The basis of our BUY recommendation on Citicore Renewable Energy Corporation (CREC) is the future growth of its renewable energy platform, not its near-term earnings prospects. This is reflected in the outsized contribution of our fair value (FV) or target price estimate for its pipeline to our estimate for the whole company. <\/p>\n\n\n\n
With this in mind, the comparison of its earnings-based ratios against companies that already have an established portfolio of power generation assets would be an unfair exercise. Given that our earnings forecasts for CREC are not good for the next three years, the company\u2019s EV\/EBITDA and P\/E multiples are unattractive when put side-by-side with its direct comparable ACEN and a semi-comparable company like AP. <\/p>\n\n\n\n
Our Target Price of P3.26 would yield a 2024 EV\/EBITDA of 47.9x, against ACEN\u2019s 29.6x and AP\u2019s 8.6x. However, we expect CREC\u2019s EV\/EBITDA ratio to move closer to ACEN\u2019s in the next three years as earnings growth starts to catch up. Similarly, CREC\u2019s negative P\/E ratio will not win it any points against ACEN and AP.<\/p>\n\n\n\n
CREC is the renewable energy arm of Citicore Power, Inc., an affiliate of MWIDE. It is
also the REIT sponsor of CREIT and leases land from CREIT for its solar farms. The company currently has only 118-MW of installed capacity but is set to embark on a very aggressive expansion that will exponentially increase its net attributable installed capacity to 7,188-MW in the next few years. A vast majority of this additional capacity will be solar (6,778-MW), along with some onshore wind (813-MW) and run-of-river hydro (26-MW).<\/p>\n\n\n\n
We forecast revenues to grow by 44.3% and 46.1% in 2024 and 2025 respectively, while COS & OPEX, including depreciation and interest expenses, would increase by 103.1% and 48.1% in the same period. Revenue growth will likely overtake expense growth in 2026, but the company is unlikely to report profits until 2027. We also expect free cash flow to remain negative from 2024-2026 as capex spending exceeds cash flow from operations.<\/p>\n\n\n\n
After the challenging period of 2024-2026, we forecast CREC\u2019s net income to grow by a CAGR of 25.6% from 2027 to 2029 before settling into a more sustainable 4.5% growth beyond our forecast years. Bulk of valuations come from pipeline of projects.<\/p>\n\n\n\n
Using the DCF method, we arrived at a fair value estimate of P3.26 per share for CREC, making it a BUY given the 20.6% potential upside. <\/p>\n\n\n\n
The offer is made even more attractive by the massive 30.4% discount of the final offer price (P2.70) to the initial maximum indicative price of P3.88. Our FV estimate of CREC\u2019s pipeline projects accounts for P1.45, or 56.8% of the total excluding CREC\u2019s 32.88% ownership stake in CREIT.<\/p>\n\n\n\n