CK Power
Solid FY14 results, FY15-16 growth profile squeezed by Xayaburi
CK Power Plc (CKP)
Profit was In line with our estimate
CKP posted the best operational quarter of FY14—a core net profit of Bt231m for 4Q14, up a whopping 135% QoQ and 73% YoY. The result was in line with our expectation and the consensus. However, we were disappointed at the miserly DPS of Bt0.10 (we had assumed Bt0.27), which implies a 0.6% yield (XD on March 13; payment on April 27).
Results highlights
4Q14 was a great operational quarter for CKP. The late rainfall boosted Nam Ngum 2’s (NN2) ability to generate power and end-of-year energy account settlements made it the project’s best top-line yet of Bt1,091m. Bangpa-In Cogeneration 1 (BIC 1) signed up new industrial customers in 3Q14 and clear winter skies meant exceptional operations for solar farms. But CKP booked a Bt110m loss on financial instruments for 4Q14, making the FY14 bottom-line 6% lower than the FY14 core profit. The dividend payout is low, due to CKP having to set Bt244m in statutory reserves (so implies a 51% payout of net profit after reserve-setting).
Outlook
CKP’s next major project COD is in 2017, so its FY15-16 top-line profile is subdued. Interest expenses will decline sharply in FY15-16, but the effect on EPS will be outweighed significantly by dilution caused by a rights offering and losses at the Xayaburi dam after CKP acquires it from CK in 3Q15 (assuming that shareholders approve the RO and purchase at the next AGM). Capital-raising will endow CKP with a lot of cash, which it may use to acquire one or more brownfield projects, in which case there would be scope for revenue and earnings growth during FY15-16.
What’s changed?
In the absence of brownfield acquisitions, CKP’s operational numbers are expected to be broadly flat during the next two years. An FY15-16 bottom-line CAGR of 19% is forecast, FY15-16, driven entirely by interest cost savings (mitigated by losses tied to the Xayaburi dam). As noted above, the 41% dilution effect from new share issuance to fund the Xayaburi acquisition will mean lower EPS till the project starts generating revenue in FY19.
Recommendation
The burden tied to the early transfer of Xayaburi coupled with CKP’s paucity of projects scheduled to COD during FY15-16 will generate negative sentiment toward the stock. We believe that Xayaburi’s start-up will add Bt7.0 to CKP’s valuation, but it’s still too soon to factor it in. Thus we maintain our HOLD rating with a YE15 target price of Bt18.
