Electricity Generating

Electricity Generating Plc (EGAT)

Investment thesis
EGCO remains our preferred pick within Thai Utilities space. Although the FY14 NPAT outlook is for slight slippage (while RATCH and GLOW will see flat to slight growth), its dividend yield remains superior at 4.7%, versus a 4-4.4% mean for readily-comparable counters. Post-FY16, NPAT will shoot up more than 45% from FY13, buoyed by the start-ups of a raft of projects. Amid the prevailing uncertainty over the sector’s future capacity growth, we believe the possibility of new coal-fired tenders, a PPA extension for REGCO and the inking of an expansion for Quezon will boost EGCO’s share price. 
FY14 NPAT to decline slightly—but a strong bounce in FY17
Based on EGCO’s existing raft of projects, the prospects for NPAT are trending downward for FY14 through FY15. We anticipate a 3.1% YoY dip to Bt6,894m, due largely to declining per-unit Availability Payments for affiliates. But the firm will see solid growth in FY17, once projects under construction start operating—a new 900MW KEGCO (2016), three SPP units (2016-17) and a 106MW wind farm (2016). The projects will boost EGCO’s YE17 equity capacity by 1,307MW, or 29% of its current operating capacity—management guides that NPAT will exceed Bt10bn.  
Possibility of coal-fired expansion 
The govt aims to open 2,000MW of coal-fired IPP capacity to tender under the new PDP, which is to be released in early 2014. BLCP is one of the strongest contenders, as it has the largest coal-fired IPP with a proven track record of public acceptance and that its current facilities could accommodate another 1,000MW. But the current political conflict may slow up plans. The project’s viability is also of concern—the investment cost would be more expensive than a typical brownfield project. The firm would need to spend extra to modify its existing plant and equip it will the most efficient generator in order to minimize emissions from the two plants to be in compliance with the Map Ta Phut standard.    
REGCO PPA extension and signing of Quezon expansion 
EGCO has proposed to EGAT that REGCO’s PPA be extended for another five years (it will expire at YE14). The firm expected approval by mid 2014. Management anticipates profit accretion of Bt200-300m/year. A dispute with Meralco (the stated-owned Manila Electric Co) over the shareholding structure has delayed negotiations over the PPA for the 500MW Quezon (Philippines) expansion. EGCO cited that the issue was already resolved and PPA signing is expected by late 1Q14; and COD still by 1Q18—the profit contribution will be about Bt1bn/year.     
Opportunities for acquisitions
There isn’t currently much on the horizon with regard to acquiring operating assets—EGCO targets sealing two solar projects with a combined capacity of 33MW by YE13. But there is more scope for greenfield projects, particularly coal-fired projects. In Malaysia, EGCO has started a feasibility study with a local partner; in Vietnam, it is preparing a bid for a coal-fired project of more than 1,000MW. The result of the tender should be known by early next year.