Worth noting:

  • The Company’s business development mainly focuses on REDC’s hydropower projects upon listing
  • The Company is worth as high as P1.13 to as low as P0.53
  • The Company appears to be properly valued at P1.62
  • A person with knowledge on renewable energy and hydropower business is the best person to invest in this stock

The story behind:

Pure Energy Holdings Corporation (“PEHC” or “PURE”) has a limited operating history, being incorporated only on May 21, 2013 and is involved in renewable energy (RE) and water supply and distribution business. It is a holding company which currently has three (3) wholly-owned subsidiaries, namely:

  1. Repower Energy Development Corporation (“REDC”) – RE developer of mini-hydropower projects. In order to ensure reliance and effectiveness of its projects, the company has engaged the services of: Manny M. Vergel III of Vergel3 Consult, Inc., widely-known father of mini hydropower in the Philippines and Filipino World Bank consultant for the hydropower industry; and GHD, world-renowned energy consulting firm to validate hydrology feasibility studies done by Vergel3 Consult, Inc.

Substantially all of PURE’s business plans and strategies depend highly on REDC’s Hydropower Service Contracts (HSCs)1 – contracts with the clients of the company where they earn revenue. Basically, this is the life of the company. Any cases of inability or failure to meet the obligations of REDC and its assignee/s to the HSCs may result to the termination of the contract, which may have a significant effect on the finances and operations of the business. Further, since REDC has not yet fully established its business – it was incorporated on the same year as PURE – its growth strategy (mentioned in its prospectus) will place significant demands on its management.

  1. Pure Water Corporation (“Pure Water”) – bulk water provider, distribution utility, and waste treatment service provider.

Pure Water was incorporated four (4) years ago, making it limited in track record and still in need for an efficient and proven growth strategy, and of future financing given that Tubig Pilipinas and Princess Urduja are funded through equity capital. There can be no assurance that these entities will be able to obtain sufficient funds at reasonable terms which may have a material adverse effect on the development of its businesses. 2 This is something to watch out for, as to how the management will meet the demands of the business.

BBWI and Princess Urduja, being in the business of bulk water supply and distribution, are highly reliant on the volume and quality of water from its deep wells and rivers, which to a high extent may be affected by the El Niño phenomenon that may lead to lack of water volume and lower production. To secure adequate water supplies, before starting any project, industry experts and World Bank consultants assist to conduct in depth analysis on all water sources, flow analysis, and geo-resistivity on all water sources.

  1. Pure Geothermal Corporation (“Pure Geothermal”) – an RE developer of geothermal projects. Pure Geothermal is in the pre-development stage.

In the audited 2016 financial statements of the company, the following are the stockholders of the PURE:3

On July 2016, Dexter Y. Tiu transferred almost all of his shares to DYT Equities Corporation, a company 100% controlled by him. He retained only 10 shares on his name.

The credentials of the owners and management of the company should be considered as we will have an idea on how their finances and operations will be handled as the company goes into IPO. Dexter Tiu who is the controlling interest of PURE is concurrently the president and CEO of PHILPODECO, the company that operates the oldest operating mini-hydropower plants in the country since 1927.4

PURE is planning on developing its operations through its subsidiaries. Listed below are in the company’s plans for business development upon listing:

  • Equity portion of project financing of REDC’s hydropower projects
  • Acquisition of existing hydropower projects
  • Enter into new joint ventures with other HSC developers
  • Operating and working capital infusion

Valuation:5

In my perspective, the value of PURE lies on the expected asset to be infused to the Company. Using the conservative assumption, we can arrive at an estimated book value of P0.25.

Using relative valuation, we could have price to book value (P/BV) range between 2.09 P/BV multiple of EDC to 4.49 P/BV multiple of MER or a valuation of P1.13 to as low as P0.53.

Business development to watch for:

PURE focuses on developing its business through its subsidiaries, mainly on financing and acquiring existing hydropower projects for REDC’s. You should watch out also for the new joint ventures that REDC will enter into with HSC developers. If you have idea on the assets of renewable energy and hydropower businesses, you may be in the best position to assess and consider to invest in the company.

Disclosure: All that we say is not a recommendation to BUY or SELL but treat our blog as a tool to aid you in your investment decision making.

Position: I do not own any shares mentioned above but plan to take position on PURE in the future.

Sources:

  1. PURE Preliminary Prospectus Dated December 2016, Investment Considerations and Risk Factors, p. 32, https://goo.gl/rTzq9b
  2. PURE Preliminary Prospectus Dated December 2016, Investment Considerations and Risk Factors, p. 44, https://goo.gl/rTzq9b
  3. PURE Preliminary Prospectus Dated December 2016, Ownership Structure, p. 66, https://goo.gl/rTzq9b
  4. Pure Energy Management Team, https://goo.gl/TTpNv4
  5. PURE 2016 Financial Statements, https://goo.gl/isVWTR

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