Electricity Generating
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2Q12 net profit increases significantly QoQ
2Q12 net profit increases significantly due to
extraordinary item while norm profit stabilizes
3Q12 profit projected to stabilize in high level before
weakening in 4Q12 along with season
Aim to invest when price weakens… upside could rise due
to IPP auction
CGR
Estimate & Fair Value
New Old %chg.
Net Profit (Bm) 10,709 6,058 76.8%
EPS (Baht/Share) 20.21 11.43 76.8%
Fair Value (Baht/Share) 119.57 118.45 0.9%
Assumptions
2012F
Source : ASP Research
2Q12 net profit increases significantly due to extraordinary item
while norm profit stabilizes
EGCO’s 2Q12 net profit stands at B6.27bn or an increase of 271.3% QoQ
mainly as a result of recognition of extraordinary profit at B4.31bn from
revaluation of fair value of Quezon power plant in the Philippines that EGCO
has 52.125% of shareholding before an additional purchase of shares by
45.875% on 11 June 2012 according to the accounting standard. Moreover,
there’s recognition of FX gain at B271m. However, 2Q12 norm profit has
increased only by 3% QoQ mainly as a result of profit sharing from
investment in subsidiaries that has risen only by 25.4% QoQ to B1.9bn along
with better profits of every power plant that EGCO is holding stakes which are
BLCP, KK2, Nam Theun 2 and Quezon. The total operating results of Rayong
power plant (REGCO) and Khanom power plant (KEGCO) have declined while
Khanom power plant faced a loss of approx B40m which is in keeping with
the contract of power purchase made with EGAT (PPA). As the expiration of
contract is about to come (REGCO in 2014 and KEGCO in 2016), the income
from availability payment will decrease which might not offset the cost,
possibly resulting in net loss. Overall, 1H12 net profit stands at B7.96bn or
an increase of 167.8% from the same period of last year, higher than FY2012
we’ve projected earlier.
3Q12 profit projected to stabilize in high level before weakening
in 4Q12 along with season
We revise up our 2012 net profit forecast to reflect an extraordinary item in
asset revaluation of Quezon power plant in 2Q12 as mentioned above.
However, norm profit from operation in 2H12 still tends to weaken from 1H12
due to the pressure from 4Q12 operating result that is projected to decline to
the record low of the year along with the seasonal effects. Since 4Q12 is the
time that the power plant will not run for full quarter as most power plants
have already been demanded by EGAT to fully run to complete the contract
capacity since the first 9-11 months of the year. There will not be an income
from availability payment in the last 1-2 months of 2012. In addition, BLCP
(EGCO possesses 50% shareholding) normally has one month of
maintenance shutdown in the 4th quarters, pushing profit sharing from joint
venture to drop in 4Q12. Meanwhile, norm profit from operation in 3Q12 is
projected to stabilize close to one in 2Q12 due to profit recognition from
Quezon power plant for 98% in proportion for the first full quarter, likely to
offset the tendency of gradual fall for profits in Rayong and Khanom power
plants.
Aim to invest when price weakens… upside could rise due to IPP
auction
Under the new forecast, fair value, using DCF, at end-2012 is B119.57/share
(from B118.45/share). The current market price has only 5% upside from
2012 fair value. In a short term, we recommend investing when price
weakens due to the long-term look in which EGCO is a high-potential power
provider that will win the new round of IPP auction. Entrepreneurs are
projected to be able to hand in bidding prices in the late of 2012 and the
result of the auction will be announced in early 2013. In case EGCO wins the
auction for 1 power plant, fair value will increase by approx B10.18/share,
preliminary evaluated by a method of replacement cost under an assumption
that the cost of power plant building stands at US$850,000/megawatt (cost
of facilities not included) and D/E ratio at 3:1.
