I Philippine Equity Research Earnings Analysis

Friday, 12 April 2024

FGEN: FY23 recurring earnings in line with forecast

Rating Fair Value Current Price Upside George Ching

Senior Research Manager
BUY 31.50 19.30 63.21%

FGEN disclosed that FY23 recurring net income rose 4.3% to US$277Mil, in line First Gen Corporation
with COL forecast (103%) but below consensus forecast (92%). EDC’s earnings Ticker: FGEN
exceeded forecast, offset by the gas plants’ earnings and FG Hydro’s weaker
than expected results.

• Gas plants’ earnings below estimates. The recurring earnings contribution Market Cap (mil)
69,413.91
of FGEN’s gas plants (Sta. Rita, San Lorenzo, San Gabriel and Avion) declined
4% to US$184Mil, below forecast, representing 94% of our full year forecast. Outstanding Shares (mil)
3,596.58
The Santa Rita and San Lorenzo’s earnings declined 5.5% y/y to US$147Mil,
representing 85% of our full year forecast, mainly due by higher GAEX and Forward P/E
4.89
interest expense. The San Gabriel plant’s earnings rose 130% to US$25.3Mil,
representing 122% of our full year forecast. The San Gabriel’s operating Dividend Yield
3.63
income rose 27% due to higher dispatch while net income grew at a steeper
pace due to lower provision for deferred income tax. Meanwhile, the Avion
gas plant reported net earnings of Php854Mil, up 2.4% y/y, mainly due to
lower cost of sales as consumption of liquid fuel was lower this year compared
to the same period of last year.

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Earnings Analysis I FGEN: FY23 recurring earnings in line with forecast Friday, 12 April 2024

Forecast Summary
Year to Dec. 31 2020 2021 2022 2023E 2024E 2025E
Sales (US$Mil) 1,838 2,170 2,676 2,622 2,636 2,651
% change y/y -15.2 18.1 23.3 -2.0 0.5 0.6
EBIT (US$Mil) 583 513 547 732 736 740
% change y/y -3.0 -11.9 6.5 33.8 0.6 0.5
EBIT Margin (%) 31.7 23.7 20.4 27.9 27.9 27.9
EBITDA (US$Mil) 816 738 764 941 945 949
% change y/y -1.1 -9.6 3.5 23.2 0.4 0.4
EBITDA Margin (%) 44.4 34.0 28.6 35.9 35.9 35.8
Net Profits (US$Mil) 275.7 258.3 261.4 268.8 274.3 280.0
% change y/y -6.9 -6.3 1.2 2.8 2.0 2.1
NPM (%) 15.0 11.9 9.8 10.3 10.4 10.6
EPS (US$) 0.0704 0.0656 0.0665 0.0685 0.0700 0.0715
% change y/y -7.4 -6.8 1.3 3.0 2.2 2.2

RELATIVE VALUE
P/E(X) 5.2 5.6 5.5 5.4 5.3 5.1
P/BV(X) 0.47 0.47 0.47 0.45 0.42 0.40
ROE(%) 9.33 8.69 8.83 8.58 8.30 8.04
Dividend yield(%) 2.87 3.59 3.59 3.59 3.59 3.59
source: FGEN, COL estimates

Share Price Movement

115.00

110.00

105.00

100.00

95.00

90.00

85.00

80.00
01/12/2024 01/25/2024 02/07/2024 02/20/2024 03/04/2024 03/17/2024 03/30/2024 04/12/2024

FGEN PSEi

source: Bloomberg

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Earnings Analysis I FGEN: FY23 recurring earnings in line with forecast Friday, 12 April 2024

FY23 recurring earnings in line with forecasts

FGEN disclosed that excluding one-offs items, 4Q23 recurring net income declined
61% to US$28Mil. This brought FY23 recurring net income to US$277Mil, up 4.3%
y/y, in line with COL forecast (103%) but below consensus forecast (92%). EDC’s
earnings exceeded forecast, offset by the gas plants’ earnings and FG Hydro’s
weaker than expected results.

Exhibit 1: FGEN 4Q23 results summary

in US$Mil 4Q22 4Q23 % Change FY23 % of FY COL forecast
Net revenues 671.4 583.9 -13.0 2,474.8 94.4
EBIT 95.3 73.8 -22.6 550.6 75.2
EBIT margin (%) 14.2 12.6 -1.6 22.2 -
Net Income 73.8 65.4 -11.3 312.2 116.2
Net margin (%) 11.0 11.2 0.2 12.6 -

source: FGEN, COL estimates

Gas plants’ earnings below estimates

The recurring earnings contribution of FGEN’s gas plants (Sta. Rita, San Lorenzo,
San Gabriel and Avion) declined 4% to US$184Mil, below forecast, representing
94% of our full year forecast. The Santa Rita and San Lorenzo’s earnings declined
5.5% y/y to US$147Mil, representing 85% of our full year forecast, mainly due by
higher GAEX and interest expense. The San Gabriel plant’s earnings rose 130%
to US$25.3Mil, representing 122% of our full year forecast. The San Gabriel’s
operating income rose 27% due to higher dispatch while net income grew at a
steeper pace due to lower provision for deferred income tax. Meanwhile, the
Avion gas plant reported net earnings of Php854Mil, up 2.4% y/y, mainly due to
lower cost of sales as consumption of liquid fuel was lower this year compared to
the same period of last year.

EDC’s earnings beat forecast on higher than expected revenues

EDC’s FY23 recurring earnings rose 26.7% to Php14.2Bil, ahead of forecast,

representing 164% of our full year forecast. EDC’s revenues declined 3.1% to
47.2Bil, higher than forecast, representing 120% of our full year forecast. The
decline in revenues was primarily due to a 8.3% drop in sales volume, but partially
offset by higher average WESM selling prices. EDC’s recurring earnings were also
buoyed by lower cost of sales.

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Earnings Analysis I FGEN: FY23 recurring earnings in line with forecast Friday, 12 April 2024

Hydro plant earnings below forecast

The Pantabangan-Masiway hydro plant’s FY23 net income declined 14.7% to

Php325.6Mil, representing 47% of COL forecast. Operating profit declined 32.8%
to Php239.4Mil as revenues declined 47.5% to Php2.1Bil. The decline in revenues
was mainly due to lower water level during the period, as well as lower average
selling price with the assignment of a 100MW Meralco PSA to EDC in August
2022. The decline in revenues was partially offset by a 56% decline in cost
of sales to Php1.45Bil mainly due to lower replacement power purchases from
WESM and lower water service fees during the period.

Maintaining BUY rating

We have a BUY rating on FGEN with a FV estimate of Php31.50/sh. We continue

like FGEN given its relatively stable cash flow since bulk of its capacity is
contracted. Furthermore, with the Department of Energy’s moratorium on new
coal power plants, this could potentially push forward the projected power
shortage beginning in 2024, increase in the competitiveness of FGEN’s gas and
renewables plants, and improve the feasibility of FGEN’s LNG regasification
project which will enable its gas plants to remain viable after the depletion of the
Malampaya gas field. At FGEN’s market price of Php19.78/sh., upside to our FV
estimate is at 61.5%.

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Earnings Analysis I FGEN: FY23 recurring earnings in line with forecast Friday, 12 April 2024

Income Statement Company Background

in Php Mil FY17 FY18 FY19 FY20 FY21 FY22 FGEN is the power power generation arm
Revenues 1,718 1,997 2,169 1,838 2,170 2,676
of the Lopez Group of Companies. It is the
% Growth 9.4% 16.2% 8.6% -15.2% 18.1% 23.3%
EBIT 446 538 601 583 513 547 3rd largest power generation firm in the
% Growth -21.0% 20.8% 11.6% -3.0% -11.9% 6.5% country , and the largest player in natural
EBITDA 658 751 826 816 738 764
gas and geothermal power. It has a total
% Growth -13.6% 14.2% 9.9% -1.1% -9.6% 3.5%
Interest Expense (175) (135) (119) (104) (85) (83) power generation installed capacity of
Other Income/Expense 118 87 95 80 102 131 3,477MW and accounts for 19% of Luzon
Pretax Income 271 403 481 479 428 464
and 27% of Vis-Min’s total capacity.
Tax Expense (62) (84) (67) (85) (74) (94)
Net Income 134 221 296 276 258 261
% Growth -32.6% 64.6% 33.9% -6.9% -6.3% 1.2% Revenue Breakdown
EPS 0.0 0.1 0.1 0.1 0.1 0.1
% Growth -37.3% 96.2% 40.1% -7.4% -6.8% 1.3%
0.6%
Balance Sheet
in Php Mil FY17 FY18 FY19 FY20 FY21 FY22
Cash & Equivalents 671 555 624 772 725 816
Trade Receivables 357 377 435 445 391 503
Inventories 93 108 129 178 207 194
Other Current Assets 192 114 113 271 215 80
PPE 2,760 2,571 2,550 2,621 2,668 2,589
Other Non-Current Assets 1,428 1,336 1,359 1,421 1,298 1,194
Total Assets 5,501 5,060 5,210 5,708 5,503 5,376
Accounts Payable 405 423 462 525 604 574
ST Debts 301 231 304 449 426 351 99.4%
Other Current Liabilities 24 19 76.037 108 24 53
LT Debts 2,212 1,992 1,622 1,480 1,292 1,245 Electricity Others
Other Non-Current Liabilities 95 125 154 190 184 193
Total Liabilities 3,037 2,789 2,618 2,751 2,530 2,416
Total Equity 2,464 2,271 2,592 2,956 2,973 2,960
Total Liabilities & Equity 5,501 5,060 5,210 5,708 5,503 5,376

Cashflow Statement
in Php Mil FY17 FY18 FY19 FY20 FY21 FY22
Net Income 134 221 296 276 258 261
Depreciation & Amortization 212 213 225 233 225 217
Other Non-Cash Exp (Gains) 70 124 105 (557) 61 (19)
Interest Expense (Income) 175 135 119 104 85 83
Decrease (Increase) in Working Cap 22 (20) 18 305 (76) (43)
Operating Cash Flow 614 673 763 361 554 500
Capex (160) (94) (115) (167) (294) (250)
Other Investments (108) 80 (0) (61) 123 104
Investing Cash Flow (269) (14) (116) (228) (171) (146)
Proceeds (Payment) Debts (173) (409) (341) 10 (220) (117)
Payment of Cash Dividends (79) (51) (87) (111) (103) (96)
Others 77 (313) (149) 15 (143) (58)
Financing Cash Flow (175) (773) (577) (86) (466) (271)
Change in Cash 170 (115) 70 46 (83) 83

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Earnings Analysis I FGEN: FY23 recurring earnings in line with forecast Friday, 12 April 2024

Key Ratios Investment Thesis

FY17 FY18 FY19 FY20 FY21 FY22 Stable core operations
GPM (%) - - - - - - FGEN is one of the largest power
EBITDA Margin (%) 38.3% 37.6% 38.1% 44.4% 34.0% 28.6% generation companies in the country with
OPM (%) 25.9% 27.0% 27.7% 31.7% 23.7% 20.4% a consolidated capacity of 3,477MW and a
NPM (%) 7.8% 11.1% 13.6% 15.0% 11.9% 9.8%
beneficial capacity of 2,766MW. FGEN has
Times Interest Earned (X) 3.5 3.5 3.5 3.5 3.5 3.5
Current Ratio (X) 1.8 1.7 1.7 1.7 1.5 1.7 very stable core operations given that its
Net D/E Ratio (X) 0.7 0.7 0.5 0.4 0.3 0.3 gas plants have attached long term take-
Days Receivable 75.8 68.8 73.2 88.4 65.8 68.6 or-pay contracts for all of their generation
Asset T/O (%) 31.2% 39.5% 41.6% 32.2% 39.4% 49.8% capacities. More than 80%% of EDC’s
ROAE (%) 2.5% 4.2% 5.8% 5.1% 4.6% 4.8% capacity is also allotted for long-term take-
or-pay contracts.
Major Corporate Developments (5-Years)
FGEN is also the only clean energy play
FGEN buys out 40% stake of BG in Sta. Rita and San Lorenzo for in the PSE after its subsidiary EDC was
05/01/2012
US$360Mil delisted.

FGEN sells 10.6% of EDC to Macquarie Infrastructure 08/01/2017

The projected power shortage in 2023
improves the feasibility of its LNG
EDC delisted from PSE 11/01/2018
regasification project which will enable its
gas plants to remain competitive after the
depletion of the Malampaya gas field.

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Earnings Analysis I FGEN: FY23 recurring earnings in line with forecast Friday, 12 April 2024

Valuation Methodology
Nav Computation
Value (PhpMil) Value (Php/Sh) % of GAV % of NAV Valuation Methodology
Sta. Rita and San Lorenzo 66,661 18.2 50.9% 57.8% DCF
San Gabriel and Avion 19,208 5.2 14.7% 16.6% DCF
EDC 61,648 16.8 47.0% 53.4% DCF
Future investment on regasification facility -16,430 -4.5 -12.5% -14.2%
Total 131,087 35.8 100.0% 113.6%
Less: Net Debt 15,710 4.3
Equity Value 115,377 31.5
Less: Holding Company Discount 0 0.0
FV Estimate 115,377 31.5

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Earnings Analysis I FGEN: FY23 recurring earnings in line with forecast Friday, 12 April 2024

Important Rating Definitions COL Research Team

BUY April Lynn Tan, CFA

Stocks that have a BUY rating have attractive fundamentals and valuations based on our First Vice President & Chief Equity Strategist
analysis. We expect the share price to outperform the market in the next six to 12 months. april.tan@colfinancial.com

HOLD Charles William Ang, CFA

Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive AVP & Head of Research
charles.ang@colfinancial.com
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
George Ching
line or underperform in the market in the next six to twelve months.
Senior Research Manager
george.ching@colfinancial.com
SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the Richard Laneda, CFA
share price to underperform in the next six to12 months. Senior Research Manager
richard.laneda@colfinancial.com

Important Disclaimer Denise Joaquin

Research Analyst
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment denise.joaquin@colfinancial.com
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 Charmaine Co
its accuracy and said information may be incomplete or condensed. All opinions and estimates Research Analyst
charmaine.co@colfinancial.com
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
Paolo Miguel Manansala
is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial
Research Analyst
and/or its employees not involved in the preparation of this report may have investments in
paolo.manansala@colfinancial.com
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