Aboitiz Power Corporation FRI 05 NOV 2021

9M21 core earnings beat forecast

as earnings on the strength of the
power generation business
AP’s 9M21 core earnings rose 142.8% to Php15.7Bil, representing 106.4% of COL forecast and
BUY
96% of consensus forecast. The company booked ~ Php3.3Bil of income from claims for the TICKER: AP
9M21 period. Excluding the impact of revenues from claims, core net amounted to Php12.4Bil, FAIR VALUE: 46.50
representing 84% of our full year forecast. In terms of core operating performance, total CURRENT PRICE: 33.95
beneficial EBITDA for 9M21 rose 29% to Php37.8Bil, above estimates, representing 89% of UPSIDE: 36.97
our full year forecast.
ABSOLUTE PERFORMANCE
EBITDA of power generation ahead of estimates. Overall 9M21 EBITDA from power
1M 3M YTD
generation (including profits from RES) rose by 34% to Php33.8Bil, representing 90.9% of
AP 11.13 45.09 27.87
full year forecast. This was mainly driven by an increase in WESM sales volume and prices, PSEi 3.49 9.39 0.90
higher capacity availability of AP’s hydroelectric plants (due to better water availability,
improvement in the availability of major coal plants, commissioning revenues from
GNPower Dinginin unit 1, as well as higher overall demand for power. These factors led to a MARKET DATA
26% increase in overall revenues to Php74.3Bil, while gross profit rose by 22% to Ph33.5Bil. Market Cap 249,824.47Mil
The increase in revenues more than offset higher power generation cost (+22%) as well as Outstanding Shares 7,358.60Mil
the increase in purchased power costs(+53%). In terms of pricing during 9M21, bilateral 52 Wk Range 35.10 - 28.60
sales selling price rose 14% to Php4.62/kwh, while spot market selling price increased 103% 3Mo Ave Daily T/O 99.39Mil

to Php5.36/kwh. Due to the higher than expected 9M21 EBITDA of the power generation
business, we are raising our FY21 EBITDA forecast for the power generation segment by
6.8% to Php39.4Bil.

FORECAST SUMMARY
Year to Dec. 31 2017 2018 2019 2020 2021E 2022E
Sales 119,391.3 131,572.1 125,635.2 110,376.6 116,077.1 127,760.3
% change y/y 33.9 10.2 (4.5) (12.1) 5.2 10.1
EBIT 38,871.7 40,853.7 32,669.9 29,554.9 34,962.0 38,927.8
% change y/y 47.7 5.1 (20.0) (9.5) 18.3 11.3
EBIT Margin (%) 32.6 31.1 26.0 26.8 30.1 30.5
EBITDA 46,468.0 53,892.1 42,565.6 40,528.3 46,965.0 50,968.9
% change y/y 20.7 16.0 (21.0) (4.8) 15.9 8.5
EBITDA Margin (%) 38.9 41.0 33.9 36.7 40.5 39.9
Net Profits 20,416.4 21,707.6 17,322.7 12,577.7 17,094.8 20,311.1
% change y/y 2.1 6.3 (20.2) (27.4) 35.9 18.8
NPM (%) 17.1 16.5 13.8 11.4 14.7 15.9
EPS (Php) 2.77 2.95 2.35 1.71 2.32 2.76
% change y/y 2.1 6.3 (20.2) (27.4) 35.9 18.8

RELATIVE VALUE
P/E(X) 12.2 11.5 14.4 19.9 14.6 12.3
P/BV(X) 2.0 1.8 1.9 1.9 1.7 1.6
George Ching
ROE(%) 16.5 15.9 13.0 9.3 11.7 12.8 Senior Research Manager
Dividend yield (%) 4.0 4.1 4.3 3.5 2.5 3.4 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
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 EARNINGS ANALYSIS I AP: 9M21 CORE EARNINGS BEAT FORECASTS AS EARNINGS ON THE
STRENGTH OF THE POWER GENERATION BUSINESS
RI 05 NOV 2021
TUE 21 SEP 2021

9M21 core earnings beat forecast as earnings on the

strength of the power generation business

AP’s 3Q21 core earnings increased 88.7% to Php5.6Bil. This brought 9M21 core earnings
to Php15.7Bil, up 142.8%, representing 106.4% of COL forecast and 96% of consensus
forecast. The company booked ~ Php3.3Bil of income from claims for the delay in the
construction of GNPower Dinginin and payment for business interruption claims resulting
from the GNPower Mariveles and Tiwi-Makban’s outages in 2019. Excluding the impact of
revenues from claims, core net amounted to Php12.4Bil, representing 84% of our full year
forecast. In terms of core operating performance, total beneficial EBITDA for 9M21 rose
29% to Php37.8Bil, above estimates, representing 89% of our full year forecast. EBITDA
from power generation and retail supply rose 34% to Php33.5Bil, representing 90.9% of
COL’s full year forecast, while EBITDA from power distribution rose 6% to Php5.1Bil, which
represents 68% of our full year forecast.

Exhibit 1: AP 3Q21 results summary

in PhpMil 3Q20 3Q21 % Change 9M21 % of FY COL Forecast

Net income 3,269 5,553 69.9 15,687 N/A
Net Income (core) 2,964 5,594 88.7 15,723 106.4
EBITDA (generation and RES) 10,191 11,683 14.6 33,523 90.9
EBITDA (distribution) 1,842 1,656 -10.1 5,147 67.8

source: AP, COL estimates, Bloomberg

EBITDA of power generation ahead of estimates

Overall 9M21 EBITDA from power generation (including profits from RES) rose by 34% to
Php33.8Bil, representing 90.9% of full year forecast. This was mainly driven by an increase
in WESM sales volume and prices, higher capacity availability of AP’s hydroelectric plants
(due to better water availability, improvement in the availability of major coal plants,
commissioning revenues from GNPower Dinginin unit 1, as well as higher overall demand
for power. These factors led to a 26% increase in overall revenues to Php74.3Bil, while
gross profit rose by 22% to Ph33.5Bil. The increase in revenues more than offset higher
power generation cost (+22%) as well as the increase in purchased power costs(+53%).
In terms of pricing during 9M21, bilateral sales selling price rose 14% to Php4.62/kwh,
while spot market selling price increased 103% to Php5.36/kwh. Due to the higher than
expected 9M21 EBITDA of the power generation business, we are raising our FY21 EBITDA
forecast for the power generation segment by 6.8% to Php39.4Bil.

COL Financial Group, Inc. 2

 EARNINGS ANALYSIS I AP: 9M21 CORE EARNINGS BEAT FORECASTS AS EARNINGS ON THE
STRENGTH OF THE POWER GENERATION BUSINESS

FRI 05 NOV 2021

Power distribution EBITDA increases 6%, trails estimates

9M21 EBITDA contribution of AP’s power distribution business increased 6% to Php5.1Bil,

trailing forecast, representing 68% of COL forecast. Sales volume rose by 5% y/y to
4,197Gwh, while gross margin/kwh declined 3% to Php1.62/kwh, mainly due to the
timing difference in the recovery of fuel pass through costs.

Management expects power demand recovery to continue,

contracts protected by fuel pass through and coal hedge
contracts

AP believes that power demand will continue to recover as the economy reopens against
the backdrop on rising vaccination rate and looser mobility controls. With the recent
surge in coal prices, management indicated that most of its power supply contracts
are protected by fuel pass through provision. For AP’s fixed price contracts (contracts
without fuel pass through provision), the company said it has already hedged the coal
fuel requirement for the contracts.

Maintaining BUY rating

In light of the increase in our EBITDA forecast for the power generation business, we are
raising our FY21 core net income forecast for AP by 15.6% to Php17.1Bil. We are also
raising our FV estimate for AP by 3.5% to Php46.5/sh. We are maintaining our BUY rating
on AP. We like AP as we believe that the company’s earnings have already bottomed
out (with 1H21 earnings increasing by 143% y/y out following a 24.6% decline in 2020
due to the impact of the Covid-19 pandemic). Furthermore, valuation is also very cheap,
trading at 12.1X FY22 P/E, compared to 17X FY22 P/E of domestic peers and AP’s 10
year historical P/E of 13.7X. Based on its 2022 projected cash dividend of Php1.0/sh, this
provides a decent dividend yield of 3.1%. The upside to our FV estimate is very high at
40%.

COL Financial Group, Inc. 3

 EARNINGS ANALYSIS I AP: 9M21 CORE EARNINGS BEAT FORECASTS AS EARNINGS ON THE
STRENGTH OF THE POWER GENERATION BUSINESS
RI 05 NOV 2021
TUE 21 SEP 2021

Aboitiz Power INCOME STATEMENT (IN PHPMIL)

Corporation (AP) Revenues

2017
119,391
2018
131,572
2019
125,635
2020
110,377
2021E
116,077
2022E
127,760
% Growth 33.9% 10.2% -4.5% -12.1% 5.2% 10.1%
COMPANY BACKGROUND EBIT 38,872 40,854 32,670 29,555 34,962 38,928
Company description. Aboitiz Power % Growth 47.7% 5.1% -20.0% -9.5% 18.3% 11.3%
EBITDA 46,468 53,892 42,566 40,528 46,965 50,969
Corporation (AP) is the holding company of
% Growth 20.7% 16.0% -21.0% -4.8% 15.9% 8.5%
the Aboitiz Group’s investments in power Interest Expense (10,321) (11,202) (12,756) (13,600) (15,369) (15,369)
generation and distribution. The company Other Income/Expense 2,994 3,065 7,297 7,604 7,653 9,626
is the second largest power generation Pretax Income 26,847 28,359 23,397 20,883 19,593 23,559
firm in the country. It has interest in Tax Expense (3,858) (2,926) (3,215) (6,062) (2,170) (2,359)
hydroelectric, geothermal and thermal Net Income 20,416 21,708 17,323 12,578 17,095 20,311
% Growth 2.1% 6.3% -20.2% -27.4% 35.9% 18.8%
power generation plants with a total power
EPS 2.77 2.95 2.35 1.71 2.32 2.76
generation capacity of 3,947MW (beneficial
% Growth 2.1% 6.3% -20.2% -27.4% 35.9% 18.8%
capacity of 2,968MW), representing ~ 13%
of the country’s total capacity. It is also BALANCE SHEET (IN PHPMIL)
the second largest electricity distributor in 2017 2018 2019 2020 2021E 2022E
the country with interest in eight power Cash & Equivalents 35,700 46,343 37,434 38,700 57,774 63,937
distribution utilities in Central Luzon, Trade Receivables 17,360 21,722 21,747 22,017 18,878 20,778
Visayas and Mindanao. Inventories 5,644 6,690 6,632 6,308 3,148 3,465
Other Current Assets 9,259 13,953 11,083 10,480 11,528 12,680
PPE 204,025 207,110 209,521 203,451 192,348 181,207
REVENUE BREAKDOWN
Other Non-Current Assets 89,490 93,843 124,052 116,969 117,433 117,920
Total Assets 361,477 389,662 410,470 397,925 401,109 399,987
Accounts Payable 19,852 21,801 22,376 18,372 26,995 29,726
10.0% ST Debts 4,717 11,547 10,335 11,743 11,743 11,743
0.0%
Other Current Liabilities 89,490 93,843 124,052 116,969 117,433 117,920
LT Debts 131,361 149,360 167,585 160,067 142,813 125,559
10.0%
0.0% Other Non-Current Liabilities 56,825 56,910 57,851 47,249 47,929 48,677
50.0% Total Liabilities 237,499 253,086 276,826 263,340 255,389 241,614
Total Equity 123,978 136,577 133,643 134,585 145,720 158,374
40.0% 50.0% Total Liabilities & Equity 361,477 389,662 410,469 397,925 401,109 399,988
40.0%
CASHFLOW STATEMENT (IN PHPMIL)
2017 2018 2019 2020 2021E 2022E
Net Income 20,416 21,708 17,323 12,578 17,095 20,311
Depreciation & Amortization 7,596 8,681 9,896 10,973 12,003 12,041
Distribution Generation Services Others Other Non-Cash Exp (Gains) 1,030 919 (3,395) (13,600) (15,369) (15,369)
Distribution Generation Services Others
Interest Expense (Income) 10,321 11,202 12,756 13,600 15,369 15,369
Decrease (Increase) in Working Cap -9,128 -5,223 2,778 5,291 13,875 -638
Operating Cash Flow 30,236 37,288 39,357 28,842 42,973 31,714
Capex -16,068 -8,608 -9,612 -5,581 -900 -900
Other Investments 6,615 1,365 -24,449 7,083 -464 -487
Investing Cash Flow -9,453 -7,243 -34,061 1,502 -1,364 -1,387
Proceeds (Payment) Debts -14,887 2,893 20,493 -14,662 -17,254 -17,254
Payment of Cash Dividends -10,008 -10,228 -10,817 -8,661 -6,289 -8,547
Others -7,228 -11,820 -24,052 -4,262 1,009 1,637
Financing Cash Flow -32,123 -19,156 -14,376 -27,586 -22,534 -24,165
Change in Cash -11,340 10,889 -9,080 2,758 19,075 6,163

COL Financial Group, Inc. 4

 EARNINGS ANALYSIS I AP: 9M21 CORE EARNINGS BEAT FORECASTS AS EARNINGS ON THE
STRENGTH OF THE POWER GENERATION BUSINESS

FRI 05 NOV 2021

INVESTMENT THESIS: KEY RATIOS

2017 2018 2019 2020 2021E 2022E
Diversified and well-balanced portfolio
GPM (%) - - - - - -
AP has a diversified and well-balanced
EBITDA Margin (%) 38.9% 41.0% 33.9% 36.7% 40.5% 39.9%
portfolio of power generation assets that
OPM (%) 32.6% 31.1% 26.0% 26.8% 30.1% 30.5%
gives AP a steady stream of cash flow while
NPM (%) 17.1% 16.5% 13.8% 11.4% 14.7% 15.9%
at the same time allow the company to Times Interest Earned (X) 3.77 3.65 2.56 2.17 2.27 2.53
maximize revenues when power supply is Current Ratio (X) 1.38 1.89 1.50 1.38 1.41 1.50
tight. Net D/E Ratio (X) 0.81 0.84 1.05 0.99 0.66 0.46
Days Receivable 53.07 60.26 63.18 72.81 59.36 59.36
Expansion of RES operation to minimize Asset T/O (%) 33.0% 33.8% 30.6% 27.7% 28.9% 31.9%
long term merchant risk ROAE (%) 17.3% 16.7% 12.8% 9.4% 12.2% 13.4%
AP’s distribution business enhances its
ability to participate in the Retail Electricity MAJOR CORPORATE DEVELOPMENTS (5-YEARS)
Supply market under the Open Access
Regime as the company is already familiar
with the requirement and the usage AP acquires G Power assets from Blackstone for US$1.2Bil 10/05/2016
pattern of its contestable customers,
while its diversified power generation
portfolio allows it to offer the most cost
effective power solution package to these
customers. Going forward, AP plans to
utilize RES to allow it to continue expand
its power generation portfolio without
incurring too much merchant risk in added
capacity. Going forward, AP plans to boost
its participation in RES from the current
313MW to 800MW by 155% by 2020,
representing 27% of its current attributable
power generation capacity.

Near term headwind due to Covid-19,

but to rebound beginning 2021
We believe near term earnings outlook has
deteriorated due to the impact of Covid-19
and oversupply concerns in the industry.
However, we expect earnings to rebound
beginning 2021 brought about by recovery
in WESM prices, the addition of new
capacity and the reduction in unplanned
plant outages

COL Financial Group, Inc. 5

 EARNINGS ANALYSIS I AP: 9M21 CORE EARNINGS BEAT FORECASTS AS EARNINGS ON THE
STRENGTH OF THE POWER GENERATION BUSINESS
RI 05 NOV 2021
TUE 21 SEP 2021

Valuation RELATIVE VALUATION

Methodology
Valuation
Value (PhpMil) Value (Php/Sh) % of GAV % of NAV Methodology
Distribution 59,486 8.08 15.5% 17.4% DCF
Generation
Oil 23,133 3.14 6.0% 6.8% DCF
Hydro 54,807 7.45 14.3% 16.0% DCF
Coal 185,774 25.25 48.4% 54.3% DCF
Geothermal 60,387 8.21 15.7% 17.6% DCF
Generation total 324,101 44.04 84.5% 94.7%
Total 383,588 52.13 100.0% 112.1%
Less: Net Debt 41,412 5.63
Equity Value 342,176 46.50
Less: Holding Company Discount 0 0
FV Estimate 342,176 46.50

COL Financial Group, Inc. 6

 EARNINGS ANALYSIS I AP: 9M21 CORE EARNINGS BEAT FORECASTS AS EARNINGS ON THE
STRENGTH OF THE POWER GENERATION BUSINESS

FRI 05 NOV 2021

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

FIRST VICE PRESIDENT & CHIEF EQUITY STRATEGIST
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

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 SENIOR RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN DENISE JOAQUIN

SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com denise.joaquin@colfinancial.com

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

24/F EAST TOWER, TEKTITE TOWERS,
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