1、DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be awar
2、e that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.22 April 2019Asia Pacific/PhilippinesEquity ResearchElectric Utilities Philippine Power Sector SECTOR REV
3、IEWResearch AnalystsChesca Bugia-Tenorio63 2 858 7752chesca.bugia-tenoriocredit-Critical tight supply,shortage riskFigure 1:No oversupply,there is shortage risk5,727 570 764 659 1,294 460 5,0007,0009,00011,00013,00015,00017,00019,00021,00023,0002018A2019E-2024ECalacaAge:34PagbilaoAge:23MasinlocAge:2
4、1SualAge:19QPPLAge:19Available CapacityTotal Committed CapacityEstimated At-Risk Capacity(MW)3.7GW of dependable capacity in the Luzon grid alone comes fromplants over 15 years oldPeak demand+25%reserve requirement by 2024Source:Department of Energy,Credit Suisse estimatesNo oversupply,there is a sh
5、ortage risk.Before 2018,there was 8.6GW of committed capacity with a majority to come in 2018-19 leading to a forecasted oversupply by 2020.However,demand grew strongest in 2018 and committed projects were overstated.The sector is now faced with a tight supply and a shortage risk with periods of lit
6、tle reserve left amidst some aging plants,outages and regulatory bottlenecks.Power rates may remain elevated and at risk of volatility.Initially with an oversupply projection,we expected electricity rate to have downward pressure from its 2017 level of P2-3/kWh.However,with the supply-demand gap nar
7、rowing,2018/1Q19 average power rates were up 13%/28%YoY.We continue to estimate rates of P4-5/kWh in 2019-20E,given the continued tight supply.We further see an upward price pressure in 2Q19 due to shortages to be later offset by 2H19s new capacity coming on line.Power demand,rates and power plant t
8、enure assumptions upgraded.In line with our positive view on the economy,we expect power demand to continue to grow in a healthy manner,albeit at a slower pace than 2018.A 4%power demand growth reflects broadly in line with the historical GDP ratio and demand CAGR from 2000 to 2018.Philippine kWh/ca
9、pita still remains the lowest in the region,providing support for long-term growth.We see additional support for decent sector growth from higher power rates and pressure on new capacity.We forecast an 8%earnings 19-20E CAGR for the sector.Upgrade to MARKET WEIGHT,reiterate Outperform on AP,upgrade
10、FGEN.We upgrade our view on the sector,from UNDERWEIGHT to MARKET WEIGHT,given its compelling fundamental changes this year.We reiterate our OUTPERFORM rating on AP,given its solid portfolio and capacity growth plans.We upgrade FGEN from Neutral to OUTPERFORM as we upgrade its 2019-20E earnings by 3
11、0%,coupled with long-term catalysts of longer tenure of power assets with an LNG terminal.22 April 2019Philippine Power Sector2Focus charts and tableFigure 2:Electricity demand growth remains strong and continues to track GDP/capitaFigure 3:We anticipate an additional need for 1.4 GW by 2024 to main
12、tain the 25%reserve requirement50,00060,00070,00080,00090,000100,000110,0009001,3001,7002,1002,5002,9003,30003A05A07A09A11A13A15A17AGDP/Capita in USDPhilippine electricity consumptionin GWh(USD)(GWh)13,50014,50015,50016,50017,50018,50019,50020,50021,50022,50023,5002018A2019E2020E2021E2022E2023E2024E
13、Available CapacityTotal Committed CapacityGapForecasted Peak DemandReserve Requirement(MW)1,429 MW gapSource:CEIC,Department of Energy,Credit Suisse estimatesSource:Department of Energy,Credit Suisse estimatesFigure 4:Our sensitivity indicates that current committed capacity is only sufficient for a
14、 2.5%demand CAGR until 2024Figure 5:Electricity price has started to pick up as average LWAP in the WESM is higher for 1Q19 versus previous years18,50019,50020,50021,50022,50023,50024,500201820192020202120222023202420252.5%3.0%3.5%4.0%Expected Capacity(MW)4.74.24.92.53.64.64.63.93.91.72.93.84.73.33.
15、30123456JanFebMarAprMayJun20192018(P/MWh)Source:Department of Energy,Credit Suisse estimatesSource:Department of Energy,Credit Suisse estimatesFigure 6:Peer valuation summaryNameTickerRtgPriceTPU/DMcapP/E(x)ROE(%)EPS(PHP)EPS YoY growthUS$bn18E 19E20E18E19E20E18E19E20E18E19E20EAboitiz Power CorpAP.PS
16、O36.042.418%5.111.49.58.618.920.420.03.13.84.2 13.3%20.8%10.0%First Gen CorporationFGEN.PSO22.326.619%1.67.06.66.110.510.010.03.23.43.7 72.8%6.0%8.4%Manila Electric(Meralco)MER.PSN379.0364.0-4%8.319.1 17.916.532.333.332.719.921.223.09.9%6.4%8.6%Semirara Mining Corporation SCC.PSN24.321.0-14%2.08.08.
17、58.030.924.722.83.12.93.0-8.4%-6.4%6.1%Note:Priced as of 17 April 2019.O=Outperform,N=Neutral.Source:Company data,Refinitiv,Credit Suisse estimates22 April 2019Philippine Power Sector3Critical tight supply;shortage risk Supply delays and uncertaintiesRecall that before 2018,we viewed the sector as a
18、 minimal growth sector with lingering uncertainties about an oversupply situation from 2020.Before 2018,there was over 8,600 MW of committed capacity with a majority to come in 2018-19.However,today,the situation has reversed completely.Demand grew the strongest in 2018 and committed projects were a
19、n overstatement with only 500-700 MW coming in 2018.The sector ended 2018 with an estimate of only 15.9 GW of available capacity,while demand reached 18.5 GW.Based on our updated estimates,the committed projects are now down to 5.5 GW.The power sector is now faced with less committed projects and de
20、lays,amidst a higher peak demand base.To make things worse,the regulatory environment remains a bottleneck,leaving the sector uncertain about long-term additional supply.Consequently,we have a situation of tight supply and risk of shortage,with periods of little reserve left for outages.Note that th
21、ere are over 3.7 GW of power plants aged over 15 years that are contributing to normal recurring outages.Power demand resilient2018 proved to be a resilient year for the power sector,growing 5.5%vs our initial estimate of 3%.The resilient power demand was attributed to the high level of power usage
22、by the commercial and industrial sectors.We expect power demand to continue to grow in a healthy manner,albeit at a slower pace than 2018.We believe compelling drivers are more positive coming into 2019 with GDP expectations for 2019 at 6.0-6.5%.A 4%power demand growth reflects a 0.67 ratio to GDP,b
23、roadly in line with the historical ratio.This is also in line with a CAGR of 4.1%since 2000.Power consumption through kWh/capita still remains the lowest in the region providing support for long-term growth.Supply-demand narrows;pressure on power ratesInitially with an oversupply projection,we expec
24、ted electricity rates to see downward pressure from their 2017 levels,where they reached the P2-3/kWh level.Together with oversupply and the push towards Retail Competition Open Access(RCOA),we estimated nil growth with a downside risk for most power players.However,with the supply-demand gap narrow
25、ing,power rates have been higher.2018 average power rates were at P3.6/kWh,up 13%YoY.In 1Q19,power rates stood at P4.6/kWh,up 28%YoY.We continue to estimate prices to be around this range,given the continued tight supply in the industry.We assume power rates at P4-5/kWh in 2019-20E.We further see an
26、 upward price pressure in 2Q19 due to shortages,to be offset by 2H19 with new capacity coming on line.Upgrade to MARKET WEIGHTWe upgrade our view on the sector,from Underweight to MARKET WEIGHT,given the sectors compelling fundamental changes this year.In line with our positive view on the Philippin
27、e market,we believe 2019 has a benign macro-environment to support continued consumption growth.With robust demand for the power sector,we see additional support for decent sector growth from higher power rates and pressure on new capacity to come live during 2019-20.We forecast an average of 8%earn
28、ings growth for the sector in 2019-20E.We reiterate our OUTPERFORM rating on AP,given its solid portfolio and growth plans.We expect AP to deliver superior earnings growth vs the sectors single-digit growth,given its capacity growth plans.We upgrade FGEN from Neutral to OUTPERFORM as we upgrade its
29、earnings by 34%and update its strong beat 2018 numbers,coupled with long-term catalysts of longer tenure of power assets with an LNG terminal and higher WESM prices.We have a NEUTRAL call on both Meralco and Semirara mainly due to the high valuation of Meralco and nil earnings drivers for both.Risks
30、 to our view continue to be the regulatory environment through the non-approvals,no clear implementation of CSP and the overall bottlenecks of getting new capacity up to speed.With strong demand and overstated committed capacity,the power sector is now faced with less committed projects and delays,a
31、midst a higher peak demand base2018 proved to be a resilient year for the power sector,growing 5.5%;we upgrade our long-term demand growth estimate for the sector to 4%from 3%previouslyWe expect power rates to remain elevated at an average of P4-5/kWh in 2019-20EWe forecast an average of 8%earnings
32、growth for the sector in 2019-20E.We reiterate our OUTPERFORM rating on AP and upgrade FGEN from Neutral to OUTPERFORM22 April 2019Philippine Power Sector4 Table of contentsCritical tight supply;shortage risk3Supply delays and uncertainties.3Power demand resilient.3Supply-demand narrows;pressure on
33、power rates.3Upgrade to MARKET WEIGHT.3Table of contents4Supply delays and uncertainties5Previous scenario:2020 to be in oversupply.5Power demand resilient8We estimate 3-5%long-term demand growth.8Additional risk to supply:ageing power plants.10Current scenario:high risk of periods of shortage.10Bot
34、tlenecks in the regulatory environment.13Electricity demand resilient despite weak macro.14Supply-demand narrows;pressure on power rates16Supply-demand gap continues to drive WESM rates.16We assume power rates P4-5/kWh in 2019-20E.17Upgrade to MARKET WEIGHT19Key investment risks.21Aboitiz Power Corp
35、(AP.PS/AP PM)22Focus charts and table24First Gen Corporation(FGEN.PS/FGEN PM)25Focus charts and table27Manila Electric(Meralco)(MER.PS/MER PM)28Focus charts and table30Semirara Mining Corporation(SCC.PS/SCC PM)31Focus charts and table3322 April 2019Philippine Power Sector5Supply delays and uncertain
36、tiesRecall that before 2018,we viewed the sector as a minimal growth sector with lingering uncertainties from the regulatory environment and an oversupply situation from 2020.Hence,we expected electricity rates to see downward pressure and the sector having nil growth since no other new capacity wou
37、ld be committed given the low rate environment with high regulatory uncertainties.Before 2018,there was over 8,600 MW of committed capacity with the majority to come during 2018-19:1,634 MW in 2018 and 2,300 MW in 2019.However,just 12 months forward to today,the situation has reversed completely in
38、the power sector.Demand grew the strongest in 2018 at 5.5%while committed projects were overstated.The sector ended 2018 with an estimate of only 15,915 MW of available capacity,while demand at end-2018 stood at 18,478 MW already.This means that the sector is running on few reserves as 3,700 MW of t
39、he 18,478 MW is required reserves.On supply,specifically only 500-700 MW came up in 2018 and 1,900 MW is slated for 2019(only 500MW to come in 1H19,the rest expected in 2H19).An updated record shows that currently the committed projects from 8,630 MW are down to 5,500 MW,based on our estimates.The p
40、ower sector is now faced with less committed projects,delays amidst a higher peak demand base,and higher-than-expected growth.To make things worse,the regulatory environment remains a bottleneck,leaving the sector uncertain about long-term additional supply.Consequently,we have the situation of tigh
41、t supply and risk of periods of shortages.Specifically,assuming that the 1,900 MW we expect to come live in 2019 pushes through,we are still forecasting a tight supply beginning 2020-21,where we see the capacity needed(peak demand+reserve requirement at 25%)is above the expected available capacity.B
42、y 2024,the gap between capacity needed and expected available capacity will widen to 1,429 MW.This large gap means that the sector will be running its reserves more often,or at levels of baseload run.With this,we can expect a high risk of periods of shortage since there are few reserves left for nor
43、mal course outages for some plants.Previous scenario:2020 to be in oversupplyFigure 7:Demand-supply outlook by DOE in 2018Figure 8:Demand-supply outlook by CS in 20187,50012,50017,50022,500201720182019202020212022SurplusAdditional Capacity NeededAvailable CapacityTotal Committed Capacity(MW)7,5009,5
44、0011,50013,50015,50017,50019,50021,500201720182019202020212022SurplusAdditional Capacity NeededAvailable CapacityTotal Committed Capacity(MW)Source:Department of Energy,Credit Suisse estimates Source:Department of Energy,Credit Suisse estimatesRecall that in end-2017,the sector had an available capa
45、city of 15,395 MW.We estimate around 500-700 MW only came live in 2018 vs the governments forecast of 1,634 MW.Further,we initially expected 800+MW as well in 2019 vs the governments 2,300 MW.Before 2018,there was over 8,600 MW of committed capacity with the majority to come during 2018-191,634 MW i
46、n 2018 and 2,300 MW in 2019 However,the sector ended 2018 with an estimate of only 15,915 MW of the available capacity,an addition of only 500-700MW By 2020-21,despite 1,900 MW to come in 2019,we still expect a tight supply situationOf the 8.6 GW committed projects,only 800 MW came in late 2017-18 a
47、nd over 2 GW did not materialise22 April 2019Philippine Power Sector6With our already conservative view then,coupled with initially assumed demand growth of only 3%,we were initially expecting the oversupply situation to come in 2020 with committed projects to be delayed to 2020.The DOEs projections
48、 estimated an oversupply even in 2018 and to be more prominent in 2019.From our initial committed power-plant projects,retrieved from the DOE in September 2017,there was a total of 8,630 MW of expected capacity to come in until 2025.Of the 8,630 MW,only 555 MW came in late 2017 and only 219 MW in 20
49、18,while 2,000 MW projects did not materialise,according to the updated DOE list recently(see Figure 19).Figure 9:Summary of committed projects by DOE last Sept-2017(8,630 MW)Project nameProject proponentKey stakeholdersLocationTypeCapacity(MW)Target completion(DOE)Limay Power Plant Project Phase II
50、SMC Consolidated Power Corp.SMCLuzonCoal300Unit 3Dec 2017Unit 4Dec 2019Pagbilao Coal-Fired Thermal Pagbilao Energy Corp.LuzonCoal420Dec-2017San Buenaventura Power ProjectSan Buenaventura Power Ltd.Co.MERLuzonCoal500Dec-2019Masinloc Expansion ProjectSMC Consolidated Power Corp.SMCLuzonCoal300Dec-2019
