2% 17.2% 13.5% 6.2% 9.3% 11.3%

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. 5

 EARNINGS ANALYSIS I SCC: 1H20 NET INCOME TRAILS FORECAST DUE TO POOR PERFORMANCE
OF POWER GENERATION BUSINESS

TUE 11 AUG 2020

Valuation NAV VALUATION

Methodology Value (PhpMil)

Valuation
Value (Php/Sh) % of GAV % of NAV Methodology
Mining 32,527 7.63 30.7% 29.8% DCF
Calaca 54,271 12.74 51.3% 49.8% DCF
Calaca expansion phase 1 and 2 19,034 4.47 18.0% 17.5% DCF
Total 105,832 24.84 100.0% 97.0%
Less: Net Debt -3,240 -0.76
Equity Value 109,072 25.60
Less: Holding Company Discount 0 0.00
FV Estimate 109,072 25.60
Source: COL estimates

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I SCC: 1H20 NET INCOME TRAILS FORECAST DUE TO POOR PERFORMANCE
OF POWER GENERATION BUSINESS

TUE 11 AUG 2020

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
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
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7