[BRN] A Brown Co. Inc.
As I published my speculative stocks list, you will noticed that I added A Brown Co. Inc. (BRN) on December 13, 2017. Why investing in BRN? The potential of BRN to boost their intrinsic value, long-term growth and return of investment (ROI) will be immeasurable. Here are the reasons why.
TECHNICAL VIEW
From my technical point of view, EMA crossed MA and RSI is in uptrend territory. This is supported by parabolic stop and reverse (SAR ) at 0.97 in an uptrend position as well, while buying signal shown in green arrow is an indication that 0.92 is the new support level and a retest from its previous resistance level of 1.42 will be highly expected soon. Added 850M at 1.04 ~ 1.05 price range. I will update my speculative portfolio list on a weekly basis. Watch out!
FUNDAMENTAL VIEW
Renewable Energy: According to president and CEO Roel Castro, BRN is entering the renewable energy sector with around 120 megawatts (MW) of hydropower projects under development. He added that the company has several hydropower projects in the development stages and more focused on hydropower developments since these can be used as baseload power.
“It’s at different development stages. But we’re looking at a total of about, right now on development, 120 MW. If I’m not mistaken, that’s around 10 projects,” he said. Mr. Castro further said that baseload power plants are power generating facilities that can operate reliably and efficiently generating electricity 24 hours a day, seven days a week.
“We are looking more at hydro. For one, solar is already full as far as FIT (feed-in tariff) is concerned. More importantly, given the profile of the grid, adding more intermittent power…would not be helping both commercially and technically,” Castro added. The hydropower projects will be undertaken by A Brown with partner Rebisco Group, but the project company is still in the works.
“It really depends on the joint venture partner. But for now, it remains with the partnership that we have, the same partners with PCPC (Palm Concepcion Power Corp.) as well as for Peakpower Energy Inc. (PEI),” Castro said. PCPC, a joint venture between Palm Thermal Consolidated Holdings Corp. (PTCHC) and Jin Navitas Resource Inc. (JNRI), is the project company for the 2x135-MW coal-fired power plant project in Concepcion, Iloilo and it has put up a 135-MW coal plant which started commercial operations on August 16, 2016.
Meanwhile, PEI has 55 MW of bunker-fired power plants, serving various electric utilities in General Santos, Agusan del Sur, and part of Bukidnon. It is eyeing to develop around 70 MW additional peaking capacity across the country next year.
Rusatom Healthcare: BRN and partner Rusatom Healthcare, a division of Russian State Atomic Energy Corp. Rosatom, will build a network of agro irradiation centers in the Philippines starting 2018 to improve the country’s agribusiness sector. The two firms have entered into a framework agreement, which was signed by BRN president and CEO Roel Castro and Rusatom Healthcare deputy general director Rustam Rakhmatulin during the 26th Mindanao Business Conference last September 9, 2017.
The deal affirms the commitment of both parties to move toward project execution, which is to construct a network of agro industrial centers. The center will provide commercial services of product treatment with ionizing radiation. It will also serve as a research platform for radiation technology and its impact on various product properties. Agricultural irradiation involves treating produce with a low dosage of ionizing radiation to eliminate bacteria and germs, prevent the spread of pests, and delay or prevent ripening or spoiling during transit and storage. The process reduces the risk of foodborne illnesses and increases longevity and shelf life. Since there is no direct contact with the radiation source, irradiated food does not become radioactive.
Mr. Castro expressed his confidence in the project, while acknowledging the importance of information campaigns and activities to enhance public awareness about nuclear technologies. “These technologies unlock exciting opportunities for various industries. They help to save food and modify materials for industrial solutions. A Brown’s experience in infrastructure project development and agribusiness, combined with Rosatom’s experience in nuclear technology as well as the continued support of the Duterte government, will help to further drive innovations in the country,” he said.
The team-up will undertake feasibility studies by end-2017 and will commence design, engineering surveys and construction of the center in 2018. Rusatom Healthcare CEO Denis Cherednichenko said they would offer “a turn-key solution in radiation technologies, which include the design and construction of irradiation centers, manufacture and delivery of equipment, personnel training, and commissioning of the center. With our more than 70 years of experience, we hope the technologies we offer will contribute to the sustainable development of the Philippines,” he said.
The framework agreement was signed in the presence of Russian Ambassador Igor A. Khovaev and Philippine Chamber of Commerce and Industry president George Barcelon. President Duterte was the keynote speaker at the conference. The trade deal is pursuant to the memorandum of cooperation signed by BRN and Rosatom subsidiary Rusatom International Network last June 20 in Moscow.
Bunker-Fired Power Peaking Capacity: Peakpower Energy Inc. (PEI) is a subsidiary of BRN plans to add another 70 megawatts (MW) of peaking capacity across the country after focusing its developments in Mindanao, a top official said. The company sees potential in developing another 60-70 MW of peaking plants in Luzon, Visayas and Mindanao next year, PEI president and chief executive officer Roel Castro said.
“Actually there are still prospects for next year. I just couldn’t say where because we haven’t signed any contract yet. If I’m not mistaken, a potential of another 60-70 MW,” he said.
Peaking plants are power facilities that run during peak hours to meet the sudden surge in power requirements in a grid. For this year, PEI will complete the expansion of its existing peaking plants in Mindanao.
“All expansion should be finished within the year, so that would bring us to a total of 55 MW of peaking plant in Mindanao,” Castro said.
Under Peakpower Soccsargen Inc., PEI has completed the 13.9-MW expansion for the existing 20.9-MW diesel/bunker-fired power plant in Gen. Santos City.
“Our expansion is done; in fact, we have the provisional COC (certificate of compliance) for that. What I think is it’s a matter of weeks when we will declare commerciality. Well, after some technical tests are done,” Castro said.
Another PEI unit, Peakpower San Francisco Inc. is doubling the capacity of its 5.2-MW diesel/bunker-fired power plant in San Francisco, Agusan del Sur. Castro said the project will also start commercial operations after completing technical tests. Lastly, Peakpower Bukidnon Inc. is constructing a new diesel-fired power plant with a capacity of 10.4 MW in Manolo Fortich, Bukidnon. Castro said the expansion project is in the final stage of development and should be ready for commercial operations within the year.
“We are in the final stage of performance test but we’re scheduling it next month, in November. After that, that should be ready for commercial as well,” he said.
East West Railway Project: Blaze Capital Limited – 100% owned by BRN, Blaze Capital Limited is a British Virgin Islands company, incorporated and registered on August 8, 2011. It was acquired by BRN on May 22, 2017. Blaze Capital Limited has a 33.33% ownership in East West Rail Transit Corporation (EWRTC) which is part of a consortium for the East-West Railway Project.
The Consortium, composed of EWRTC and Alloy MTD Group (represented by MTD Philippines Inc.), has submitted an unsolicited proposal to the Philippine National Railways to finance, build and then operate and maintain the East-West Rail Project. The East-West Rail Project is an integrated light rail mass transportation system and is intended to help alleviate the gap in the transportation infrastructure in the metropolis. This project is in line with the objective of the government to increase the ratio of rail transport systems to the rocketing ridership demand in Metro Manila and other major urban cities. The Project will involve the development, design, construction, supply, completion, testing, commissioning, and operation & maintenance of the East-West Rail Project that will traverse the corridor of Quezon Avenue in Quezon City and España Boulevard in the City of Manila.
On July 12, 2017, Megawide Construction Corp. was given the option to participate in the PNR East West Railway Project as an additional consortium member subject to certain conditions and approval of the PNR. Currently, the project is under evaluation by the National Economic Authority and the Public-Private Partnership Center (PPP Center).
A Brown Co. Inc. Core Businesses
Real Property Development:
Project Name Location Land Area
Xavier Estates Cagayan de Oro City 288 hectares
Ventura Residences Cagayan de Oro City 5.8 hectares
Xavierville Homes Cagayan de Oro City unknown
Teakwood Hills Cagayan de Oro City 67 hectares
Valencia Estates Valencia City, Bukidnon unknown
Coral Resort Estates Misamis Oriental 5.4 hectares
West Highlands Butuan City 25.9 hectares
Mountain View Homes Cagayan de Oro City 2.3 hectares
Adelaida Park Residences Cagayan de Oro City unknown
Oil Palm Plantation: (Area in Hectares):
Location Gross Area Workable Area Planted Yields Bunches
Kalabugao 1,276.53 1,087.75 920.55
Impasug-ong 4.14 4.14 4.14 400
Opol 1,089.85 630.77 623.27
Tignapoloan 1,328.56 929.96
XE Plantation 43.7 43.7 43.7 3,042
Total 3,742.82 2,696.36 1,591.70 3,442
Palm Oil Mill: A total of 5,835.32 metric tons of Fresh Fruit Bunches (FFB) derived from internal and external sources were processed for the 3rd quarter of 2017, compared to 5,710.79 metric tons in the same period of last year. This is an average of 1,945.11 metric tons of fresh fruit bunch processed per month as against 1,903.60 metric tons of the same period last year. The yield for the 3rd quarter of this year was 1,091.61 metric tons of crude palm oil with an average oil extraction rate of 18.71% as compared to 1,095.75 metric tons having an average extraction rate of 19.26% for the same period last year The kernels that were produced totaled to 36.39 metric tons as compared to 78.81 metric tons of last year.
Refined Bleached Deodorized Oil (RBDO) Plant: For the 3rd quarter of 2017, the refinery produced a total of 455.50 metric tons of RBDO compared to 785.71 metric tons of the same period last year. In addition, 33.10 metric tons of Palm Fatty Acid Distillate was produced and sold 32.98 metric tons in the 3rd quarter of this year as compared to 42.67 metric tons production and 93.67 metric tons sale on the same period of last year. This by product is generated during production of RBDO.
Fractionation Plant: The production of Palm Olein and Palm Stearin started in June 2015. Crude Palm Oil produced is further processed into Refined Bleached and Deodorized Oil, the raw material of Palm Olein and Palm Stearin. In the 3rd quarter of 2017, there were 79.916 metric tons of Palm Olein compared to 614.22 metric tons for the same period last year and 47 metric tons of Palm Stearin compared to 331.14 metric tons for the 3rd quarter of last year were produced. The quantity sold during the 3rd quarter was 72.60 metric tons of Palm Olein compared to 562.97 metric tons and 65.30 metric tons of Palm Stearin compared to 235.15 metric tons for 3rd quarter last year.
Power Generation
Coal-Fired Power Project: Palm Concepcion Power Corp. (PCPC) – 20% owned by PTCHC, Palm Concepcion Power Corporation (PCPC) whose outstanding capital stock has been acquired by Palm Thermal Consolidated Holdings Corp. (PTCHC) in 2010 is the project company for the 135-megawatt coal-fired power plant in Concepcion, Iloilo. In July 2013, the lending banks signed the term loan financing totaling to Php 10B to partially finance the Engineering, Procurement and Construction (EPC) and finance costs of the project. These are China Banking Corporation (Php 3.5B); Asian United Bank (Php 2.5B) and BDO Unibank, Inc. (Php 4B). BDO Capital & Investment Corporation acted as the Lead Arranger and Sole Bookrunner for the term loan facilities. In 2014, the SEC approved the increase in authorized capital stock (ACS) and the Plan of Merger of PCPC and PCHLC, with PCPC as the surviving entity. The merger and the increase resulted to the Company’s 30% equity interest in PCPC. On January 6, 2015, the SEC approved PCPC’s application for another increase in authorized capital stock to 6,000,000,000 shares divided into 1,500,000,000 common shares and 4,500,000,000 redeemable preferred shares both with a par value of P1.00 per share. This reduced PTCHC equity interest in PCPC to 20%.
The plant site and support units are programmed for two (2) units. Project implementation for the first unit is already completed. The power plant has been synchronized with the Visayas grid in coordination with NGCP as of May 2016. PCPC’s full commercial operations started on August 2016, delivering power supply to Panay, Negros, and the rest of Visayas. Ten (10) distribution utilities and electric cooperatives have signed up with PCPC for their baseload power capacity requirements in order to deliver reliable and stable power generation supply to industrial, commercial, and residential consumers. At present, nine (9) out of the ten power contracts with these customers were approved by the Energy Regulatory Commission (ERC) and they are now sourcing their base load power capacity requirements from the Concepcion power plant. The second unit is in the initial stage of pre-construction activities, all requirements for the Environmental Compliance Certificate (ECC) has been submitted to the Department of Environment and Natural Resources (DENR). Construction is estimated to take two to three years after commissioning of the first unit.
Bunker-Fired Power Project:
- Peakpower Energy Inc. (PEI) – 20% owned by BRN, In 2013, Peakpower Energy, Inc. was formed to implement projects designed to generate peaking energy spread across various A+/Green rated electric cooperatives in Mindanao. These are Build-Operate-Maintain and Transfer (BOMT) agreements for brand new bunker-fired engines, which will last for 15 years through its subsidiaries as operating units: Peakpower Soccsargen, Inc., Peakpower San Francisco, Inc. and Peakpower Bukidnon, Inc. · Peakpower Soccsargen Inc. (PSI) – 100% owned by PEI. Peakpower Soccsargen Inc. (PSI) is a 20.9MW Diesel/Bunker-Fired Power Plant located in General Santos City. It has a 15-year BOMT agreement with the South Cotabato II Electric Cooperative Inc. (Socoteco 2). Socoteco 2 is the largest distribution utility in Mindanao and its franchise area includes General Santos City, the municipalities of Glan, Malapatan, Alabel, Makungon, Kiamba, Maasim and Maitum in Saranggani and the municipalities of Polomolok and Tupi in South Cotabato. The Energy Regulatory Commission issued the PSI Certificate of Compliance on December 1, 2014. Commercial operation started on January 27, 2015. PSI has finished construction of its 13.9MW Power Plant expansion. Commercial operations for the expansion commenced last 12 September 2017. Currently, PSI has a total capacity of 34.9MW.
- Peakpower San Francisco Inc. (PSFI) – 100% owned by PEI, Peakpower San Francisco Inc. (PSFI) is a 5.2MW Diesel/Bunker-Fired Power Plant located in San Francisco, Agusan del Sur. It has a 15-year BOMT agreement with the Agusan del Sur Electric Cooperative Inc. (Aselco). Aselco’s franchise area includes the municipalities of San Francisco, Prosperidad, Rosario, Trento, Bunawan, Veruela, Sta. Josefa, Loreto, Sibagat, Esperanza, Talacogon, La Paz, San Luis and Bayugan City. San Francisco serves as the primary commercial and service center in the province of Agusan del Sur, being situatedat the crossroads leading to other production centers in the region. Commercial operation started on March 1, 2015. PSFI has commenced its 5.2MW Power Plant expansion. As of September 30 2017 the power plant expansion is 99.56% complete. Final regulatory and transmission requirements are underway towards completion. Target commercial operations will be last week of November 2017.
- Peakpower Bukidnon Inc. (PBI) – 100% owned by PEI, Peakpower Bukidnon Inc. (PBI) is a 10.4MW Diesel/Bunker-Fired Power Plant located in Barangay Alae, Manolo Fortich, Bukidnon. It has a 15-year BOMT agreement with the Bukidnon Second Electric Cooperative Inc. (Buseco). Buseco’s franchise area includes the municipalities of Libona, Manolo Fortich, Sumilao, Baungon, Malibog, Talakag, Impasug-ong, Malaybalay, Lantapan and Cabanglasan,, all in the Province of Bukidnon. The highlands of Bukidnon is considered to be the food basket of the Philippines and is home to more than a few food processing industries. PBI has commenced its 10.4MW Power Plant construction. The 2 units of Wartsila Engines were delivered last July 2016. As of September 30 2017 the power plant construction is 99.01% complete. Target commercial operations for the plant will be last week of November 2017.
Hydro Power Project:
Hydro Link Projects Corporation (HLPC) - 100% owned by BRN, Hydro Link Projects Corporation (HLPC) has several prospect sites for hydroelectric generation across the Philippines pursuant of BRN’s Vision of energizing the country’s development. HLPC is currently pursuing the Carac-an Hydroelectric Project (CHP) in Cantilan, Surigao del Sur. It is a run-of-river type of hydroelectric development along the Carac-an River, the largest river stream around the Carac-an watershed area. This 16.3MW hydroelectric plant is HLPC’s first foray in the renewable energy market under the auspices of BRN.
Mindanao is rich in natural resources and has a huge potential for renewable energy, especially hydropower. The Carac-an Hydropower Project is in line with the objective of the government to accelerate the exploration of renewable energy resources to achieve energy self-reliance to reduce the country’s dependence on imported fuels. The DOE has granted the Hydropower Service Contract for the exclusive right to explore, develop and utilize the hydropower potential of the Caracan River located in Barangay Lobo and Cabangahan, Municipality of Cantilan, Surigao del Sur. It is the water source of Cantilan National Irrigation System. The irrigation system will not be affected by this hydropower development.
The project covers a drainage area of about 161 sq. km. measured at the proposed dam site. The result of the feasibility study shows that it would necessitate to build a diversion dam with a height of about 42 meters to attain the projected capacity and energy. The water will be diverted to a powerhouse located about four (4) kms downstream via a 4.4-km length of associated headrace and 140-m penstock. The powerhouse will be equipped with two (2) units of 8.15MW (2 x 8.15MW) of Francis Turbine for a total of installed capacity of 16.3MW with an estimated annual energy generation of about 78.9 GWh.
The output of the power station is proposed to be connected to the nearest sub-station of the Surigao del Sur Electric Cooperative II (SURSECO II), located in Madrid Sub-station. Currently SURSECO II has a peak demand of about 13MW. The excess power can be sold to other customer around the Mindanao Grid. The proposed Project, being an indigenous source, can offer a very competitive energy price and is projected to help the stability of power in the area. In the economic terms, the Project can help save the environment by displacing part of the energy generated by fossilfired power plants and can help protect the watershed and its environment.
The Project is also seen as an integral part of the economic development in the area and will further boost the economic and living condition of the constituents. Along with the Hydropower Service Contract (HSC), the project has been granted its corresponding Certificate of Registration. After the Feasibility Study was completed, the project has been presented to the DOE as part of the process in its evaluation on granting the Certificate of Commerciality (COC). The application for Water Permit has also been filed. In the application for water permit, NWRB requires developer the submission of “River System Ecological Study and Sustainability Plan.” This additional requirement of NWRB will be included during the conduct of the environmental study. Likewise, procurement for other permitting and approvals shall follow which include: Environmental Study, Endorsement from NCIP for FPIC, Endorsement and Resolution of Support from LGUs, and Public Consultation. The acquisition of the above approvals is the requirement of DOE in order for the Project to advance to the next phase of project implementation which is the development/commercial stage. Afterwards, the project is ready for construction.
Bulk Water Project:
AB Bulk Water Company, Inc. (ABWCI) - 100% owned by BRN, AB Bulk Water Company, Inc. (ABWCI) was incorporated on March 31, 2015 to engage in the business of holding and providing rights to water to public utilities and cooperatives and in particular to provide bulk water supply in the Municipality of Opol, securing any needed licenses to engage in such business activities and purchasing or otherwise acquiring, for the purpose of holding or disposing of the same, shares of stock, equity, rights, and property of any person, firm, association, or corporation engaged in industries or activities related to water development, paying for the same in cash, shares of stocks, or bonds of this corporation.
ABWCI is pursuing the proposed Bulk Water Supply Project for the Municipality of Opol in Misamis Oriental. The Project which will tap the water resources of Lumayagan River aims to supply about 15 to 20 million liters per day (MLD) of potable water, with potential expansion up to 25 MLD, to cater the present and future requirements of the municipality. Other potential service areas include the neighboring municipalities of Opol – the city of El Salvador, and the municipalities of Alubijid, Laguindingan, and Gitagum. Based on the study, these are potential growth areas. The detailed engineering design of the Project has been completed confirming the technical viability of the project as defined during the pre-feasibility study. The components of the Project include the civil works, electro-mechanical equipment, the soft cost consisting of engineering and administration cost and the right-of-way and other related cost.
These components are directly related to the project implementation and considered as part of the investment. The Groundbreaking ceremony was held in April 2016. The Water Permit has already been granted by the National Water Resources Board (NWRB) in which the board approved the applied quantity required for the project. Likewise, the Environmental Compliance Certificate (ECC) has been secured from the Department of Environment and Natural Resources. The Watershed Management Study was also completed with the involvement of different LGU sectors and stakeholders. The project was submitted to the local government of Opol and is currently being evaluated.
WARNING: Even though I see the potential in power generation specifically renewable energy, most of these projects are in initial development stages. BRN revenue generator is in real properties but I am bearish at this sector. Palm plantation heavily opposed by the natives in the area and their water services is losing money, please refer EXHIBIT 1-B for your guidance. As I always reiterated, invest at your own risk.
DISCLAIMER: I am not a Financial Advisor. Expressed in this blog is my personal opinion only and should not be construed as a recommendation, an offer, or solicitation for the subscription, purchase, or sale of this security.
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