November 13, 2014

EDC sustains strong growth in 3Q14

Energy Development Corp (EDC) yesterday disclosed 9M14 consolidated recurring net income of P7.8b, up 34% from P5.8b in the same period last year. On a quarterly basis, we estimate 3Q14 recurring profits at P2.39b, up 49% YoY but down 25% QoQ. While the detailed results are not yet available, we believe the decline in sequential profits might have been due to lower volume sales brought on by plant outages at the BacMan geothermal power plant.

To recall, BacMan Unit 1 (55-MW) and Unit 3 (20-MW) were down for more than a month due to damages sustained by the power plant’s cooling towers from the onslaught of Typhoon Glenda in mid-July. BacMan Unit 2 (55-MW) also went offline due to damages but downtime was extended by another month (until end-September) to complete the installation of the brand new Toshiba steam turbine rotor unit and diaphragms.

Our take: The results nonetheless show that EDC is on track to meet our full-year forecasts, with 9M14 earnings already representing 81% of our full-year recurring net income estimate of P9.56b. Except for last year (which we excluded because of the impact of Typhoon Yolanda), 9M earnings have accounted for 77%-88% of EDC’s full year core earnings in recent years.

To meet our full-year target, earnings will have to reach P1.79b in 4Q14. This is more than double last year’s earnings of P740m (which was impacted by plant outages due to Typhoon Yolanda in November 2013) but lower than 3Q14. Earnings typically slow down in 4Q due to higher year-end costs (eg. salaries and bonuses) and accounting adjustments. This year’s increase, however, should be mitigated by higher revenues with the full operations of BacMan. We expect to get more details on the results from this afternoon’s analysts’ briefing. For now, we maintain our Buy rating on EDC with a target price of P9.10/sh. – WealthSec