Utilities

Utilities

New IPP bid wins could spur share prices

Earnings performance should recover after the weak 4Q12
Results of IPP bidding to be announced in June could spur share prices
Minimal impact from gas supply shortage to IPPs.

Play on new IPP bidding overdone. Market appetite for utilities companies has
increased sharply over the past six months with the share prices of utilities stocks in
SCBS universe up by 16%, outperforming the +1.9% for the energy sector and in line
with the market’s +17%. This reflects market anticipation of new IPP bidding, with
results possibly announced in June. We maintain our view that market optimism on
this bidding, especially for EGCO, is overdone. This also reduces EGCO’s attractiveness by
bringing dividend yield to below 4%. Although we believe this positive factor will
continue to influence share prices in the near term, these stocks have limited
attractiveness. We rate the sector as Neutral with the top pick as GLOW.
1Q13F: QoQ recovery expected. We expect 1Q13F earnings to recover from the 4Q12
nadir, with operating profit rising YoY from businesses acquired in 2012, mostly
renewable power projects and mainly for EGCO and RATCH. Higher electricity dispatch
by EGAT also implies higher revenue from Energy Payments, with power companies
able to gain marginally from higher fuel consumption efficiency than contracted.
Key event for 2Q13F is the result of new IPP bidding. We expect 2Q13 to be an
exciting quarter for the power generating business, specifically for IPPs, as the winners
in the new IPP bidding will be announced in June. As with previous bidding rounds in
1995 and 2007, competition is intense with more than 80 Request for Proposals sold by
the regulator. All three big listed power companies - EGCO, RATCH and GLOW - will
definitely compete as they work to sustain growth. A new power entity in the PTT
group formed by the amalgamation of TOP’s IPT and PTTGC’s PTTUT will intensify the
contest, as it will have a competitive edge in terms of gas supply and funding.
Minimal impact from gas supply shortage to IPPs. Another key issue in 2Q13F is
the gas disruption during the maintenance shutdown of natural gas fields in Myanmar
in April, which has been hitting headlines since early in the year, giving rise to concerns
of brownouts or even blackouts – since April is peak for electricity demand. Demand
this year is expected to rise to a record of 27,000MW. IPPs should be immune, since
their plant availability remains untouched. Higher energy cost caused by the
replacement of gas with diesel and bunker oil will be absorbed by EGAT, which will
eventually pass this on to the general public via higher electricity tariff.
TTW: 2012A up on operation and one-off gain. TTW’s 2012A net profit grew 14.5%
YoY due to a 7% increase in core profit. A rise of 7.2% YoY in demand plus tariff hike of
3.5% for TTW and 4% for PTW and higher other income more than offset a rise in
interest expense and tax. TTW booked Bt152mn in one-off tax refund for PTW.
TTW: 2013 better profit on one-off gain. TTW’s profit is anticipated to grow 9.5%
due to rising demand, tariff hike, higher contribution from CKP and another Bt328mn
one-off tax refund, all of which will more than offset rising interest and tax expenses.