Asian Insights SparX Thailand Power Industry Dull performance in secondary market. The share price...

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:CS, PY

GPSC and GUNKUL still lead the pack Stay Neutral on Thai power sector

Excess supply in Thailand continues to reduce

new investment opportunities locally

Two top picks – GPSC and GUNKUL

Stay Neutral on Thai power sector. Investor appetite for defensive stocks like those in the power sector has declined continuously due to its lacklustre growth outlook given the current high reserve margin. We are NEUTRAL on the sector with only two companies still in the buying list, i.e. Global Power Synergy (GPSC) and Gunkul Engineering (GUNKUL).

Recap of power industry in Thailand. The power sector in Thailand has been more active in the primary market during the past two years with at least four new initial public offering transactions with more to come. Some of them are still in the process of listing the shares in the market. Nonetheless, we think that the outlook of the sector remains lacklustre given the excess power supply for at least the next eight years due to slow economic growth. Hence, this report is to recap what investors should know about the sector in general.

Dull performance in secondary market. The share price of Thai power companies has declined 1% during the past six months, underperforming the market (+5%) and energy sector (+7%). We believe this reflected the tepid outlook both for conventional and renewable players due to excess supply in the country. This has prompted Thai operators to seek investment opportunities abroad but this would come with higher risks while return on investment is expected to decline, implying a less balanced risk-reward profile.

Valuation and risks. The valuations of Thai companies are mixed which is shown in the peer comparison table in the report. Some of them look interesting with 2017 PE being much cheaper than the average 18x of regional peers. We think that a stock selection strategy that emphasises strong balance sheets and competitive financing costs should be adopted. The key risk for the sector is the uptrend of interest rates and the return on investments on new projects which are under development. The regulatory environment poses another risk factor, especially for overseas investment in countries with peculiar and unstable power industry regulations.

SET : 1,562.27

Analyst Chaipat THANAWATTANO +66 2657 7827 Thailand Research Team +662 658 1222

Banpu Power : BPP is a power company under Banpu group. The current equity-based capacity is 1,934MWe. This will increase to 2,585MWe by 2020.

CK Power Pcl : CKP is a holding company in power generation business in Thailand and Laos.

Global Power Synergy Plc : GPSC is the flagship company of PTT Group for electricity generating business. The company produces and distributes electricity, steam and water for industrial purposes. Its operating assets are mainly in Thailand while power assets in Laos and Japan

Gunkul Engineering : Gunkul is a manufacturer and trader of electrical equipment for electricity transmission and distribution system. The company also involves in renewable energy business, including solar and wind farms in Thailand and overseas.

Ratchaburi Electricity : RATCH is a leading investment company in power generation business in Thailand, Laos, and Australia.

SCI Electric : SCI Electric Public Company Limited engages in the production and distribution of electrical switch boards, transmission and telecommunication towers, and is a service provider for high voltage transmission line systems and power distribution systems Power companies’ share price performance

Source: DBSVTH

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SET Index SET Energy Index Power stocks

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Asian Insights SparX

Thailand Power IndustryRefer to important disclosures at the end of this report

STOCKS

12-mthPrice Mkt Cap Target Price Performance (%)

Bt US$m Bt 3 mth 12 mth Rating Banpu Power 24.40 2,159 25.00 (2.4) N.A HOLD CK Power Pcl 3.06 655 3.20 (9.8) 45.4 HOLD Global Power Synergy Plc 34.25 1,491 42.00 (5.5) 23.4 BUY Gunkul Engineering 4.68 865 6.00 (5.9) 1.9 BUY Ratchaburi Electricity 50.00 2,106 54.00 (2.0) 0.5 HOLD SCI Electric 10.70 233 11.70 (7.8) 5.9 HOLD Source: DBSVTH, Bloomberg Finance L.P. Closing price as of 25 Apr 2017


Thailand Power Industry

ASIAN INSIGHTS VICKERS SECURITIES

The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one-off treatise on the topic, and invite feedback from our readers, and in particular welcome follow on questions worthy of closer examination.

Table of Contents

Thailand Power Sector – lacklustre outlook 3 Industry overview 3 Power Development Plan (PDP) 5 Regulatory framework 5 Electricity tariff structure 6 Demand and supply dynamics 7 Policy to promote renewable energy 10 Competitive landscape in power industry 11 Peers comparison 14 Stock Profiles 15

Banpu Power 16

CK Power Pcl 22

Global Power Synergy Plc 28

Gunkul Engineering 34

Ratchaburi Electricity 40

SCI Electric 46




Thailand Power Sector – lacklustre outlook

Thailand’s electricity generating sector is considered to be one of the most secured businesses in Thailand for private operators given the long-term power purchase agreement with the Electricity Generating Authority of Thailand (EGAT) which remains the major power supplier in Thailand. Nonetheless, the new business opportunities appear to be limited due to the current excess capacity while demand growth is slower than previously expected due to the slow economic growth. The only bright spot in the sector is renewable power plant which has been promoted by the government to reduce the heavy reliance on fossil fuel, especially for gas, and to reduce the environmental impact. Nonetheless, from an equity market perspective, we think that investor appetite in the sector is still low given that investment opportunities in Thailand are quite limited while overseas investment still needs time to generate returns. Further, being typical dividend plays, the current dividend yield of power players is not exciting. Hence, we have a Neutral weight for the sector. For the stocks, under our coverage we have two BUYs, GPSC and GUNKUL, given the potential upside from the current

share price to our DCF-based TP (see more details in company guide section at the back of this report). Industry overview The power sector in Thailand remains largely state-controlled industry in the whole value chain from generation to transmission and distribution. EGAT is the largest state-owned enterprise in the power industry value chain with total assets of >Bt900bn, followed by >Bt370bn for PEA and >Bt200bn for MEA. EGAT is the key power generator and the sole operator of the national transmission network while the latter two are responsible for the distribution in provincial areas, and metropolitan areas and vicinity, respectively. Thailand has adopted the Enhanced Single Buyer (ESB) Structure as shown in the Figure 1 for the power industry, with EGAT as the key buyer for electricity from other private generating entities, including the foreign ones, mainly from Lao PDR. EGAT also plays an important role in electricity generation with a total installed capacity of 16,067MW, accounting for 30% of total capacity of the country. EGAT purchases electricity from private operators under long-term Power Purchase Agreements (PPA), which could secure the power supply for the country.

Figure 1: Thailand’s electricity Industry structure

Source: EGAT, Ministry of Energy, DBSVTH The private sector participation has been allowed since early 1990s when the government privatised the power generation business. The government liberalised the sector by introducing

open bidding for power projects in 1994 under the Independent Power Producer (IPP) scheme to reduce EGAT’s investment burden in building power plants to accommodate the fast

Enhanced Single Buyer (ESB) Model

EGAT(16,385MW)

IPP(15,545MW)

Import(3,878MW)

SPP(9,665MW)

VSPP(4,596MW)

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growing demand in the domestic market at that time. The bidding process was re-opened in 2007 and 2010 with a total installed capacity of 16,000MW for all three rounds. Most of these power plants are being operated, except for 5,540MW which are under development. The largest operating IPP player is Ratchaburi Electricity Generating Holding Plc (RATCH), whose capacity under the IPP scheme accounts for 30% of total installed capacity for the scheme. In addition to IPP, smaller-scale private-owned power plants operate under Small Power Producer or SPP (mostly 90MW-contracted capacity) and Very Small Power Producer (VSPP). The SPP scheme was designed to allow developers to propose projects with capacity sales of up to 90MW to EGAT. Any additional capacity can either be used internally or sold to industrial customers. As of March 2017, EGAT has signed power purchase agreement with 156 SPP projects with an installed capacity of 13,983MW. About 70% of this capacity is in operation. Normally, SPP plants employ co-generation or renewable energy technologies. There are much more players in the SPP scheme given the much smaller contracted capacity of 90MW or less. The key players include B.Grimm Power Plc and Glow Energy Plc. Some IPP players are also involved in SPP given that the window for new IPP bidding was closed since the last round in 2010. The VSPP scheme was launched in 2002 which allows small- scale renewable energy projects of up to 10MW to connect to the grid and sell electricity directly to MEA and PEA. The cap was initially set at 1MW and was increased to 10MW in 2006. To date, 981 VSPP projects with an installed capacity of 5,240MW were awarded PPAs, using biomass, solar, wind, biogas and waste as fuel. The current installed capacity breakdown by fuel type remains concentrated in natural gas, accounting for 67.3% of the total installed capacity in Thailand, including power plants in neighbouring countries with long-term power purchase agreements with EGAT. The latest bidding for IPP was opened in 2010 and for SPP in 2011. Hence, more capacities will continue to enter the system until 2025. The next round of IPP and SPP bidding is not specified given the current over-capacity, with more capacity to come online both from EGAT and private operators, according to the PDP. Capacity breakdown: The installed capacity as of Apr 17 stood at 44,579MW, including imports mainly from hydropower plants and coal-fired power plants in Laos and capacity of VSPP

that stem largely from renewable power. The installed capacity is still far above the latest peak power demand of 29,619MW being recorded in May 16. This is equivalent to 34% of reserve margin, compared with the policy of 15%. Note that this is based on contracted capacity. If we consider installed capacity, the reserve margin could be as high as 48%. According to the Power Development Plan (PDP) which is the government’s strategic plan for long-term power supply, the reserve margin will continue to increase and stay above 30% until 2026 before gradually declining to 15% by 2032. EGAT’s capacity remains the highest among several key operators at 36% of total capacity but this has declined from more than 50% prior to 2006. IPPs command 33% of the country’s capacity, followed by SPPs’ 14%. The contracted capacity of VSPP has increased remarkably from only 368MW in 2009 to 3,578MW currently. This will continue to increase to nearly 12,000MW by 2036 or a CAGR of 6% over the next 20 years. Figure 2: Thailand’s installed capacity breakdown

Source: Ministry of Energy, DBSVTH Note: c.92% on EGAT system In terms of power mix, the electricity generation in 2016 was dominated by gas-fired power plants, accounting for 63.2% of total output. Although this has fallen from 66.5% in 2006, the high reliance on gas has raised concerns of an imbalanced portfolio of power generation for the country given that the competitive piped gas in Thailand is depleting and the concession of key gas fields in the Gulf of Thailand will expire in the next 4-5 years. The share of gas-fired power plants in Thailand’s power mix will drop from 63% in 2016 to 37% in the next 20 years, according to the latest PDP issued in 2015.

EGAT36.0%

IPP33.1%

SPP14.4%

VSPP7.7%

Imported8.7%




Figure 3: Power mix in power generation (2016)

Source: Ministry of Energy, DBSVTH Power Development Plan (PDP) Since early 2000, the development of the power industry in Thailand has been pegged to the Power Development Plan (PDP) which lays out the long-term plan (15-20 years) for power supply management to fulfil rising demand. The PDP is prepared by the Ministry of Energy and EGAT, and requires the endorsement of the National Energy Policy Council (NEPC) and acknowledgement of the Cabinet. The latest PDP, i.e. PDP 2015, has been in effect since June 2015 to cover the period of 2015-2036, which emphasises improving power system reliability by (1) reducing dependence on natural gas power generation, (2) increasing the share of coal power generation via clean coal technology, (3) importing power from neighbouring countries, and (4) developing renewable energy. The PDP also covers transmission and distribution system development in supporting renewable energy development and the ASEAN Economic Community via ASEAN power grid integration. The PDP 2015 is based on three pillars: Energy security: Dealing with the increase in power demand

and taking into account fuel diversification in order to lessen dependency on one particular fuel

Economy: Maintaining an appropriate cost of power generation and implementing energy efficiency policies and measures

Ecology: Reducing environmental and social impact by reducing carbon dioxide intensity of power generation

The following targets were set to be achieved by 2036: Energy security: Dealing with the increase in power demand

and taking into account fuel diversification in order to lessen dependence on natural gas for power generation, from 64% in 2014 to 30-40%

Increase the share of renewable energy in the total capacity from 8% in 2014 to 15-20%, with a capacity of nearly 20GW

Increase the share of coal and lignite from 20% to 20-25%, with an unspecified amount to be delivered as ‘clean coal’ by carbon capture and storage technology

Increase the share of imported hydro power from neighbouring countries from 7% to 15-20%

Introduce nuclear power and achieve up to 5% market share

The revision of PDP 2015 could be expected soon given that the peak demand is lower than previously expected and the start-up of new power plants has been delayed vs the initial plan. Regulatory framework: Thailand’s power sector is largely regulated by the government via the National Energy Policy Council (NEPC) which has the authority and duty to determine policies on energy industry management while the Energy Regulatory Commission (ERC) which was established under the Energy Industry Act, B.E. 2550 (2007) has the authority and duty to regulate energy industry operations in accordance with the policy framework of the government. The ERC is empowered to issue regulations, rules, announcements or criteria, procedures and conditions in order to regulate various issues in the energy industry as prescribed by law, e.g. licence granting for energy industry operation; regulation of tariff setting; establishment of energy service provision standards and safety standards of energy industry operations; protection of energy consumer rights, including protection of energy industry operators by ensuring fair competition; utilisation of immovable property for the benefit of exploration or survey of a location for construction of an energy network system; and dispute settlement. In executing its duties, the ERC will give importance to and promote the participation and roles of energy consumers, the general public and those affected by energy industry operations in national energy management and development. In connection with this, prior to issuing any ERC regulations, rules and announcements which will affect persons, groups of persons or licensees, a hearing process shall be arranged. In addition, the ERC is tasked with promoting renewable energy and efficient use of energy. Furthermore, the ERC also provides support and implements urgent tasks pursuant to the policy framework of the government so as to enhance energy security of the country. Several government agencies to overlook the industry The Ministry of Energy (MoE) is involved in the energy policy making process by setting policies, including electric power and renewable energy policies, to be proposed to the National




Energy Policy Council (NEPC), chaired by the Prime Minister, for its review and approval. The MoE also oversees a number of agencies that are responsible for implementing energy policies and programmes: Energy Policy and Planning Office (EPPO) is involved in

developing energy policies, measures, and plans for the oil, natural gas and power sectors.

Department of Mineral Fuels (DMF) regulates the upstream sector of Thailand's hydrocarbons and is responsible for promoting oil and gas exploration and development including licensing rounds.

Department of Energy Business (DOEB) monitors and supervises the trade, quality, industrial safety, environmental concerns and security of fuels.

Department of Alternative Energy Development and Efficiency (DEDE) implements the compulsory and voluntary energy efficiency (EE) and renewable energy (RE) programmes, including EE promotion, energy conservation regulation, development of alternative energy, and dissemination of energy technologies.

Electricity tariff structure A different tariff structure is applied to different types of electricity generators, i.e. IPP, SPP or VSPP. The tariff also depends on the type of contract, firm or non-firm as well as energy source, conventional or renewable. Several features of electricity generation determine the applicable tariff structure. In general, Thailand’s electricity tariff structure comprises wholesale tariffs for bulk electricity supply, mainly the electricity generated by EGAT and sold to two state-owned enterprises, i.e. MEA and PEA, and retail tariffs for end-users, including industrial sector and household users. Nonetheless, both types of tariffs share the common calculation principle which is the EGAT’s marginal costs of generation and transmission. These elements are regulated by ERC. Wholesale tariff is applied to bulk electricity supply. The tariff structure comprises generation and transmission costs. Voltage levels and time of consumption determine the applicable tariff structure, as shown in table below. This is also subject to Power Factor Charge and value-added tax. EGAT charges the bulk tariff to MEA and PEA and its direct customers.

Figure 4: Wholesale tariffs

Voltage Generation (Bt/KWh)

Transmission (Bt/KWh)

Total (Bt/KWh)

Peak Off-

peak Peak Off-

peak Peak Off-

peak 230kV 3.1192 2.3316 0.2730 - 3.3922 2.3316

69-115kV 3.1286 2.3341 0.4913 - 3.6199 2.3341

End of the line 69-115kV

3.1948 2.3555 0.8528 - 4.0476 2.3555

11-33kV 3.2017 2.3567 1.0226 - 4.2243 2.3567

Source: EGAT, Ministry of Energy, DBSVTH Under government regulations, all power supply transmitted via the national grid, whether by private power producers, other government agencies or producers in neighbouring countries, must be sold to EGAT. The only exception is the VSPPs that can sell directly to the distribution utilities, but the sale is capped at 10MW. EGAT thus is the primary entity that sells wholesale energy to the distribution sector. For electricity supply generated by private operators, both IPPs and SPPs have long-term power purchase agreements (PPAs) with EGAT as the single buyer (typically 20 or 25 years). The PPAs allocate the risk of fuel prices to EGAT (and its captive ratepayers), leaving SPPs and IPPs to manage the operating risks, including financial costs. Apart from electricity, SPPs also sell steam directly to their industrial customers, hence there is no price adjustment mechanism, the SPPs take on the fuel price risk. Nonetheless, steam price setting is normally is on cost plus basis, meaning that fuel price risk could be passed on to customers. For SPP, EGAT has defined two types of purchasing rates for buying SPP power, firm and non-firm power. SPPs with firm contracts are obliged to guarantee availability of electricity supply during the system peak months. Firm fossil fuel-fired SPPs must operate for at least 7,008 hours per year and they must generate power during the months of March, April, May, June, September and October. Firm contracts for conventional energy SPPs are subject to receive an unbundled base tariff, which comprises a capacity payment, an energy payment and a fuel savings payment. Renewable energy SPPs with a firm contract receive the same base tariff plus two additional components: a fixed one, called the renewable energy promotion, and one that is specified for each type of renewable energy, as known as ‘adder’. Note that due to lower investment cost of renewable power plants, especially for solar, the government has changed the tariff scheme from adders to fixed feed-in-tariff (FiT) for 20 years.




For non-firm contracts, the availability of power plants is not guaranteed and the electricity is sold whenever it is available (solar, wind, some biomass, etc.). The non-firm tariffs are generally lower than those for firm power due to lower penalty risk. Non-firm contracts of conventional cogeneration SPPs is subject to the Energy Payment, based on EGAT’s avoided energy costs, whereas non-firm renewable energy SPPs get the Time of Use (TOU) rate, adjusted for peak and off-peak hours, plus the Ft charge plus adder that depends on the type of renewable energy. Retail tariff structure comprises two parts: the base tariff and fuel adjustment (Ft). The base tariff reflects the marginal cost of the utilities to construct and operate power plants, transmission and distribution lines, including fuel costs. The distribution utilities charge different base tariffs for different consumer categories, consumption levels and time of use. More details could be found in www.erc.or.th. The base tariff is reviewed every 3-5 years. Historically, the regulator has considered the trend of energy cost when determining the base tariff.

The fuel adjustment (Ft) is a mechanism for adjusting the power tariff to reflect the actual fuel cost for power generation. The Ft surcharge is revised every four months, in January, May and September to reflect changes in EGAT’s fuel costs, power purchase costs and the impact of the government policy, including the Power Development Fund, and subsidies for renewable energy generation. Note that the latest Ft was set in Jan 17 at negative Bt0.3729/KWh. The MEA reported that the average retail tariff, including Ft, as of Jan 17 was at Bt3.5455/KWh, down 8.2% y-o-y on lower fuel cost especially for natural gas although more power supply from renewable power plants has increased. The ERC is now in the process of adjusting Ft for May-Aug 17 which is estimated to increase negative to Bt0.1946/KWh, according to ERC’s invitation for the public hearing on the Ft adjustment. Figure 5: Movement of Ft

Source: Ministry of Energy, DBSVTH

Demand and supply dynamics: Demand trend: Electricity demand in Thailand has continued to increase during the past 10 years at a CAGR of 3.5%, in line with the economic growth (+3.2%) over the same period. Based on PDP 2015, electricity demand is expected to increase at a CAGR of 3.3% over the next five years, compared with GDP growth of 4.2% during the same period, and at a CAGR of 2.2% thereafter until 2036. More energy efficiency is believed to be the key reason behind the slower growth of electricity demand compared to economic growth. Figure 6: Power demand trend

Source: Ministry of Energy, DBSVTH Normally, demand in Thailand peak periods in the summer when air-conditioners are on full blast, which is the opposite of other major buyers like Japan, South Korea and China, where imports rise in the winter to meet heating needs. The peak demand YTD was recorded in Mar 17 at 28,497MW (+4.6% y-o-y), in line with EGAT’s expectation. Nonetheless, the peak demand in Apr 17 to date was still below the expectation at 30,000MW given the more frequent rains which helped to cool temperatures down a little. Based on PDP 2015, the peak demand for 2017 could reach 31,385MW or up 6% y-o-y from the peak demand for 2016 and the government had expected peak electricity demand in Thailand to reach its peak for 2017 in May, at slightly higher than 30,000MW (+1.5% y-o-y). This means that the current installed capacity of 41,332MW could comfortably accommodate this strong demand during summer in Thailand. In addition, the government has attempted to promote to the public the minimisation of electricity consumption in Apr-May due to the maintenance shutdown of natural gas fields in Myanmar, which has to be replaced by more expensive imported liquefied natural gas (LNG).

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Figure 7: Thailand’s peak demand for electricity

Source: Ministry of Energy, DBSVTH Note that the historical peak demand in Thailand of 29,619MW was recorded in May 16, increasing 8.3% from the previous peak in Jun 15. Nonetheless, this remained far below the installed capacity in the country and the committed capacity from neighbouring countries under long-term PPAs. The industrial sector is the largest power consumer, accounting for an average of 50% of total demand since 2007, but decreasing slightly from >50% in 2008 to 48% in 2016. Business and residential consumption has averaged 22% and 23%, respectively, over the same period, with the share of business consumption increasing from 20% to 24%. In terms of demand growth, the business sector recorded strong growth rates during the past 10 years with a CAGR of 6%. This was due to higher electricity consumption in the service sector. Meanwhile, demand growth in industrial sector was the slowest with a CAGR of 2.4%, reflecting more energy efficiency and the slowdown of the manufacturing sector in driving economy growth, in our view. Figure 8: Power consumption by sector

Source: Ministry of Energy, DBSVTH

Electricity demand outlook The government has revised the demand outlook for the next 20 years in PDP 2015 to reflect new set of the economic growth forecast, changes in economic structure, infrastructure development projects, and the potential and targets for renewables and energy efficiency. In addition, population growth, urbanisation, and growth rate of electricity customers by economic sectors were also included in the macro picture. The demand forecast is based on an annual average long-term GDP growth of 3.94% and annual average population growth of 0.03% during 2014-2036, as estimated by NESDB. More importantly, PDP 2015 also integrates the Energy Efficiency Development Plan (EEDP), which projects a reduction of 89,672 GWh in annual electricity consumption by 2036 compared to only 27,282GWh if there is no such plan. Under Thailand’s new power demand forecast, electricity consumption is expected to grow at an average of 2.5% annually from 2017 to 2036 with energy and power demand expected to reach 326,119GWh and 49,655MW, respectively, by then. The downward revisions in the demand forecasts affect the implementation of the PDP, possibly leading to revisions in the timing of capacity additions and delays in new bidding rounds for IPPs and SPPs. This would favour projects that already have signed PPAs with EGAT. Figure 9: Thailand’s electricity demand projection

Source: PDP 2015, Ministry of Energy, DBSVTH Electricity supply trends Electricity generation in Thailand is highly dependent on natural gas. Over 60% of Thai electricity generation is produced from natural gas that is sourced from the Gulf of Thailand, Myanmar and imported LNG, as shown in Figure 3. Nonetheless, the proportion of renewable power plants (excluding hydro) has increased significantly over the last decade, contributing approximately 6.2% of the total electricity generation in 2016.

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Figure 10: Thailand’s electricity supply outlook

Source: PDP 2015, Ministry of Energy, DBSVTH

Figure 11: Thailand’s electricity generation by fuel type

Source: PDP 2015, Ministry of Energy, DBSVTH

Thailand’s installed capacity will continue to increase both from conventional and renewable power plants. According to PDP 2015, the total capacity is projected to be 70,335MW in 2036, net of retired power plants during the next 20 years of 24,736MW. Natural gas will remain the dominant fuel in the coming years, but this is projected to drop from the current 64% to 30-40% by 2036. To achieve this target, more power will be sourced from renewables, imported hydro, coal, and nuclear during the later years of projection.

On the reserve margin, Thailand is expected to maintain a consistently high reserve margin – the amount of capacity available above peak demand – in its power system, well above the minimum standard of 15% as specified by the PDP2015. The reserve margin will gradually decline from 2025 onwards to reach 15% by 2032. Behind the expected high reserve margin are (1) slower demand growth, as GDP growth is lower than previously expected; (2) improved energy efficiency, with nearly 90GWh savings per annum by 2036; (3) new projects under construction or approved and waiting to be built; and (4) additions of intermittent renewable energy supply such as wind and solar, which raise capacity figures, but may either produce

at a lower-than-planned utilisation rate or unable to generate power supply.

The supply outlook remains uncertain in light of the government’s policy on diversifying fuel source from natural gas to imported thermal coal. Nonetheless, Thailand has continued to experience opposition to coal-fired plants, which prompted some private operators, both IPP and SPP alike, to switch their investment projects from coal-fired power plants to gas-fired ones. Currently, EGAT is also facing strong opposition to its planned 800MW coal-fired plant in Krabi, which may mean that this plant as well as others under development may not come online as planned. Similarly, the development of nuclear power has long faced strong objections from the public which caused the government to postpone the commercial date of nuclear power plants to the later years in PDP 2015. Furthermore, given the long lead times for developing large hydro plants in Laos and Myanmar, prospects for additional imported power from these sources could be uncertain. We believe that the supply planning in PDP 2015 for coal-fired, imported hydro and nuclear power remains overly optimistic. This implies that Thailand is likely to depend largely on natural gas in the foreseeable future, in our view.

This could lead to problems with gas supply given that Thailand’s growing economy was fuelled by rising natural gas production from wells in the southern Gulf of Thailand for years. The reserves and production of fields like Bongkot and Erawan are depleting. To bridge the gap, PTT buys pipeline gas imports from Myanmar and in 2011 opened its first LNG import terminal near Rayong, southeast of Bangkok. A project to double its size to be able to handle 10m tons/year (mtpa) will be completed before summer 2017, according to PTT. Another planned expansion will take the capacity to 11.5mtpa by 2019, and PTT plans to open a second terminal near Rayong to add another 7.5mtpa to import capacity by 2022.

Note that PTT, the only company with a licence to import LNG, signed a contract in 2012 to import 2mtpa from Qatar, the largest exporter in the world. It signed three other contracts in the past year with BP Plc, Royal Dutch Shell Plc and Petroliam Nasional Bhd of Malaysia, adding another 3.2mtpa of supply. PTT also buys cargoes on the spot market and is interested in signing medium-term deals with other LNG suppliers. Protests over a proposed coal-fired power plant in the country’s southern Krabi province may cause the government to shift course and build an LNG terminal and gas-fired plant instead.

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Hydro Natural gas Coal Lignite Renewable Others'000 GWh




Policy to promote renewable energy Under the Alternative Energy Development Plan (AEDP 2015), which was integrated into PDP 2015, the government will be more serious in promoting the renewable power plants during the next 20 years, up to 2036. It targeted to increase the proportion of renewable power plant to 18% of total electricity supply by 2036, up sharply from only 6.2% in 2016. Figure 12: Electricity capacity by renewable power

Source: Ministry of Energy, DBSVTH The key points of AEDP 2015 include: - Prioritisation of power generation from waste, biomass and

biogas in the near term - Local specification of renewable energy targets to match

local grid capacity - New solar and wind programmes at a later stage, “as soon

as they become competitive to LNG” - Competitive bidding structured as a reverse auction in

which the bid is submitted as a discount to the Feed-In Tariff (FIT) – instead of awarding PPAs on a first-come first -served basis

Figure 13: Capacity breakdown by 2036

Source: Ministry of Energy, DBSVTH The government had provided incentives to private investors during the initial phase of renewable power in Thailand in terms of “adder” to attract more investments given high investment and low return of the industry. The adder rate for each type of

renewable power plant is shown in table below. This adder rate is added up to the normal wholesale tariff (base tariff plus Ft charge).

Figure 14: Adder rates for renewable energy projects

Source: ERC, Ministry of Energy, DBSVTH

Nonetheless, the technology of renewable business has improved dramatically during the past five years which could bring down investment cost, especially for solar power, to a more investable level. This was also supported by cheap funding cost during the low interest cycle globally. Hence the government has decided to alter the tariff scheme for renewable power plants to Feed-in Tariff (FiT), which is a much lower rate but for a longer period. According to the regulator, this will still provide favourable return to investors.

3,788.46 4,494.03

7,962.799,139.65

19,684.40

0

5,000

10,000

15,000

20,000

25,000

2013 2014 2015 2016 2036 target

Solar Wind Small hydroBiomass Bio gas WasteLarge hydro

MW

Solar30.5%

Biomass28.3%

Wind15.3%

Large hydro14.8%

Bio gas6.5%

Waste2.8%

Small hydro1.9%




Figure 15: FiT for VSPP renewable energy projects

Source: ERC, Ministry of Energy, DBS Vickers Note: Solar program for government agencies and agricultural cooperatives Nonetheless, the problem with renewable power plants are their reliability since most of them are non-firm contracts, hence it is difficult for the government to manage power supply to optimise the electricity cost of the country. The solution for this has emerged with the introduction of the hybrid SPP scheme for renewable power plants with firm contracts. Under this scheme, operators will have the flexibility to select alternative energy for their power plants. The operators are required to submit the fuel supply procurement plan and plantation plan for the power plant, either for biomass, bio-gas power plant. The FiT is also adjusted to compose of fixed FiT of Bt1.81/KWh and variable FiT of Bt1.85/KWh for power plants with a capacity of 10-50MW. It remains to be seen if this scheme could attract more investment from investors given the lower rate of return. Competitive landscape in power industry Although the industry is still largely regulated, the participation of the private sector has increased the competition as well as power generating efficiency for the industry, especially during the bidding for investment in new projects, both conventional and renewable ones. Given the current oversupply situation,

including the capacity under development, we believe investment opportunities in Thailand are limited. Renewable power projects should remain in focus in the private sector, being the only segment which still requires more investment but this would be interesting for smaller investors. This has prompted larger operators to seek investment opportunities elsewhere, mainly in neighbouring and ASEAN countries. Some players have even forayed farther to Australia and Japan by acquiring operating assets and developing green-field solar projects to maintain their earnings growth momentum but only few have achieved success. Figure 16: Asset portfolio by country

Thai

land

Laos

PD

R

Mya

nmar

Indo

nesi

a

Phili

ppin

es

Japa

n

Chi

na

Aus

tral

ia

BCPG X X X BPP X X X X CKP X EA X EGCO X X X X X X

GLOW X X GPSC X X X GUNKUL X X RATCH X X X X

SPCG X TSE X X Source: Company data, DBS Vickers Amid fierce competition, we also anticipate more partnerships among these private operators to develop large projects overseas to diversify risks. We believe the investment landscape in Thailand’s electricity industry would continue to encourage overseas investment in high potential markets, like Myanmar, Indonesia and the Philippines, in the medium term or until more opportunities in Thailand could emerge.




Figure 17: Partnership between power generating companies

Source: Company data, DBS Vickers Note: EGCO: Electricity Generating Plc; TSE: Thai Solar Energy Plc EGCO’s asset portfolio is more balanced. The figure below shows the capacity breakdown of several listed power companies in Thailand. We think that EGCO is more competitive on this aspect than its rivals given its more balanced portfolio in terms of fuel source although natural gas is still the major fuel source. Other larger players still depend largely on either natural gas or coal. This could be explained by their parent companies, i.e. PTT for GPSC and BANPU for BPP. Only RATCH could be more vulnerable to gas supply disruptions. This could be reason behind its efforts to invest in LNG terminals, as an alternative to sourcing gas rom PTT. Figure 18: Capacity breakdown of selected companies

Source: Company data, DBS Vickers

EGCO’s capital commitment appears to be the highest, according to each company’s latest financial statement as of end-2016. Nonetheless, with its strong financial position and competitive financing cost, we believe financing these capital commitments should not be such a burden. RATCH also has high capital commitments which could be financed comfortably in view of its very low net debt/equity ratio. Nonetheless, the higher-than-peer financing cost could reduce its competitiveness. Note that we estimate its effective interest cost was the highest in 2016 at nearly 6%, vs. the industry average of 4.2%. Figure 19: Capital commitment (end-2016)


EGCO

RATCH

GPSC

BPP

TSE

CKP

BLCP

Xayaburi Power

Ratchaburi Power

Bang Pa-in Cogen

Nava Nakorn Electricity

Nam Ngum 2

Hongsa power

Thai Solar Renewable

G-Power Source (solar) GUNKUL40%

60%

60%40%

30%

15%

25%

50%50%

40%40%

12.5%25%

25%

40%

25%

42%

65%

36%47%

66%

97%

3%

80%96%

35%

29%12%

61%

9%

5% 4%4% 3% 9% 3%

97%

4%

0%

20%

40%

60%

80%

100%

BCPG BP

P

CK

P

EA

EGC

O

GLO

W

GPS

C

GU

NK

UL

RATC

H

SPC

G

TSE

Renewable Hydro Coal Gas

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

EGC

O

RATC

H

BPP

GPS

C

CK

P

GU

NK

UL

EA

GLO

W

BCPG

SPC

G

Btm




Figure 20: Estimate effective interest cost (2016)

Source: Company data, DBS Vickers Figure 21: Financial health of selected companies


Figure 22: Asset size of selected companies (end-2016)


4.15

0

1

2

3

4

5

6

7

RATC

H

GLO

W

SPC

G

BPP

CK

P

Ave

rage EA

GPS

C

BCPG

EGC

O

GU

NK

UL

TSE

%

0.0

0.5

1.0

1.5

2.0

2.5

EA

EGC

O

GU

NK

UL

SPC

G

CK

P

GLO

W

GPS

C

RATC

H

BCPG TS

E

BPP

Net debt/equity (X) - end-2016

0

50

100

150

200

250

EGC

O

GLO

W

RATC

H

CK

P

GPS

C

BPP

EA

GU

NK

UL

BCPG

SPC

G

TSE

Btbn




Figure 23: Peers comparison

Market PE P/BV EV/EBITDA Div Yld ROE Cap (x) (x) (x) (%) (%)

BB Ticker Name US$m 17F 18F 17F 18F 17F 18F 17F 17F PEA AU Pacific Energy Ltd 192 14.6 12.7 1.8 1.7 6.9 6.3 3.8 12.4

SKI AU Spark Infrastructure Group 3,139 24.5 24.2 1.8 1.8 13.1 12.6 6.2 7.7

000685 CH Zhongshan Public Utilities-A 2,316 14.0 12.5 1.3 1.2 11.7 10.7 NA 9.3

000690 CH Guangdong Baolihua New-A 2,279 19.8 13.6 2.4 2.2 NA NA NA 11.7

000722 CH Hunan Development Group Co-A 897 39.1 35.9 NA NA NA NA NA 5.4

000883 CH Hubei Energy Group Co Ltd-A 4,650 13.7 NA NA NA NA NA NA NA

000993 CH Fujian Mindong Electric Pw-A 543 54.2 47.7 NA NA 21.0 18.0 NA 2.1

300335 CH Guangzhou Devotion Thermal-A 963 32.7 25.9 4.2 3.8 23.5 18.8 0.6 13.4

600023 CH Zhejiang Zheneng Electric-A 11,398 20.6 14.8 1.3 1.2 NA NA NA 6.3

600116 CH Chongqing Three Gorges-A 1,796 45.3 38.9 4.6 4.2 NA NA 0.2 10.3

600236 CH Guangxi Guiguan Electric-A 5,830 14.8 13.1 2.7 2.3 9.6 9.0 3.3 21.5

600505 CH Sichuan Xichang Electric P-A 470 32.9 30.6 3.0 2.8 NA NA NA 8.9

600644 CH Leshan Electric Power Co-A 640 28.2 26.4 3.2 2.9 NA NA NA 11.4

600674 CH Sichuan Chuantou Energy Co-A 6,017 11.5 11.8 2.0 1.8 80.2 78.9 2.7 18.1

600886 CH SDIC Power Holdings Co Ltd-A 7,481 11.4 11.1 1.5 1.4 10.0 9.7 3.3 14.1

1038 HK Cheung Kong Infrastructure 22,873 16.7 16.1 1.5 1.5 74.7 75.2 3.5 9.3

1816 HK CGN Power Co Ltd-H 13,667 11.5 10.2 1.6 1.5 13.4 11.2 2.4 13.0

579 HK Beijing Jingneng Clean Ene-H 2,057 5.8 5.5 0.9 0.8 6.8 6.4 3.6 13.7

6 HK Power Assets Holdings Ltd 18,910 20.0 19.3 1.3 1.2 79.5 80.6 4.0 6.1

816 HK Huadian Fuxin Energy Corp -H 1,858 6.0 5.1 0.6 0.6 8.9 7.9 3.0 9.9

902 HK Huaneng Power Intl Inc-H 14,993 14.6 11.1 0.9 0.9 9.2 8.1 3.2 5.5

916 HK China Longyuan Power Group-H 6,207 10.1 8.6 1.1 1.0 8.1 7.2 1.8 10.0

958 HK Huaneng Renewables Corp-H 3,388 7.5 6.6 1.2 1.0 7.8 7.0 1.8 14.3

POWR IJ Cikarang Listrindo 1,568 13.9 12.2 NA NA 8.5 7.2 0.0 17.1

GIP IN Gujarat Inds Power Co Ltd 261 8.2 7.4 0.8 0.7 5.2 4.9 2.3 10.1

JSW IN JSW Energy Ltd 1,627 12.7 10.9 1.1 1.1 6.1 5.9 2.8 9.6

NHPC IN NHPC Ltd 5,457 12.4 10.7 1.1 1.1 9.4 8.6 5.7 9.0

RPWR IN Reliance Power Ltd 2,172 10.1 9.6 0.6 0.6 8.5 8.5 1.3 6.1

MLK MK Malakoff Corp Bhd 1,404 16.8 18.6 1.0 1.0 7.2 7.9 5.1 6.3

TNB MK Tenaga Nasional Bhd 17,759 10.2 10.3 1.3 1.2 6.1 6.0 3.5 14.0

TLT NZ Tilt Renewables Ltd 473 39.3 39.3 2.1 2.1 10.5 10.4 2.9 4.9

LPL PA Lalpir Power Ltd 77 7.8 7.4 0.6 0.6 NA NA 10.3 9.0

NCPL PA Nishat Chunian Power Ltd 162 5.5 5.1 2.1 1.9 5.8 5.7 14.5 39.2

NPL PA Nishat Power Ltd 166 5.5 5.1 1.3 1.2 6.2 5.9 10.8 23.6

EDC PM Energy Development Corp 2,299 11.7 10.7 2.0 1.8 8.5 8.1 3.7 18.2

FGEN PM First Gen Corporation 1,609 9.6 8.3 69.4 61.5 5.3 5.1 0.0 13.6

BCPG TB BCPG Pcl 707 12.1 10.7 1.7 1.6 8.3 6.7 5.0 14.3

BPP TB Banpu Power Pcl 2,189 14.5 12.2 1.8 1.7 20.9 18.9 3.7 13.2

CKP TB CK Power Pcl 661 44.6 34.6 1.1 1.1 14.4 13.2 0.9 2.5

DEMCO TB Demco Pcl 139 14.4 9.6 1.5 1.3 20.7 14.0 2.0 9.6

EGCO TB Electricity Generating Pcl 3,432 11.9 11.2 1.3 1.2 20.5 18.3 3.2 11.6

GLOW TB Glow Energy Pcl 3,480 14.1 14.1 2.4 2.4 9.3 9.5 6.4 17.4

GPSC TB Global Power Synergy Pcl 1,493 16.9 13.7 1.3 1.3 12.8 10.1 3.5 8.0

GUNKUL TB Gunkul Engineering Pcl 1,019 29.5 19.6 3.0 2.8 21.2 12.8 1.8 11.4

RATCH TB Ratchaburi Elec Gen Hodg Pub 2,110 11.0 10.5 1.1 1.0 12.4 12.5 5.0 10.2

SCI TB SCI Electric Pcl 236 17.6 9.5 3.6 2.9 12.2 6.5 2.7 21.9

SPCG TB SPCG Pcl 573 7.5 7.0 1.9 1.6 7.3 7.1 5.9 26.7

Average (simple)* 17.6 15.4 1.7 1.6 9.7 8.5 3.5 12.0

Source: Bloomberg Finance LP, DBSVTH Note: Closing date is 24 April 2017, *The average numbers do not include some selected outliers.




Stock Profiles


HOLD Last Traded Price ( 25 Apr 2017): Bt24.40 (SET : 1,562.27)

Price Target 12-mth: Bt25.00 (2% upside)

Potential Catalyst: Capacity expansion

Where we differ: In line with consensus

Analyst Chaipat THANAWATTANO +66 2657 7827 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Bt m) 2016A 2017F 2018F 2019F

Revenue 5,542 6,898 7,197 7,510 EBITDA 5,442 7,439 8,168 8,213 Pre-tax Profit 4,667 6,788 7,314 7,276 Net Profit 4,138 5,823 6,462 6,488 Net Pft (Pre Ex.) 4,159 5,823 6,462 6,488 Net Pft Gth (Pre-ex) (%) 100.4 40.0 11.0 0.4 EPS (Bt) 1.74 1.91 2.12 2.13 EPS Pre Ex. (Bt) 1.75 1.91 2.12 2.13 EPS Gth Pre Ex (%) (29) 9 11 0 Diluted EPS (Bt) 1.74 1.91 2.12 2.13 Net DPS (Bt) 0.68 0.96 1.06 1.07 BV Per Share (Bt) 12.2 13.3 14.4 15.5 PE (X) 14.0 12.8 11.5 11.5 PE Pre Ex. (X) 13.9 12.8 11.5 11.5 P/Cash Flow (X) 54.9 66.5 46.5 31.7 EV/EBITDA (X) 11.0 10.5 9.5 9.5 Net Div Yield (%) 2.8 3.9 4.3 4.4 P/Book Value (X) 2.0 1.8 1.7 1.6 Net Debt/Equity (X) 0.0 0.1 0.0 0.0 ROAE (%) 17.2 15.0 15.3 14.3 Earnings Rev (%): 1.70 2.02 2.41 Consensus EPS (Bt): 1.71 2.02 2.41 Other Broker Recs: B: 9 S: 1 H: 4

Source of all data on this page: Company, DBSVTH, Bloomberg Finance L.P

Leading Asian power play Leading power play in Asia under Banpu group. BPP is a leading power company in Asia, investing in 18 power projects – both conventional and renewable. It is a holding company for the power generating business of the Banpu Group. BPP currently has an equity-based 1,934MWe of the 2,585MWe power capacity on hand. Of this total capacity, 75% is operational and the rest is under development over 2017-19F. Diversified asset portfolio. Its power asset portfolio has been diversified by type of power plant and geographic locations. Its assets comprise coal-fired power plants in Thailand, Lao PDR and China, and solar power projects in Japan, China and Thailand. This should help reduce operating and FX risks in the long term. We view this as a key strength of the company in its quest of becoming one of the leading Asian power players. Earnings outlook. We estimate its 3-year net profit CAGR at 16% over 2017-19F, based on higher profit sharing from joint ventures. We estimate the profit-sharing contribution to rise at a CAGR of 17% over these three years given the commercial operation of Hongsa Power (HPC) in Lao PDR and Shanxi Lu Guang power plant (SLG) in China. These two projects are also growth drivers for BPP’s effective installed capacity. Valuation:

BPP is based on the sum-of-the parts method, comprising DCF

valuation for its power generating business given its stable

cash flow, especially those with long-term power purchase

agreements or long-term contracts with electricity authorities

or local governments, and with certain industrial customers.

Key Risks to Our View:

Key risk factors include the delayed start-up of its new power

projects which are under development and construction,

including a coal-fired power plant in China and solar power

projects in Japan. BPP’s earnings performance is also subject to

coal price and FX fluctuations. Another risk is the court case

involving Hongsa Power, which is still awaiting the ruling from

the Supreme Court. At A Glance Issued Capital (m shrs) 3,046

Mkt. Cap (Btm/US$m) 74,315 / 2,159

Major Shareholders (%)

Banpu PLC 78.7

State Street Bank Europe 3.1

Thai NVDR 0.5

Free Float (%) 21.2

3m Avg. Daily Val (US$m) 4.4

ICB Industry : Utilities / Electricity

DBS Group Research . Equity

26 Apr 2017

Thailand Company Guide

Banpu Power Version 1 | Bloomberg: BPP TB | Reuters: BPP.BK Refer to important disclosures at the end of this report

89

109

129

149

169

189

209

18.9

20.9

22.9

24.9

26.9

28.9

30.9

Oct-16 Jan-17

Relative Index Bt

Banpu Power (LHS) Relative SET (RHS)


Page 2

Company Guide

Banpu Power

CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Capacity expansion target is set at 4,300MWe by 2025. By

2019F, BPP’s effective installed capacity will increase to

2,573MWe, an increase of 33% from the current capacity of

1,934MWe. BPP still has plans to increase its capacity to

4,300MWe by 2025F, a rise of 67% from the existing capacity

on hand. This will consist of 80% conventional power plants

and 20% renewable energy sources, compared with 93% and

7% respectively – based on the existing and announced

projects. This implies that BPP will be incentivised to diversify its

asset portfolio towards the renewable power segment.

Supporting this would be abundant opportunities in China and

Japan where the company already has a foothold, and other

companies in the region that are promoting cleaner energy

sources.

Portfolio diversification in fast-growing markets. BPP’s asset

portfolio is diversified not only by type of power plant but also

the geographical location. Currently, the company has assets in

operation in four countries, i.e. Thailand, Lao PDR, China and

Japan, where the demand for electricity continues to grow to

accommodate either economic growth or urbanisation. For

Japan, power demand could be different with regard to its

needs for more renewable power, i.e. mainly for solar power

farms to replace its nuclear power plants after the earthquake

incident in 2011. This has opened investment opportunities for

BPP in diversifying its portfolio towards more renewable power.

Besides Japan, investment opportunities in the solar business in

the region will continue to rise in tandem with the global trend

for cleaner power.

Support from parent company. As the flagship company of the

Banpu Group, BPP has been receiving continuous support from

its parent company. The well-established coal mining operation

and assets in Thailand, Indonesia and Australia gave BPP a key

advantage to compete in several bids for the development and

operation of power projects, especially coal-fired power ones, in

the past. BPP could also leverage on BANPU’s foothold in

overseas markets to gain the trust of local governments as well

as to clinch new investment opportunities

Equity income is profit driver. Profit-sharing contribution from

joint ventures is the key factor behind BPP’s profit growth in

2017-19F. We estimate its profit-sharing contribution to rise at

a CAGR of 17% during these three years, given the commercial

operations of two key coal-fired power plants, i.e. Hongsa

Power (HPC) in Lao PDR and Shanxi Lu Guang power plant

(SLG) in China. These two projects are also growth drivers for

BPP’s effective installed capacity.

Effective capacity (MW)

Coal cost (RMB/t)

Capacity breakdown By region (2016F)

Equity income (Bt m)

Capital expenditure (Bt m )

Source: Company, DBSVTH

1611

1934 2046

2516 2573

0.0

371.2

742.5

1113.7

1485.0

1856.2

2227.5

2598.7

2015A 2016A 2017F 2018F 2019F

384 422

464

511

562

0.0

114.6

229.2

343.8

458.4

573.0

2015A 2016A 2017F 2018F 2019F

Thailand36.84%

Lao PDR38.38%

China24.44%

Japan0.34%

1895

3513

4700

5469 5570

0.0

1125.1

2250.2

3375.3

4500.4

5625.6

2015A 2016A 2017F 2018F 2019F

838

3217

3500

2200

800

0.0

707.0

1414.0

2121.0

2828.0

3535.0

2015A 2016A 2017F 2018F 2019F


Page 3


Page 4


Page 5


Page 6


ed: CK / sa:CS, PY

HOLDLast Traded Price ( 25 Apr 2017): Bt3.06 (SET : 1,562.27)


Potential Catalyst: New power plant projects.

Where we differ: n.a.

Analyst Nantika WIANGPHOEM +66 26577836 [email protected] Chaipat THANAWATTANO +66 2657 7827 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Bt m) 2015A 2016A 2017F 2018F

Revenue 6,757 6,319 8,057 9,690 EBITDA 3,169 3,088 3,547 3,722 Pre-tax Profit 786 208 950 1,111 Net Profit 412 55.1 542 684 Net Pft (Pre Ex.) 370 478 542 684 Net Pft Gth (Pre-ex) (%) (22.4) 29.1 13.5 26.1 EPS (Bt) 0.06 0.01 0.07 0.09 EPS Pre Ex. (Bt) 0.05 0.06 0.07 0.09 EPS Gth Pre Ex (%) (22) 29 14 26 Diluted EPS (Bt) 0.06 0.01 0.07 0.09 Net DPS (Bt) 0.02 0.06 0.03 0.04 BV Per Share (Bt) 2.41 2.41 2.42 2.48 PE (X) 54.8 409.6 41.6 33.0 PE Pre Ex. (X) 61.0 47.2 41.6 33.0 P/Cash Flow (X) 5.9 3.7 8.8 7.9 EV/EBITDA (X) 17.3 17.1 14.4 13.0 Net Div Yield (%) 0.7 2.0 1.0 1.2 P/Book Value (X) 1.3 1.3 1.3 1.2 Net Debt/Equity (X) 0.6 0.6 0.5 0.4 ROAE (%) 2.8 0.3 3.0 3.8

Earnings Rev (%): N/A N/A N/A Consensus EPS (Bt): N/A 0.07 0.09 Other Broker Recs: B: 1 S: 1 H: 4


Still unclear near-term catalysts HOLD with TP of Bt3.2. CK Power (CKP) operates in the

power business with a diversified portfolios consisting of three

types of power plants; hydro, solar and co-generation plants

in Thailand and Laos with a total equity-based capacity of

425MW (including new capacity of 78MW in 2Q17). CKP also

has equity-based capacity of 25.7 ton/hour for stream. Under

the power purchase agreements with EGAT and EDL, most of

the power revenue is considered secured for the long term.

Synergies through its parent company. CKP is a downstream

investment of Ch. Karnchang Pcl. (CK Group) which is the

leading Thailand contractor and the biggest shareholder of

CKP with c.29% stake. Hence, CK is likely to provide the

financial support needed for CKP’s new projects (either capital

injection or long-term loans). CKP also stands a good chance

to win new projects given its good-track record both in

Thailand and overseas (especially in Laos), and its expertise.

Strong growth prospect from new projects. Despite the soft

2016 earnings results from one-time write-off expenses

related to the Nam Bak project, CK should register strong

revenue growth of 35%in 2017 and 16% in 2018. The jump

in revenue will be driven by new capacity coming in from the

BIC-2 power plant. Also, CKP might secure another

hydropower project with approximately 400MW equity-based

capacity (which is not yet included in our valuation). As a

result, we expect CKP to deliver the solid core earnings

growth of 8% in 2017 and 50% in 2018.

Valuation:

We applied the DCF metric to value each of CKP’s existing

power plants and projects with concrete development plans

(assuming WACC of 6.3-7.4%).


Delays of new project operation, lower-than-expected

electricity generation and low demand for industrial units.

At A Glance

Issued Capital (m shrs) 7,370

Mkt. Cap (Btm/US$m) 22,552 / 655


Ch Karnchang Pcl 30.3

TTW Pcl 25.3

Bangkok Expressway Pcl 19.4

Free Float (%) 24.9





CK Power Version 1 | Bloomberg: CKP TB | Reuters: CKP.BK Refer to important disclosures at the end of this report

76

96

116

136

156

176

196

216

1.7

2.2

2.7

3.2

3.7

4.2

Jul-13 Jul-14 Jul-15 Jul-16

Relative IndexBt

CK Power (LHS) Relative SET (RHS)


Page 2

Company Guide

CK Power


Earnings Drivers:

Jump in equity-based capacity with 33% CAGR (2016-2019). At

end-2016, CKP’s equity-based capacity was 347MW and in

2Q17 there will be new equity-based capacity of 78MW from

BIC-2. After that in 4Q19, CKP’s capacity will jump by 91%

with the additional capacity of 385.5MW from the Xayaburi

project in Laos. Also, with the PPAs with both EGAT and EDL,

most of CKP’s revenue (more than 85% of total revenue)

should be secured for the long term (25-31 years).

In addition, CKP might secure another hydropower project, for

which we expect concrete plans within 1H17 (as well as MOU

signing). The new project will be at least comparable in size

with the Xayaburi project (1,285 MW), in which CKP would like

to have a controlling stake. Given its low current net gearing of

0.6x, CKP is unlikely to require capital raising for the project.

However, the new project is not yet included in our forecast and

could present upside surprises when it is awarded.

New projects opportunities. CKP stands a good chance to win

new projects given its good track record and expertise in

operating various types of power plants under its diversified

portfolio. Also, besides Thailand CK Group (including CKP) has a

strong presence in overseas, especially Laos, as CK Group has a

strong relationship with the Laos government. CKP is willing to

invest in any available projects which provide satisfying returns.

Hence, it stands to have a higher chance of clinching new

projects if it concentrates on only one type of power plant.

Going forward, CKP will join the bidding as a developer before

subcontracting the EPC contract to CK, which is different from

previous ventures – CK would invest in the company first before

selling the investment to CKP (i.e. NN2 and Xayaburi). Hence,

CKP will incur cheaper investment cost in its future projects.

Electricity tariff adjustments along with gas price. For the

electricity sales to industrial customers, the tariff will be based

on the Provincial Electricity Authority’s (PEA) tariff which will be

changed depending on the gas price. The PEA’s tariff will be

adjusted every four months (January, May and September).

However, it might lead to the mismatch of tariff adjustment and

actual fuel cost used to generate electricity as the adjustment is

not an actual cost of CKP but is subject to EGAT’s tariff

adjustment (as known as Ft).

Improving net margin from operational efficiency. CKP is acting

like an investment vehicle run by management and key

personnel. Most of the costs at CKP are not directly variable

with equity-based capacity. Hence, CKP will enjoy the cost

leverage from higher equity-based capacity given such costs at

CKP are mostly fixed costs.

Effective capacity – YE (MW)

Natural gas price (Bt/mmbtu)

Electricity tariff – IUs (Bt/kWh)

Equity income (Btm)


346.9 346.9 346.9

424.9 424.9

810.4

0

100

200

300

400

500

600

700

800

900

2014A 2015A 2016A 2017F 2018F 2019F

282

297

311

327

343

360

200

220

240

260

280

300

320

340

360

380

2014A 2015A 2016A 2017F 2018F 2019F

3.56

3.58

3.59

3.61

3.63

3.64

3.50

3.52

3.54

3.56

3.58

3.60

3.62

3.64

3.66

2014A 2015A 2016A 2017F 2018F 2019F

35

9

-25

8 10

6

-30

-20

-10

0

10

20

30

40

2014A 2015A 2016A 2017F 2018F 2019F


Page 3

Company Guide

CK Power

Balance Sheet:

Balance sheet is still strong. CKP’s net gearing was 0.6x as end-

2016 and we expect the net gearing will slightly increase in

2017 as the company has to finance Xayaburi project over

2017-2019. For future projects, given the low net gearing of

0.6x compared to the net gearing covenant of 2.5x, CKP is still

able to fund new projects with long-term loans. We still expect

no more capital increase in the next three years.

Share Price Drivers:

Increase in capacity. The key driver of revenue growth of CKP

depends on the capacity expansion as well as new acquisitions.

Given its good track record for both Thailand and overseas

projects with strong financial support from its major

shareholder, we expect CKP to continue being engaged in new

projects – which can act as a key catalyst to drive its share price.

Wider net margins. Given the higher capacity expansion, CKP’s

net margin shall improve from time to time for cost leverage

opportunities. As a result, the enhancement of profitability

could be a factor to drive the share price in the long term.

Key Risks:

Construction delays at Xayaburi and other new projects. Any

delays in construction will affect company’s cash flow. Also, it

could lead to opportunity costs and project costs overrun.

Operational risk. Lower-than-expected output, arising from

unplanned maintenance, operation disruption and other natural

disasters, is a major risk for its solar and hydropower plants.

Key customers concentration. EGAT and EDL are the two main

customers of CKP, which account for more than 85% of its

total revenue. Any negative incidences affecting these two

customers will significantly affect CKP’s operation. Plus, both

entities are state-owned enterprises and might be subject to any

regulatory changes.

Mismatch of tariff adjustment and fuel cost. The mismatch of

tariff adjustment and actual fuel cost used to generate

electricity could arise, as the adjustment is not an actual cost of

CKP but is subject to EGAT’s tariff adjustment (as known as Ft).

Company Background

CK Power (CKP) was established on 8 June 2011 by Ch.

Karnchang Public Company Limited (CK). CKP is a power

producer with broad-based power assets that include Hydro,

solar and co-generation power plants. The company has a total

installed capacity of 425MW, with hydropower plants

accounting for 60%, followed by co-generation plants at 36%

and solar plants at 4%.

Leverage & Asset Turnover (x)

Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)


0.1

0.1

0.1

0.1

0.1

0.2

0.2

0.2

0.2

0.2

0.2

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

2014A 2015A 2016A 2017F 2018F

Gross Debt to Equity (LHS) Asset Turnover (RHS)

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

2014A 2015A 2016A 2017F 2018F

Capital Expenditure (-)

Btm

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2014A 2015A 2016A 2017F 2018F

Avg: 47.1x

+1sd: 59.2x

+2sd: 71.3x

-1sd: 35x

-2sd: 22.9x20.5

30.5

40.5

50.5

60.5

70.5

80.5


(x)

Avg: 1.5x

+1sd: 1.91x

+2sd: 2.32x

-1sd: 1.09x

-2sd: 0.68x0.6

1.1

1.6

2.1

2.6


(x)


Page 4

Company Guide

CK Power

Key Assumptions

FY Dec 2014A 2015A 2016A 2017F 2018F

Installed Capacity (MW) 346.9 346.9 346.9 424.9 424.9

Equity Income (Bt m) 35 9 (25) 8 10

Effective Tax Rate (%) 0.0% 0.0% 6.6% 3.6% 2.9%

Dividend Payout (%) 23.3 39.9 803.2 40.0 40.0

Effective Interest Rate 5.2% 5.0% 5.0% 4.9% 4.6%

Income Statement (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F

Revenue 6,999 6,757 6,319 8,057 9,690

Cost of Goods Sold (4,611) (4,618) (4,171) (5,568) (7,101)

Gross Profit 2,388 2,139 2,147 2,489 2,589

Other Opng (Exp)/Inc (344) (345) (392) (436) (446)

Operating Profit 2,043 1,794 1,756 2,053 2,143

Other Non Opg (Exp)/Inc 4.04 21.2 18.7 18.7 18.7

Associates & JV Inc 34.7 8.57 (25.0) 29.2 1.36

Net Interest (Exp)/Inc (1,195) (1,080) (1,119) (1,151) (1,052)

Exceptional Gain/(Loss) (4.7) 41.9 (423) 0.0 0.0

Pre-tax Profit 882 786 208 950 1,111

Tax (0.2) (0.3) (13.6) (32.6) (34.6)

Minority Interest (410) (374) (139) (375) (392)

Preference Dividend 0.0 0.0 0.0 0.0 0.0

Net Profit 472 412 55.1 542 684

Net Profit before Except. 477 370 478 542 684

EBITDA 3,419 3,169 3,088 3,547 3,722

Growth

Revenue Gth (%) 24.7 (3.5) (6.5) 27.5 20.3

EBITDA Gth (%) 7.9 (7.3) (2.5) 14.8 4.9

Opg Profit Gth (%) 7.1 (12.2) (2.2) 17.0 4.3

Net Profit Gth (Pre-ex) (%) 120.4 (22.4) 29.1 13.5 26.1

Margins & Ratio

Gross Margins (%) 34.1 31.7 34.0 30.9 26.7

Opg Profit Margin (%) 29.2 26.6 27.8 25.5 22.1

Net Profit Margin (%) 6.7 6.1 0.9 6.7 7.1

ROAE (%) 4.0 2.8 0.3 3.0 3.8

ROA (%) 0.9 0.8 0.1 0.9 1.1

ROCE (%) (1.5) (1.4) (1.1) (1.0) (0.6)

Div Payout Ratio (%) 23.3 39.9 803.2 40.0 40.0

Net Interest Cover (x) 1.7 1.7 1.6 1.8 2.0



Page 5

Company Guide

CK Power

Quarterly / Interim Income Statement (Btm)

FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016

Revenue 1,945 1,549 1,543 1,808 1,418


Gross Profit 689 491 489 767 400

Other Oper. (Exp)/Inc (90.5) (95.2) (93.5) (94.9) (108)

Operating Profit 598 396 396 672 291


Associates & JV Inc (3.9) (2.7) (4.9) (3.7) (13.8)

Net Interest (Exp)/Inc (259) (259) (251) (288) (322)

Exceptional Gain/(Loss) (2.1) (55.3) (2.7) (45.3) (319)

Pre-tax Profit 345 82.1 143 339 (357)

Tax (0.1) 0.10 (6.5) (2.2) (5.0)

Minority Interest (184) (34.6) (74.9) (215) 185

Net Profit 161 47.7 62.0 122 (177)

Net profit bef Except. 163 103 64.7 168 143

EBITDA 945 727 730 1,009 621

Growth

Revenue Gth (%) 29.8 (20.3) (0.4) 17.2 (21.6)

EBITDA Gth (%) 48.7 (23.0) 0.4 38.2 (38.4)

Opg Profit Gth (%) 99.0 (33.8) 0.0 69.9 (56.7)

Net Profit Gth (Pre-ex) (%) 1,173.1 (36.7) (37.1) 158.9 (15.0)

Margins

Gross Margins (%) 35.4 31.7 31.7 42.4 28.2

Opg Profit Margins (%) 30.8 25.6 25.7 37.2 20.5

Net Profit Margins (%) 8.3 3.1 4.0 6.8 (12.5)

Balance Sheet (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F Net Fixed Assets 31,681 31,539 33,357 32,492 30,933

Invts in Associates & JVs 236 5,077 6,371 6,389 6,389

Other LT Assets 13,248 12,802 11,960 11,432 10,876

Cash & ST Invts 2,583 3,855 6,693 9,305 10,602

Inventory 0.0 0.0 0.0 0.0 0.0

Debtors 1,483 1,219 720 657 791

Other Current Assets 98.3 77.6 208 208 208

Total Assets 49,329 54,570 59,309 60,483 59,800

ST Debt

71.3 0.0 0.0 0.0 0.0

Creditor 428 619 513 492 683

Other Current Liab 44.2 30.2 42.2 42.2 42.2

LT Debt 22,499 21,906 24,037 24,755 23,021

Other LT Liabilities 181 199 4,207 4,207 4,207

Shareholder’s Equity 12,048 17,754 17,744 17,844 18,311

Minority Interests 14,055 14,058 12,762 13,138 13,530

Total Cap. & Liab. 49,327 54,567 59,305 60,478 59,794

Non-Cash Wkg. Capital 1,110 648 373 331 274

Net Cash/(Debt) (19,987) (18,052) (17,345) (15,450) (12,419)

Debtors Turn (avg days) 64.8 73.0 56.0 31.2 27.3

Creditors Turn (avg days) 61.4 58.3 72.9 44.5 38.7

Inventory Turn (avg days) N/A N/A N/A N/A N/A

Asset Turnover (x) 0.1 0.1 0.1 0.1 0.2

Current Ratio (x) 7.7 7.9 13.7 19.0 16.0

Quick Ratio (x) 7.5 7.8 13.4 18.6 15.7

Net Debt/Equity (X) 0.8 0.6 0.6 0.5 0.4

Net Debt/Equity ex MI (X) 1.7 1.0 1.0 0.9 0.7

Capex to Debt (%) 8.3 10.7 13.1 2.3 0.0

Z-Score (X) 0.5 0.5 0.5 0.5 0.5



Page 6

Company Guide

CK Power

Cash Flow Statement (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F

Pre-Tax Profit 882 786 208 950 1,111

Dep. & Amort. 1,337 1,344 1,339 1,445 1,559

Tax Paid 0.0 0.0 0.0 0.0 0.0

Assoc. & JV Inc/(loss) (34.7) (8.6) 25.0 (29.2) (1.4)

Chg in Wkg.Cap. (663) 462 275 42.7 56.4

Other Operating CF 1,865 1,263 4,232 149 130

Net Operating CF 3,387 3,847 6,079 2,558 2,855

Capital Exp.(net) (1,870) (2,342) (3,146) (580) 0.0

Other Invts.(net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV (16.7) (4,841) (1,294) (17.5) (0.8)

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF (171) (947) (3,013) 0.0 0.0

Net Investing CF (2,057) (8,131) (7,453) (597) (0.8)

Div Paid 0.0 (110) (164) (442) (217)

Chg in Gross Debt (1,624) (664) 2,131 718 (1,734)

Capital Issues (170) 5,595 0.0 0.0 0.0

Other Financing CF 232 2.28 (1,295) 375 392

Net Financing CF (1,562) 4,823 672 651 (1,559)

Currency Adjustments 0.0 0.0 0.0 0.0 0.0

Chg in Cash (232) 540 (703) 2,612 1,296

Opg CFPS (Bt) 0.55 0.46 0.79 0.34 0.38

Free CFPS (Bt) 0.21 0.20 0.40 0.27 0.39


Target Price & Ratings History

Source: DBSVTH

Analyst: Nantika WIANGPHOEM

Chaipat THANAWATTANO

S .No.Date of

Repor t

Clos ing

P r ice

12-m th

Targe t

P r ice

Rating

Note : Share price and Target price are adjus ted for corporate actions .

2.01

2.21

2.41

2.61

2.81

3.01

3.21

3.41

3.61

3.81

Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17

Bt


BUY Last Traded Price ( 25 Apr 2017): Bt34.25 (SET : 1,562.27) Price Target 12-mth: Bt42.00 (23% upside) Potential Catalyst: New asset acquisitions Where we differ: We are more cautious on earnings performance of its power plants Analyst Chaipat THANAWATTANO +66 2657 7827 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Bt m) 2016A 2017F 2018F 2019F Revenue 20,675 24,351 29,539 31,762 EBITDA 4,692 5,234 6,033 6,663 Pre-tax Profit 3,012 3,410 4,011 4,641 Net Profit 2,700 2,991 3,413 4,018 Net Pft (Pre Ex.) 2,696 2,991 3,413 4,018 Net Pft Gth (Pre-ex) (%) 38.2 10.9 14.1 17.7 EPS (Bt) 1.80 2.00 2.28 2.68 EPS Pre Ex. (Bt) 1.80 2.00 2.28 2.68 EPS Gth Pre Ex (%) 38 11 14 18 Diluted EPS (Bt) 1.80 2.00 2.28 2.68 Net DPS (Bt) 1.15 1.20 1.14 1.34 BV Per Share (Bt) 24.8 25.6 26.7 28.2 PE (X) 19.0 17.2 15.0 12.8 PE Pre Ex. (X) 19.0 17.2 15.0 12.8 P/Cash Flow (X) 12.4 16.7 14.9 12.4 EV/EBITDA (X) 13.1 12.3 11.1 10.2 Net Div Yield (%) 3.4 3.5 3.3 3.9 P/Book Value (X) 1.4 1.3 1.3 1.2 Net Debt/Equity (X) 0.2 0.3 0.3 0.3 ROAE (%) 7.4 7.9 8.7 9.8 Earnings Rev (%): (8) (17) N/A Consensus EPS (Bt): 2.03 2.51 2.87 Other Broker Recs: B: 6 S: 1 H: 5


Flagship of PTT in power generation BUY rating maintained on PTT’s flagship company for the power segment. Global Power Synergy (GPSC) is the flagship company of the PTT Group in the power generation business. GPSC has been receiving continuous support from its parent company. PTT Group is one of the key customers of GPSC’s electricity and steam, accounting for more than 50% of total output. We rate the stock as a BUY with a DCF-based TP of Bt42 given its strong earnings performance with 3-year net profit CAGR of 14% that is driven by continuous capacity growth. Capacity CAGR of 12% during 2017-19F to ensure profit growth. GPSC currently has an equity-based capacity of 1,376MW for electricity and 1,441 ton/hour for steam. Its electricity capacity will increase to 1,922MW by 2019, implying a CAGR of 12% over 2017-19F. In addition to this, PTT could provide new business opportunities as well as long-term gas supply for GPSC’s power plants. Three growth strategies for long-term sustainability. GPSC will continue to grow the total capacity via three key strategies, i.e. (1) growing along with PTT Group; (2) quick expansion from acquisitions and renewable energy; and (3) big wins from investment in international projects. The company also did not overlook opportunities for adjacent and support businesses, including energy storage. Valuation: We value GPSC based on discounted cash flow (DCF) model due to the nature of electricity generating business with stable cash flow. We assume a WACC of 6.5%, derived from cost of debt (net tax) of 2.4% and cost of equity of 9.6% (risk-free rate of 3%, expected market return of 11% and beta of 0.7). Key Risks to Our View: Key risks are delayed start-up of its new projects, lower-than-expected electricity generation by the existing power plants, weaker demand for electricity from industrial customers and PTT Group. At A Glance Issued Capital (m shrs) 1,498 Mkt. Cap (Btm/US$m) 51,317 / 1,491 Major Shareholders (%) PTT Global Chemical Pcl 22.7 PTT Pcl 22.6 Thaioil Power Co., Ltd 20.8

Free Float (%) 24.9 3m Avg. Daily Val (US$m) 2.4 ICB Industry : Utilities / Electricity


26 Apr 2017


Global Power Synergy Version 2 | Bloomberg: GPSC TB | Reuters: GPSC.BK Refer to important disclosures at the end of this report

ASIAN INSIGHTS VICKERS SECURITIES Page 2

Company Guide

Global Power Synergy

CRITICAL DATA POINTS TO WATCH Earnings Drivers: Equity-based capacity to rise at CAGR of 12%. GPSC currently has an equity-based capacity of 1,376MW for electricity and 1,441 ton/hour for steam as of end-2016. Its electricity capacity will increase to 1,922MW by 2019, implying a CAGR of 12% over 2017-19F. With almost 80% of its equity-based capacity under IPP and SPP schemes, GPSC’s cash flow could be secured by long-term power purchase agreements with quality customers like EGAT and PTT Group. Capacity expansion along with PTT Group. GPSC could leverage the capacity expansion of PTT Group for its growth potential. This will not be limited only to Thailand but also includes overseas expansion. An example is the investment in Central Utility Plant Project 4 (CUP-4), located in PTT WEcoZI (PTT Wanarom Eco Zone Industries), Asia Industrial Estate in Rayong Province. This marked the first expansion of 100%-owned cogeneration power business outside Map Tha Put Industrial Estate. This will increase electricity and steam capacity by 390MW and 900 ton/hour respectively. The first phase of CUP-4 with electricity (45MW) and steam capacity (70 ton/hour) will start operation by 1Q2018. The PTT Group is expected to continue with its expansion, including PTTGC’s poly-urethane plant and TOP’s new refinery under Clean Fuel Project. Electricity tariff to increase in tandem with gas price. We expect the electricity tariff of GPSC’s sales to industrial customers, which is based on the Provincial Electricity Authority (PEA)’s tariff, to increase gradually, tracking the rise of gas prices. Note that the tariff is subject to the adjustment every four months (in January, May and September). Nonetheless, it is likely that the company would be affected by the mismatch of tariff adjustment and fuel cost given that the adjustment is subject to EGAT’s actual cost of its electricity which is generated internally and purchased from private operators. From time to time, the tariff adjustment may not reflect GPSC’s fuel cost. Equity income to rise continuously from new capacity of joint ventures. Profit-sharing contribution from joint ventures is also the key factor behind GPSC’s profit growth in 2017-19F. We estimate its profit-sharing contribution to rise at a CAGR of 28% during these three years, given the full-year commercial operations of Bang pa-in cogeneration power plant-2 in 2018 and the start-up of hydro power plants in Lao PDR, i.e. Nam Lik 1 and Xayaburi Power, which will be operational in 2018 and 2019 respectively.

Effective Capacity - YE (MW)

Natural gas price (Bt/mmbtu)

Electricity Tariff - IUs (Bt/KWh)

Equity income (Btm)

Effective interest rate (%)



Company Guide


Balance Sheet: Net gearing is expected to gradually decline. We expect its gross debt-to-equity ratio to continue declining during 2017-19F to 0.3-0.4x, which is very healthy given that the announced power projects commence operations and generate cash flows to repay long-term loans used to finance the construction. This has taken into account the company’s committed investment capital of at least Bt13-14bn for the development of new power plants from 2017-19F. Share Price Drivers: Capacity expansion. GPSC’s future outlook depends largely on its capacity expansion plans, including new acquisitions. As stated in its growth strategies, we expect the company to continuously announce new acquisitions and expansion with strong support from PTT Group. Generous dividend. GPSC’s share price performance in the past years was driven by its generous dividend. We believe this would continue to attract investors from time to time given the company’s strong cash flows and abundant cash on hand. Key Risks: Operational risk. The power plants are subject to operational risk from unplanned outages for conventional power plants and lower-than-expected output of solar power generation. Mismatch of tariff adjustment and fuel cost. As the electricity tariff of GPSC’s sales to industrial customers is based on PEA’s tariff, which is also subject to the tariff adjustment (as known as Ft), the company would likely be affected by the mismatch of tariff adjustment and fuel cost. Reliance on only few customers. PTT Group and EGAT are GPSC’s key customers, accounting for >90% of its total revenue. Any incidents on these two customers could also affect GPSC’s operating performance. Delays in project development and cost overrun of new projects. Several power projects of GPSC are still under development for the next three years. Any start-up delays could lead to opportunity costs and cost overruns for the projects. Click here to enter text. Company Background GPSC is the flagship company of PTT Group for electricity generating business. The company was established from the amalgamation of PTT Utilities (PTTUT) and Independent Power Thailand (IPT). These two companies were formerly owned by PTT’s associates, PTT Global Chemical (PTTGC) and Thai Oil (TOP) respectively. GPSC produces and distributes electricity, steam and water for industrial purposes. Its operating assets are mainly in Thailand while power assets in Laos and Japan are under development.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)



Company Guide


Key Assumptions

FY Dec 2015A 2016A 2017F 2018F 2019F Effective Capacity - YE

1,338 1,376 1,530 1,575 1,922

Natural gas price

309 255 263 271 279 Electricity Tariff - IUs

3.26 2.89 2.95 3.01 3.07

Equity income (Btm) 339 346 365 409 732 Effective interest rate (%) 2.84 2.68 2.70 2.95 3.20


FY Dec 2015A 2016A 2017F 2018F 2019F Revenue 22,444 20,675 24,351 29,539 31,762 Cost of Goods Sold (20,177) (17,365) (20,412) (24,673) (26,460) Gross Profit 2,267 3,310 3,939 4,866 5,303 Other Opng (Exp)/Inc (670) (900) (1,065) (1,298) (1,398) Operating Profit 1,596 2,410 2,874 3,567 3,905 Other Non Opg (Exp)/Inc 484 670 637 605 575 Associates & JV Inc 339 346 365 409 732 Net Interest (Exp)/Inc (394) (418) (466) (570) (570) Exceptional Gain/(Loss) (45.7) 3.59 0.0 0.0 0.0 Pre-tax Profit 1,979 3,012 3,410 4,011 4,641 Tax (90.0) (140) (160) (288) (313) Minority Interest 16.8 (172) (258) (310) (310) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit 1,906 2,700 2,991 3,413 4,018 Net Profit before Except. 1,952 2,696 2,991 3,413 4,018 EBITDA 3,501 4,692 5,234 6,033 6,663 Growth Revenue Gth (%) (5.1) (7.9) 17.8 21.3 7.5 EBITDA Gth (%) 12.0 34.0 11.6 15.3 10.4 Opg Profit Gth (%) (4.6) 51.0 19.3 24.1 9.4 Net Profit Gth (Pre-ex) (%) 22.9 38.2 10.9 14.1 17.7 Margins & Ratio Gross Margins (%) 10.1 16.0 16.2 16.5 16.7 Opg Profit Margin (%) 7.1 11.7 11.8 12.1 12.3 Net Profit Margin (%) 8.5 13.1 12.3 11.6 12.7 ROAE (%) 6.2 7.4 7.9 8.7 9.8 ROA (%) 3.9 4.7 5.0 5.5 6.1 ROCE (%) 3.4 4.2 4.5 4.8 5.6 Div Payout Ratio (%) 74.7 63.8 60.0 50.0 50.0 Net Interest Cover (x) 4.1 5.8 6.2 6.3 6.8



Company Guide



FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Revenue 4,802 5,484 5,553 5,176 4,461 Cost of Goods Sold (4,351) (4,601) (4,609) (4,440) (3,716) Gross Profit 451 883 945 736 746 Other Oper. (Exp)/Inc (188) (171) (204) (190) (335) Operating Profit 263 712 740 546 411 Other Non Opg (Exp)/Inc 75.2 239 49.5 305 77.0 Associates & JV Inc 114 86.0 89.2 60.1 111 Net Interest (Exp)/Inc (98.8) (105) (104) (98.2) (111) Exceptional Gain/(Loss) 9.69 8.40 29.5 (32.0) (2.2) Pre-tax Profit 363 940 805 781 486 Tax (9.9) (26.3) (69.5) (22.1) (22.3) Minority Interest (18.5) (43.1) (48.6) (34.9) (45.5) Net Profit 335 871 687 724 419 Net profit bef Except. 325 862 657 756 421 EBITDA 743 1,348 1,192 1,227 924 Growth Revenue Gth (%) 3.7 14.2 1.3 (6.8) (13.8) EBITDA Gth (%) (22.4) 81.6 (11.6) 2.9 (24.7) Opg Profit Gth (%) (7.2) 170.7 4.0 (26.2) (24.7) Net Profit Gth (Pre-ex) (%) (44.0) 165.0 (23.8) 15.1 (44.3) Margins Gross Margins (%) 9.4 16.1 17.0 14.2 16.7 Opg Profit Margins (%) 5.5 13.0 13.3 10.6 9.2 Net Profit Margins (%) 7.0 15.9 12.4 14.0 9.4

Balance Sheet (Btm)

FY Dec 2015A 2016A 2017F 2018F 2019F Net Fixed Assets 23,467 26,129 27,770 29,318 29,867 Invts in Associates & JVs 5,591 6,938 8,088 9,245 10,467 Other LT Assets 10,608 13,297 14,905 7,237 7,187 Cash & ST Invts 11,186 7,454 4,976 3,911 3,395 Inventory 406 458 481 505 530 Debtors 2,849 2,180 3,248 3,959 4,264 Other Current Assets 1,876 1,574 1,093 9,893 11,140 Total Assets 55,983 58,028 60,560 64,067 66,850 ST Debt

1,595 1,913 1,913 1,913 1,913 Creditor 1,960 1,140 2,088 2,545 2,741 Other Current Liab 998 1,142 1,142 1,142 1,142 LT Debt 13,394 14,295 14,382 15,468 15,555 Other LT Liabilities 909 784 784 784 784 Shareholder’s Equity 36,006 37,150 38,389 40,043 42,234 Minority Interests 1,122 1,604 1,862 2,172 2,482 Total Cap. & Liab. 55,983 58,028 60,560 64,067 66,850 Non-Cash Wkg. Capital 2,173 1,929 1,592 10,670 12,051 Net Cash/(Debt) (3,803) (8,754) (11,319) (13,471) (14,074) Debtors Turn (avg days) 47.7 44.4 40.7 44.5 47.2 Creditors Turn (avg days) 40.5 35.1 30.9 36.4 38.6 Inventory Turn (avg days) 7.3 9.8 9.0 7.7 7.6 Asset Turnover (x) 0.5 0.4 0.4 0.5 0.5 Current Ratio (x) 3.6 2.8 1.9 3.3 3.3 Quick Ratio (x) 3.1 2.3 1.6 1.4 1.3 Net Debt/Equity (X) 0.1 0.2 0.3 0.3 0.3 Net Debt/Equity ex MI (X) 0.1 0.2 0.3 0.3 0.3 Capex to Debt (%) 29.5 22.0 18.4 17.3 11.4 Z-Score (X) NA NA NA NA NA



Company Guide



FY Dec 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit 1,979 3,012 3,410 4,011 4,641 Dep. & Amort. 1,082 1,266 1,359 1,451 1,451 Tax Paid (90.0) (140) (160) (288) (313) Assoc. & JV Inc/(loss) (339) (346) (365) (409) (732) Chg in Wkg.Cap. (1,009) 295 (121) (254) (109) Other Operating CF 1,007 43.6 (1,043) (1,057) (801) Net Operating CF 2,632 4,130 3,079 3,454 4,138 Capital Exp.(net) (4,416) (3,563) (3,000) (3,000) (2,000) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV (936) (1,347) (1,150) (1,156) (1,223) Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Other Investing CF (8,758) 3,720 0.0 0.0 0.0 Net Investing CF (14,109) (1,190) (4,150) (4,156) (3,223) Div Paid (1,120) (1,573) (1,752) (1,760) (1,828) Chg in Gross Debt 2,197 1,219 86.7 1,087 86.7 Capital Issues 9,838 0.0 0.0 0.0 0.0 Other Financing CF 6.58 (29.2) 258 310 310 Net Financing CF 10,922 (383) (1,407) (363) (1,431) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (556) 2,557 (2,478) (1,065) (516) Opg CFPS (Bt) 2.43 2.56 2.14 2.47 2.83 Free CFPS (Bt) (1.2) 0.38 0.05 0.30 1.43



Source: DBSVTH Analyst: Chaipat THANAWATTANO

THAI-CAC Declared Corporate Governance CG Rating 2016

THAI-CAC is Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorised into:

Score Description Declared Companies that have declared their intention to join CAC

Certified Companies certified by CAC.

Corporate Governance CG Rating is based on Thai Institute of Directors (IOD)’s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows:

Score Range Number of Logo Description 90-100 Excellent

80-89 Very Good

70-79 Good

60-69 Satisfactory

50-59 Pass <50 No logo given N/A


ed: CK / sa:CS, PY

BUYLast Traded Price ( 25 Apr 2017): Bt4.68 (SET : 1,562.27)


Potential Catalyst: New capacity of renewable power plants

Where we differ: In line with consensus


Price Relative


Revenue 3,209 4,870 5,603 6,278 EBITDA 1,275 2,922 3,558 4,001 Pre-tax Profit 657 1,453 2,046 2,483 Net Profit 538 1,323 1,911 2,332 Net Pft (Pre Ex.) 562 1,323 1,911 2,332 Net Pft Gth (Pre-ex) (%) (16.3) 135.4 44.4 22.0 EPS (Bt) 0.08 0.18 0.26 0.31 EPS Pre Ex. (Bt) 0.09 0.18 0.26 0.31 EPS Gth Pre Ex (%) (32) 102 44 22 Diluted EPS (Bt) 0.08 0.18 0.26 0.31 Net DPS (Bt) 0.00 0.01 0.02 0.02 BV Per Share (Bt) 1.43 1.40 1.65 1.94 PE (X) 55.3 26.2 18.2 14.9 PE Pre Ex. (X) 52.9 26.2 18.2 14.9 P/Cash Flow (X) 25.5 14.8 13.3 11.1 EV/EBITDA (X) 31.4 19.0 16.1 13.6 Net Div Yield (%) 0.1 0.2 0.4 0.4 P/Book Value (X) 3.3 3.3 2.8 2.4 Net Debt/Equity (X) 1.0 1.8 1.7 1.2 ROAE (%) 6.3 13.6 16.9 17.5

Earnings Rev (%): (9) (5) N/A Consensus EPS (Bt): 0.19 0.28 0.35 Other Broker Recs: B: 8 S: 0 H: 3


Strong earnings outlook is intact Earnings performance remains strong with CAGR of 61%. GUNKUL’s share price has declined sharply by 24% in 1Q17 due to uncertainties over the land use for its wind power projects and its disappointing performance in 2016. Nonetheless, it has recovered by 12% over the past four weeks after the government managed to find a resolution for such land use which paved the way for the company to continue to develop its 170MW wind power projects. We remain positive on GUNKUL’s earnings performance with 3-year net profit CAGR of 61% that is driven mainly by additional capacity of its power generating business. We maintain our BUY call with a TP of Bt6/share.

More potential for solar power generating capacity in Japan. The growth story of GUNKUL’s power generating business in Japan remains intact with more capacity to be added into its portfolio. It has recently announced capacity of 208MW to date for solar farms in Japan. Its target of 300MW for the next three years was maintained.

Development of wind power projects could be continued. The uncertainties over agricultural land use for the wind power projects have raised concerns on GUNKUL’s earnings outlook since the beginning of this year. Nonetheless, this issue was resolved after the Agricultural Land Reform Office (ALRO) announced that 16 wind farm projects located on the land allocated to farmers under the ALRO scheme (Sor Por Kor land), including GUNKUL’s, are legal and the development of these wind farms could proceed as planned.

Valuation: We value GUNKUL based on the sum-of-parts method due to the different nature of its key businesses. This comprises DCF valuation for its power generating business given its stable cash flow, and PE valuation for its power equipment business. We assume 25x PE for the equipment sales and contractor businesses, based on the average market PE for equipment suppliers and construction.

Key Risks to Our View: Key risk factors are the delayed start-up of its remaining solar power and wind power projects, lower-than-expected electricity generation by solar power plants, weaker demand for power equipment and the lack of new EPC projects.

At A Glance Issued Capital (m shrs) 6,359

Mkt. Cap (Btm/US$m) 29,759 / 865


Gunkul Group (%) 49.8

Mr Prakin Sricharoen (%) 8.8

Mr Gunkul Dhumrongpiyawut (%) 4.2

Free Float (%) 30.7


ICB Industry : Industrials / Electronic & Electrical Equipment



Gunkul Engineering Version 4 | Bloomberg: GUNKUL TB | Reuters: GUNKUL.BK Refer to important disclosures at the end of this report


Page 2

Company Guide

Gunkul Engineering


Earnings Drivers:

Electrical equipment sales could recover y-o-y in 2017F.

After a disappointing performance in 2016, we expect revenue

from its equipment supply business (manufacturing and trading)

to recover with a growth of 10% in 2017F. We believe the

performance of this segment could continue to improve after

the delays of several projects in 2016, including the

government’s plan to expand EGAT’s transmission network.

More growth potential for equipment supply business.

Earnings prospects for power equipment supply should remain

strong due to higher demand for electricity, and more

investments in mass transit systems. This includes the

government’s policy on energy saving by replacing conventional

light bulbs with more energy-efficient LED light bulbs on main

roads across the country. Further, the Provincial Electricity

Authority has opened the bidding process for the Smart Grid in

30 key provinces across Thailand with a total budget of Bt30bn

to accommodate power supply management in the country,

especially as supply from renewable power generation is rising.

Gross margin for equipment sales could be stable.

GUNKUL’s gross margin for equipment business is expected to

remain stable at 30% during 2017-19F. We believe there

remains upside to this, as more products will be manufactured

and assembled by the company to accommodate the

government’s requirement of local products being certified

under Thailand’s Industrial Standard, such as LED light bulbs

and solar panels. In addition to higher barriers of entry, the

certified products could generate higher margins.

More construction activity for solar projects.

GUNKUL expects to gain more construction contracts from the

recently awarded power purchase agreements for solar farms by

local agricultural co-operatives. There are 67 projects with a

combined capacity of 281.3MW which are required to be

completed by the end of 2016. We believe GUNKUL is among

the few contractors capable of delivering the projects on time.

Renewable power sales to become more vital.

Revenue contribution from renewable power is expected to

surge in 2017F to 49% of total revenue and continue to

increase in 2018-19F to >50%. This is in line with the increase

in installed capacity, mainly wind power (170MW). The

company is planning to develop more renewable power

generating projects, mainly solar power in Japan to meet its

target capacity of 1,000MW by 2020F.

Equipment sales growth (%)

Equipment sales margin (%)

Electricity generating capacity breakdown

Electricity sales (Bt m)

Electricity capacity (MW)


Gas engine, 12MW, 2%

Wind, 170MW, 35%

Solar, 306MW, 63%


Page 3

Company Guide

Gunkul Engineering

Balance Sheet:

Net gearing to peak in 2017F before declining gradually. We

expect its net gearing ratio will continue to rise during 2016-17F

to peak at 1.6x in 2017F before easing gradually after all

announced renewable power projects commence operations

and generate cash flow to repay long-term loans used to

finance the construction. We estimate that GUNKUL will require

at least Bt22bn of investment capital for the committed power

plants from 2016-18F. About 73% of this budget will be spent

in 2016-17F, to be financed by long-term loans under project

finance for each project with local financial institutions.


New renewable power projects. Our current forecast does not

include upside potential from more solar farm projects in Japan

with an installed capacity of c.50MW and a 5MW solar farm

with local co-operatives. The company has set the target

capacity of solar power projects in Japan at 300MW for the next

three years, up from 150MW already secured to date.

Higher-than-expected equipment sales. As GUNKUL is well

positioned to gain from infrastructure investments in the

electricity industry in AEC countries, we believe the company

still has room to grow in supplying electrical equipment to

neighbouring countries with high growth potential like

Myanmar and Laos. This would also be supported by its

construction business, mainly involved in a number of solar farm

projects in Thailand.

Key Risks:

Dependence on government sector. Its power equipment supply

business depends largely on three state-owned electricity

authorities, thus any delays in the investment plans of the SOEs

could pose a risk for GUNKUL. Also, the business is also exposed

to exchange rate volatility, which could increase the cost of

imported equipment.

Delays in power plant development. For its renewable power

business, the main risk is delay in project development which

could result in cost overruns and lower-than-expected returns.

Its solar farm business in Japan is also exposed to FX risk when

profit is repatriated back to Thailand.

Other risks are the lack of new investments in the renewable

power business in Thailand and slower-than-expected

investments in Thailand’s electricity infrastructure.

Company Background

GUNKUL is the leading integrated manufacturer and trader of

electricity system equipment, ranging from generation to

transmission systems as well as energy saving equipment,

mainly LED lamps. The company is also involved in the

renewable energy business with an effective capacity of

390MW, comprising 220MW-solar power projects and

170MW-wind power projects. About 25% of this capacity is in

operation with the remainder still under development.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)



Page 4

Company Guide

Gunkul Engineering

Key Assumptions

FY Dec 2015A 2016A 2017F 2018F 2019F

Equipment sales growth (%) 153 (64.2) 10.0 10.0 10.0

Equipment sales margin (%) 22.6 31.5 30.0 30.0 30.0

Construction income (Bt m) 567 910 910 500 500

Electricity sales (Bt m) 51.2 868 2,392 3,384 3,895

Electricity capacity (MW) 96.5 161 303 336 450

Segmental Breakdown

FY Dec 2015A 2016A 2017F 2018F 2019F

Revenues (Btm)

Power Equipment 3,772 1,351 1,487 1,635 1,799

Electricity Generation 51.2 868 2,392 3,384 3,895

Construction 567 910 910 500 500

Maintenance Service 70.1 80.1 82.1 84.1 84.1

Others 0.0 0.0 0.0 0.0 0.0

Total 4,460 3,209 4,870 5,603 6,278

Operating profit (Btm) Power Equipment 851 425 446 491 540

Electricity Generation 32.0 586 1,664 2,382 2,737

Construction 119 75.0 136 75.0 75.0


Others 0.0 0.0 0.0 0.0 0.0

Total 1,035 1,115 2,275 2,978 3,382

Operating profit Margins (%) Power Equipment 22.6 31.5 30.0 30.0 30.0

Electricity Generation 62.5 67.5 69.5 70.4 70.3

Construction 20.9 8.2 15.0 15.0 15.0


Others 0.0 0.0 N/A N/A N/A

Total 23.2 34.7 46.7 53.1 53.9


FY Dec 2015A 2016A 2017F 2018F 2019F

Revenue 4,460 3,209 4,870 5,603 6,278


Gross Profit 1,019 1,115 2,275 2,978 3,382

Other Opng (Exp)/Inc (505) (534) (604) (667) (694)

Operating Profit 514 581 1,671 2,310 2,688

Other Non Opg (Exp)/Inc 116 158 30.0 30.0 30.0

Associates & JV Inc 280 272 272 278 343


Exceptional Gain/(Loss) 14.0 (24.3) 0.0 0.0 0.0

Pre-tax Profit 809 657 1,453 2,046 2,483

Tax (135) (41.4) (78.1) (81.9) (94.6)

Minority Interest 11.6 (77.7) (51.8) (53.8) (55.9)


Net Profit 685 538 1,323 1,911 2,332

Net Profit before Except. 671 562 1,323 1,911 2,332

EBITDA 947 1,275 2,922 3,558 4,001

Growth

Revenue Gth (%) 49.8 (28.1) 51.8 15.1 12.0

EBITDA Gth (%) 38.9 34.7 129.1 21.8 12.5

Opg Profit Gth (%) 56.7 13.1 187.6 38.2 16.4

Net Profit Gth (Pre-ex) (%) 29.5 (16.3) 135.4 44.4 22.0

Margins & Ratio

Gross Margins (%) 22.9 34.7 46.7 53.1 53.9



ROAE (%) 12.0 6.3 13.6 16.9 17.5

ROA (%) 5.3 2.4 4.4 5.1 5.9

ROCE (%) 4.9 1.2 2.8 3.8 4.6

Div Payout Ratio (%) 6.0 4.9 5.6 7.8 6.4




Page 5

Company Guide

Gunkul Engineering


FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016

Revenue 749 828 597 648 1,135

Cost of Goods Sold (555) (580) (318) (405) (791)

Gross Profit 194 248 279 243 344

Other Oper. (Exp)/Inc (117) (138) (116) (133) (146)

Operating Profit 76.3 110 163 110 198


Associates & JV Inc 73.6 69.1 64.2 64.3 74.1

Net Interest (Exp)/Inc (37.1) (67.0) (72.9) (88.7) (101)

Exceptional Gain/(Loss) 39.8 (18.8) 5.58 24.4 (35.6)

Pre-tax Profit 196 119 204 150 184

Tax (36.5) (1.4) (6.1) (1.9) (32.1)

Minority Interest 9.10 (24.3) (24.0) (22.3) (7.1)

Net Profit 169 93.4 174 125 145

Net profit bef Except. 129 112 169 101 180

EBITDA 209 262 338 283 393

Growth

Revenue Gth (%) (70.8) 10.6 (27.9) 8.5 75.0

EBITDA Gth (%) (52.8) 25.3 29.3 (16.3) 38.9

Opg Profit Gth (%) (77.4) 43.9 48.9 (32.4) 79.2

Net Profit Gth (Pre-ex) (%) (61.1) (13.0) 50.5 (40.1) 78.3

Margins

Gross Margins (%) 25.9 29.9 46.8 37.5 30.3


Net Profit Margins (%) 22.5 11.3 29.2 19.3 12.7

Balance Sheet (Btm)

FY Dec 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 7,646 13,605 25,346 28,141 27,201

Invts in Associates & JVs 352 357 629 906 1,250

Other LT Assets 4,643 5,063 5,063 5,063 5,063

Cash & ST Invts 3,864 3,433 1,363 2,440 3,190

Inventory 364 402 89.9 132 162

Debtors 1,420 1,281 956 1,238 1,404

Other Current Assets 528 1,522 1,522 1,522 1,522

Total Assets 18,815 25,662 34,968 39,442 39,791

ST Debt

3,930 4,522 4,770 4,923 3,923

Creditor 668 715 157 231 283

Other Current Liab 1,774 1,584 1,584 1,584 1,584

LT Debt 3,327 8,562 16,829 19,186 18,243

Other LT Liabilities 526 530 530 530 530


Minority Interests 527 641 693 747 803

Total Cap. & Liab. 18,815 25,662 34,968 39,442 39,791

Non-Cash Wkg. Capital (131) 906 827 1,077 1,221

Net Cash/(Debt) (3,393) (9,651) (20,237) (21,669) (18,977)



Inventory Turn (avg days) 35.8 76.4 54.6 24.0 27.4

Asset Turnover (x) 0.3 0.1 0.2 0.2 0.2

Current Ratio (x) 1.0 1.0 0.6 0.8 1.1

Quick Ratio (x) 0.8 0.7 0.4 0.5 0.8

Net Debt/Equity (X) 0.4 1.0 1.8 1.7 1.2


Capex to Debt (%) 79.4 51.2 58.7 15.5 0.0

Z-Score (X) 2.6 1.7 1.4 1.4 1.4



Page 6

Company Guide

Gunkul Engineering


FY Dec 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 809 657 1,453 2,046 2,483

Dep. & Amort. 36.3 265 949 940 940

Tax Paid (135) (41.4) (78.1) (81.9) (94.6)

Assoc. & JV Inc/(loss) (280) (272) (272) (278) (343)

Chg in Wkg.Cap. 0.0 0.0 0.0 0.0 0.0

Other Operating CF (389) 558 298 (25.5) 143

Net Operating CF 40.4 1,166 2,350 2,602 3,128

Capital Exp.(net) (5,758) (6,699) (12,689) (3,736) 0.0

Other Invts.(net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV (1.1) (5.2) (272) (278) (343)

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF (1,425) (2,280) 0.0 0.0 0.0

Net Investing CF (7,185) (8,983) (12,961) (4,014) (343)

Div Paid (24.6) (290) (26.4) (74.2) (148)

Chg in Gross Debt 5,001 5,827 8,516 2,510 (1,943)

Capital Issues 4,031 153 0.0 0.0 0.0

Other Financing CF 127 1,099 51.8 53.8 55.9

Net Financing CF 9,134 6,789 8,541 2,489 (2,035)


Chg in Cash 1,990 (1,028) (2,070) 1,077 750

Opg CFPS (Bt) 0.01 0.18 0.32 0.35 0.42

Free CFPS (Bt) (1.1) (0.9) (1.4) (0.2) 0.42



Source: DBSVTH

Analyst: Chaipat THANAWATTANO

THAI-CAC Declared Corporate Governance CG Rating 2016


Score Description

Declared Companies that have declared their intention to join CAC


Corporate Governance CG Rating is based on Thai Institute of

Directors (IOD)’s annual assessment of corporate governance practices of listed companies. The assessment covers 235 criteria in five categories including board responsibilities (35% weighting), disclosure and transparency (20%), role of stakeholders (20%), equitable treatment of shareholders (10%) and rights of shareholders (15%). The IOD then assigns numbers of logos to each company based on their scoring as follows:

Score Range Number of Logo Description

90-100 Excellent

80-89 Very Good

70-79 Good

60-69 Satisfactory

50-59 Pass

<50 No logo given N/A



Price Target 12-mth: Bt54.00 (8% upside) (Prev Bt60.00)

Potential Catalyst: New capacity acquisition

Where we differ: We are more cautious on its earnings outlook


Price Relative


Revenue 47,837 47,290 48,937 50,594 EBITDA 9,318 10,190 10,527 10,246 Pre-tax Profit 6,936 7,595 7,904 7,629 Net Profit 6,166 6,469 6,868 6,759 Net Pft (Pre Ex.) 6,008 6,469 6,868 6,759 Net Pft Gth (Pre-ex) (%) 32.9 7.7 6.2 (1.6) EPS (Bt) 4.25 4.46 4.74 4.66 EPS Pre Ex. (Bt) 4.14 4.46 4.74 4.66 EPS Gth Pre Ex (%) 33 8 6 (2) Diluted EPS (Bt) 4.25 4.46 4.74 4.66 Net DPS (Bt) 2.35 2.40 2.40 2.40 BV Per Share (Bt) 43.0 45.1 47.4 49.7 PE (X) 11.8 11.2 10.6 10.7 PE Pre Ex. (X) 12.1 11.2 10.6 10.7 P/Cash Flow (X) 8.7 5.8 6.2 6.4 EV/EBITDA (X) 8.8 7.8 7.4 7.4 Net Div Yield (%) 4.7 4.8 4.8 4.8 P/Book Value (X) 1.2 1.1 1.1 1.0 Net Debt/Equity (X) 0.2 0.1 0.1 0.0 ROAE (%) 10.1 10.1 10.2 9.6 Earnings Rev (%): (14) (9) N/A Consensus EPS (Bt): 4.53 4.78 4.74 Other Broker Recs: B: 8 S: 2 H: 8


Still underperforming its peers Share price stood still over the last six months due to lack of new catalysts. RATCH’s share price has barely moved during the past six months and has underperformed its peers (+8% to +12%) and the market (+10%). We believe this reflects the company’s unexciting expansion plan and the fact that its new investments are only progressing slowly. Our HOLD rating is maintained but our TP is reduced to Bt54, while its dividend yield of 4.8% remains attractive. Installed capacity continues to rise, but only marginally. The company’s operating capacity will continue to increase at a CAGR of 1.6% for the next six years to 6,980MW, with the bulk of the increase in 2016 coming from the full operation of Hongsa power plant (HPC) (40% stake). Given the high base of its current capacity, its new capacity growth would be marginal. Investment in mass transit a desperate investment move. RATCH has shifted its focus from the power generating business to other infrastructure business like the mass transit system in Bangkok. It has committed Bt2.8bn investment in 10% equity portion of a new joint venture, namely BSR Joint Venture, with BTS Group Holdings (BTS) and Sino-Thai Engineering & Construction (STEC). We believe this reflects RATCH’s change in investment policy, i.e. not only focusing on the power generating business which still lacks new opportunities. Valuation:

We value RATCH’s power plants using the DCF model. Based

on 3% long-term risk-free rate, 8% equity risk premium, 0.68

beta, and 68% equity portion in 2017F, we derived a WACC

of 7.3%. We assumed each plant would run until the expiry of

the Power Purchase Agreement (PPA) in the case of IPPs and

SPPs. Note that one of its IPPs, i.e. Tri Energy or TECO (100%

owned, 700MW), will be the first IPP to retire in 2020.


RATCH’s operating risk for IPPs is minimal given that revenue is

protected by long-term PPAs which guarantee the receipts of

Availability Payment (AP) and Energy Payment (EP), regardless

of power dispatch by EGAT. A key risk is unplanned outage of

its power plants. At A Glance

Issued Capital (m shrs) 1,450

Mkt. Cap (Btm/US$m) 72,500 / 2,106


Electricity Generating Authority of Thailand (%) 45.0

Thai NVDR (%) 15.8

Littledown Nominees Limited (%) 7.8

Free Float (%) 35.42




26 Apr 2017


Ratchaburi Electricity Version 2 | Bloomberg: RATCH TB | Reuters: RATC.BK Refer to important disclosures at the end of this report


Page 2

Company Guide

Ratchaburi Electricity


Earnings Drivers:

Installed capacity to rise 1.6% p.a. over five years. RATCH’s

operating capacity will continue to increase from the current

6,442MW to 6,980MW by 2021. This is equivalent to a CAGR

of 1.6% during the period. It remains difficult for the company

to increase capacity significantly due to the large capacity of

existing assets.

IPP business is still the key earnings contributor. The IPP business

would be key in terms of operating capacity at least until 2026

when the Power Purchase Agreement (PPA) of its power plant

in Ratchaburi province with an installed capacity of 3,645MW

(57% of current operating capacity) expires. Based on the

current regulation for power industry, the expired PPA is

unlikely to be extended due to excess capacity in the country.

Renewable energy still accounts for a small portion. RATCH has

continued to add renewable power plants into its portfolio. This

accounts for only 1% of total current operating capacity or

69MW, made up of mainly wind power plants. As the

investment cost of renewable energy plants has declined

steadily due to the lower price of equipment and shorter

construction period than conventional power plants, this would

imply better returns on investment. Nonetheless, adding more

renewable power facilities in Thailand is more difficult due to

limited opportunities.

Equity income to increase strongly. RATCH’s earnings growth

performance relies largely on profit contribution from joint

ventures and associates. This would be more apparent from

2016 onwards due to the commencement of the Hongsa coal-

fired power plant in Laos, in which RATCH has a 40% interest.

We estimate that the power plant could generate an annual

profit of c.US$70m for full-year operations. We estimate this

power plant to record c.Bt2.1bn contribution in 2017F, up from

Bt1.2bn in 2016.

Stable dividend of Bt2.4/share expected for 2017-19F. Despite

its strong balance sheet and more cash flow from operating

capacity, especially projects that have recently commenced

operations, we expect RATCH to maintain a DPS of c.Bt2.4 or

equivalent to a payout ratio of 51-54%, in line with its historical

average of 51% since it was listed in 2000. This reflects the

company’s long-term policy to reserve cash to finance new

investment opportunities, including the passive investment in

the new mass transit system in Bangkok. Note that the

company has recently announced its plan to invest Bt2.8bn for

10% ownership in a joint venture for the MRT Pink Line Project

(Khae Rai – Min Buri) and the MRT Yellow Line Project (Lat

Phrao – Samrong) under the name BSR Joint Venture.

Installed Capacity (MW)

Equity Income (Bt m)

Effective Tax Rate (%)

Dividend Payout (%)

Capital Spending (Bt m)


6,442 6,4636,607

6,744 6,744

6,980

538 518374

236 236

6,000

6,200

6,400

6,600

6,800

7,000

7,200

2016 2017F 2018F 2019F 2020F 2021F

Operating Under development/constructionMW


Page 3

Company Guide


Balance Sheet:

Abundant cash opens room for new investments. RATCH’s

financial position remains strong with a D/E of c.0.3x. This is

expected to decline gradually in the next three years given that

there is no sizeable investment in the near term. The key

investment in the next three years is Bt7.5bn for 10% interest in

a nuclear power in China and 10% stake in the new mass

transit system in Bangkok but this would be financed by internal

cash flow from operations. This would support acquisitions or

new investments when opportunities emerge.

Despite its high cash position, management is keeping to its

minimum dividend payout policy of 40% of net profit with a

gradual increase annually. It prefers to reserve cash for future

investments, including investments in neighbouring countries,

such as Australia, to diversify its risks. Note that RATCH

generates free cash flow of Bt5-6bn p.a.


Lack of near-term catalysts. The key potential driver for its share

price is new acquisitions or projects. There is no new investment

in sight currently.

Key Risks:

Operating risks. For IPPs, we see minimal operating risk given

that producers are backed by PPAs which stipulate the

Availability Payment (AP) and Energy Payment (EP). The AP is

for the IPPs to maintain the availability of power plants at the

rate specified in the PPAs (normally a minimum of 85%),

regardless of the actual power dispatched. If EGAT dispatches

more electricity, the IPPs would receive extra payments. If the

IPPs cannot meet the requirement, they would have to pay a

penalty fee.

Financial risk. Power plants are capital-intensive and producers

need to be financially competitive in order to win new IPP

projects. Such strong competition may force RATCH (and other

bidders) to lower their IRR.

Company Background

RATCH was founded in 2000 after it was spun off from the

Electricity Generating Authority of Thailand (EGAT), and was

listed on the SET in Nov 2000. The company currently has a

total (based on equity) generating capacity of 6,442MW –

77% of its capacity is in Thailand, 16% in Australia, and 8% in

Laos. The company has been aggressively seeking new capacity

through both green-field projects and acquisitions.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)



Page 4

Company Guide


Key Assumptions

FY Dec 2015A 2016A 2017F 2018F 2019F

Installed Capacity (MW) 6,119 6,442 6,463 6,607 6,744

Equity Income (Bt m) 1,116 2,907 3,313 4,156 4,691

Effective Tax Rate (%) 42.6 21.4 20.0 20.0 20.0

Dividend Payout (%) 103 55.3 53.8 50.7 51.5

Capital Spending (Bt m) 133 1,487 3,000 2,400 500


FY Dec 2015A 2016A 2017F 2018F 2019F

Revenue 57,435 47,837 47,290 48,937 50,594


Gross Profit 6,818 6,213 6,276 5,650 4,784

Other Opng (Exp)/Inc (1,567) (1,476) (1,285) (1,352) (1,415)

Operating Profit 5,251 4,737 4,992 4,298 3,369

Other Non Opg (Exp)/Inc 437 371 463 555 647

Associates & JV Inc 1,116 2,907 3,313 4,156 4,691

Net Interest (Exp)/Inc (1,048) (1,238) (1,173) (1,105) (1,079)

Exceptional Gain/(Loss) (1,334) 158 0.0 0.0 0.0

Pre-tax Profit 4,423 6,936 7,595 7,904 7,629

Tax (1,408) (863) (856) (750) (588)

Minority Interest 173 93.2 (270) (286) (282)


Net Profit 3,188 6,166 6,469 6,868 6,759

Net Profit before Except. 4,522 6,008 6,469 6,868 6,759

EBITDA 8,099 9,318 10,190 10,527 10,246

Growth

Revenue Gth (%) 3.9 (16.7) (1.1) 3.5 3.4

EBITDA Gth (%) (7.9) 15.0 9.4 3.3 (2.7)

Opg Profit Gth (%) 2.2 (9.8) 5.4 (13.9) (21.6)

Net Profit Gth (Pre-ex) (%) (11.9) 32.9 7.7 6.2 (1.6)

Margins & Ratio

Gross Margins (%) 11.9 13.0 13.3 11.5 9.5



ROAE (%) 5.3 10.1 10.1 10.2 9.6

ROA (%) 3.4 6.5 6.6 6.8 6.4

ROCE (%) 4.1 5.5 5.8 6.1 5.8

Div Payout Ratio (%) 103.3 55.3 53.8 50.7 51.5




Page 5

Company Guide



FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016

Revenue 12,744 13,313 12,563 11,161 10,800


Gross Profit 756 1,752 1,712 1,254 1,496

Other Oper. (Exp)/Inc (414) (371) (341) (360) (405)

Operating Profit 342 1,381 1,371 894 1,091

Other Non Opg (Exp)/Inc 219 77.4 125 151 17.8

Associates & JV Inc 419 358 878 534 1,137


Exceptional Gain/(Loss) 258 6.49 (762) (256) 1,170

Pre-tax Profit 959 1,545 1,295 999 3,097

Tax (150) (309) (218) (181) (156)

Minority Interest 36.0 23.7 23.4 23.3 22.8

Net Profit 845 1,259 1,101 842 2,964

Net profit bef Except. 587 1,253 1,863 1,098 1,794

EBITDA 1,399 2,111 2,670 1,877 2,660

Growth

Revenue Gth (%) (14.2) 4.5 (5.6) (11.2) (3.2)

EBITDA Gth (%) (32.5) 50.9 26.5 (29.7) 41.7

Opg Profit Gth (%) (79.0) 303.4 (0.7) (34.8) 22.0

Net Profit Gth (Pre-ex) (%) (50.5) 113.3 48.7 (41.1) 63.4

Margins

Gross Margins (%) 5.9 13.2 13.6 11.2 13.8


Net Profit Margins (%) 6.6 9.5 8.8 7.5 27.4

Balance Sheet (Btm)

FY Dec 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 13,479 13,807 15,384 16,265 15,227

Invts in Associates & JVs 17,622 25,492 28,488 33,317 38,542

Other LT Assets 35,521 30,790 27,270 25,285 21,955

Cash & ST Invts 11,593 12,595 15,995 17,321 19,778

Inventory 1,913 2,054 1,627 1,717 1,819

Debtors 8,487 7,564 5,867 6,174 6,461

Other Current Assets 3,991 4,090 3,840 2,305 3,650

Total Assets 92,605 96,391 98,471 102,383 107,432

ST Debt

3,100 3,800 3,800 3,800 3,800

Creditor 7,006 5,554 4,339 4,577 6,064

Other Current Liab 1,552 1,592 1,592 1,592 1,592

LT Debt 18,354 18,356 18,356 18,356 18,356

Other LT Liabilities 2,173 4,636 4,636 4,636 4,636


Minority Interests 230 131 401 687 969

Total Cap. & Liab. 92,605 96,391 98,471 102,383 107,432

Non-Cash Wkg. Capital 5,833 6,563 5,403 4,026 4,274

Net Cash/(Debt) (9,861) (9,562) (6,162) (4,835) (2,378)



Inventory Turn (avg days) 16.8 18.0 17.0 14.6 14.6

Asset Turnover (x) 0.6 0.5 0.5 0.5 0.5

Current Ratio (x) 2.2 2.4 2.8 2.8 2.8

Quick Ratio (x) 1.7 1.8 2.2 2.4 2.3

Net Debt/Equity (X) 0.2 0.2 0.1 0.1 0.0


Capex to Debt (%) 0.6 6.7 13.5 10.8 2.3

Z-Score (X) 3.1 3.4 3.4 3.4 3.4



Page 6

Company Guide



FY Dec 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 4,423 6,936 7,595 7,904 7,629

Dep. & Amort. 1,296 1,303 1,423 1,519 1,539

Tax Paid (1,408) (863) (856) (750) (588)

Assoc. & JV Inc/(loss) (1,116) (2,907) (3,313) (4,156) (4,691)

Chg in Wkg.Cap. 549 (155) 910 (158) 1,097

Other Operating CF 6,087 4,038 6,813 7,390 6,394

Net Operating CF 9,830 8,351 12,571 11,749 11,380

Capital Exp.(net) (133) (1,487) (3,000) (2,400) (500)

Other Invts.(net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV (6,066) (7,870) (2,997) (4,829) (5,225)

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF (48.9) 4,378 0.0 0.0 0.0

Net Investing CF (6,248) (4,979) (5,997) (7,229) (5,725)

Div Paid (3,291) (3,291) (3,444) (3,480) (3,480)

Chg in Gross Debt (840) 702 0.0 0.0 0.0

Capital Issues 0.0 0.0 0.0 0.0 0.0

Other Financing CF (2,610) 1,171 270 286 282

Net Financing CF (6,741) (1,417) (3,174) (3,194) (3,198)


Chg in Cash (3,159) 1,955 3,400 1,326 2,457

Opg CFPS (Bt) 6.40 5.87 8.04 8.21 7.09

Free CFPS (Bt) 6.69 4.73 6.60 6.45 7.50



Source: DBSVTH

Analyst: Chaipat THANAWATTANO

THAI-CAC Certified

Corporate Governance CG Rating 2016


Score Description






90-100 Excellent

80-89 Very Good

70-79 Good

60-69 Satisfactory

50-59 Pass


ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa:CS, PY



Potential Catalyst: The award of the Bt28bn EPC works from LAO PDR

Where we differ: We are more bearish than the consensus

Analyst Apichaya KETRUTTANABORVORN +66 2657 7823 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Bt m) 2015A 2016A 2017F 2018F

Revenue 2,090 1,944 3,488 5,834 EBITDA 282 251 536 789 Pre-tax Profit 225 202 455 672 Net Profit 187 163 364 537 Net Pft (Pre Ex.) 187 163 364 537 Net Pft Gth (Pre-ex) (%) (42.7) (13.1) 124.0 47.6 EPS (Bt) 0.25 0.22 0.49 0.72 EPS Pre Ex. (Bt) 0.25 0.22 0.49 0.72 EPS Gth Pre Ex (%) (87) (13) 124 48 Diluted EPS (Bt) 0.25 0.22 0.49 0.72 Net DPS (Bt) 0.33 0.16 0.22 0.36 BV Per Share (Bt) 2.48 2.60 3.16 3.61 PE (X) 42.9 49.4 22.0 14.9 PE Pre Ex. (X) 42.9 49.4 22.0 14.9 P/Cash Flow (X) 5.8 nm 38.5 85.4 EV/EBITDA (X) 25.3 29.0 12.6 8.7 Net Div Yield (%) 3.1 1.5 2.0 3.3 P/Book Value (X) 4.3 4.1 3.4 3.0 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 15.0 8.5 16.9 21.2 Earnings Rev (%): N/A N/A Consensus EPS (Bt): 0.62 1.14 Other Broker Recs: B: 4 S: 0 H: 1


Powered up by Bt28bn EPC projects in LAO PDR

Initiate with HOLD rating due to the risk of delay on the key EPC projects Despite SCI has a potential of strong earnings growth of 124%, driven by its EPC works in LAO PDR, we suspect a risk of further delay on the SCI’s key EPC projects, worth Bt28bn, would be a key pressure on its share price. Note that we expect the earnings growth to be lower than the market has expected by 37%. Thus, given its rich valuation and limited upside to our share price, we have a hold rating on the stock with a TP of Bt11.70.

Thailand’s leading electrical switch board and tower manufacturer and distributor. SCI is a manufacturer and distributor of electrical switch boards as well as transmission and telecommunication towers. Additionally, SCI operates the EPC projects for power transmission and distribution as well as the 3.5MW hydroelectric power plant in LAO PDR. Its switchboard (12% of FY16 revenue) and tower (40% of FY16 revenue) businesses should have limited growth of 5-10% due to the almost full utilisation and limited demand growth in Thailand. The main catalyst for SCI is from its EPC business which is expected to be boosted up by the award of the Bt28bn EPC projects in LAO PDR.

The delay on the Bt28bn projects in LAO PDR should be a key pressure on share price. The main catalyst for SCI is from its EPC business which its backlog is expected to be boosted up by the award of the Bt13bn projects in LAO PDR. SCI had previously secured Bt14.6bn EPC contract for 500kV Transmission Line route I in May 2016, but its design has been revised. Hence, we expect a delay in (i) FY17F revenue recognition from route I project, of which only 5% of the project value from site survey services can be recognised, and (ii) the award of the 500kV Transmission line project route II, worth Bt10.7bn, which is SCI’s high potential project. Additionally, SCI expects to secure the Bt2.3bn Power Distribution System and Rehabilitation 2 (PDSR2) project in 2H17, given that SCI has a good track record in PDSR1.

Valuation: Our TP is Bt11.7, pegged to 24x FY17F PE or -0.5 S.D. of its mean to reflect the risk of further delay in its EPC’s key projects.


Delays in the EPC works from LAO PDR government. At A Glance Issued Capital (m shrs) 750

Mkt. Cap (Btm/US$m) 8,025 / 233


Paritinarakorn's Family 63.0

AG Ajikawa Corporation 3.5

Thai NDVR 1.8

Free Float (%) 29.6




26 Apr 2017


SCI Electric Version 1 | Bloomberg: SCI TB | Reuters: SCI.BK Refer to important disclosures at the end of this report


Page 2

Company Guide

SCI Electric


Earnings Drivers:

The delay in design revision of the 500kV transmission line

projects in LAO PDR . Although SCI secured the 500kV

transmission line route I project worth Bt14.6bn in May 2016,

SCI expects to recognise only 5% of the total project value in

FY17, given the delay due to the design revision of the 500kV

transmission line in all routes as Electricite Du Laos (EDL)

requires a higher capacity for its transmission lines in order to

export more electricity to neighbouring countries. Apart from

the delay in revenue recognition for the route I project, the

award of the Bt10.7bn 500kV Transmission line route II project,

which is SCI’s high potential project, is expected to be delayed

until the revised proposal is finalised, which we expect to take

place in 4Q17. Note that currently, SCI's backlog of Bt14.6bn

has already hit its record-high.

Eyeing the contract award of the Bt2.3bn Power Distribution

System and Rehabilitation 2 (PDSR2) in 2H17. SCI expects to be

awarded the second phase of the Power Distribution System

phase II (PDSR2) in 2H17, given that SCI had built up a good

track record in the EPC works for phase I or PDSR1 last year.

Given the high complexity of this project, we expect it to

contribute a High Gross Profit Margin (GPM) of 20% (vs SCI’s

EPC project normal GPM of 15-20% range).

Ready to explore the new opportunity in Myanmar. SCI is

setting up its new tower manufacturing and galvanisation plant

in Thilawa SEZ, Myanmar. This new plant will increase its

capacity by 7,500 tons/year (vs its current capacity of 20,000

tons/year from its tower plant in Thailand). Note that SCI holds

a 95% stake in this new plant while the balance is owned by

the local partner. The capex for this project is US$18m, which

will be funded by long-term loans of US$11.6m from EXIM

bank and the rest from SCI and its local partner.

Currently, the electrification rate in Myanmar is only 30% and

the Myanmar government expects the rate to hit 100% in

FY30F. However, the main limitation of this plan is the lack of

transmission lines in Myanmar while the existing ones are

outdated. Thus, the Myanmar government plans to introduce

the 500kV transmission lines to replace its existing 66,132 and

230kV transmission lines that are outdated. However, we

believe that it should take sometime before Myanmar can kick

off this electricity master plan, which SCI would be the prime

beneficiary, not only for its tower manufacturing business, but

also the EPC works for transmission lines and sub-station

expansion projects.

Profitability

FY16 revenue breakdown

The 500kV Transmission Line EPC project in LAO PDR (Route I)

Myanmar's Existing Transmission line (MW) as of May 2016


20.7%

17.2%

17.1%

11.6%

8.9%8.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2014 2015 2016

GPM NPM

Towers, 48.9%

EPC, 36.4%

Switchboard, 12.0%

Hydropower, 1.4%

Others, 1.3%


Page 3

Company Guide

SCI Electric

Balance Sheet:

As of end-of FY16, SCI had a healthy balance sheet with a net

cash position. This was on the back of the SCI’s capital raising

of Bt1.1bn from its IPO on 13 October 2015.


The finalisation of the design revision of the 500kV transmission

lines projects in LAO PDR. The finalisation of the design revision

process by Electricite Du Laos (EDL) should allow SCI to

recognise the revenue from the 500kV transmission lines route I

(Bt14.6bn) and be awarded the route II (Bt10.7bn) projects. The

revision proposal will be submitted to LAO PDR cabinet on 22

April 2017. Note that we also expect the project value to be

revised up by 10-15% due to the new design.

Key Risks:

Further delay in the design revision of the 500kV transmission

lines projects in LAO PDR. This would result in a further delay

of revenue recognition of SCI’s 500kV transmission lines route I

project, worth Bt14.6bn, which SCI had already secured the

contract. as well as the further delay on the award of the

500kV transmission lines route II, worth Bt10.7bn,which is

SCI’s high potential projects.

Company Background

SCI Electric Public Company Limited (SCI) engages in the

production and distribution of electrical switch boards,

transmission and telecommunication towers, and is a service

provider for high voltage transmission line systems and power

distribution systems.


Capital Expenditure

ROE (%)

Forward PE Band (x)

PB Band (x)

Source: Company,


Page 4

Company Guide

SCI Electric

APPENDIX I: SCI Business overview

APPENDIX II: Potential projects for EPC works


Page 5

Company Guide

SCI Electric


FY Dec 2014A 2015A 2016A 2017F 2018F

Revenue 2,809 2,090 1,944 3,488 5,834


Gross Profit 581 360 333 564 876

Other Opng (Exp)/Inc (136) (110) (110) (75.9) (143)

Operating Profit 445 250 223 488 733


Associates & JV Inc 0.0 0.0 (6.3) 0.0 0.0

Net Interest (Exp)/Inc (27.7) (24.3) (14.4) (33.0) (61.0)

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0

Pre-tax Profit 417 225 202 455 672

Tax (90.9) (38.2) (40.0) (91.0) (134)



Net Profit 327 187 163 364 537

Net Profit before Except. 327 187 163 364 537

EBITDA 473 282 251 536 789

Growth

Revenue Gth (%) N/A (25.6) (7.0) 79.4 67.3

EBITDA Gth (%) nm (40.3) (11.0) 113.4 47.4

Opg Profit Gth (%) nm (43.9) (10.6) 118.8 50.2

Net Profit Gth (Pre-ex) (%) nm (42.7) (13.1) 124.0 47.6

Margins & Ratio

Gross Margins (%) 20.7 17.2 17.1 16.2 15.0



ROAE (%) N/A 15.0 8.5 16.9 21.2

ROA (%) N/A 7.7 5.5 8.2 8.0

ROCE (%) N/A 15.7 9.4 18.0 23.0

Div Payout Ratio (%) 15.2 132.3 73.1 45.0 50.0


Source: Company,


Page 6

Company Guide

SCI Electric


FY Dec 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016

Revenue 588 381 497 273 260

Cost of Goods Sold (466) (295) (464) (229) (225)

Gross Profit 123 86.7 33.1 44.1 34.3

Other Oper. (Exp)/Inc (28.0) (16.8) (38.2) (37.8) (28.6)

Operating Profit 94.5 69.9 (5.2) 6.29 5.73


Associates & JV Inc 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc (6.2) (7.2) (4.4) (4.0) (2.9)

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0

Pre-tax Profit 88.4 62.7 (9.6) 2.29 2.86

Tax (11.4) (16.1) 4.82 (6.9) (5.1)


Net Profit 76.9 46.7 (4.8) (4.8) (3.6)

Net profit bef Except. 76.9 46.7 (4.8) (4.8) (3.6)

EBITDA 104 78.9 3.81 15.3 14.7

Growth

Revenue Gth (%) (5.6) (35.2) 30.4 (45.2) (4.8)

EBITDA Gth (%) 4.2 (23.8) (95.2) 301.6 (3.7)

Opg Profit Gth (%) 4.7 (26.0) (107.4) (221.2) (8.9)

Net Profit Gth (Pre-ex) (%) 12.7 (39.3) (110.2) 0.7 (25.5)

Margins

Gross Margins (%) 20.8 22.7 6.6 16.2 13.2

Opg Profit Margins (%) 16.1 18.3 (1.0) 2.3 2.2

Net Profit Margins (%) 13.1 12.2 (1.0) (1.8) (1.4)

Balance Sheet (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F Net Fixed Assets 168 188 245 397 400

Invts in Associates & JVs 0.0 0.0 9.75 9.75 9.75

Other LT Assets 418 448 489 476 463

Cash & ST Invts 275 1,149 884 2,826 2,662

Inventory 210 213 299 946 1,612

Debtors 741 777 402 1,075 2,200

Other Current Assets 116 133 716 144 241

Total Assets 1,927 2,908 3,045 5,873 7,587

ST Debt

366 218 89.5 1,089 1,089

Creditor 644 685 871 1,589 2,708

Other Current Liab 190 50.6 37.6 236 395

LT Debt 63.6 49.3 34.3 434 434

Other LT Liabilities 37.2 45.2 54.1 144 241

Shareholder’s Equity 626 1,860 1,947 2,369 2,708

Minority Interests 0.0 0.01 11.1 11.1 11.1

Total Cap. & Liab. 1,927 2,908 3,045 5,873 7,587

Non-Cash Wkg. Capital 233 387 508 339 949

Net Cash/(Debt) (154) 882 760 1,302 1,138

Debtors Turn (avg days) N/A 132.5 110.7 77.3 102.4

Creditors Turn (avg days) N/A 134.1 168.4 152.1 155.4

Inventory Turn (avg days) N/A 44.6 58.0 77.7 94.1

Asset Turnover (x) NM 0.9 0.7 0.8 0.9

Current Ratio (x) 1.1 2.4 2.3 1.7 1.6

Quick Ratio (x) 0.9 2.2 2.0 1.4 1.2

Net Debt/Equity (X) 0.2 CASH CASH CASH CASH

Net Debt/Equity ex MI (X) 0.2 CASH CASH CASH CASH

Capex to Debt (%) 19.1 19.7 73.6 13.1 3.9

Z-Score (X) NA NA NA NA NA

Source: Company,


Page 7

Company Guide

SCI Electric


FY Dec 2014A 2015A 2016A 2017F 2018F

Pre-Tax Profit 417 225 202 455 672

Dep. & Amort. 27.6 32.4 34.2 47.7 56.6

Tax Paid (99.2) (45.5) (44.3) (101) (153)

Assoc. & JV Inc/(loss) 0.0 0.0 6.25 0.0 0.0

Chg in Wkg.Cap. (204) (155) (121) (315) (610)

Other Operating CF (265) 1,330 (339) 122 128

Net Operating CF (123) 1,387 (262) 209 94.0

Capital Exp.(net) (81.9) (52.9) (91.1) (200) (60.0)

Other Invts.(net) 0.0 0.0 0.0 0.0 0.0

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0

Other Investing CF 0.0 0.0 0.0 0.0 0.0

Net Investing CF (81.9) (52.9) (91.1) (200) (60.0)

Div Paid 0.0 (173) (156) (110) (199)

Chg in Gross Debt 109 (162) (144) 1,400 0.0

Capital Issues 0.0 1,464 0.0 0.0 0.0

Other Financing CF 0.0 0.0 11.2 0.10 0.10

Net Financing CF 109 1,130 (289) 1,290 (198)


Chg in Cash (95.9) 2,464 (642) 1,299 (164)

Opg CFPS (Bt) 0.49 2.06 (0.2) 0.70 0.94

Free CFPS (Bt) (1.2) 1.78 (0.5) 0.01 0.05

Source: Company,


Source:

Analyst: Apichaya KETRUTTANABORVORN

THAI-CAC n/a

Corporate Governance CG Rating 2016


Score Description






90-100 Excellent

80-89 Very Good

70-79 Good

60-69 Satisfactory

50-59 Pass





DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Sources for all charts and tables are DBSVTH unless otherwise specified.

Completed Date: 26 Apr 2017 14:19:41 (THA) Dissemination Date: 27 Apr 2017 13:02:55 (THA)

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its

respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in

any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH'').

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.




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The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

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Report.

Compensation for investment banking services:

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1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of

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