University of St.

La Salle

Aboitiz Power Corporation

Managerial Economics

Members:

Bacusa, Robert

Claveria, Marissa Jem

Dinsay, Delfin

Nanagad, Maria Lyn

BABA 2-B
Company Profile

“In everything that we do, we are able to create a better future to our customers, our
host communities, and our nation."

Aboitiz Power is the holding company for the Aboitiz Group’s investments in
power generation, distribution, retail and power services. Incorporated in the year 1998,
the company has several hydroelectric and geothermal assets in its generation portfolio
and also has non-renewable power plants located across the country. Aboitiz Power
also owns distribution utilities that operate in high-growth areas in Luzon, Visayas and
Mindanao.

MISION

We in Aboitiz Power consider it our responsibility to provide reliable and ample

power supply when needed, ensure that the supply of electricity is provided at a
reasonable and competitive price, and lastly accomplish the first two duties with the
least possible adverse effects on our environment and our host communities.

CORE VALUES

Our Core Values guide every decision we make, every action we take. Our Core
Values of Integrity, Teamwork, Innovation, Responsibility, and Service Excellence
define who we are and these values drive everything that we do in the organization.

SUBSIDIARIES:

 Visayan Electric Company Inc. (Visayan Electric) is the second largest

distribution utility in the Philippines. It serves the cities of Cebu, Mandaue,
Talisay, Naga and four municipalities of the greater part of Metro Cebu – Liloan,
Consolacion, Minglanilla and San Fernando.
 Davao Light and Power Company (Davao Light) is the third largest privately-
owned electric utility in the Philippines. It holds the franchise for distributing
electric power to Davao City, the largest city in the world in terms of land area, as
well as Panabo City and the municipalities of Carmen, Dujali, and Sto. Tomas in
Davao del Norte.

 The EnerZone Group (EnerZones) is comprised of four privately-owned electric

distribution utilities that specifically operate the distribution system of an
economic zone Subic EnerZone is responsible for operating the Subic Bay
Freeport Zone power distribution system. Mactan EnerZone is a spin-off of the
power distribution system of Mactan Export Zone II. Balamban EnerZone, a joint
venture between AboitizLand and Tsuneishi Heavy Industries Cebu, Inc., is the
power distribution utility of the West.

 Cebu Industrial Park-Special Economic Zone. Lima EnerZone operates the

distribution system of Lima Land, Inc. which is a Philippine Economic Zone
Authority-registered economic zone in the Lipa-Malvar area of Batangas.

 San Fernando Electric Light and Power Co., Inc. (SFELAPCO), a franchise in the
City of San Fernando, Pampanga, covers an area of 78,514 square kilometers.
There are 35 barangays in the City of San Fernando. The franchise area also
covers the municipalities of San Isidro and Cabalantian in Bacolor, Pampanga.
Financial Statements

A. Statement of financial position

Aboitiz Power Corporation

Statement of Financial Position
As of December 31, 2018

Assets:
Current Assets P 88,708,607
Non-Current Assets 300,953,569
Total Assets P 389,662,176

Liabilities and Stockholder’s Equity:

Current Liabilities P 46,815,020
Non-Current Liabilities 206,270,489
Total Liabilities P 253,085,509

Retained Earnings P 108,487,738

Stockholder’s Equity 28,088,929
Total Liabilities and Equity P 389,662,176
B. Statement of Financial Performance

Aboitiz Power Corporation

Statement of Financial Performance
For the Year Ended, December 31, 2018

Gross Income P 131,572,084

Less: Operating Expenses 95,075,420
Net Income Before Tax P 28,359,123
Less: Tax 2,925,623
Net Income After Tax P25,433,500
V. Economic Value Added Computation and Analysis

EVA = Net Income After Tax - (Total Assets - (Accounts Payable + Accruals))(Weighted
Average Cost of Capital)

EVA = P 25,433,500 - (P 389,662,176 - 46,815,020)(6.62%)

EVA = P 2,737,018.27

Economic Value Added measure is a metric of how well it has performed over a
given period of time compared to how it could have performed. A positive EVA implies
that the shareholder’s wealth is increasing while a negative EVA is a sign of poor
company performance. Economic Value Added is important because it is used as an
indicator of how profitable company projects are and it therefore serves as a reflection
of management performance.

Aboitiz Power Corporation’s economic value added of P 2,737,018.27 which is

positive implies that the company is indeed performing well or the shareholder’s wealth
is increasing. The company therefore had a return which is actually above the cost of
capital because EVA’s computation goes beyond net income which includes cost of
capital. Moreover, results of EVA are less certain if the proportion of intangible assets of
a certain company is greater than the other assets. Accordingly, Aboitiz Power
Corporation’s intangible assets are not significantly huge which makes the economic
value added more reliable.
Aboitiz Power WACC % Calculation

The weighted average cost of capital (WACC) is the rate that a company is
expected to pay on average to all its security holders to finance its assets. The WACC is
commonly referred to as the firm's cost of capital. Generally speaking, a company's
assets are financed by debt and equity. WACC is the average of the costs of these
sources of financing, each of which is weighted by its respective use in the given
situation. By taking a weighted average, we can see how much interest the company
has to pay for every dollar it finances.

WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)

1. Weights:

Generally speaking, a company's assets are financed by debt and equity. We

need to calculate the weight of equity and the weight of debt. The market value of equity
(E) is also called "Market Cap". As of today, Aboitiz Power's market capitalization (E) is
$5499.408 Mil. The market value of debt is typically difficult to calculate, therefore,
GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding
the latest two-year average Short-Term Debt & Capital Lease Obligation and Long-
Term Debt & Capital Lease Obligation together. As of Jun. 2019, Aboitiz Power's latest
two-year average Short-Term Debt & Capital Lease Obligation was $512.95632728 Mil
and its latest two-year average Long-Term Debt & Capital Lease Obligation was
$3568.32902821 Mil. The total Book Value of Debt (D) is $4081.28535549 Mil.

a) weight of equity = E / (E + D) = 5499.408 / (5499.408 + 4081.28535549) = 0.574

b) weight of debt = D / (E + D) = 4081.28535549 / (5499.408} + 4081.28535549) =

0.426

2. Cost of Equity:

Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the
Market - Risk-Free Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is
updated daily. The current risk-free rate is 1.77000000%. Please go to Economic
Indicators page for more information.

b) Beta is the sensitivity of the expected excess asset returns to the expected excess
market returns. Aboitiz Power's beta is 1.04.

c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market
premium. GuruFocus requires market premium to be 6%.

Cost of Equity = 1.77000000% + 1.04 * 6% = 8.01%

3. Cost of Debt:

GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year
average debt to get the simplified cost of debt.

As of Dec. 2018, Aboitiz Power's interest expense (positive number) was

$229.849517002 Mil. Its total Book Value of Debt (D) is $4081.28535549 Mil.

Cost of Debt = 229.849517002 / 4081.28535549 = 5.6318%.

4. Multiply by one minus Average Tax Rate:

The latest Two-year Average Tax Rate is 12.345%.

Aboitiz Power's Weighted Average Cost of Capital (WACC) for Today is calculated as:

WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)

= 0.574 * 8.01% + 0.426 * 5.6318% * (1 - 12.345%)

= 6.62%

* All numbers are in millions except for per share data and ratio. All numbers are in their
local exchange's currency.
Market Value Added Computation and Analysis

MVA = (Price Per Share)(Shares Outstanding) - Book Value of Equity

MVA = (P 17.36) * (7,358,604,307) - P 28,088,929
MVA = P 127,717,281,841

Market Value Added or MVA represents the difference between the market value
of the company and the capital that the investors have paid into the company. In other
words, MVA is a wealth metric which measures the level of value a company has
accumulated over time. Market value of the company is to be differentiated from MVA
because market value will always be positive while market value added may be positive
or negative.

Given the result of MVA with a positive amount of P127,717,281,841, It is evident

that the company has a good market value added. It implies that the company was able
to accumulate value of the company along its operations and therefore was able to
meet the primary goal of a firm in general which is to increase shareholder’s wealth.
Moreover, since that the book value of Aboitiz Power Corporation is P28,088,929, it can
be assumed that the Stock Value of the company is P127,745,370,770.

Conclusion

Overall, both economic value added and market value added are common ways
an investor can assess a company's value. EVA is useful as a way to measure a
company's economic success over a specific period of time while MVA is useful as a
wealth measure, assessing the level of value that a company has built up over a period
of time. Therefore the company’s result of large positive MVA can be justified by the
company’s EVA for the year 2018 which turns out to be good. Moreover, it can be
evidently concluded that the company is indeed increasing shareholder’s wealth by just
looking the computation economic value added and market value added since both
results are positive.
 Appendices

https://aboitizpower.com/about-us/

http://edge.pse.com.ph/companyInformation/form.do/

https://www.gurufocus.com/term/wacc/ABZPF/WACC-/Aboitiz-Power-Corp