Thai Solar Energy

Net profits better than estimate

TSE reported 3Q14 core revenue of Bt241m (up 20% QoQ) and a core net profit of Bt111m (up 44% QoQ), as its solar farms steadies and solar rooftops started to go online. The net profit was in line with our estimate, but core earnings exceeded our expectation by 49%.

Results highlights

As TSE’s first three solar rooftops are COD’d and its solar farms completed a full operational quarter, we see revenue and net profit grow naturally. Operational revenue was Bt241m, as expected. However, interest expenses were only Bt42m for 3Q14, below our estimate of Bt62m, plus deferred tax from losses of Bt13.9m was also booked. Note that the planned start-ups of seven solar rooftops have been postponed to next year.

Outlook

Although seven solar rooftops are now to COD in 1H15 rather than this year, as originally planned, there isn’t any obvious risk, as their PPAs are all secure and installation has been completed. We expect the firm’s net profit to increase going into next year, as debt is being repaid and more projects are commencing operations. Renewable energy in general (and solar in particular) remains a white-hot industry that continues to benefit from government support.

What’s changed?

As TSE’s 3Q14 performance was in line with our estimate and having factored in the delayed start-up dates for the seven solar rooftops, we expect FY14 revenue of Bt952m.

We hadn’t accounted for deferred taxes on previous losses and our interest expenses assumption was too high. Thus, we have revised up our FY14 bottom-line forecast to Bt950m. Our core earnings projection is Bt436m. Our numbers for FY15 are Bt1,221m in revenue and Bt722m in core profit.

Recommendation

Despite TSE's valuation being quite stretched—FY15 PER of 23.1x and Bt209.0m/MW versus a renewable energy industry mean FY15 PER 21.4x and EV/MW of Bt209.0m/MW, we believe that prevailing market enthusiasm for the industry will support the stock price. As mentioned in our initiation report, TSE has scope for 126MW of additional capacity, which we believe would add Bt0.09 per MW under the current pricing method.

We have downgraded our rating to HOLD from BUY as we believe that TSE’s current valuation may be slightly stretched, buoyed by the current renewables environment.