Glow Energy

Glow Energy Plc

After several years of planting, GLOW is now approaching the harvest –
with the first and most interesting being GHECO-One, a coal-fired
power plant and the first successful IPP in the second round of IPP
bidding in 2007. We expect the company to deliver strong earnings in
2013F with growth of 51% YoY on a full year of operations at GHECOOne
as well as higher sales to industrial customers from its SPP Phase
5. More upside could come from a further increase in Ft rate.

Positive earning momentum to continue in 4Q12F and 2013F. After a record
normalized net profit (NNP) in 3Q12 we expect this positive earning momentum to run
through 4Q12F and 2013F. Management guided that 4Q12F NNP could surpass 3Q12’s
Bt1.5bn to at least Bt1.8bn, considering the NNP of Bt600mn in Sep. The key earnings
boosters are a full quarter of operations of GHECO-One and the Bt0.48/KWh Ft rate.
This implies that its full-year NNP for 2012 could reach Bt5.4bn as a base case, in line
with our current projection.

2013F profit should remain favorable. NNP could increase to at least at Bt7.2bn in
2013F, based on normal operations in Sep with upside from lower coal cost at only
US$85/t, vs. US$114/t in 2012. This will help raise margin of its coal-fired power plants
to more than Bt2/KWh, vs. Bt1.9/KWh in Sep 2012. The full-year operations of GHECOOne
will be the main propellant for earnings next year despite a 45-day planned
shutdown in 1Q13 to replace some equipment that caused an unplanned outage in
3Q12 right after it commenced operations.

Profit contribution from cogeneration business to recover from SPP phase 5.
We expect utilization rate of its cogeneration power plant to increase, mainly at SPP
phase 5, from ~70% in 2012F to 80-85% in 2013F due to higher sales volume to
industrial customers and full-year impact of firm sales to EGAT under a PPA. In
addition, a return of industrial customers, which were affected by the explosion of
BSTE in May-Oct 2012 will be another driver YoY. BSTE, the key customer for GLOW’s
steam output (10%) remains closed.

Ft rate could be raised further in 2013F despite expected lower fuel cost.
Management views that Ft rate is likely to increase further in 2013F since EGAT has to
make up for the burden of Bt14bn that it has had to carry during past years to
minimize the impact of higher energy price on cost of living in Thailand. This is despite
the fact that lower oil prices could bring energy costs down in 2013F. We estimate that
every Bt0.01 increase in Ft rate will boost GLOW’s profit by Bt40mn/year.

Valuation and recommendation. We maintain our BUY rating with end-2013 TP of
Bt82, offering 20% total return (16% potential capital gain and 4% dividend yield). It is
also possible that the company may decide to raise dividend payments as it has excess
cash now that it has no major investments on hand. Its valuation for 2013F is looking
more attractive with P/E of only 12.8x, compared with 22x of its historical average.