Power Crisis, FED may End QE Program, Stock thoughts: 2GO

Power Crisis

News like this stimulates investment ideas:

http://www.interaksyon.com/business/59131/mindanao-power-crisis–cagayan-de-oro-is-regions-bright-spot-but-only-until-this-year

FED may End QE Program

Ending the FED QE program by year end:

http://www.bloomberg.com/news/2013-04-10/fomc-minutes-show-several-members-saw-qe-over-by-year-end.html

“The Federal Open Market Committee members “thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end,” according to the record of the March 19-20 FOMC meeting released today in Washington ahead of the regularly scheduled 2 p.m. time.”

I wonder how the US bond market will react should it happen…..

Currently, US prints money and buy assets such as bonds. It is an effort to inject liquidity directly to the economy which is called Quantitative Easing.

In the Philippines, the BSP only adjusts interest rates to stimulate economic activity.

 

2GO

To those who are curious about the Company:

https://fundamentalenthusiast.wordpress.com/2013/04/11/2go-group-inc-pse-2go/

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.

Trans-Asia Oil and Energy Dev’t Corp. Update

Trans-Asia Oil and Energy Dev’t Corp. (TA)’s first half report shows the already promising future of the Company. The earnings for June 2012 surged by 70% or a jump from P129 million in June 2011 to P220 million this year. Earnings were mainly driven by TA’s trading gains of 313 million. Trading gains are the result of the company’s participation in Wholesale Electricity Spot Market (WESM). The Company’s purchased electricity from third party and excess electricity generated by the Company’s own power plants are sold to WESM. The Company usually enters into a contract with an independent power producer for a certain period of time. The fixed price in the contract allows TA to profit should electricity prices be higher than the cost in the contract. Electricity is a commodity that could not be stored; therefore, if electricity prices are lower than the contract cost, TA will be forced to sell at a loss.

Few electricity producers combined with high demand for electricity would mean high electricity prices traded in the WESM. Increase in profit due to high electricity prices is not a sustainable source of growth for the Company. However, with electricity demand to surpass the existing capacity and committed capacity in the coming years, electricity trading might be one of the major drivers of growth for the Company.


Source: www.doe.gov.ph

As depicted in the chart above, we can speculate that there will be an electricity crisis by 2016-2017 in Luzon should there be no substantial investments in the Philippine electricity industry from this year to 2014 (which appears to be the case).

Trans-Asia’s Future

TA has promising business developments on their power generation segment and oil exploration segments which I expect to contribute substantial revenue for the Company in the future.

TA has two major power plants under construction, 20 MW Maibarara geothermal power plant in Sto. Tomas, Batangas and 135 MW coal-fired power plant in Calaca, Batangas.

The Maibarara geothermal power plant is constructed by Maibarara Geothermal, Inc. a joint venture company of Petroenergy Resources, Inc through its subsidiary PetroGreen Energy Corp. (65%), PNOC Renewable Corporation (10%), and TA (15%). The construction is 35% completed as of June 2012 and is expected to be in commercial operation by third quarter of 2013.

The 135 MW coal fired power plant is constructed by South Luzon Thermal Corporation a joint venture company between Ayala Corporation (50%) and TA (50%). Construction has not commenced yet as of June 2012 but the power plant is expected to be in commercial operation by the fourth quarter of 2014.

TA’s oil exploration segment includes their minority participation in SC 55 which covers 900,000 ha. in offshore West Palawan. The SC 55 block includes the Cinco prospect with 500 million barrels mean resource potential. Drilling in the ultra deep prospect with BHP Billiton is expected to be on the first or second half of 2013.

A Note on TA’s Strategy to Maintain Their Share Price

The Company has a habit of declaring cash dividend and subsequently declaring share rights offering to replenish the cash they declared as dividend. At first glance, their P.04 cash dividend per year appears to be attractive but it eventually burdens shareholders with the SRO that effectively dilutes the earnings attributable for each share. Also, declaration of cash dividend would cost the Company 10% withholding taxes and declaration of SRO would require them to pay costs to the PSE relative to the amount they are willing to raise.

Despite the frictional costs, why is the Company doing what they are doing? In my opinion, cash dividends are declared to maintain TA’s stock price above P1. Management probably rationalized that the benefit of declaring cash dividends substantially outweighs the costs.

Maintaining the Company’s share price above its par value (P1) is necessary for the Company to issue shares to the public. Issuance of shares below par is illegal.

TA had consistently declared P.04 cash dividend since 2005 and I expect the company to maintain their strategy in the coming years.

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