CK Power

CK Power Plc (CKP)

Defensive with growth traits

Investment thesis
We have initiated coverage on CKP with a BUY rating. Based on the PPAs of its existing projects, we have derived a YE13 DCF target price of Bt18. The IPO price of Bt13 indicates a 28% discount to our DCF value (against a peer mean of 10%), which we believe prices in CKP’s relatively low expected dividend yield of 1.3% versus a peer yield of 4.1% for FY13. We have identified the following four major investment themes (see our full IPO report “Not just defensive! Spectacular scope for growth”, May 21).   

Theme #1—The best Thai Utilities growth play
CKP’s current in-hand capacity allocations mean that it has the best generating capacity expansion profile within Thai Utilities space—an FY13-17 CAGR of 10% versus a 3% peer mean. Its raft of projects also translate to the strongest bottom-line growth—a forecast 5-year CAGR of 69%, FY13-17. The commencement of BIC2 in June 2017 is forecast to top up CKP’s earnings by 22% in FY18 and full-year contributions from XPCL (following the acquisition of an equity stake) and the NB1 unit could make for almost double the profit in FY20 than in FY18, based on our projection.

Theme #2—Substantial scope for value accretion
We believe investors will come to fully realize substantial value accretions, once CKP’s raft of projects become operational—BIC2 (June 2017) and NB1 and XPCL (both FY19). The firm schedules ground-breaking for BIC2 in FY14, a PPA with Electricite du Laos (EDL) is currently in-process for NB1 and XPCL is currently under construction with COD scheduled in the current PDP. The three projects are together forecast to add Bt6.7/share to our DCF value.

Theme #3—Most leveraged to hydropower expansion in Laos
CKP is the best hydropower play within Thai Utilities space. Parent firm CK has a strong track record in hydropower project development as a developer, arranger and contractor and also has a two-decade presence in Laos. The government of Laos has to date signed MOUs or is undertaking research studies for a total of 70 hydropower projects, of which 30 are either operational or under construction. The implication is that almost 70% of the technically exploitable hydropower capacity in Laos is still open for development.

Theme #4—Expansion opportunities for renewable energy capacity
Thailand’s Alternative Energy Development Plan has recently revised up renewable energy capacity to 13,927MW (from 9,201MW) during 2012-21. But development progress has so far been much slower than the trend necessary to achieve the target. As of YE12, total operating renewable capacity was only 1,572MW. Taking into account projects with PPAs in-hand, the currently on-hand capacity totals 5,073MW, 8,854MW below that of revised generating capacity plan—there is currently a lot of renewable generating capacity up for grabs.