September 17, 2015

First unit of AP's Mindanao power plant declared fully operational

Aboitiz Power Corp (AP) announced yesterday that the first of two 150-MW units of Therma South Inc’s (TSI) coal-fired power plant is now fully operational. The power plant will supply power to more than 20 customers (electric cooperatives and distribution utilities) in Mindanao. The facility was supposed to reach commercial operations last end-June but was delayed because of unstable power in the grid.

The area has been experiencing power supply shortages due to the reduction in the output of the Agus and Pulangi hydroelectric complexes as water levels are down. The commissioning of the second 150-MW unit, which was delayed by approximately 10 months due to damages from a fire last April, remains on track to begin commercial operations in early 2016.

Our take: The successful completion of TSI’s Mindanao power plant should provide incremental earnings growth this year and next for AP, and help reverse almost three years of earnings decline.

AP’s consolidated earnings have fallen in the last 10 quarters, weighed down mainly by higher tax provisioning (expiration of tax holidays), lower ancillary revenues (lower prices) and higher steam cost (expiry of steam contract). In 1H15, core earnings declined by 5% YoY as 2Q15 core profits fell 9%. Barring further delays, we estimate TSIcould provide at least P2b in incremental profits to AP next year. – WealthSec