ENERGY DEVELOPMENT CORPORATION LONG ISLAND INVESTMENTS (TEAM ASIA-PACIFIC) ENERGY DEVELOPMENT Steam CORPORATION Production • Largest geothermal energy producer in the Philippines,aa 2nd in the world Electricity • 80% of revenues from steam Generation and electricity sales topower distributors • 66% of geothermal energy in Distribution the country • Fully privatized in 2007 EDC’S 52-WEEK STOCK PRICE INVESTMENT MERITS
5.50 Industry Forces Spur 4.50 Interest in Renewables PHP 5.0 3.50 MAR 31 2.50 Timely Strategies Seize 1.50 Market Opportunities 09 09 09 09 09 10 ------Jun Oct Apr Feb Dec Aug
Source: Philippine Stock Exchange Risk-Reward Analysis Shows Upside Potential 1-YEAR PRICE TARGET: PHP 7.10 42% UPSIDE BASED ON DCF-FCFF BUY RECOMMENDATION *FX: PHP 45.09: USD 1 as ofMarch 31 INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February.
Energy Crisis Calls for Immediate Action
Legislation Favors RE Sector
Geothermal Energy to Remain Competitive
Source: Philippine Daily Inquirer INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February.
Philippine Energy Demand and Supply Energy Crisis Calls for 18 Immediate 25% of Philippine Peak Demand Action 17 households without access to electricity 16 Annual growth of 4.4% with an energy-to-GDP Legislation 15 elasticity of 1.1 Favors RE Sector 14
000’s MW 000’s 13
Geothermal 12 Energy Prevails Over 11 Competition 10 2008 2010 2012 2014 2016
Source: Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February.
Energy Demand vs. Supply Energy Crisis Calls for 18 Immediate Peak Demand Action 17
16
Legislation 15 Shut down of plants due to Favors RE age, maintenance and fuel Sector 14 scarcity
000’s MW 000’s 13
Geothermal 12 Existing Capacity Energy to Remain 11 Competitive 10 2008 2010 2012 2014 2016
Source: Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Regular power interruptions in southern and central Philippines since 2009. Blackouts felt throughout Metro Manila last February.
Energy Demand vs. Supply Energy Crisis Calls for 18 Immediate Peak Demand Action 17
16
Legislation 15 Shut down of plants due to Favors RE age, maintenance and fuel Sector 14 scarcity Committed Capacity 000’s MW 000’s 13
Geothermal 12 Existing Capacity Energy to New additions Remain 11 Hydro plants may suspend unable to keep up Competitive operations during El Nino with retirements 10 2008 2010 2012 2014 2016
Source: Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Dubai Crude Oil Price Forecast 160 Continuous decline Electricity Rates, 2006 Energy Crisis 140 in reserves In US cents per kWh Calls for High Japan 17.54 Immediate 120 Gradual recovery of world Action economies in 2010 Philippines 14.01 100 Hongkong 13.44 India 11.42 80 Base Legislation Indonesia 11.32 Favors RE 60 USD per barrel per USD Singapore 10.59 Sector 40 Low Vietnam 9.83 45% of Philippine power China 8.24 20 relying on imported fuels Thailand 7.92 Geothermal 0 Energy to Malaysia 6.71 2007 2009 2011 2013 Remain Source: Wholesale Competitive Electricity Market Source: Asian Development Bank (Asian Development Outlook) Report
Only sustainable option is to develop low-cost indigenous energy sources INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
2009 RE Law Energy Crisis (Renewable Energy Law) Calls for Immediate Action Incentives Pre-RE Law RE Law
Corporate Income Tax Rate 30% 10% Legislation Favors RE Sector Income Tax Holiday for New Plants 5 years 7 years
Royalty Fees for Use of Steam Fields 6% 1.5% Geothermal (% of gross revenues) Energy to Remain Competitive Incentives to trigger RE investmentsof overPHP 90B INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Energy Crisis Calls for Immediate Current Favorable Action Energy Crisis Legislation
Legislation Favors RE Sector ● Attractive prospects for RE industry Geothermal ● Competitive Energy to Remain environment Competitive INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Geothermal energy is expected to become more relevant in the future.
Energy Crisis Calls for Immediate CLEANER CHEAPER MORE RELIABLE Action Carbon Emissions Generation Cost Average Downtime 12 7 80 6 Legislation 10 Favors RE 5 60 MWh 8 kWh
Sector / 4 40
kg 6 2 3 Downtime% 4 PHPper 2 20 GeothermalGeothermal 00’sCO 2 1 EnergyEnergy to 0 0 0 PrevailsRemain Over Oil CompetitionCompetitive Oil Geo Geo Geo Coal Coal Coal Solar Hydro Hydro Nat gas Nat Gas Energy Source Source: Credit Suisse, Department of Energy (Philippines) INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Geothermal energy is expected to become more relevant in the future.
Energy Crisis Calls for Immediate CHEAPER Action Generation Cost 7 6 Legislation Favors RE 5 Geothermal energy’s Sector kWh 4 low cost complements 3 the Philippine
PHPper 2 electricity spot market GeothermalGeothermal 1 EnergyEnergy to 0 PrevailsRemain Over
CompetitionCompetitive Oil Geo Coal Hydro Nat gas INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Philippine Electricity Spot Market, 2008 8.00 Next MARKET CLEARING PRICE lowest 7.00 Energy Crisis Next Calls for Next 6.00 lowest Immediate Next lowest Action 5.00 lowest Lowest 4.00 price Legislation 3.00 Favors RE PHP per kwh Sector 2.00
1.00
0.00 GeothermalGeothermal EnergyEnergy to 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% PrevailsRemain Over Spot Market Demand Source: Philippine Energy CompetitionCompetitive Market Corporation Energy sources with the lowest prices are first to be dispatched. Process continues until demand for electricity is satisfied. All energy is sold at market clearing price. INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Philippine Electricity Spot Market, 2008 8.00 MARKET CLEARING PRICE Oil 7.00 Energy Crisis Calls for 6.00 MARGINS Immediate Coal Natural Gas Action 5.00 Geothermal 4.00 Hydro Legislation 3.00 Favors RE PHP per kwh Sector 2.00
1.00
0.00 GeothermalGeothermal EnergyEnergy to 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% PrevailsRemain Over CompetitionCompetitive Spot Market Demand Low cost guarantees all geothermal energy produced is sold. Geothermal suppliers also realize wider margins. INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
PLAYERS IN THE PHILIPPINE GEOTHERMAL INDUSTRY Steam Field Power Plant Vertical EDC Vertical Integration Integration Strengthens Chevron Secures Competitive Dominance Position Aboitiz Source: Company Data
Expansion Activities Address Shortage Higher operating efficiency Lower production costs by due to coordinated 30% due to internal scheduling of resources generation of steam INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
EDC will have over 1,600 MW in installed capacity by the time new geothermal EDC pursues a diverse approach in expanding operations entrants complete their exploration stages which take a minimum of 6 years
EDC’s Expansion Activities
Constructionof Vertical Upgrade of 7 new plants 2,000 Acquisition of Integration Steam Field plants being Strengthens 1,800 Capacity Additional 645 MW Competitive privatized 1,600 or 54% over Position Exisiting 1,400 existing capacity Capacity 1,200 A head start to Expansion 1,000 Activities meet market Address 800 demand Shortage 600 MW Capacity (Electricity) 400 200 0 2007-2008 2009 2010-2012 2013-2021
Source: Company Data INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Available financing to support expansion activities
EDC’s OCF and CAPEX 16 Vertical Integration 14 Secures 12 Dominance 10 8 Construction Expansion 6 requires only half Activities Billions PHP of OCF for new Address 4 Shortage plants 2 0 2010 E 2011 E 2012 E 2013 E 2014 E INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
EDC’s Strategies Industry Opportunities Maximized
Vertical Open market Integration
Expansion Power shortage Activities RE Law incentives INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
FCFF incorporates EDC’sFinancial growth potentialProspects given new plants in the pipeline
40 PHP 2.9B deferred PHP 9.3B foreign tax asset write-off GROWING REVENUES Financial 35 currency loss due 9.7% revenue growth due Prospects to expansion activities Reflect 30 to government- Growth inherited loans Potential 25 MARGINS TO STABILIZE 20 EBIT Margins 48% 15 Price Target Billions PHP Net Profit Margins 33% Resilient to 10 Key Risks 5 0 2007 2008 2009 2010E 2011E 2012E 2013E 2014E INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Financial Prospects
Foreign Loans as % of Total Debt
Financial 100% 91% Prospects Reflect 80% • Refinancing foreign-currency Growth denominated loans with Peso Potential 60% loans • 2009 deferred tax-asset 40% 31% write-off a one-time Price Target adjustment due to lowered Resilient to 20% Key Risks tax rates
Percentage ofForeign Loans ofForeign Percentage 0% INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Financial Prospects
Operating Cash Flows 16 14.6B HEALTHY CASH GENERATION Financial 14 Recurring streams of cash flows Prospects 10.8B Reflect 12 Growth Potential 10 8 6
Price Target Billions PHP Resilient to 4 Key Risks 2 0 2010 E 2011 E 2012 E 2013 E 2014 E INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Valuation Projected until 2031 when rights over steam fields Operating Cash Flows expire 16 Financial COST OF CAPITAL 14 Prospects Cost of Debt 8.7% Reflect 12 Growth Cost of Equity 16.9% Potential 10 Risk-free Rate 9.2% 8 Market Return 16.0% 6 Price Target Billions PHP Levered Beta 1.13 Resilient to 4 Key Risks Debt Ratio 60.0% 2 WACC 11.9% 0 2010 E 2011 E 2012 E 2013 E 2014 E PRICE TARGET PHP 7.10 INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
VALUE DRIVERS FCFE Value from Existing Plants PHP 3.50
Preferential tax treatment 1.70 Financial Lower royalty fees 0.40 Prospects Reflect Growth Value of RE Law Savings on Old Plants PHP 2.10 Potential New plants in Northern Philippines 0.80 New plants in Central Philippines 0.50 Price Target Resilient to New plants in Southern Philippines 0.20 Key Risks Value from New Plants* PHP 1.50 PRICE TARGET PHP 7.10 UPSIDE 42%
*Inclusive of additional RE Law savings thereon INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
FY10 Estimated Peer Group P/E
20.0 18.0
Financial 16.0 Prospects 14.0 Reflect Industry Average:12.8x Growth 12.0 Potential Potential 10.0 9.4x 8.0 6.0 Price Target Resilient to 4.0 Key Risks 2.0 0.0 China Datang Aboitiz Manila Huaneng Glow EDC Ratchaburi Yangtze Power Power Electric Power Energy Electricity
Source: Reuters INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Price Relative Estimates
Valuation Industry Financial Target Price Upside Prospects Method Multiple* Reflect Growth P/E 12.8x P7.30 46% Potential P/S 4.4x P7.10 42% P/CF 6.7x P6.70 34% Price Target Resilient to P/BV 2.6x P5.10 2% Key Risks *Based on listed Philippine utilities Source: Raw data based on Reuters INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Risk Category Sources of Risk Mitigating Factors
Strong Financial Open market Cost leadership Prospects Increases Competition Drive Upside Geographically- Operational Natural disasters Disrupt plant efficiency dispersed plants Price Target Resilient to Key Risks Equipment failures Facility maintenance Increase maintenance and upgrades INDUSTRY FORCES SPUR TIMELY STRATEGIES SEIZE RISK-REWARD ANALYSIS INTEREST IN RENEWABLES MARKET OPPORTUNITIES SHOWS UPSIDE POTENTIAL
Risk Category Sources of Risk Mitigating Factors
Strong Financial Interest rate and More Peso- Prospects Drive Upside Financial exchange rate volatility denominated loans Unpredictable cash outflows Triple A bond rating
Not sustainable Price Target Government attempt to Resilient to option; deters private Political Key Risks cap energy rates investments and As previously with oil prices worsens energy crisis EDC’S 52-WEEK STOCK PRICE INVESTMENT MERITS
5.50 Industry Forces Spur 4.50 Interest in Renewables PHP 5.0 3.50 MAR 31 2.50 Timely Strategies Seize 1.50 Market Opportunities 09 09 09 09 09 10 ------Jun Oct Apr Feb Dec Aug
Source: Philippine Stock Exchange Risk-Reward Analysis Shows Upside Potential 1-YEAR PRICE TARGET: PHP 7.10 42% UPSIDE BASED ON DCF-FCFF BUY RECOMMENDATION *FX: PHP 45.09: USD 1 as ofMarch 31
Presentation Company Forecasts & Valuation Macro
Demand Supply Gap Plant Locations Key Assumptions DuPont Analysis 2009 GDP Parts
Electricity Rates New Plants Utilization Rates Valuation Summary GDP Growth Trend RE Law Privatization Other Revenue 2031 Assumption GDP Growth Estimates Geothermal Potential Vertical Integration Revenue Mix Cost of Capital Monetary Policy WESM Maintenance Sched LT Debt Mix WACC Comparison Inflation Rates Vertical Integration Revenue Parts Income Statement Levered Beta Balance of Payments Financials LT Debt Parts Balance Sheet Breakeven of Oil Peso-Dollar Rates Price Relatives Loan Availments Cash Flows WACC Sensitivity Peso Bond Yields Risks Analysis Loan Covenants Financial Ratios Risks Sensitivity ROP Bond Yields Currency Risks Gold Comparison Vice Chairman Key Executives Ownership Structure SEA – P/E’s
President Chairman Steam Reinjection Stock Info SEA – Market Cap All Asia – Equities Industry EDC Free Float All Asia – GDP Per Grid Shortages World Oil Prices Low Levelized Cost EDC vs. PSE PSE Forecasts Demand Drivers World Oil Reserves Generation Charges Dividend Yields BIR Collections Local Energy Mix Value Chain Transmission (A) Top Stockholders Election Surveys Installed Capacity Transmission (B) Price Multiples Political Events vs. PSE Plant Dev’t Costs California Crisis Price Targets Phil Demographics MENU
Industry Information MENU Regional Energy Situations
16 The energy crisis in the 14 12 country is prevalent in all 000s MW 10 regions with a significant gap 8 in Central Philippines 6 4 2 This is advantageous given 0 that most of the company’s 2007 2008 2009 2010 2011 2012 2013 2014 NORTHERN PHILIPPINES plants are in said region
1.9 2 1.8 2 1.7
000s MW 000s MW 2 1.6 1.5 2 1.4 2 1.3 1 1.2 1.1 1 1 1 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014 CENTRAL PHILIPPINES SOUTHERN PHILIPPINES
Source: DOE Demand Supply MENU Energy Demand Drivers
300 Energy demand… 250
200 rises with: GDP growth 150 Population growth 100
Rebased and is unaffected by: 50 Oil prices 0 Exchange rates 1990 1993 1996 1999 2002 2005 2008 Energy Demand GDP Population Oil Price Exchange Rate
Source: DOE, NSCB, BSP MENU Philippine Energy Mix
Oil based Others 7% 0% Share in the Geothermal Industry
Natural Hydro Gas 16% 33% Chevron 34%
Geother EDC mal 66% 18% Coal 26% Geothermal energy accounts for 2008 Philippine Energy Mix: 18% of the Philippine power mix Electricity Generation in GWh – 66% of which is contributed by EDC
Source: DOE MENU World Liquid Fuels Market
Demand
Supply Price
Oil prices are expected to rise steadily into the future as world demand outpaces supply and capacity Source: International Energy Agency MENU World Capacity Additions for Oil
Insufficient investments due to more difficult and costly oil exploration and excavation
Source: International Energy Agency MENU Geothermal Value Chain
Steam Fields Power Plants Transmission Distribution Ex. EDC Ex. NPC Ex. NGCP Ex. Meralco
Source: DOE MENU Top 5 Geothermal Countries Capacity Rank Country Company in MW Chevron 1 USA 2,687 1,273MW EDC 2 Philippines 1,976 1,198MW 3 Indonesia 992 4 Mexico 953 5 Italy 810
Source: Geothermal Resources Council Bulletin (2009) Geothermal Power Plant MENU Development Costs Development Total Cost % Stage (USD/kW) Exploration 14 0.39 Permitting 50 1.40 Steam Gathering 250 7.04 3 years Exploratory Drilling 169 4.76 Production Drilling 1,367 38.51 Plant Construction 1,700 47.89 Total 3,550 100.00 3 years •New plants will recover investment costs within 4.6 years after commencement of operations (at practical capacity of 76%) •NPV = P8.3B for a 40-MW plant Source: Geothermal Technologies Market Report (2007) MENU 2009 Levelized Electricity Costs
Levelized cost of electricity refers to the average cost of power production over the life of a plant. It considers: (1) upfront capital investments, (2) operating and maintenance costs and (3) fuel costs for plants that rely on external fuel sources.
Geothermal Wind Natural Gas Coal Hydro Nuclear Fuel cell Solar
0 50 100 150 Source: Credit Suisse USD per MWh MENU Energy Generation Charges
Generation Charge Energy Source (Php per kWh) Hydroelectric 2.72 Geothermal 3.47 Coal 4.23 Natural gas 4.36 Oil-based 5.82 Geothermal energy having one of the lowest generation charges makes it among the first to be dispatched in an open market
Source: DOE MENU
Transmission EXISTING Lines ON-GOING Northern and Central PROPOSED Philippines Transmission Lines MENU Southern Philippines MENU California Energy Crisis Factors
Failure to build new generation or transmission in time Inability of retailers to enter into long term hedging contracts Exercise of market power by some industry participants Inability of the legal and regulatory environment to take timely action
Source: Asian Development Bank MENU
Company Information MENU Plant Locations
Regions MW % Most of EDC’s generating Northern Phil. 150 12.6% capacity is located in Central Philippines where the energy Central Phil. 942 78.6% supply gap is most substantial Southern Phil. 106 8.8% Total 1,198 100.0% 150 MW Bacon-Manito
701 MW 49 MW Unified Leyte Northern Negros 192 MW Southern Negros
106 MW Mindanao Source: EDC MENU 7 New Geothermal Power Plants
Capacity Target Start Name Location (MW) of Operations Nasulo Central 20 2013 Mindanao 3 Southern 50 2013 Dauin Central 40 2015 Tanawon Northern 40 2017 Rangas Northern 40 2018 Kayabon Northern 40 2019 South Leyte Central 65 2021 TOTAL 295
Source: EDC MENU Privatization of NPC Plants Capacity Winning Year NPC asset (in MW) Bidder 2007 Tiwi-Makban 747.5 Aboitiz 2009 Tongonan 112.5 EDC 2009 Palinpinon I & II 192.0 EDC 2010 BacMan I & II 150.0 -
Source: Power Sector Assets and Liabilities Management MENU High Level of Vertical Integration Scope of Steam Field Operations: Leading Global Companies R&D Exploration Drilling Confirmation Engineering Construction O&M EDC (PH), Ormat (US), Chevron (US), Enel (IT), Calpine (US) PT Pertamina (ID), Reykjavik Energy (IS) Boart Longyear (US), Halliburton (US) Sumitomo (JP), Shaw Group (US) Govt/Univ Labs (All) Siemens (DE), Enex (IS) Iceland Drilling Co. (IS), Baker Drilling (US), Parker Mannvit (IS), MHI (JP), GE Drilling (US), ThermaSource Power Eng (US), Fuji (JP), (US), GeothermEx (US) (US) UTC
Source: New Energy Finance, 2008 DE: Denmark | ID: Indonesia | IS: Iceland | IT: Italy | JP: Japan | PH: Philippines | US: United States
EDC’s level of vertical integration allows it to span across the entire value chain – resulting in enhanced efficiency and cost savings vs. other energy producers MENU EDC’s Maintenance & Upgrade
Purchase of a brand new drilling rig delivered in 2009 EDC’s regular maintenance and On-going up rating program for Rigs 8, 10, and 23 with the purchase upgrade activities minimize the of top drive, mud mixers, and other risk of unexpected plant lifting equipment shutdowns and reduce inefficiencies Upgrade of the Palinpinon plants to rehabilitate and bring it back to its Approximately PHP 7.7B per year rated capacity of 192.5 MW spent for maintenance and Upgrade of Tongonan plant to bring upgrades back to 112MW from the current utilization of 84MW
Source: EDC MENU 2009 Revenue Breakdown
EDC has integrated 82% forward by buying the related power plants for all but one of its steam fields, up for bid 7% May 2010 7% 4%
Electricity (Geo) Steam Electricity (Hydro) Drilling
Source: EDC MENU 2009 LT Debt Breakdown
IBRD Triple A Rating by 9% PhilRatings Bonds 25% OECF 13%
Total: PHP 57.5B Local: 53% Corporate Miyazawa Foreign: 47% Notes II 19% IFC 25% Loan 9%
Source: EDC MENU Loan Availments in 2009
Principal Stated Loan Period Issue Date (Php Mil) Rate Short-term financing 124.5 - - - IFC Loan 4,100 15yr 5.6488% - FRCN A 2,644 5yr + 1 day 8.3729% 3-Jul-09 FRCN B 4,856 7yr 9.4042% 3-Jul-09 FRCN C 1,500 5yr + 1 day 8.4321% 3-Sep-09 Bond -A 6,000 5.5yr 8.9938% 11-Nov-09 Bond -B 6,000 7yr 9.8375% 11-Nov-09 Total LT debt 25,100 - - -
Source: EDC MENU Loan Covenants
Item Restriction Actual 2008 Actual 2009 Debt-Equity Not more than 59:41 64:36 Ratio 70:30 Interest At least 1.2x 5.20x 3.25x coverage
Source: EDC MENU Currency Risk Management
Hedging Arrangements for the Miyazawa I Bond result in Net gain of PHP95M
Source: EDC MENU Key Executives
CHAIRMAN Mr. Oscar M. Lopez
VICE-CHAIRMAN and CEO Mr. Paul A. Aquino
PRESIDENT and Mr. Richard B. Tantoco CHIEF OPERATING OFFICER
SR. VICE-PRESIDENT and Ms. Ana Regina B. Go CHIEF FINANCIAL OFFICER
COMPTROLLER Ms. Maribel A. Manlapaz
Source: EDC MENU CHAIR | Oscar M. Lopez
• Chairman of EDC since November 2007.
• He also serves as Chairman and Chief Executive Officer of the First Philippine Holdings Corp. (FPHC), and Chairman of Benpres Holdings Corporation (Benpres) and all member-companies of First Gen Corp. (First Gen) and First Gas groups of companies.
• Through his Chairmanship of FPHC and Benpres, Mr. Lopez serves as Chairman of the Lopez Group of Companies. He is also a member of the board of ABS-CBN Broadcasting Corporation.
• Mr. Lopez has led FPHC’s efforts in other businesses aside from energy and power, including toll road construction, industrial park and real estate development, and electronics manufacturing.
• He holds a Masters degree in Public Administration from the Littauer School of Public Administration in Harvard University (1955), where he also earned his Bachelor of Arts degree, cum laude (1951).
Source: EDC MENU VICE-CHAIR & CEO | Paul A. Aquino
• President and CEO since February 2004. He has been a Director of the Company since 2001.
• He is also a Director of the First Gen Hydro Power Corporation. He previously served as president to various companies, including Dynamic Computer Services, Corinthian Securities and Management Dynamics.
• Mr. Aquino was also a consultant for Sycip, Gorres & Velayo from 1967 to 1969. He also serves as an Honorary Consul of the Republic of Malta.
• He is an electrical engineer by profession and has a master’s degree in business administration.
Source: EDC MENU PRESIDENT & COO | Richard B. Tantoco
• Elected Deputy President and Chief Operating Officer of EDC on February 24, 2009. He has been a Director of the Company since November 2007.
• He is also Executive Vice-President and Chief Operating Officer of First Gen, FGLuzon, FG Bukidnon, FGHPC, First Gen Geothermal Power Corp., First Gen Visayas Hydro Power Corp., First Gen Mindanao Hydro Power Corp., First Gen Energy Solutions, Inc., First Gen Northern Energy Corp., First Gen Premiere Energy Corp., Red Vulcan, Prime Terracota, First Gen Visayas Energy Inc., First Gen Prime Energy Corp., FGHC, FGPC, FGP, AlliedGen, Unified, FNPC, FGLand, and FGPipeline. He is also Senior Vice-President of FPHC.
• Mr. Tantoco worked previously with management consulting firm Booz, Allen and Hamilton, Inc. in New York and London.
• He has an MBA in Finance from the Wharton School of Business of the University of Pennsylvania (1993) and a Bachelor of Science degree in Business Management from the Ateneo de Manila University where he graduated with honors (1988).
Source: EDC MENU Ownership Structure
40% of EDC is owned by 3 institutional investors…
…with the remaining 60% open to the public
Source: EDC MENU Steam Reinjection System
EDC re-injects cooled water after the heat is extracted to produce energy, enhancing the efficiency and sustainability of its steam field operations.
Source: EDC MENU
Financial Analysis & Valuation MENU
Key Assumptions Factors in acquisition of Tongonan Palinpinon plants PHP MILLIONS 2008 2009 2010E 2011E 2012E 2013E 2014E REVENUES Electricity 12,518 15,246 25,036 25,959 27,890 31,023 31,811 Steam 4,242 3,781 1,823 3,196 3,424 1,343 1,424 Drilling 726 848 1,414 1,534 1,648 1,703 1,749 OPERATING COSTS Repairs & maintenance 1,895 1,273 1,894 2,056 2,208 2,111 2,167 Personnel costs 1,388 1,787 2,165 2,350 2,524 2,414 2,478 Materials and supplies 969 1,166 1,289 1,399 1,503 1,437 1,475 Royalty fees 590 214 357 383 428 420 446 Rent and insurance 272 934 978 1,062 1,141 1,091 1,119 Business expenses 137 159 174 189 203 194 199
Privatization of Bacon-Manito Plant Complex Repairs & maintenance expenses rise results in elimination of fixed agreements but proportionately with movements in steam eventual improvement in utilization rates and electricity revenues
Source: EDC and Long Island Estimates MENU Geothermal Plant Utilization Rates
Installed Capacity Plant Utilization Rates EDC PLANTS (MW) 2007 2008 2009 Average Tongonan 75.0 67.10% 59.20% 65.00% 63.77% Palinpinon I 75.0 87.90% 81.60% 89.00% 86.17% Palinpinon II 80.0 85.50% 89.00% 87.70% 87.40% Unified Leyte 588.4 66.40% 79.50% 80.20% 75.37% Mindanao I 52.3 97.80% 78.20% 99.40% 91.80% Mindanao II 54.0 96.50% 99.10% 95.00% 96.87% Weighted Average 73.4% 79.9% 82.3% 78.5%
Aboitiz Power Corp 50.6% 51.3% 52.2% 51.4%
EDC has successfully increased the utilization rates of its plants after privatization through investments in rehabilitation and efficient technologies. It is also outperforming its closest competitor, Aboitiz Power, by 28.6%.
Source: EDC and Long Island Estimates MENU Other Revenue Assumptions
IN VARIOUS UNITS 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Real GDP (Php Trillion) 1.18 1.22 1.25 1.28 1.31 1.34 1.38 1.41 PHP to USD 41.40 47.49 48.97 49.73 50.33 50.96 51.50 51.90 PHP to JPY 0.36 0.52 0.55 0.57 0.59 0.62 0.64 0.67 Inflation: RP (%) 1.52 3.97 4.15 4.12 3.84 3.94 3.57 3.12 Inflation: US (%) 2.85 3.84 0.98 2.54 2.61 2.66 2.47 2.31 Inflation: Japan (%) -0.79 -0.57 -0.38 -0.31 -0.30 -0.34 -0.46 -0.48 Japan Power Utilities 107.98 80.35 86.64 92.92 99.21 105.49 111.77 118.06 Barlow Jonker Index 128.08 94.45 103.00 111.55 120.10 128.65 137.20 145.75
Contracted revenues are partly tied to foreign exchange rates, which manages EDC’s remaining exposure through dollar & yen denominated loans
Source: EDC and Long Island Estimates MENU Revenue Mix Over Time DRILLING 100% 90% STEAM 80% 70% 60% Forward Integration Higher steam prices To Power Plant due to coal indices 50% Expiry of Take-or-Pay 40% Agreement 30% ELECTRICITY 20% 10% 0%
Source: EDC and Long Island Estimates MENU Long-Term Debt Mix
Refinancing its 100% 91% government- 87% inherited foreign- 80% currency denominated loans Loans with Peso loans 60% reveals prudence in 47% financial ofForeign ofForeign management 40% 31% 27% 24% 20% 19% 20% Percentage Percentage
0%
Source: EDC and Long Island Estimates MENU Income Statement
Php millions 2007 2008 2009 2010 E 2011 E 2012 E 2013 E 2014 E Electricity 11,509 12,518 15,246 25,037 25,959 27,890 31,023 31,811 Steam 4,521 4,242 3,781 1,823 3,196 3,424 1,343 1,424 Drilling 625 726 848 1,414 1,534 1,648 1,703 1,749 REVENUES 16,655 17,487 19,875 28,273 30,689 32,963 34,070 34,984 Operations (3,079) (5,046) (5,444) (6,741) (7,313) (7,871) (8,147) (8,381) Service costs (3,111) (1,524) (2,073) (1,688) (1,832) (1,968) (2,034) (2,089) Administration (2,426) (1,313) (3,498) (3,620) (3,759) (3,907) (4,374) (4,511) EBITDA 8,039 9,604 8,859 16,225 17,785 19,216 19,515 20,003 Depreciation (244) (657) (1,199) (2,754) (2,847) (2,881) (3,329) (3,342) EBIT 7,795 8,947 7,661 13,471 14,939 16,335 16,186 16,661 Finance costs (950) (1,820) (2,484) (3,341) (4,409) (4,394) (4,447) (4,581) Forex charges 3,996 (9,357) 1,291 (340) (281) (262) (217) (176) Other line items 2,096 4,883 812 - - - - - PRETAX PROFIT 12,937 2,653 7,280 9,790 10,249 11,679 11,522 11,905 Income tax (4,168) (1,308) (3,912) (979) (1,025) (1,168) (1,128) (1,167) NET PROFIT 8,768 1,345 3,368 8,811 9,224 10,511 10,394 10,738
Source: EDC and Long Island Estimates MENU Balance Sheet
Php millions 2007 2008 2009 2010 E 2011 E 2012 E 2013 E 2014 E Cash 3,297 957 11,221 4,467 4,833 4,952 4,866 4,995 Receivables 5,127 5,412 5,487 9,228 9,986 10,230 10,543 10,827 Inventories 1,141 1,563 1,553 1,678 1,873 2,065 2,179 2,369 Intangibles 11,329 11,883 2,397 2,586 2,478 2,389 2,298 2,242 Net PPE 4,712 5,280 59,877 62,232 67,706 72,998 74,519 79,130 Exploration costs 1,172 1,000 1,038 753 753 735 718 665 Other assets 45,212 34,696 3,202 8,200 12,156 15,117 19,897 32,654 TOTAL ASSETS 71,990 69,346 84,775 89,144 99,785 108,486 115,020 132,882 Trade dues 3,806 2,980 3,985 5,201 5,622 5,770 5,974 6,151 Royalty fees 1,734 1,688 811 662 587 464 262 121 Long term debt 25,733 32,229 47,464 36,818 35,053 33,683 31,919 26,940 Other liabilities 6,184 3,713 2,183 12,222 22,236 31,112 40,057 57,445 TOTAL DEBT 37,457 40,610 54,443 54,903 63,498 71,029 78,212 90,657 Retained profits 13,172 9,978 7,681 11,389 13,327 14,434 13,853 19,021 Minority interest 3,345 1,484 1,530 1,732 1,839 1,901 1,835 2,083 Other equities 18,015 17,273 21,120 21,120 21,120 21,120 21,120 21,120 TOTAL EQUITIES 34,532 28,735 30,332 34,241 36,287 37,456 36,808 42,224 TOTAL CAPITAL 71,990 69,346 84,775 89,144 99,785 108,486 115,020 132,882
Source: EDC and Long Island Estimates MENU Statement of Cash Flows
Php millions 2007 2008 2009 2010 E 2011 E 2012 E 2013 E 2014 E
Income before tax 12,937 2,653 7,280 9,777 10,228 11,649 11,491 11,869
Noncash charges (1,905) 11,311 2,868 6,447 7,557 7,568 8,023 8,134
Working capital (5,068) (1,420) (169) (1,713) (497) (507) (386) (367)
Interest and taxes (2,878) (3,556) (3,402) (4,743) (5,832) (5,956) (5,977) (6,145)
CORE CFO 3,085 8,988 6,576 9,768 11,456 12,754 13,152 13,490
PPE acquisitions (183) (1,073) (3,221) (7,471) (7,231) (7,023) (4,753) (6,066)
Interest received 650 223 330 403 403 403 403 403
CORE CFI 467 (850) (2,891) (7,068) (6,828) (6,620) (4,350) (5,663)
Loan repayments (9,843) (528) 14,296 (5,818) 4,009 4,286 2,170 (512)
Cash dividends (1,485) (5,303) (1,869) (4,555) (8,332) (10,132) (10,957) (7,202)
CORE CFF (11,328) (5,831) 12,427 (10,372) (4,323) (5,845) (8,787) (7,714)
Other line items 1,073 (4,647) (5,848) (15) (4) (4) (4) (3)
Cash, beginning 9,999 3,297 957 11,221 3,534 3,836 4,120 4,131
CASH, ENDING 3,297 957 11,221 3,534 3,836 4,120 4,131 4,242
Source: EDC and Long Island Estimates MENU Key Financial Ratios
KEY FINANCIAL RATIOS 2007 2008 2009 2010 E 2011 E 2012 E 2013 E 2014 E Turnover Receivables (X) 4.01 3.90 4.05 4.25 3.77 3.75 3.69 3.68 Fixed Assets (X) 0.33 0.37 0.36 0.37 0.34 0.34 0.33 0.31 Total Assets (X) 0.25 0.29 0.29 0.31 0.30 0.30 0.29 0.27 Profitability EBITDA Margin (%) 51.55 51.28 37.10 37.81 39.26 40.63 37.55 37.87 EBIT Margin (%) 52.84 54.48 42.53 47.60 48.61 49.46 47.42 47.52 Net Profit Margin (%) 46.15 6.55 15.26 31.12 30.00 31.81 30.43 30.60 Return on Assets (%) 13.44 15.83 12.18 14.62 14.41 14.65 13.66 12.92 Return on Equity (%) 28.33 4.25 11.40 27.11 26.29 29.43 29.20 28.96 Solvency Total Debt Ratio (%) 52.03 58.56 64.22 65.18 67.10 68.84 71.05 71.48 Long-term Debt Ratio (%) 42.96 46.43 51.86 59.17 58.97 58.73 57.53 57.01 Liquidity Interest Coverage (X) 6.27 5.20 3.25 3.59 3.10 3.40 3.33 3.34 Current Ratio (X) 1.16 1.90 2.14 1.02 0.90 2.15 2.14 2.10 Acid Test Ratio (X) 0.74 0.60 2.36 0.90 0.62 2.06 1.94 1.83 Per Share Data Total Earnings (Php) 0.47 0.07 0.18 0.47 0.49 0.56 0.55 0.57 Dividends (Php) 0.08 0.22 0.30 0.23 0.42 0.51 0.55 0.36 Book Value (Php) 1.84 1.53 1.62 1.84 1.89 1.91 1.88 2.06
Source: EDC and Long Island Estimates MENU EDC vs. AP – DuPont Analysis FY07 FY08 FY09 EDC ABOITIZ EDC ABOITIZ EDC ABOITIZ
Return on 18.2% 15.6% 20.3% 14.4% 24.3% 15.1% Equity Operating 52.8% 42.3% 54.5% 41.2% 42.5% 28.3% Margins Interest / Tax 62.5% 89.3% 52.2% 87.7% 78.6% 89.5% Asset Turnover 0.264 0.313 0.296 0.259 0.260 0.187 Financial Leverage 2.085 1.322 2.413 1.540 2.795 3.177
EDC’s higher operating margins, resulting from its competitive cost structure, are driving the higher ROEs vs. competition
Source: EDC and Long Island Estimates MENU Valuation Summary Total 2011E 2012E 2013E 2014E 2015E Operating cash flows 11,460 12,757 13,149 13,490 14,836 Capital expenditures -6,585 -6,349 -4,350 -5,527 -5,479 Free cash flows to firm 4,875 6,408 8,798 7,963 9,357 FCFF from 2016E to 2031E 148,000 Terminal value of FCFF 52,000 Future value of FCFF 4,875 6,408 8,798 7,963 209,357 WAVE cost of capital 10.73% 10.70% 10.76% 10.50% 10.35% Present value of FCFF 153,118 4,516 5,364 6,642 5,476 131,119 Debt issue (payment) 4,009 4,286 2,234 -510 -2,579 Debt from 2016E to 2031E -16,000 Terminal value of debt -13,000 Future value of debt 4,009 4,286 2,234 -510 -31,579 WAVE cost of debt 8.15% 8.09% 8.23% 7.76% 7.52% Present value of debt -13,442 3,781 3,741 1,797 -385 -22,375 Present value of FCFE 139,676 8,297 9,104 8,439 5,091 108,744 Shares outstanding 18,750 18,750 18,750 18,750 18,750 18,750 Present value per share 7.10 0.40 0.40 0.40 0.20 5.70
Source: EDC and Long Island Estimates MENU Perpetuity Assumption
Before 2031 After 2031 Steam Fields
Power Plants
The RE Law guarantees ownership of the power plants even after the expiry of the service contracts
Source: EDC and Long Island Estimates MENU Cost of Capital VARIABLE VALUE REFERENCE Own calculations using market data Levered beta 1.13 - Jan 2007 to Mar 2010 01 Dec 2009 auction for 25-year on-the-run Riskfree return 9.17% Treasury Bond Own calculations using market data Market return 13.99% - Jan 1987 to Mar 2010 Terminal growth 4.40% National Statistics Office, Real GDP CAGR - 2000 to 2009 Pretax 12 Nov 2009 final prospectus for 7-year 9.33% cost of debt Fixed Rate Bonds New tax rate 10.00% Republic Act 9513 - Renewable Energy Act of 2008 2009 Annual Report - Note 37 Debt to equity 1.50 on Financial Risk Management EDC’s AAA bond rating enables it to borrow at tight corporate spreads
Source: EDC and Long Island Estimates MENU WACC – EDC vs. Aboitiz Power
EDC Aboitiz Power Cost of Debt 8.7% 8.5% Cost of Equity 16.9% 17.6% Risk-free Rate 9.2% 9.2% Market Return 16.0% 16.0% Levered Beta 1.13 1.24 Debt Ratio 60.0% 64.5% WACC 11.9% 11.7%
Aboitiz Power’s WACC has decreased significantly after it issued several debt instruments in 2009 to finance its power plant acquisitions. Relative to EDC, AP’s WACC is still only slightly lower.
Source: EDC and Long Island Estimates MENU Levered Beta Calculation 10.00%
7.50%y = 1.1253x + 0.0005
5.00%
2.50%
0.00% -10.00% -7.50% -5.00% -2.50% 0.00% 2.50% 5.00% 7.50% 10.00%
Market return Market -2.50%
-5.00%
-7.50%
-10.00% Asset Return Source: EDC and Long Island Estimates MENU Breakeven Price of Oil 140
120 Assumptions 100 Average Oil Prices Breakeven (Php/kwh) P 3.02 80 USD to PHP exch rate P 0.02 60 Capacity (kwh/bbl) 575.12 40 Breakeven price @ 20 USD 37.46/bbl 0 08 07 08 05 06 06 06 09 07 05 08 09 ------Jul Jan Jun Oct Apr Feb Sep Dec Aug Nov Mar - May
Source: International Energy Agency MENU Sensitivity Analysis – WACC & Terminal Growth TERMINAL GROWTH RATE 2.90% 3.40% 3.90% 4.40% 4.90% 5.40% 9.50% 9.17 9.31 9.47 9.66 9.89 10.17 10.00% 8.36 8.46 8.57 8.69 8.83 9.00 10.50% 7.66 7.72 7.79 7.86 7.94 8.00 WACC 11.00% 7.02 7.06 7.08 7.10 7.13 7.18 12.00% 6.46 6.48 6.49 6.50 6.51 6.55 12.50% 5.85 5.85 5.87 5.90 5.92 5.94 13.00% 5.40 5.41 5.42 5.44 5.46 5.46
Worst Case Base Case Best Case
Source: EDC and Long Island Estimates MENU Sensitivity Analysis – Key Investment Risks Risk Category Likely Event/s Downside
Typhoons or natural conditions Reduce plant efficiencies Operational Increase rehabilitation costs (0.30) Similar to major typhoon in 2009
Sovereign rating downgrade Financial Increase interest rates by 100bp (0.40) Similar to July 2009
Cap on power charges Political Rate freeze way above EDC’s Negligible selling prices
Source: EDC and Long Island Estimates MENU
EDC’s Stock Information MENU EDC Stock Information
Cutoff date 31-Mar-10 EDC enjoys Board Lot 1,000 significantly Par Value PHP 1.00 greater Listed and Outstanding Shares 18.75B liquidity than its nearest Free Float Level 60% competitor Market Capitalization PHP 93.75B (AP:23%) or Foreign Limit 40% even its YearEnd EPS (31-Dec-2009) PHP 0.177 parent 52 Week High PHP 5.30 (FGEN:33%) 52 Week Low PHP 3.15
Source: Philippine Stock Exchange MENU EDC vs. PSE since its IPO
4,500 7.00 EDC’s stock 4,000 6.00 price moves 3,500 with the 5.00 3,000 Philippine 2,500 4.00 Composite
2,000 3.00 with levered 1,500 beta of 1.13 2.00 1,000 1.00 500 PSE EDC
0 0.00 02-Jan-07 02-Jan-08 02-Jan-09 02-Jan-10
Source: Philippine Stock Exchange MENU 2009 Dividend Yields Entity D/P (%) Energy Development Corporation 2.11 Total Market (247 firms) 3.52 Philippine Stock Exchange Index (30 firms) 3.40 Industrial Sector (67 firms) 2.50 Aboitiz Power Corporation 2.33 Manila Water Company 2.54 Manila Electric Company 1.21 EDC’s dividend yield is close to the average for Philippine utilities
Source: Philippine Stock Exchange MENU Top 10 Common Stockholders
Name Citizenship No. of Shares % 1. Red Vulcan Holdings Corporation Filipino 6,000,000,000 40.2495 2. PCD Nominee Corporation (Foreign) Foreign 5,927,133,228 39.7607 3. PCD Nominee Corporation (Filipino) Filipino 2,883,906,263 19.3460 4. Spathodea Campanulata, Inc. Filipino 66,000,000 0.4427 5. The Insular Life Assurance Co, Ltd Filipino 6,739,000 0.0452 6. Peter D. Garrucho, Jr. Filipino 3,180,000 0.0213 7. Peter D. Garrucho, Jr. Filipino 1,900,000 0.0127 8. Emmanuel Antonio P. Singson Filipino 1,500,000 0.0101 9. Engracio A. Sanchez Filipino 1,000,000 0.0067 10. Tan Ben Kuan Chinese 700,000 0.0047
Source: EDC MENU Company & Industry Multiples
Aboitiz Power EDC Manila Water Manila Electric Price Data 31 March Price 12.25 5.00 15.75 176.00 Shares O/S 7,358.60 18,750.00 2,005.63 1,127.27 Financial Data 2010E Sales 20,862.60 30,092.00 9,514.00 29,044.00 2010E Earnings 5,466.30 9,971.00 3,225.00 10,585.00 2010E OCF 11,134.10 18,501.00 6,745.00 21,708.00 2010E BV 37,592.85 32,569.00 14,689.96 66,226.20 Price Multiples P/S 4.3x 3.1x 3.3x 6.8x P/E 16.5x 9.4x 9.8x 18.7x P/CF 8.1x 5.1x 4.7x 9.1x P/BV 2.4x 2.9x 2.2x 3.0x
EDC’s Target Price Industry Multiple Low Average High P/S 4.4x 5.80 7.10 7.80 P/E 12.8x 6.40 7.30 8.00 P/CF 6.7x 5.90 6.70 7.40 P/BV 2.6x 4.90 5.10 5.30
Source of basic data: Reuters MENU 2010E Price Multiples
2010E P/E Php 7.30 P/S Php 7.10 P/CF Php 6.70 P/BV Php 5.10 Price relative estimates are close to FCFF price target of 7.10 MENU
Macroeconomics MENU Philippine GDP Breakdown
Php Bil At 2009 CPI Weights Nominal Growth Real Growth Agriculture 1,145 14.9% 3.8% 0.1% Industry 2,295 29.9% (2.3%) (2.0%) Services 4,229 55.1% 6.5% 3.2% Total 7,669 100.0% 3.3% 0.90% Consumption 5,675 74.0% 7.5% 3.8% Government 814 10.6% 13.6% 8.5% Investments 1,071 14.0% (5.4%) (9.9%) Net Exports 109 1.4% (0.6%) (0.3%) Total 7,669 100.0% 3.3% 0.90% With 75% of Filipinos from D&E markets, consumer demand is need-driven and resists contraction Source: National Statistical Coordination Board MENU Philippine Growth Prospects
Economic Growth Business Confidence
Source: National Statistical Coordination Board MENU Philippine Growth Forecasts
Organization 2010E (%) International Monetary Fund 3.5 National Economic Development Authority 3.6 The Goldman Sachs Group 4.2 Metropolitan Bank and Trust Company 4.3 Long Island Investments 4.4 Development Bank of Singapore 4.8 Hong Kong and Shanghai Banking Corporation 5.1 University of Asia and the Pacific 6.0
Source: Senate of the Philippines MENU Monetary Policy
Policy rates have been eased to boost M2 back to pre-crisis levels Source: International Monetary Fund MENU Historical Inflation Rates
The government targets inflation at 4.5% this 2010E
Source: Sun Life Financials MENU Balance of Payments
Strong liquidity due to Overseas Filipino Workers' remittances renders the Balance of Payments less volatile
Source: Central Bank of the Philippines MENU Peso-Dollar Rates
The Philippines made significant improvement in its fiscal position, strengthening its currency
Source: Central Bank of the Philippines MENU 2008 and 2009 Peso Bond Yields Treasury Yield Curve 10-Year Bonds In Focus
Strong liquidity pulls down long-term domestic borrowing rates
Source: Banco De Oro MENU 2008 and 2009 ROP Bond Yields Treasury Yield Curve 10-Year Bonds In Focus
Growing foreign risk appetite shifts yield curve down across all maturities
Source: Banco De Oro MENU Gold vs. Asian Equities Gold vs. US Dollar Commodities like gold also provide diversification benefits against the dollar, but Asian Equities are Asian Equities vs. US Dollar
250 Strong dol l ar, AxJ/ U.S. rel at i ve perf ormance (l ef t scal e) 150 more liquid and Weak Asi an markets US: USD Trade Weighted Index: Nominal: Major Currencies 140 200 Weak dol l ar, pay out dividends Strong Asi an markets 130
120 150
110
100 100
90 50 80 0 70 Source: 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Citigroup Global Markets, Inc. MENU Country P/E’s – Southeast Asia 10-Year Country 2010E Discount Average Indonesia 13.9x 14.2x 2% Malaysia 15.0x 17.9x 16% Philippines 13.7x 18.5x 26% Singapore 14.5x 17.4x 17% Thailand 10.6x 13.4x 21% Philippine stocks currently trade at a deep discount…
Source: Citigroup Global Markets, Inc. MENU SEA Market Capitalization Market Cap GDP (USD Bil) (USD Bil) Ratio 01.31.10 12.31.09 Singapore 142.30 163.10 0.87 Malaysia 85.80 207.40 0.41 Indonesia 62.10 514.90 0.12 Thailand 41.20 266.40 0.15 Philippines 12.70 158.70 0.08 Philippine stocks currently trade at a deep discount…
Source: Citigroup Global Markets, Inc. MENU Asian Equities Performance
3.5 From trough-to-peak: MSCI AC Asi a ex Jp PBV 6yrs 2mths 3.0
3yrs 4mths 2.5 6yrs 2mths 4yrs 11mths 2.0
1.5
1.0
0.5 From trough-to-trough: 8yrs 7yrs 11mths 8yrs 7yrs 5mths Dec74 Dec78 Dec82 Dec86 Dec90 Dec94 Dec98 Dec02 Dec06 Dec10 Asian equities are at the forefront of growth once again Source: Citigroup Global Markets, Inc. MENU Global Growth Prospects
8.0 % YoY 2009F 6.9 2010F 5.9 6.0 2011F 5.4
4.0 3.3 3.3 3.5 2.9 2.2 2.0 1.7 2.0 1.3 1.4 1.4
0.0
-2.0 -2.1 -2.5 -4.0 -3.8 -4.7 -6.0 -5.3 UK Eur o Ar ea US Japan Asia ex Japan Global Asia will drive much of global economic rebound
Source: Citigroup Global Markets, Inc. MENU Philippine Composite Forecasts
Date Value Average for 52 Weeks 2,760.76 Average for 1Q 2010 3,037.01
52-Week High (30 Mar 10) 3,202.17 52-Week Low (01 Apr 09) 1,967.28
2Q 2010E 3,100.00 3Q 2010E 2,900.00 4Q 2010E 3,200.00
Source: Metropolitan Bank and Trust Company MENU Internal Revenue Collections
Bureau of Customs Collected P17.6 billion in January – 25% higher than its target of P14.1 billion; exceeded its target collection in February by 12%, with its actual collections equivalent P14.7 billion. Bureau of Internal Revenue Collections for January to February had hit P115.0 billion, already above the P104.0-billion goal for the two months.
Source: Sun Life Financials MENU Election Poll Results
PULSE ASIA Dec 2009 Jan 2010 Feb 2010 Investors are Aquino 45 37 36 not yet Villar 23 35 29 pricing Estrada 19 12 19 expectations Others 5 5 6 due to close poll results SWS Dec 2009 Jan 2010 Feb 2010 Aquino 46 42 36 Villar 27 35 34 Estrada 16 13 15 Others 5 4 6
Source: Metropolitan Bank and Trust Company MENU Political Events & PSE Index
While foreign events continue to shape the global economy…
…PSE registered positive returns despite serious local political events
Source: Metropolitan Bank and Trust Company MENU Philippine Demographics
Source: National Statistical Coordination Board
MENU EDC Daily Trading Volume
Volume EDC is frequently 100,000 included as one of 80,000 the most active stocks… 60,000
40,000 …It is the 2nd and 12th most traded 20,000 (000’s) No. of Shares (000’s) stock in the PSE last 0 Apr 13 and 14, respectively
Source: Philippine Stock Exchange Top 15 Companies in MENU Corporate Governance (2009) Aboitiz Equity Ventures Energy Development EDC is one of the top 15 Corporation companies in corporate ABS-CBN Broadcasting First Philippine Holdings governance by the Corp. & Subsidiaries Corp. Institute for Corporate Governance (ICD) Ayala Corporation Globe Telecom
Ayala Land Inc. Manila Water Company …ICD is the premier Inc., organization in the Bank of the Philippine Petron Corporation Philippines specialized in Islands professionalizing the Cebu Holdings, Inc. Philippine Long Distance practice of good Telephone Company corporate governance Cebu Property Ventures Semirara Mining and Dev. Corp. Corporation Centro Escolar University
Source: Manila Bulletin