Taking Advantage of Mindanao Power Crisis (PSE: ACR)

Alsons Consolidated Resources, Inc. (ACR) participates in power generation in Mindanao through their 60% interest in Conal Holdings Corporation (Conal) and 20% direct interest in Alsing Power Holdings, Inc. (Alsing). Below is the illustration of ACR’s power interests:

ACR1

ACR’s current power businesses will end their contract in 2015 and 2016 but ACR has more than enough to cover the decline in revenues when the time comes.

ACR2

Among the power generation projects, MPC’s Illigan Diesel Power Plant will be the earliest to contribute in the revenues of ACR. Illigan Diesel Power Plant operated at an initial capacity of 10 MW with an objective of reaching 98 MW capacity by September. [1] In August the 200 MW coal-fired power plant, STEAG State Power Inc., will be in maintenance until the end of the year. [2] This will cause a deficit of 100 MW in the Mindanao power grid and will force diesel-fired power plants like Aboitiz’s Therma Marine and ACR’s Illigan Diesel Power Plant to operate at 24 hours.

Valuation

General assumptions:

Discount factor used is 5.6% or 8% net of 30% tax or [8% * 70%]. 8% is the highest interest rate among ACR’s debt obligation. Earnings are assumed to be the cash flow of the company as I do not expect bad debts in the electricity operations. I do not believe in discounting a company in perpetuity thus the ACR’s power plant operations are only discounted for not more than 10 years.

Illigan Power Plant

I assumed Illigan Power Plant to operate 10 hours per day from April to August at 10 MW capacity and 24 hours from September to December at 78.4 MW (98 MW x 80% load factor). For 2014 to 2015 I assumed Illigan Power Plant to operate 16 hours per day in 10 months at 78.4 MW. In the next eight years I expect Illigan Power Plant to operate 8 hours per day in 10 months at 78.4 MW.

Below is my calculation:

ACR3

WMPC and SPPC

WMPC and SPPC operate 100 MW in Zamboanga and 50 MW in Saranggani respectively under an 18-year Build-Operate-Own contract with National Power Corporation (NPC).Under the Energy Conversion Agreement with NPC, WMPC and SPPC will sell all their outputs to NPC for a minimum rate. [3]

ACR4

Sarangani Energy Corporaiton

Sarangani Energy Corporaiton (SEC) started the construction of their 210 MW power plant in Maasim, Sarangani on December 28, 2012. I expect the power plant to operate at base load capacity or at 24 hours per day for 10 months at a rate of P5/ kWh. The power rate is based on the power rate of Aboitiz’s coal-fired power plant, Cebu Energy which averages at P5.72 per kWh. [4]

ACR5

To sum it all up, the value of ACR’s power business is as follows:

ACR6

With ACR at P1.22, ACR is currently trading at 45% discount of the total value of the Company’s power business. The real estate business is just a bonus.

Sources:

  1. Iligan gets new power plant in time for May 13 elections, http://manilastandardtoday.com/2013/05/08/iligan-gets-new-power-plant-in-time-for-may-13-elections/
  2. Mindanao power spot market opens in August for pre-trial, http://www.bworldonline.com/content.php?section=Economy&title=Mindanao-power-spot-market-opens-in-August-for-pre-trial&id=72031
  3. ACR SEC 17-A 2012, Note 35, p. 128, http://www.pse.com.ph/resource/corpt/2013/ACR_A17A_Dec2012.pdf
  4. AP SEC 17-A 2012, GENERATION OF ELECTRICITY, p. 9, http://www.pse.com.ph/resource/corpt/2013/AP_17A_Dec2012.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

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8 thoughts on “Taking Advantage of Mindanao Power Crisis (PSE: ACR)

  1. Pingback: Taking Advantage of Mindanao Power Crisis (PSE: ACR) | Spyfrat's Call

  2. Hello Sir ! I’m a fundamental kind of guy and I see tremendous value in ACR…why do you think people are not yet realizing the true value of ACR…i’m thinking to buy ACR from now on until the Coal plants go live…

    Thanks in Advance po

    Reply
    • Hello,

      There are many reason for a stock to be undervalued:

      One is the liquidity of the shares. There are only few ACR shares available in the market that one huge buyer will be able to push the price of the stock up or a huge investor will not be able to sell its shares right away because there are few ready buyers.

      Another is that the market find the future prospect of the stock uncertain.

      Lastly, we must not forget that possibility that we might be wrong in our analysis so keep an open mind. 🙂

      Renzie

      Reply
      • Thanks Sir ! I’m surprise on your non-bias opinion, wherein it seems you are buying up ACR on your portfolio.

        But I’ll surely put ACR on my watchlist…this has the makings of a dark horse

        Again thanks for your quick reply and honest one 🙂

        Btw, found an article about RWM…interesting to see your input Sir about MCP or the impact of Gaming Industry in our Country.

  3. thanks for the suggestions… I was busy this whole month completing my mba requirements which i just completed today. I’ll post few relevant articles next week (IPO’s) and will probably be on hiatus again in preparation for our comprehensive exam w/c is on Nov 6~8. Beyond that date will be normal again. 🙂

    Reply
  4. Sir Renz, since ACR bought the remaining percentage of CONAL…is it possible that you could translate how much this will impact the income of ACR ? Thanks in advance

    Reply
    • To my memeory the effect is minimal it would drive the valuation from 2.22 to 2.54. Check ACR’s corporate structure, u’ll notice that only 2 earnings assets are under Conal w/c are WMPC and SPPC.

      Reply
      • Thank Sir Renz, this is really helpful on my monthly purchase of ACR stock. I just hope that someday I might reap my harvest.

        Also, thanks for your continous detailed insights…this really helps people like me who is pursuing financial freedom 🙂

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