Electricity Generating

Electricity Generating Plc (EGCO)

Event
- We maintain an Outperform rating on EGCO and raise our TP to Bt172 as we roll forward our valuation. We continue to like EGCO on the back of the current IPP bidding where we believe EGCO is well placed to win. We see a successful bid as a catalyst for re-rating to 1.4x P/BV vs 1.2x currently.
Impact
- A top contender: In our view, EGCO is one of the top two contenders in this bidding alongside Gulf JP (not listed). Both have major operations in Thailand, have major Japanese shareholders and as such, access to competitive financing packages from JBIC. However, we view EGCO as having a slight edge in terms of location.
- 1.8GW win likely: While the company has submitted two bids totalling 3.6GW, we believe EGCO is likely to win at least one project (1.8GW) at the REGCO site where the existing plant is scheduled to be retired in 2015. This is due to REGCO’s available infrastructure (such as transmission line) and proximity to an LNG terminal, which means a lower capex requirement for the new plant. We also believe the regulators will view REGCO’s renewal as a low-risk option from permitting and environmental perspectives as compared to a greenfield development. We note similarity to KEGCO in the south, whose concession has already been renewed without an open bid. We have factored in Bt15/sh for a new 1.8GW IPP project in our valuation.
- IPP win a major catalyst for re-rating: While EGCO has outperformed its peers in recent months, in our view a successful IPP bid would be a catalyst for further re-rating. Based on previous bidding, we believe the stock could potentially re-rate to 1.4x 2013E P/BV from 1.2x P/BV currently. On the other hand, given that on our estimates EGCO is already the cheapest in the sector, with a still attractive 4% dividend yield, we see downside risks as limited should the company fail to win a new project from this round.
Earnings and target price revision
- TP raised to Bt172 from Bt166 on rolling forward valuation.
Price catalyst
- 12-month price target: Bt172 based on a DCF methodology.
- Catalyst: IPP bidding result (expected August 2013).
Action and recommendation
- EGCO remains our top pick among Thai gencos given its attractive valuation (1.2x P/BV vs peers at 1.6-2.8x) and likelihood of winning a new IPP project. Maintain Outperform rating, TP raised to Bt172.