Habagat rains and flooding reopen food inflation risk

From AB Capital's The Opening Bell: Three Moves

Event

First Philippine Holdings Corp. (FPH) rejected KKR's nonbinding P35/sh proposal to acquire an additional 8.43% stake in First Gen Corp. (FGEN) and launch a tender offer for the remaining public float, saying the offer did not reflect FGEN's true value. The stock fell 11% yesterday after trading as much as -19% intraday.

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The rejection is near-term negative as it removes the immediate tender catalyst, but also signals that management believes FGEN is worth more than P35/sh. Recall that Indonesian geothermal player Barito also made a US$5 billion equity-value offer for Energy Development Corp. (EDC), implying P38/sh for FGEN's EDC stake alone. These proposals, in our view, highlight the strategic value of FGEN's energy asset base.

Catalyst

We would watch for a potential counter proposal from KKR, interest from other potential buyers, and further developments on Barito's EDC offer. The key risk is that none of these transactions materialize, leaving FGEN without a clear near-term value-unlocking catalyst.

Action

We expect FGEN to remain volatile and headline-driven as investors await further developments on the potential transactions. We would remain cautious and wait for clearer evidence of value unlocking.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.