Ratchaburi Electricity Generating Holding

Ratchaburi Electricity Generating Holding (RATCH)

2Q12’s net profit double qoq, thanks to extraordinary items from RAC

RATCH announced 2Q12’s net profit at B3.29bn, soaring 110.7%qoq, beating
our projection due to extraordinary items of B1.85bn we have not included in
our forecast. The extraordinary items are 1) profit of B784m from a sale of
long-term investment in Loy Yang A, a 2,180 MW coal power plant in which
RATCH-Australia Corporation Ltd (RAC) holds 14% stake and 2) profit of
B1.07bn from cancellation of a power purchase contract of RATCH-Australia
Colliville in which RAC holds 100% stake. Norm profit stood close to our
projection, while the increase in net profit has not resulted only from the
above-mentioned extraordinary items but also following factors. 1) Revenue
in 2Q12 has grown 44.9%qoq due to seasonal benefit from the summer in
which EGAT ordered RATCH power plant to operate at a full capacity. 2)
Share of profit from investment has jumped by 141%qoq. And 3) Dividend
income from EDL-Gen power plant (Electric de Laos) in which RATCH holds
10.1% stake has been recognized at B106m. Accordingly, net profit in 1H12
stood at B4.86bn, rising 57.5% from the same period last year and
accounting for 84% of our FY2012’s forecast.

Up 2012’s forecast. 2H12’s profit to weaken slightly on seasonal effect

We revise up our profit forecast for FY2012 as detailed in the table in order to
reflect extraordinary items in 1H12. However, norm profit is projected to
soften in 2H12 due to a low season after already making the year’s high in
2Q12. Nevertheless, there is still a supporting factor to prevent profit in 2H12
from a severe plunge, which is hiking revenue from RAC from an increase of
shareholding from 68% to 80% since July 2012 onward. Yet in the long run
RACTH will continue with its investment expansion as planned. The projects
that will create significant value added to the company are mainly in other
countries, such as RAC, EDL-Gen, Hongsa power plant, and hydroelectric
power plants like Nam Ngum 3, Xe-Pian, and Xe-Namnoy. Overall, with the
investment expansion, total production capacity of RATCH will increase
21.7% by 2018 to stand at 6,680 MW. Moreover, there is still the hope for
the company to win the bidding for IPP in late 2012. Preliminarily estimating
under a replacement cost method and using an assumption for power plant
construction cost of US$800,000/MW (facilities cost excluded) and D/E ratio
of 3:1, if RATCH wins the auction for 1 power plant, its fair value will increase
by B3.72/share or 6.7% from the current fair value.

Buy. To outshine peers in next 3-5 years

Under the new forecast, fair value at end-2012 (DCF) is B55.16/share (from
B54.71). We reiterate to buy as the upside is still high at 19% with dividend
yield expected at 5%p.a. on average. Moreover, the company outshines
peers from its current projects that will generate growth to profit base in the
next 3-5 years.