Ratchaburi Electricity Generating Holding

Ratchaburi Electricity Generating Holding (RATCH)

Expand investment in Australia to generate new robust investment base
RATCH revealed an investment strategy of focusing mainly on overseas investments,
especially in Australia. Recently, the company has decided not to join this round of IPP
auction because it is not ready in terms of an area for the new pipeline; as the new IPP
will use LNG as a main raw material, the pipeline must be built in the East of Thailand
near the LNG terminal source, but most of RATCH’s land is in the West. For an
investment expansion in Australia, now RATCH is conducting a feasibility study for
joining an auction for a power plant in Australia with total capacity of 4,000 MW, which
will start in late 2013. This round of investment would be a joint venture with an
international partner with which the company is negotiating. Moreover, RATCH also has
a plan to expand an investment in renewable power plants, both solar and wind energy,
which are now encouraged and supported by the Australian government. Lately, RATCH
has requested the Australian government for a license for constructions of 2 power
generation projects with total capacity of 350 MW; the license is projected to be granted
in late 2013. Investments in the renewable power projects in Australia are now giving
very high returns because the construction cost has decreased to US$3m/MW and
US$2m/MW (for a solar power plant and a wind power plant, respectively), while the
power selling price in Australia remains high at US$9/KWh (or B3-4/KWh of Thai tariff).
Accordingly, we believe the investment expansion in Australia would generate value
added for RATCH in the long run.
1Q13’s profit surges 150.2%qoq as projected. Continuous growth foreseen in 2Q13
RATCH posted 1Q13’s net profit at B2.15bn, jumping 150.2%qoq due to following
contributions. 1) Ratchaburi power plant could resume a normal operation of every unit,
so gross margin from the core power plant grew 122.1%qoq. 2) Shares of profits from
subsidiaries skyrocketed from B17m in the previous quarter to B529m as a result of
resumption of TECO and RPCL’s power plants for a full capacity. Moreover, in this
quarter the company has booked income and profit from all 8 projects of Solarta solar
power plant, with a total capacity of 34.25 MW, for the first full quarter (the commercial
run has commenced since November 2012). At the same time, the company has also
recognized income from Huay Bong 3 and 2 wind turbine power plants with total
production capacity of 207 MW (RATCH holds 20% stake), which have started
commercial runs since November 2012 and February 2013, respectively. In addition, as
a result of the Baht appreciation, there was a FX gain from Hongsa power plant (RATCH
holds 40% stake) and RPCL which had Dollar debts. 3) RATCH booked a dividend income
of B130.15m from its investment in common shares of EDL-Generation Plc (EDL Gen). 4)
There was a massive FX gain of B448m from the Australian Dollar and Yen debts.
Overall, 1Q13’s net profit comprised 30% of our FY2013’s forecast. We still maintain our
forecast, projecting the norm profit in 2Q13 to stabilize at a high level close to that of
1Q13 on a benefit from the high season (summer).
Buy. Promising growth potential from new investment plans
2013’s fair value (DCF) is B61.90. We reiterate our BUY recommendation. Although the
current upside is limited, RATCH still has additional upside from new investment projects
overseas, especially Australia. Average dividend yield is estimated at 3.9%p.a.