Ratchaburi Electricity Generating Holding

Ratchaburi Electricity Generating Holding Plc (RATCH)

Q3 2012’s profit to decrease 37.3%qoq, no extraordinary item recognized

We estimate Q3 2012’s net profit at B2.07bn, dropping 37.3%qoq because in this quarter there is not an extraordinary item like Q2 2012 in which there was a profit from a sale of long-term investment in Loy Yang A power plant and a cancellation of power purchasing contract of RATCH-Australia Colliville in Australia at B1.8bn in total. However, norm profit is projected to drop only
slightly by 7.4%qoq as the availability payment (AP) of local power plants would decrease as a result of a low season after passing the peak season of electricity using in Q2 2012. Nevertheless, there would be benefits from an increase in the company’s shareholding in RATCH-Australia from 68% to 80% since Q3 2012 onward as well as recognition of income from a 15.28 MW solar
power plant (Solarta) from RATCH’s shareholding of 49% for the first full quarter. Overall, we project net profit in 9M12 at B6.93bn, increasing 60.4% from the same period last year and accounting for 93% of our FY2012’s earning forecast.

Likely to revise up 2012-2013’s profit forecast…4Q12’s profit to weaken on seasonal effect

We are likely to revise up our net profit forecast for 2012-2013 after the company announces its Q3 2012’s earnings result in order to reflect a likely better than expected earnings in Q3 2012. At the same time, we will raise our forecast for income from the solar power plant project (Solarta – 15.28 MW capacity) and wind power plant projects Huay Bong 3 and 2 with power generating capacity of 20.7 MW each (from the company’s 20% stake holding) that will commence a commercial run in Q4 2012 and Q1 2013 respectively. Moreover, there are also SSP and VSPP for which RATCH has won the bidding that we have still not included in our forecast, including Khao Kor Wind Farm (60 MW – RATCH holds 55.18% stake), Ratchburi World Cogeneration (224 MW - RATCH holds 40% stake), Nava Nakhon Electricity Generating (122 MW - RATCH holds 40% stake), and Songkhla Biomass Power (9.9 MW – RATCH holds 40% stake). We project earnings outlook in
Q4 2012 to weaken from Q3 2012 on seasonal effect (as domestic electricity usage usually decreases in Q4 2012 which is winter). Moreover, operating hour of majority of the power plants, RATCH, RPCL, and TECO, has already reached the contract limit in the first 9 months of the year, so the operation in the Q4 2012 would decrease, making the AP hit the year’s low.

Raising fair value. Reiterate BUY

We are revising RATCH’s fair value according to the details above. Current fair value at end-2012 (DCF) is B55.16/share. We confirm our recommendation to buy as the company is outshining peers from all the projects in hand that would generate growth for profit base in the next 3-5 years. Dividend yield is estimated at 5%p.a. on average.