August 10, 2014

SCC 1H14 earnings hit by lower from power unit

Semirara Mining Corporation (SCC), in a one page disclosure, said consolidated net income dropped 26% YoY to P2.65b in 1H14 from PHP3.58b last year. Net of eliminations, SCC’s coal mining business contributed P2.74b. Coal production increased 59% to 5.1 MMT, bringing down cost of coal sold per unit by 23%, while coal shipment is 32% higher with sales of 4.4M MT.

Meanwhile, power generation subsidiary Sem-Calaca Power Corporation (Sem-Calaca) recorded a net loss of P54m while Southwest Luzon Power Corporation, the project company for the group’s 300-MW power plant expansion, recorded non-capitalizable pre-operating expenses amounting to P38m. On a quarterly basis, we estimate coal mining contributed net profits of P1.68b, a 200% increase from last year’s P556m. Sequentially, earnings improved more by than 50%. Year-to-date, 1H14 profits grew by more than six-fold from last year’s earnings of P426m.

Coal mining operations in 2013 were hit by lower production resulting from the temporary suspension of operations following the 14 February accident at the Panian pit. We estimate SEM-Calaca to have posted losses of P1.08b in 2Q14, a reversal from net earnings of PHP2.01b in 2Q13. Margins were hit by the higher cost of purchased power cost as SEM-Calaca’s Unit 2 was down for maintenance. Since bulk of Sem-Calaca’s sales is covered by bilateral sales to Manila Electric Co (MER), the company had to purchase replacement power at the spot market as its outage allowance with MER was fully consumed at the start of 2Q14.

Our take: Power generation profits should recover in 2H14 with Unit 2 now back on line since mid-June, although operations remain unreliable with the plant experiencing several days of downtime in 3Q14. With this, it is unlikely that SCC will meet this year’s consensus forecast of P7.96b and could potentially end the year with lower earnings compared with 2013’s PHP7.52b. – WealthSec