Forecasting ACR’s 2013 and 2014 Earnings

Alsons Consolidated Resources, Inc. (PSE: ACR, the “Company”) is different from stocks which I consider cheap, at P1.40 ACR is trading at 17.5x PE ratio using 2012 earnings. A purchase of stock with high PE ratio is justified if there is substantial growth in expected future earnings. For example, stock A trades at P40 with earnings per share (EPS) of P1 or a PE ratio of 40x (P40 / P1). Assuming that by next year stock A’s EPS will jump to P30, then stock A is a bargain even at P40 because by next year stock A will be trading at 1.33x PE ratio (purchase price of P40 / EPS next year of P30).

ACR’s attraction is its move to concentrate its earnings source to power generation in Mindanao. ACR currently have 100 MW and 55 MW capacities through Western Mindanao Power Corporation (WMPC) and Southern Philippines Power Corporation (SPPC). ACR announced in a press release on March 22, 2013 the takeover of 98 MW Illigan Diesel Power Plant. [1] On July 9, 2013, ACR announced the buyout of the remainder 40% interest in Conal[2] hiking its effective interest in WMPC and SPPC to 55% from 37.40%. ACR expects phase one (105 MW) of its 75%-owned coal-fired power plant in Maasim, Sarangani, Sarangani Energy Corporation (SEC) to operate commercially in September 2015 and phase two (105 MW) to operate in 2016. [3] Other than SEC, ACR is in the advance stages of development for the 105 MW San Ramon Power, Inc. (SRPI) in Zamboanga. The completion of the construction is expected to be delayed for 6 to 12 months or a push back of the completion from 2016 to 2017-2018. [4] All in all, ACR expects a surge of its power capacity from 155 MW to 463 MW by 2016-2018 which is 25% of Mindanao’s projected peak demand of 1,829 in 2016. [5]

However, what matters most to investors are: how much will it contribute to ACR’s earnings and what should be the valuation?

For 2013, we should consider the following events:

  1. Increase of ACR’s interest in Conal to 100% from 60%.
  2. Takeover of 98 MW Illigan Diesel Power Plant.

Illigan Diesel Power Plant is 100% owned by ACR through Mapalad Power Corporation (MPC) while WMPC and SPPC initially contributes 37.40% earnings and was later increased to 55% with the 100% control of Conal in July. For conservatism, let’s assume that the increase of interest in Conal will have no effect in ACR’s earnings. In order to calculate for the estimated earnings contribution of MPC, 1) revenue contribution must be calculated and 2) applied with applicable profit margin.

Below is the calculation of MPC’s actual and estimated revenue contribution:

ACR1

Note that MPC rehabilitated the 98 MW diesel power plant in Illigan. The power plant started operating at 10M-26MW for March to June which explains the small revenues it generated in the second quarter. It gradually increased capacity and was finally fully rehabilitated at 98MW capacity in September 2013. Thus, it is very conservative to assume that MPC will generate only P591 million revenues in the fourth quarter given that MPC will operate at 98MW capacity in the last three months of 2013.

In determining the applicable profit margin, looking at historical profit margin will be helpful in in order to determine the appropriate figure:

ACR2 ACR3

The sudden dip of ACR’s profit margin in the 3rd quarter of 2013 is alarming. It may mean inefficiency in operating the Illigan power plant which is likely because the power plant is already old. However, according to the management, the surge in cost of goods and services was caused by the increase in fuel usage of MPC but was pass-on to its customers. [6] However, should the fuel costs be “pass-on” ACR’s profit margin should have not declined from 40% in the 2nd quarter to only 16% in the 3rd quarter. Therefore, we can say that costs incurred in rehabilitating MPC’s Illigan power plant were also included in the cost of goods and services. For conservatism, let’s assume a profit margin of 20% for Illigan power plant.

Below is the calculation of estimated earnings of ACR’s in 2013:

ACR4

Based on our calculation above, we can expect ACR to report earnings attributable to parent of P582 million which is a little higher than P508 million reported in 2012.

How about for 2014? For 2014, let’s consider the increase in ownership in Conal.

 ACR5

For 2014, we can expect earnings attributable to parent of P930 million or an EPS of .148. With an estimated EPS of .148 for 2014, ACR is trading at 9.45x PE ratio.

One more thing to consider

ACR’s sale of 60% interest in Lima Land, Inc. for 1.36 billion [7] appears to be at a huge gain. Below is my calculation based on the figures provided in the 3rd quarter of 2013:

ACR6

Considering one-time gain, we can expect ACR to report earnings in 2013 attributable to parents of P1,081 million. (Warning: Make sure not to use PE multiple valuation on earnings that includes one-time gains.)

Using conservative assumptions in estimating forecasted earnings, in my opinion, ACR is an attractive investment for those willing to hold for 2-5 years.

Sources:

  1. Press Release: “Alsons Consolidated 2012 Profit up 12%, as it takes over Iligan Diesel Power Plant”; Board approval of cash dividend declaration, Annual Stockholders’ Meeting on May 24, 2013 with record date of April 15, 2013, http://goo.gl/r2vhM0
  2. Press Statement: “Alsons Consolidated Resources, Inc. Acquires EGCO stake in Conal Holdings Corporation”, http://goo.gl/4bk66r
  3. Press Release: “Alsons Power’s 13 Billion Peso Sarangani Energy Plant to Operate First 105 Mega Watt Phase by 2015”, http://goo.gl/lnwKYT
  4. Clarification of news article: “Alson’s Zamboanga City power plant faces delay”, http://goo.gl/piKaDV
  5. Press Statement: “Alsons Power current capacity to more than double in 3 years – will supply over 1/4 of Projected Mindanao Peak Demand by 2016”,http://goo.gl/7Y4bHK
  6. SEC 17-Q September 2013, Management’s Discussion and Analysis of Results of Operations and Financial Condition, p.29
  7. Signing of Share Purchase Agreement by Aboitiz Land, Inc. with Alsons Land Corporation re: acquisition of 60% interest in Lima Land Inc.,http://goo.gl/t9Syy3

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.

Disclosure: I own ACR shares

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.

Learning from Mistakes, PH to Sustain 6% growth, Stock thoughts: ACR, LTG, MEG

Learning from Mistakes

Do you often hear these words?

“I should have bought stock X a year ago and I should be enjoying xx% gain now!”

“I should have followed my friend and I could have gained a lot!”

Do not fall into this type of thinking.

Thinking shudda-cudda-wudda will not help you become a better investor.

Look forward. Sharpen your saw even more. 🙂

 

PH to Sustain 6% growth

It is exciting to know that they expect the country to grow 6% until 2016:

http://www.businessmirror.com.ph/index.php/news/top-news/11871-phl-to-sustain-6-growth-adb

 

Learn more about the breakdown of the GDP here:

https://fundamentalenthusiast.wordpress.com/2013/02/13/my-common-sense-approach-in-interpreting-the-gdp/

 

ACR

ACR reminds me of TA. I’ll take note of this. 🙂

Looking for partners to finance 400 MW coal-fired power plant:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2820_ACR.pdf

 

LTG

LTG to declare follow-on offering at 18~20.50:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2832_LTG.pdf

More on LTG:

https://fundamentalenthusiast.wordpress.com/2012/10/28/making-sense-on-tdy-consolidation/

 

MEG

I appreciate MEG’s move to raise funds:

http://www.interaksyon.com/business/59108/megaworld-announces-return-to-overseas-debt-market

A good way to exploit the low interest rates. 🙂

Profiling: Alsons Consolidated Resources, Inc. (PSE: ACR)

Alsons Consolidated Resources, Inc (ACR, the Company) has major investments in power generation and property development.

Power Generation

ACR’s interest in power generation is through Conal Holdings Corporation (Conal) and Alsing Power Holdings, Inc. (Alsing).

ACR1

WMPC operates a 100 MW diesel-fired electricity generating facility in Zamboanga City under an 18-year “Build-Operate-Own (BOO)” agreement with National Power Corporation (NPC) until December 2015. SPPC operates a 55 MW diesel-fired electricity generating facility located in Alabel, Sarangani Province, also under a BOO agreement with NPC for 18 years until May 2016.

The Company through SEC is presently developing 200 MW Coal-Fired power plant in Maasim, Sarangani which is expected to be in commercial operations in 2015. ACR is also developing a 100 MW coal-fired power plant in Zamboanga City through a subsidiary, SRPI.

On May 18, 2012, ACR increased the authorized capital stock of SEC from P5 million to P4.25 billion. On July 6, 2012, ACR infused P265 million to SEC representing payment in the initial subscription. As of November 13, 2012, ACR is in the process of finalizing local banks for a P9 billion project loan to finance the construction of SEC.

The Company, through MPC, is also working to acquire from the Iligan City government the 102 MW bunker-fired Iligan Diesel Power Plants I and II (IDPP).

Property and Utility

ACR2

ACR is engaged in property development through its subsidiary, Alsons Land Corporation (ALC). ALC has interests in Eagle Ridge Golf & Residential Estate (Eagle Ridge) and LiMA Technology Center (LTC).

Eagle Ridge is a joint venture project with Sta. Lucia Realty Development, Inc. (SLRDI). Eagle Ridge is a 700 ha project located in Gen. Trias, Cavite and the first 72-hole golf course development with a residential component in the Country. It is the only golf club in the Philippines with four completed signature golf courses and three fully operational clubhouses.

LTC is a 440 ha industrial estate located between the Lipa City and Municipality of Malvar in the Province of Batangas. The techno-park is a joint-venture with Marubeni Corporation of Japan under the corporation LLI.

To maximize the use of its landholdings, ALC launced “Campo Verde,” a joint venture with Sunfields Realty Development, Inc. The 11 ha property is located within LTC and an hour away Makati via the South Luzon Expressway.

To ensure the reliability of power and the quality and availability of water supply and wastewater treatment at LTC, LLI organized LUC and LWC.

Other Investments

ACR mining projects are pursued by a wholly owned subsidiary ACR Mining Corporation (ACRMC). ACRMC has a mining claim covered by MPSA 094-97-XL for 25 years or until 2022. Detailed work revealed an estimated resource of 2.7 million tons containing 2.8 g/t gold, 26 g/t silver, 0.09% copper, 0.85% lead, and 1.58% zinc.

On December 23, 2010, ACR purchased 29,149,000 shares or 2.46% interest of Indophil Resources, NL (Indophil) in the amount of P1.316 million. Indophil has 37.5% interest in the Tampakan Project as of December 31, 2011. [1]

 

 

Source:

  1. Indophil 2011 Annual Report, Note 19, p. 71, http://www.indophil.com/documents?category=Annual
  2. ACR Sec filings

 

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.