Utilities

Utilities

3Q13A earnings recap: helped by lower FX loss. Lower FX loss helped support
utilities net profit to rise 39% QoQ, with more profit contribution from startups of new
plants and newly acquired assets behind the 36% YoY rise in core profit, especially for
GLOW and EGCO. Among these companies, EGCO outperformed peers with core profit
growth of 79% YoY after it acquired more shares in Quezon power plant in June 2012 as
well as in other renewable power plants.
4Q13F outlook: low season for power companies. 4Q13F earnings for power
generating companies is likely to weaken QoQ seasonally since most of the contracted
available hours (CAH) under PPAs for each year are usually completed by late
November to early December. This implies that their plants are idle for the remainder
of the year, time used for maintenance to take advantage of the lower demand for
electricity. At the same time, over time, the greater capacity of renewable power
plants added into portfolios, primarily solar and wind, will help lessen the usual QoQ
decline. Note that these two types of renewable power usually perform equally well in
the fourth quarter.
New PDP could be released in 1H14. Since the last revision of Thailand’s Power
Development Plan (PDP) in June 2012, the market has been expecting the Ministry of
Energy to release the new version of PDP after a long delay. We believe the weakening
demand for electricity caused by slower economic activities and domestic politics is
behind the delay. According to an industry source, the new PDP could be published in
1H14, and is likely to include new coal-fired IPPs. However, demand growth for
electricity is decelerating and the authorities may have to find other rationale to
convince the public of the necessity of coal-fired power plants to diversify fuel sources.
Further, gaining public acceptance of coal-fired power plants in the face of
environmental concerns remains the key challenge.
TTW: 3Q13A beat on BoI tax privilege. 3Q13A net profit was Bt825mn, +32% YoY and
+58% QoQ. Growth QoQ came from the operational turnaround of CKP due to rising
production, lower interest expense and smaller FX loss. Tax expense was a negative
Bt10mn as the company used its tax privileges under the BoI’s program for plant
improvement after the floods for May 27-September 30. It also booked a Bt113mn
gain from CKP: Bt3mn from the sale of 1mn shares and an accounting gain of Bt110mn
on change in value of investment.
TTW: 4Q13F weaker. Without the prior quarter’s extraordinary gains and higher
taxes from three months of BoI tax privileges versus four months in 3Q13, earnings will
drop QoQ in 4Q13.
TTW remains top pick on dividend yield. Without near-term catalysts in the sector,
our stock pick focuses on dividend yield. On this count, we still prefer TTW with
expected dividend yield of ~6% for the next three years vs. 3-4% for power companies.
The company will also deliver an outperforming earnings growth in 2014F.