GLOW Energy
Weak, as anticipated; a recovery expected in Q1 2012 BUY (maintained) Target Price: Bt64.00 Price (30/01/12): Bt53.75
GLOW Energy Plc (GLOW)
Numbers as expected: GLOW reported poor earnings for 4Q11 of Bt707m, down by 22% QoQ and 37% YoY. The result was in line with our estimate and the street. A heavy FX loss of Bt328m was the major drag on the bottom-line (the 3Q11 FX loss was only Bt214m).
Results highlights: Apart from the FX loss, exceptionally high energy payments—particularly the cost of gas—and slower electricity sales, which were dampened by the flooding during the quarter, hit hard on GLOW’s operational performance—EBITDA margin fell to 18.9% in 4Q11 from 23.7% in 3Q11. However, recognition of Bt546m in compensation for the GHECO-One construction delay mitigated earnings downside. Stripping out extra items, core profit was only Bt490m, down sharply from Bt1,123m in 3Q11. On the balance sheet front, the D/E ratio has already peaked and started to decline—from 2.0x at end-Sept 2011 to 1.9x at YE11 (GLOW’s internal policy ceiling is 2.0x).
Outlook: We remain positive on the 1Q12 outlook, despite the scheduled 30-day maintenance shutdown of GLOW’s IPP during the quarter. As the waters have receded, we believe the firm’s cogeneration units’ sales will have picked up. Furthermore, a reversal of the Ft charge (from negative Bt0.06/unit to a break-even number, effective Jan 2012) will mitigate the effect of high gas costs.
What’s changed? We maintain our FY12 profit forecast of Bt6,901m, which implies earnings growth of 66% YoY. Our number is conservative, as we assume that the flood-hit co-generation business performance won’t stage a full-fledged recovery till 2H12 and the Gheco-One project will start operating in 2Q12. In our view, the variables in our model are skewed toward profit upside, particularly the cost of gas, which is likely to decline in tandem with MS’s forecast oil price retreat.
Recommendation: GLOW remains our preferred pick within the Thai Utilities sector for its superior earnings growth profile and scope for dividend upside. Signs that the cogeneration business performance is recovering and/or a decline in the cost of fuel would prompt a further re-rating, in our view.
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