Thai Solar Energy

Thai Solar Energy Plc (TSE) 

 

Investment Thesis

We recently hosted an exclusive non-deal roadshow with TSE, from which the feedback we grabbed was promising despite the tepid renewables outlook. The firm has secured 11.5MW additional Japanese solar farm PPAs and its remaining projects are progressing faster than we had anticipated. Its operating solar farms and rooftops in Thailand have also shown improved performance YoY. With 11.5MW in additional PPAs and scheduled commissioning of projects that will be earlier than expected, we now revise our target price up to Bt5.10. 

The valuation is based on DCF sum-of-the-parts (SOTP) with a conservative WACC of 9.7% where our model only includes PPA-secured projects (4.5MW solar thermal and 80MW solar PV farm, 14MW solar rooftop and 36.5MW Japanese solar farm projects). Other potential projects will remain upsides to our forecast and target price. The stock is still trading at rock bottom—a steep discount to even the most conservative valuation method. TSE also remains the cheapest pure renewables player listed on the SET. We reiterate our BUY rating.

Glittering performance and progress on secured projects

For 9M15, the firm’s 10 Bt6.5 adder solar PV farms (80MW) have shown 18% increased output YoY while its 14 solar rooftop projects (14MW) at various The Mall and HomePro branches have demonstrated output levels consistent with expectations. For its Japanese operations, TSE now has 36.5MW of PPAs—an additional 11.5MW. The company has CoD’d its first Japanese farm while the remaining greenfield projects and acquisitions are progressing faster than anticipated. The 20-year offtake contracts range from “Feed-in Tariffs” of JPY32 (~THB9.36) to JPY40 per unit. Investment costs range between Bt100-150m per MW, which include land acquisition, equipment and transmission-line construction, sustaining their project IRRs at between 8-10%, in line with our expectation.

Limited downside, unlimited upside

TSE’s pipeline projects include three 8MW biomass power plants, up to nine co-operative solar farms and more Japanese solar farms—all of which remain as upsides to our valuation and forecast. Its MoU with a large rubber-tree-processing group is sufficient to power three 8MW biomass plants lasting 25 years. 

TSE said it was planning to hold 60% in each and expects to bid for the Bt5.04 FiT PPAs when the 36MW southernmost allocations open for bidding—the ERC indicates a 2Q16 timeline. Its nine (44MW) qualified co-operative solar farm applications in the central and eastern regions also remain intact. With the ERC’s additional review of disqualified applications, TSE also expects two more (10MW) originally disqualified applications to also return to the bidding pool, leaving it as one of the larger qualified players in this round of co-operative bidding.