August 14, 2014

FGEN core earnings up 25% in 2Q14

First Gen Corporation (First Gen) yesterday disclosed itposted a 32% YoY hike in 1H14 reported net income to US$102.6m. There were less one-off expenses booked this year (consisting mostly of forex losses), without which recurring net income would been down by 3% to US$90.3m Quarterly recurring earnings were higher in 2Q14, up 25% to US$48m, but were offset by the 23% or US$12.4m profit drop in 1Q14.

50%-owned subsidiary Energy Development Corp (EDC) was the main contributor with net profits of US$75.9m in 1H14, up 44% and represents 60% of FGEN’s total equitized earnings. In terms of revenues, however, FGEN’s gas plants – referred to as First Gas – account for the bulk with revenues of US$298m, equivalent to 60% of the total. First Gas contributed net earnings of US$58.4, a 37% YoY increase.

On a quarterly basis, EDC contributed consolidated net profits of US$46.8m in 2Q14, a three-fold increase from last year’s US$14.1m on the back of a 13% rise in revenues to US$179m. Profits were also boosted by one-off items, consisting mainly of unrealized forex gains and proceeds from insurance claims compared with unrealized forex losses in 1Q13. On a stand-alone basis, EDC reported a 95% rise in recurring net income to P3.19b in 2Q14, driven mainly by the higher revenue contribution from BacMan.

First Gas turned in higher earnings of US$30.8m in 2Q14, up 74% YoY and 11% QoQ. Recall that last year’s earnings were weighed down by lower capacity generation as a result of the temporary shutdown of one of San Lorenzo’s 250 MW units from May to December 2013. The year’s earnings were also buoyed by one-offs, consisting of proceeds from insurance claims, forex gains and benefit on deferred income taxes.

At the parent level, we estimate expenses to have increased by almost 80% to around US$18m. There were fresh borrowings booked in 2H13, thereby resulting in higher interest charges this year. FGEN also booked additional expenses related to the development of the 97 MW Avion and the 414 MW San Gabriel natural gas-fired power plants, which are targeted for completion in 2015 and 2016, respectively.

Our take: Relative to full year estimates, FGEN’s 1H14 recurring earnings account for 60% of consensus forecast. The company’s existing gas plant business should continue to perform well for the rest of year with the re-commissioning of one of Santa Rita’s 250 MW units in July, which was offline since February of this year.

Subsidiary EDC should also do well in the next several quarters once the company’s new power projects, such as the 150 MW Burgos Wind farm come on stream in 4Q14/1Q15. On the cost side, however, we expect interest costs and pre-development expenses to rise, as construction of FGEN’s gas plant expansion is underway. – WealthSec