August 18, 2015

Energy Development Corp (EDC)'s 2Q15 earnings weighed down by higher operating costs

Energy Development Corp (EDC) reported a 14% YoY drop in 1H15 recurring net income, a reversal from the 14% growth posted in 1Q15 as 2Q15 earnings declined 31%. EDC turned in a recurring net profit of P2.19b in 2Q15, bringing 1H15 earnings to P4.66b.

Revenues were within our expectations (49% of full-year estimate) but cash operating expenses exceeded forecasts (52% of target). As a result, EBITDA and recurring profit fell below expectations (46% and 45% of our full-year forecasts, respectively) with EBITDA margins down to 57.8% in 1H15, lagging last year’s 64.4% and 1Q15’s 63.9% as well as our full-year estimate of 60.7%.

Our take: With expenses accelerating faster than expected, we will review our earnings estimates for 2015 to factor in the higher cash operating costs. We may also need to adjust our revenues for 2016 to take into account several months of downtime for Tongonan. Meanwhile, construction work on the Laoag-San Esteban transmission line is progressing and is expected to be completed in 4Q15.

Once completed, this should resolve the capacity curtailment at EDC’s 150MW Burgos wind farm, which presently, is operating at just ~50% of its potential capacity. If resolved by 3Q15, EDC expects profits from Burgos to increase by P0.5b in 4Q15. This has already been factored into our estimates. - WealthSec