Ratchaburi Electricity Generating Holding

Ratchaburi Electricity Generating Holding Plc (RATCH)

2Q13 profit to drop 25.4% qoq due to Fx loss
We project 2Q13 net profit at B1.6bn, falling 25.4% qoq. The main factor is recognition
of Fx loss as baht weakened; debt in JPY and SGD on the main plant estimated at
B400m and debt in USD on subsidiary companies' plants: Hongsa, RPCL and Nam
Ngeum 2, estimated at US$890m. Thus, 2Q13 share of profit from investment in
subsidiary companies (TECO - RATCH holds 50% shares, RPCL - RATCH holds 25% and
Hongsa - RATCH holds 40%) faced B123m loss, compared to B529m profit in the
previous quarter. However, 2Q13 total profit is not likely to drop drastically due to the
following: 1) EGAT ordered to run power plants at 100% capacity due to seasonal
effect, as electricity demand usually increases during summer, boosting available
payment of the main plant by 13.1% qoq, as well as available payment of subsidiary
companies (TECO and RPCL) due to seasonal effect. 2) Interest expense is expected to
drop 19.4% qoq, as RATCH had refinanced B250m from B350m of the debt, so interest
rate decreased 1%. 3) Unrevealed extraordinary income was recognized, which we
projected at B700m. Overall, we project 1H13 net profit at B3.7bn, dropping 22.8%
yoy, representing 53% of FY2013 earnings forecast.

- 2H13 norm profit likely to weaken due to seasonal effect and major shutdown plan
We will revise down FY2013-2014 earnings forecast after RATCH announces its
earnings result in order to reflect 2Q13 net profit that is likely to be lower than
predicted, as well as income from power plants in next 1-2 years. We project 2H13
norm profit to fall due to decreasing electricity demand compared to 1H13 on seasonal
effect, as it is raining season in 3Q13 and winter in 4Q13. Moreover, major overhaul
has been scheduled in 3Q13: thermal power plant unit 1 for nearly 2 months and cogeneration
power plant unit 2 during mid-September to early November, continuing in
4Q13 for thermal power plant unit 1 and RPCL for nearly 2 months. Thus, 2H13
available payment is likely to drop implicitly from 1H13, as there was no major
shutdown in 1H13.

- Recommend "BUY”, investment plans in Japan and Australia likely to be concluded in 2H13
We evaluate fair value at end-2013 (DFC) at B61.90. We reiterate "BUY" for its longterm
growth potential from its present projects and M&A investment expansion
strategy both locally and internationally. In late-3Q13, investments on 3 projects of
solar-power plants in Japan with total 45 megawatt capacity (which RATCH aims to
hold 40% shares) and expansion plan on alternative-power (wind and solar) plants in
Australia would reach conclusion. Average dividend yield is projected at 4.3% p.a.