Samart Corporation

Samart Corporation Plc (SAMART) 

What’s new?    

SAMART’s board approved the issuance of up to 201.3m units of SAMART-W1 warrants, to be allocated to existing shareholders on a pro rata basis at a ratio of five existing shares to one warrant. SAMART-W1 will have an exercisable life of three years; its exercise price is Bt45/share. The proceeds from the exercising of warrants will help fund domestic and overseas energy projects. The XW date is Feb 11, 2015.

Warrant proceeds to help fund Cambodian power plant in 2018

The proceeds from the warrants will be used to help fund a 2,000MW coal-fired power plant project in Cambodia with a 20-year Power Purchase Agreement. The power plant will come under a subsidiary, SAMART U-TRAN. Construction is expected to start in 2H15. 

Assuming Bt100bn CAPEX (US$1.5m per MW) for a 2,000MW coal-fired power plant and a debt to equity (D/E) ratio of 3x for the project, Bt75bn would be debt and Bt25bn equity. Hence, the Bt9.1bn in proceeds from exercising warrants would be part of the Bt25bn equity funding. There will also be private placements to strategic partners. The firm plans to spin off SAMART U-TRAN within the next three years.      

No share dilution until March 2018

The 16.7% share dilution won’t happen until SAMART-W1 is exercisable in March 2018. Assuming debt funding during 2H15-2017, SAMART’s D/E ratio would reach 2x at YE15 and 2.5-3x during FY16-17, which would still be below the debt covenant ceiling of 3x for the power plant project. Equity funding from warrant exercise would bring down the D/E ratio to below 3x in FY18.  

Bt18-20/share upside from the 2,000 MW coal-fired power plant

We have preliminarily run a DCF model for the power plant. Assuming that 1,000 MW runs in its first year of operation (July 2018-June 2019) and 2,000 MW in the second year (July 2019-June 2020), it would generate Bt30bn in revenue in the first year and Bt60bn in the second year. Assuming a NM of 7%, the power plant would generate net profits of Bt2bn in the first year and Bt4bn in the second year. If SAMART were to spin off SAMART U-TRAN and dilute its equity stake to 60%, it would boost SAMART’s FY19 consolidated net profit by Bt2.5bn (adding 50% to its bottom-line). Our sum-of-the-parts valuation could rise by Bt18-20/share (up by 55-60% to Bt52-54). 

Our current model and target price don’t yet include upside from this project or from four possible garbage power plant developments. We will factor them in during 1H15. Our BUY rating stands, premised on an FY15 earnings recovery, led by SIM and SAMTEL, and scope for earnings forecast upgrades from a series of domestic garbage power plant projects and a PPA for a coal-fired power plant in Cambodia.