Glow Energy

Glow Energy Plc (GLOW)
2Q13 profit to decline 53.3%qoq…due to Fx loss
We estimate 2Q13 net profit at B1.16bn, falling 53.3%qoq mainly from a Fx loss of
B882m from the Baht weakness because Gheco-One has USD debt of as much as
US$400m. Excluding the item, the norm profit would decrease only 4.6%qoq to
B1.93bn. Despite a 48-day (18 May – 5 July 2013) maintenance shutdown of
Gheco-One (GLOW holds 65% stake) for a warranty inspection, the earnings in
2Q13 would still stand close to that of 1Q13 at B400m because of a positive factor,
which is recognition of extraordinary income of B170m from a change of capacity
charge on seasonal effect that has been postponed from 1Q13 to this quarter.
Moreover, a profit from Huay Ho and GLOW IPP power plants in 2Q13 would almost
double from 1Q13 to B100m and B470m, respectively, thanking to increasing
capacity of Huay Ho and increasing income of GLOW IPP as a result of the Baht
depreciation. At the same time, earnings from the co-gen power plant would
decline around 16.8%qoq to B1.2bn because of a technical problem of CFB3 power
plant that resulted in a lower utilization rate from 90% to 80%. Moreover, gross
margin from power selling would decrease slightly following Ft in May-August that
has dropped by B0.05/KWh, depressing margin of gas and coal power plants by
1.85%qoq and 2.38%qoq to B0.53/KWh and B2.05/KWh, respectively. Overall, we
estimate 1H13 net profit at B3.66bn, increasing 76.6% from the same period last
year and representing 47% of our FY2013 forecast.
- 2H13 to grow from 1H13. Full-year growth expected at 41%yoy
We maintain our forecast. Under an assumption that a retrospective tax payment of
Gheco-One on Fx gain from USD loans since the beginning of the plant construction
in 2008 until the current tax year will not be booked in the income statement but in
the balance sheet as a cash and advance payment to the Revenue Department
instead. Regarding this issue, Gheco-One has had to pay B595m in retroactive tax
payment plus accrued interest in 2Q13. However, the company would file a request
to court to ask for the money back, which would take around 2-5 years to complete
the process. However, we estimate the norm profit in 2H13 would grow from 1H13
because Gheco-One would increase its utilization rate from 1H13 in which there
were a technical problem and a month and a half maintenance shutdown for
warranty inspection. Moreover, although the power plant has resumed its utilization
rate since 6 July, there was a problem at the heater so it still could not operate at a
full capacity, but only 75% or around 500 MW of the total 660 MW. Nevertheless,
the overall utilization rate would still be higher than that of 1H13. Preliminarily, we
project the maintenance to take around 1-2 months, while other power plants
would operate at a full capacity without maintenance shutdown plans. Accordingly,
overall, we estimate FY2013 net profit with the remarkable growth of 41%yoy.
- Hold to receive dividend. Upside limited at only 7%. Dividend yield projected at 4.4% p.a.
Fair value at end-2013 is B75.25/share. We recommend only “hold to receive
dividend” (dividend yield estimated at 4.4% p.a. on average) because the current
share price has only 7% upside left. PER in 2013 remains high at 13.3x, compared
with the sector’s average of 10x. Moreover, in 1-2 years ahead there is still not a
project to create significant adding value for the company.