Stocks in Focus: WED 12 SEP 2018

FGEN: Increasing estimates on improving

earnings outlook
Due to the ERC’s approval of San Gabriel’s contract with MER and EDC’s final tender offer, we are (AS OF SEP 11, 2018)
increasing our 2019E EPS forecast for FGEN by 14.2% to Php2.69/sh, and our 2020E EPS forecast by INDICES
13.5% to Php2.76/sh. We are also raising our FV estimate on FGEN by 8.7% to Php28.8/sh. Close Points % YTD%
PSEi 7,518.01 -78.14 -1.03 -12.16
Increasing San Gabriel estimates on ERC’s PSA approval. In June of this year, the ERC approved All Shares 4,597.28 -43.43 -0.94 -7.87
the power supply contract between Meralco and FGEN’s San Gabriel plant. This was a positive Financials 1,692.92 -12.85 -0.75 -24.09
surprise as we only expected FGEN to fully contract the San Gabriel’s capacity in 2020 (with Holding Firms 7,396.41 -136.12 -1.81 -14.16
smaller contracts through the Retail Electricity Supply market). Based on previous disclosures, Industrial 11,227.99 -91.04 -0.80 -0.03
Mining & Oil 9,447.46 -212.43 -2.20 -17.87
the term of the contract is six years, with fuel pass through provision, 87.7% capacity factor, and
Property 3,728.90 -13.93 -0.37 -6.27
tariff price of Php3.77/kwh.
Services 1,510.32 -7.37 -0.49 -6.76

The San Gabriel power supply contract improved FGEN’s overall earnings outlook as it assures
Dow Jones 25,971.06 113.99 0.44 5.06
that the plant will be profitable without having to rely on the wholesale electricity spot market S&P 500 2,887.89 10.76 0.37 8.01
(WESM) where prices can be volatile. While the contract price of Php3.77/kwh is 14% lower than Nasdaq 7,972.47 48.31 0.61 15.49
our previous estimate, the earlier than expected approval of the contract and higher capacity
factor assumption (45% previously) is a net positive for FGEN. We are raising our 2018E and
2019E net income contribution forecast for the San Gabriel by 67.5% and 23.3% to Php1.5Bil. INDEX GAINERS
Ticker Company Price %
RRHI Robinsons Retail Hldgs Inc 80.95 1.70
Other News: SECB Security Bank Corp 193.00 1.53
AP Aboitiz Power Corp 36.60 0.97
Economy: Exports expand 0.3% y/y in July 2018, within consensus expectations GLO Globe Telecom Inc 2120.00 0.76
MER Manila Electric Company 380.00 0.26
Economy: Imports grow 31.6% y/y in July 2018, exceeding consensus estimates

INDEX LOSERS
Market Summary: Ticker Company Price %
JGS JG Summit Hldgs Inc 54.60 -4.80
DMC DMCI Hldgs Inc 12.20 -3.79
The PSEi declined on Tuesday, losing 78.14 points or 1.03% to close at 7,518.01.
MPI Metro Pacific Investments Corp
5.15 -3.74
AEV Aboitiz Equity Ventures Inc 51.00 -2.86
Index decliners led gainers 21 to 5, while 4 issues remained unchanged. Meanwhile, all sectors
URC Universal Robina Corp 149.00 -2.61
ended in red, with Mining & Oil (-2.20%) leading the decliners. Significant index decliners were
JGS (-4.80%), DMC (-3.79%), MPI (-3.74%), AEV (-2.86%), and URC (-2.61%). On the other hand,
significant index gainers were RRHI (+1.70%), SECB (+1.53%), and AP (+0.97%). TOP 5 MOST ACTIVE STOCKS
Ticker Company Turnover
Value turnover decreased to Php5.4Bil from Php7.4Bil in the previous session. Meanwhile, BPI Bank of the Phil Islands 311,221,700
foreigners continued to be net sellers, disposing Php577Mil worth of shares. ALI Ayala Land Inc 295,928,500
AC Ayala Corporation 245,350,800
MBT Metrobank 238,848,000
URC Universal Robina Corp 218,219,800

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 12 SEP 2018

Stocks in Focus:

GEORGE CHING FGEN: Increasing estimates on improving earnings

SENIOR RESEARCH MANAGER
outlook
FIRST GEN CORPORATION
BUY Due to the ERC’s approval of San Gabriel’s contract with MER and EDC’s final tender offer, we are
PHP28.80 increasing our 2019E EPS forecast for FGEN by 14.2% to Php2.69/sh, and our 2020E EPS forecast by
13.5% to Php2.76/sh. We are also raising our FV estimate on FGEN by 8.7% to Php28.8/sh.

Increasing San Gabriel estimates on ERC’s PSA approval. In June of this year, the ERC
approved the power supply contract between Meralco and FGEN’s San Gabriel plant. This was
a positive surprise as we only expected FGEN to fully contract the San Gabriel’s capacity in
2020 (with smaller contracts through the Retail Electricity Supply market). Based on previous
disclosures, the term of the contract is six years, with fuel pass through provision, 87.7%
capacity factor, and tariff price of Php3.77/kwh.

The San Gabriel power supply contract improved FGEN’s overall earnings outlook as it assures
that the plant will be profitable without having to rely on the wholesale electricity spot market
(WESM) where prices can be volatile. While the contract price of Php3.77/kwh is 14% lower than
our previous estimate, the earlier than expected approval of the contract and higher capacity
factor assumption (45% previously) is a net positive for FGEN. We are raising our 2018E and
2019E net income contribution forecast for the San Gabriel by 67.5% and 23.3% to Php1.5Bil.

EDC tender offer, delisting to benefit FGEN. On September 25, EDC will be conducting a
final tender offer for the remaining shares held by minority shareholders equivalent to 10.9%
of EDC’s total outstanding shares. Subsequently, EDC will be delisted from the PSE. We believe
that the tender offer will enhance both the value of and investor sentiment towards FGEN.
Given that the tender offer is priced at a 15.6% discount to our FV estimate for EDC (Php8.59/
sh), the value of FGEN’s 46.7% stake in EDC post tender offer is US$1.034Bil based on our
estimates, 6.3% higher compared to before the tender offer.

Assuming the tender offer will likely be partially financed through additional borrowings by
EDC, we estimate that this would still increase EDC’s 2019E net income contribution to FGEN by
5.2% to Php4.1Bil. Furthermore, we believe that the tender offer could also trigger a potential
re-rating for FGEN as buying FGEN would now be the only way for investors to own EDC, the
lone pure renewable energy producer company in the country and the largest geothermal
power generation company in the world.

COL Financial Group, Inc. 2

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 12 SEP 2018

Final plans for investment in regasification facility in 2019. The gas sales and purchase
agreement between FGEN’s gas plants and Spex (Malampaya gas seller) will end in 2024. To
ensure that FGEN’s existing gas plants would be able to continue operating beyond 2024, FGEN
needs to build an LNG regasification terminal that will allow the plants to utilize imported LNG
as fuel. The estimated construction period for the regasification terminal is five years, while
the capex requirement ranges from US$250Mil to US$1.2Bil, depending on the capacity of
the facility. In addition to choosing the right capacity for the regasification facility, FGEN is
also currently in the process of selecting the most suitable partner for the project. More than
just providing the funding for the project, management said the ideal partner should be able
to enhance other technical aspects of the project (such as ability to secure gas contracts, or
marketing the offtake of the power plants). Management said that the final decision on the
project will have to be made in 2019.

Raising estimates, maintaining BUY rating. Due to the ERC’s approval of San Gabriel’s
contract with MER and EDC’s final tender offer, we are increasing our 2019E EPS forecast for
FGEN by 14.2% to Php2.69/sh, and our 2020E EPS forecast by 13.5% to Php2.76/sh. We are
also raising our FV estimate on FGEN by 8.7% to Php28.8/sh. We believe that the approval of
the San Gabriel contract and the delisting of EDC will improve investor sentiment in the near
term. Note that FGEN’s share price has declined 23.3% in the past 12 months, underperforming
the PSEi’s performance during the same period (-7.8%). FGEN is trading at a 2019E P/E of 6X, a
discount to the industry average of 12X. Based on FGEN’s market price of Php16.16/sh, upside
to our FV estimate is significant at 78%.

Other News:

RESEARCH ANALYSTS Economy: Exports expand 0.3% y/y in July 2018, within consensus
ANDY DELA CRUZ expectations
JOHN MARTIN LUCIANO
FRANCES ROLFA NICOLAS Preliminary data from the PSA showed that exports expanded by 0.3% y/y in July 2018 to
JUSTIN RICHMOND CHENG
US$5.9Bil. This is close to the 1.8% growth expected by consensus. The flattish growth was
ADRIAN ALEXANDER YU
amidst a decrease in four out of the top 10 exported commodities for the month led by Ignition
Wiring Set and Other Wiring Sets (-18.8%). Other commodities that recorded lower exports
y/y were Machinery and Transport Equipment (-14.4%), Other Manufactured Goods (-7.3%),
and Cathodes and Sections of Cathodes (-0.1%). Exports of electronic products continued to
account for majority of the total bill at 56.0%. Exports of electronic products grew 5.2% y/y
in July, however, this was not enough to offset the decline in exports of other commodities.
Top markets for exports during the period were USA (16.6%), Hong Kong (14.7%), and Japan
(13.7%). (Source: PSA)

COL Financial Group, Inc. 3

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 12 SEP 2018

Economy: Imports grow 31.6% y/y in July 2018, exceeding consensus

estimates

Based on preliminary data from the BSP, imported goods in July 2018 grew 31.6% y/y to
US$9.4Bil. Growth of imports exceeded the 26.2% growth expectation of consensus. The
increase in imports was due to the positive growth in nine out of the top ten major commodities
for the month led by Iron and Steel (+135.5%). Imports for electronic products grew 43.2% y/y,
and this accounted for the biggest share of the total import bill at 24.8%. Top markets for
imports during the period were China (19.8%), Korea (10.0%), and Japan (9.7%).

With exports expanding by 0.3% y/y and imports growing by 31.6% y/y, the country continued
to post a wider trade deficit of US$3.6Bil in July 2018 versus the US$1.3Bil deficit in the same
month last year. For the first seven months of 2018, the trade deficit stood at US$22.5Bil, higher
compared to the US$13.1Bil deficit over the comparable period last year. (source: PSA)

Changes in Shareholdings
Acquired or Price per
Stock Volume Person (Designation)
Disposed share
Edward S. Go
MPI 1,000,000 A 4.60
(Independent Director)
Anthony T. Huang
SSI 25,700 A 2.12
(Director and President)
Ma. Margarita A. Atienza
SSI 1,750 A 2.12
(Vice President)
Elizabeth T. Quiambao
SSI 11,950 A 2.12
(Executive Vice President)
Rosellina J. Escoto
SSI 2,050 A 2.12
(Vice President)
Source: PSE

COL Financial Group, Inc. 4

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

WED 12 SEP 2018

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

ANDY DELA CRUZ JOHN MARTIN LUCIANO FRANCES ROLFA NICOLAS

SENIOR RESEARCH ANALYST SENIOR RESEARCH ANALYST RESEARCH ANALYST
andy.delacruz@colfinancial.com john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com

JUSTIN RICHMOND CHENG ADRIAN ALEXANDER YU

RESEARCH ANALYST RESEARCH ANALYST
justin.cheng@colfinancial.com adrian.yu@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. 6