Ratchaburi Electricity Generating Holding

Ratchaburi Electricity Generating Holding Plc (RATCH)

- Growth foreseen from overseas investment
RATCH maintained the outlook for its future growth to depend mainly on
overseas investment expansion. The company has planned to increase
its production capacity by 3,800 MW by the next ten years, apart from
its target to raise the capacity from 5,500 MW at present to 6,500 MW in
2017 using its current projects. Major destination of its investment is
Myanmar (more than 50% of the 3,800 MW), followed by Laos, Vietnam,
the Philippines, and Indonesia; many of those projects are now under
feasibility studies and bidding process e.g. 1) a 200-MW combined cycle
power plant in Mandalay, Myanmar (RATCH holds 60%), which will reach
a conclusion in August 2014, 2) a 30-MW solar farm in Japan, which is
now in a negotiation process, and 3) a wind farm in Australia, which will
reach a conclusion by 4Q14. All these projects are upside to add value to
RATCH in the future.
- Normalised profit to stay high in 2Q14
1Q14 net profit was reported at B2.36bn, skyrocketing 564.0%qoq
mainly because all power plants had resumed their full utilisation rate on
seasonal effect, making gross margin of the major power plant return to
a normal level of B1.8bn. Likewise, shared profit from subsidiaries leapt
dramatically by 748.5%qoq to B416m. In addition, the company also
booked an extraordinary gain of B797.3m on bargain purchase of the
remaining 50% of TECO from Chevron. As a result, 1Q14 net profit
accounted for 37.4% of FY2014 forecast. Preliminarily, we maintain our
previous forecast since the extraordinary gain from TECO deal in 1Q14
has still not been included. Normalized profit is projected to stay high in
2Q14 close to that of 1Q14 because it is still a high season, before
weakening in 2H14 from a major overhaul of the power plant unit 3 for
almost two months and a low season in 4Q14. Nevertheless, normalized
profit in FY2014 would grow continuously by 21.6%yoy because in 2014
there is a planned major overhaul of only one unit, compared with three
in 2013. Moreover, a 210-MW SPP and a 9.9-MW VSPP (RATCH holds
40% stake) are starting their commercial runs this year.
- Regular dividend yield of 4.4% p.a.
2014 fair value is B60. We reiterate to buy RATCH for 15% upside and
4.4% p.a. dividend yield.