Glow Energy

Glow Energy Plc (GLOW)

Q4 2012’s net profit to drops only 3.5%qoq, thanks to Ft hike
We estimate 4Q12’s net profit at B1.82bn, dropping 3.5%qoq mainly from the
following factors. 1) Profit from GLOW IPP and Huay Ho power plant would
decrease by 28%qoq and 38%qoq, respectively. GLOW IPP has reached the
limit of operating hours a year according to the contract with the EGAT since
26 December 2012, so it had to stop its production in the last week of
December. Similarly, Huay Ho power plant has reduced its utilization rate to
only meet the year’s target according to the contract with the EGAT. 2) CFB2
(a 150-MW coal power plant) undertook a longer maintenance shutdown than
planned, so the EGAT did not pay the availability payment in November 2012.
3) A few big customers of GLOW (around 10% of total revenue) have lowered
their power purchase because their plants had had a problem and had to stop
operating for 2 weeks. 4) In December 2012, Gheco-one power plant could
operate at only 50% of its total capacity of 660 MW, making the revenue
contract by B100m. However, in 4Q12 there is still an important supporting
factor to reduce the fall of overall profit, which is a rise in margin of power
sale to industrial customers following the Ft hike. Margin of a gas power plant
will increase by 18%qoq to stand at B0.47/KWh and by 10%qoq to
B1.95/KWh for a coal power plant. Overall, net profit in FY2012 is projected
at B5.8bn, escalating 66%yoy, in line with the current forecast.

Q1 2013’s profit to grow qoq. Profit to make new high in 2013
We project 1Q13’s profit to grow from 4Q12 due to following contributions. 1)
The big customers of GLOW will resume a normal operation in this quarter. 2)
CFB2 will resume its full capacity after the 1-month maintenance shutdown in
4Q12. 3) Gheco-one will resume a full capacity after it had to reduce its
utilization rate to only 50% in December 2012. 4) Ft rate in January – April
2013 will be raised by B0.04/KWh, boosting margin of power sale to the
industrial sector. Overall, the business outlook of GLOW remains bright in
2013; the profit will make a new high as supported by these positive factors:
1) Gheco-one will operate at a full capacity by 10.5 months (because there
will be a planned shutdown of around 1.5 months in 2Q13), compared with
only 4 months in 2012; 2) margin of power sale to industrial customers will
increase following the Ft hike; 3) Cost of coal, a raw material, has decreased
by 26%yoy to stand at only US$85/ton, making margin of the coal power
plant increase; 4) the company will recognize income from the 110-MW GLOW
SPP 12 for a full year (the commercial run has started since 12 December
2012).

Hold to receive dividend. Highest PER among peers and regions
Fair value at end-2013 is B75.25/share. We recommend only “hold to receive
dividend”. PER in 2013 is as high as 14.4x, compared with the sector’s
average of 11-12x. Moreover, in 1-2 years ahead there is still not a project to
create significant adding value for the company. The only hope is the upside,
from the new IPP auction of which the winners will be announced by 2013. If
GLOW wins an auction for a 1,000-MW power plant, fair value of the stock will
increase by B6-8/share; we have still not included this issue in our forecast.