Thai Solar Energy

Thai Solar Energy Plc (TSE)

 

Investment Thesis

We reiterate our BUY rating on TSE. The stock is now trading at its steepest-ever discount to intrinsic value. With an all-time low enterprise value per secured equity MW (EV/MW) of Bt106m/MW, this also implies that TSE is the cheapest pure renewables player in the SET-listed universe. Investors buying into the stock would be gaining a value equivalent to the firm’s investment cost for its assets. 

Our target price of Bt8.10 only considers income from its operating solar farms (52.5 equivalent MW), solar rooftops (14MW) and secured Japanese solar farms (30MW), with its co-operative solar farms, biomass and other overseas projects remaining as upsides. Also, we see its downside as very limited due to the resilient nature of solar farm income and the firm’s minimum guarantee contract with its EPC and O&M operators—a great opportunity to buy in at a bargain price.

Clearer picture for co-operative solar

Although management confirmed that it would no longer be pursuing any uncommissioned solar farm PPAs, its 69MW co-operative solar farm applications in the central and eastern regions remain intact. We suspect a sizable number of applicants will be disqualified after the Dec 11 announcement (over 60%). If TSE remains in the qualified pool, its higher chance of winning co-operative solar PPAs should provide a short-term catalyst for the stock price as well.

Good progress on Japanese solar farms

The company has CoD’d its first Japanese farm while the remaining greenfield projects and acquisitions are on track. The 20-year offtake contracts range from “Feed-in Tariffs” of JPY32 (~THB9.36) to JPY40per unit. Investment costs range between Bt100-150m per MW, which include land acquisition, equipment and transmission-line construction. This implies decent project IRRs of between 8-10%.

Biomass MoUs signed

TSE has recently signed a joint venture MoU with a large-scale lumber trader, whose supply would be sufficient for three 8MW biomass plants lasting 25 years. TSE said it is planning to hold 60% in each project and expects to bid for PPAs when the 300MW southernmost allocations come up for grabs—the ERC indicated a March 2016 timeline. The firm will also be looking to pursue CLMV expansion along with its long-term partner, GPSC.

High quality operating assets, generating high quality income

Investors should take note that TSE’s operating solar farms are under the Bt6.5 adder tariffs and most have only operated at most for three years. These farms also have a minimum output guarantee by its EPC and O&M providers that should greatly limit TSE’s earnings downside. With the current valuation, its implied 2016 dividend yield and PER are also at 3.2% and 12.6x—extremely attractive for a renewables player.