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Friday, July 14, 2000

HEI stock
loses power after
profit warning

A loss from an electric
plant in the Philippines
sends shares down 6%

By Russ Lynch


Shares of Hawaiian Electric Industries Inc. fell about 6 percent today after the company said a loss from an electric power operation in the Philippines is likely to result in lower second-quarter corporate earnings.

Hawaiian Electric Industries The stock closed at $32.81 on the New York Stock Exchange, down $2.12. The trading volume, 365,800 shares, was more than three times the daily average for the last six months.

The company announced after the market closed yesterday that its international operation, HEI Power Group, expects to report a net loss of $8.8 million for the quarter through June 30, compared with a $1.8 million loss a year earlier. As a result, the parent company said it will report reduced second-quarter earnings and that its full-year earnings also will be lower than last year's.

The announcement led analyst David E. Parker at Robert W. Baird & Co. in Milwaukee to downgrade his opinion on HEI today to "market underperform" from "market perform."

Parker said the new rating was "not really to signal to people that the sky was falling" but to point out that the stock was at a strong level and could slip because of the news.

"I really like the company," Baird said. "The stock has done extremely well this year," but some longer-term investors might want to take a profit now, he said.

Parker said he expected some selling when he saw the new earnings forecast and that was taking place today. He said he finds no fault with HEI's policy of investing in power operations in the Pacific area.

Before today's dip, HEI shares had gone up 24.6 percent since the start of the year. It is now up 13.6 percent for the year.

Prior to yesterday's announcement, analysts who follow the company had an average HEI earnings estimate of 71 cents a share for the second quarter and $3 a share for the full year. In 1999, HEI reported earnings of 71 cents a share for the second quarter and $2.88 for the full year.

HEI said an improvement in Hawaii's economy is helping the rest of its operations, such as the electric utilities in Hawaii and American Savings Bank, but the overseas losses are cutting into overall returns.

Unless there is a significant improvement in oil prices and in currency exchange rates, the operation in the Philippines will not reach its targeted returns for 2001 or 2002, the company said.

HEI invested $87 million in the Philippine business, East Asia Power Resources Corp., in March, buying a 46 percent interest in the publicly traded company from El Paso Energy International.

The business has been hurt by high fuel oil costs, but EAPRC is putting into place new strategies and has bought fuel contracts, setting the price it will pay for 80 percent of the fuel it will need this year, HEI said.

HEI Power Group, a subsidiary formed in 1995, already had an investment in the Philippines. In 1998 and 1999, it built up a 20 percent ownership in Cagayan Electric Power & Light Co.

HEIPG has now invested about $180 million in overseas operations, not all of which have worked out well.

In 1996 it pulled out of a Cambodia venture after months of work failed to complete about a joint-venture agreement. In May of this year, the company announced it may have to pull out of a coal-fired power generating business in China, where it has invested $25 million so far. The Chinese partners had failed to arrange to connect the plant to a power grid.

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