morning matters · 2013. 6. 27. · 27-jun-2013 morning matters e f a t x t m a c r o | ... intouch...

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27-Jun-2013

Morning Matters

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WHAT’S INSIDE

On The Platter

Electricity Generating (EGCO TB: FVTHB142- Neutral (Maintained)

EGCO’s recent share price pullback was on the news that the company did

not win in the current round of IPP bids although it is still awaiting official

confirmation. The company’s shares are currently trading at a discount to

its global peer valuation, but given the mere 8% upside potential to our

revised THB142 TP, we maintain our NEUTRAL call on this stock.

MEDIA HIGHLIGHTS

InTouch wires into broadband.

May exports fall on strong baht, global sluggishness.

China, Fed both obstruct Thailand's FDI outlook.

AP campaign aims to lift housing sales.

B Grimm to push sales of exported engineering products.

ThaiBev reshuffle kicks off with top-level change at Oishi.

ECONOMIC HIGHLIGHTS

Japan: Stocks Rise First Day in Four on U.S. Stimulus Bets.

HK: Hong Kong Express Plans 30% Cheaper Fares, Challenging Cathay.

U.S. Bond Funds Have Record $61.7 Billion in Redempt.

EU: Finance Chiefs Said to Reach Deal on Failing Banks.

EU: ECB Policy Makers Say Accommodative Monetary Policy to Stay.

SET Intra-Day Graph

Source: Bloomberg

Key Market Indices (26 June 2013)

Value Chg % Chg % YTD

SET 1424.38 39.75 2.9% 2.3%

SET50 961.98 27.74 3.0% 1.8%

SET100 2122.79 62.03 3.0% 2.1%

Dow Jones 14910.14 149.83 1.0% 13.8%

S&P500 1603.26 15.23 1.0% 12.4%

Nasdaq 3376.22 28.34 0.8% 11.8%

FTSE 6165.48 63.57 1.0% 4.5%

FSSTI 3104.40 14.47 0.5% -2.0%

Hang Seng 20338.55 482.83 2.4% -10.2%

Nikkei 12834.01 -307.59 -2.3% 23.5%

KLCI 1740.76 12.12 0.7% 3.1%

SHANGHAI SE 1951.50 -8.01 -0.4% -14.0%

JCI 4587.73 168.86 3.8% 6.3%

SET 5-yr avg 2012 2013F

PE (x) 14.1 16.3 13.1

P/BV (x) 1.8 2.3 2.2

Yield (%) 4.1 3.0 3.4

Key Statistics

SET Value by investor Type: Daily

Buy (THBm) Sell (THBm) Net (THBm)

Institution 7,662.38 4,122.10 3,540.27

Proprietary 9,238.92 8,444.07 794.85

Foreign 16,020.60 32,929.05 -16,908.45

Retail 42,053.55 29,480.22 12,573.33

SET Value by investor Type

MTD (THBm) YTD (THBm) Institution 31,895.29 73,500.14

Proprietary -6,030.79 -10,417.96

Foreign -66,289.63 -87,381.89

Retail 40,425.13 24,299.71

SET50 Index Future

Long Short Net MTD YTD

Institution 9,942 10,349 -407 6,482 14,335

Foreign 16,672 14,472 2,200 -1,619 -16,038

Local 14,229 16,022 -1,793 -4,863 1,703

Foreign Fund Flows (USDm) Last MTD YTD YTD(%) -542.5 -2,145.8 -2,871.1 -256.2

See important disclosures at the end of this report 2

Media Highlights

InTouch wires into broadband.

InTouch Plc (INTUCH), formerly known as Shin Corporation, outlined a five-year strategic plan to diversify into wired broadband business to strengthen its position as an integrated telecom service provider. The leading Thai telecom firm plans to balance the proportion invested between wired and wireless third-generation (3G) broadband businesses. Executive chairman Somprasong Boonyachai said the firm sees increasing demand for wired broadband business over the next 5-10 years. InTouch is considering two investment options _ renting a network from a telecom service provider; or building its own infrastructure, he said. InTouch, through mobile flagship Advanced Info Service (AIS), will run the wired broadband service. "A clear investment budget and business plan is expected to be completed this year, with investment beginning in 2014," said Mr Somprasong.(Bangkok Post)

May exports fall on strong baht, global sluggishness.

Last month's shipments totalled US$19.8 billion in dollar terms, but the value of 566 billion baht represented an 11.7%

decline, Commerce Ministry figures released yesterday show.Commerce permanent secretary Vatchari Vimooktayon said a

major factor in May's export slump was the strong baht, which had risen since February and peaked to 28.53 to the US dollar

in April. She listed the global economic slowdown as a second factor. Also playing a part were the weak yen, the slowdown in

the euro zone and slowing Asean markets starting to feel the pinch from fewer orders from key trade partners such as China,

the US and Japan. Last month saw exports drop in the agricultural and industrial sectors. Farm exports fell by 16.4% to a

value of $3.14 billion, with the biggest decreases seen in shipments of rice (26%) and rubber (22%). Industrial products also

saw exports drop by 0.9%, with electronics and electrical appliances the big losers. (Bangkok Post)

China, Fed both obstruct Thailand's FDI outlook.

Despite an expected gradual increase in global foreign direct investment (FDI), China's economic slowdown and the retreat of quantitative easing in the US remain hindrances affecting the outlook for foreign inflows to Thailand. Watcharas Leelawath, deputy executive director of the International Institute for Trade and Development, said the slowdown in the Chinese economy could have a substantial impact on the Thai economy, as Thailand has a significant trade volume with China. China accounts for 12-13% of Thai exports, he said. Since the US is a big player in global trade and investment, the US Federal Reserve's likely decision to halt its monetary stimulus programme, which injects liquidity into financial markets, will have negative consequences for FDI, said Mr Watcharas. With the Fed's quantitative easing winding down, a continued exodus of capital is probable, he said, though a precise estimate of the impact on global trade and investment is hard to figure.(Bangkok Post) AP campaign aims to lift housing sales.

Due to the unpredictable economy and high competition in the property market, the SET-listed developer AP (Thailand) Plc is spending 250 million baht to boost its housing sales in the second half of this year. "Housing demand remains in good condition with the usual number of site visits, but we need to exert more attempts to urge customers' decision making with many more promotions, as the economy is unpredictable and the stock market is volatile," he said. AP plans to achieve 7 billion baht in sales in the third quarter alone after recording 8 billion in the first half. It expects to have sales of 22 billion baht for the whole year. The developer also expects to realise 20 billion baht in revenue. About 35% will be booked in the first half. Of its sales backlog of 32.38 billion baht, about 27 billion came from condo sales and the rest from low-rise units. (Bangkok Post) B Grimm to push sales of exported engineering products.

B Grimm Trading Corporation aims to grow its sales of engineering products from Europe, the US and other parts of the world by 75 per cent to Bt1.4 billion this year while joining with Carrier Thailand to venture into emerging markets such as Myanmar. B Grimm Trading, an affiliate of B Grimm, serves as an incubator to facilitate and support B Grimm and its joint ventures. It helps them connect their businesses and market their high quality products. The company's four business units generated revenue of Bt819 million last year. The main driver was the heat recovery steam generator unit. The electrical engineering unit is projected to grow by 44 per cent or Bt115 million, led by the expansion of industrial customers especially in the eastern region and increasingly in residential projects in the central area that mainly use the products of Siemens. (The Nation) ThaiBev reshuffle kicks off with top-level change at Oishi.

Aiming to become a regional player in food and beverages, Thai Beverage is undergoing a major management reshuffle in

response to Asean integration, starting with a change at the top of Oishi Group. The reshuffle follows the takeover in February

of Malaysia-based Fraser & Neave (F&N) by ThaiBev's major shareholder, Charoen Sirivadhanabhakdi. Marut Buranasetkul,

a director of Oishi who will become the company's president in August, yesterday described Oishi as an integral part of

ThaiBev Group with a clear direction of becoming a leading regional beverage player. He said his priority would be expanding

Oishi's food and beverage divisions within the region, while maintaining the company's market dominance in Thailand. Oishi's

objective is to build a long-term, sustainable, profitable operation throughout Asean, he added. (The Nation)


Economic Highlights

European Central Bank policy makers including President Mario Draghi said they’ll maintain a loose monetary stance for as long as needed, while urging euro area governments to cut their deficits and boost investment. The ECB’s monetary policy “will stay accommodative for the foreseeable future,” Draghi said today in a speech at the French National Assembly in Paris. “We have an open mind about all other possible instruments that we may consider proper to adopt.” An exit is “very distant,” he said at a press conference. (Bloomberg)

Japan: Stocks Rise First Day in Four on U.S. Stimulus Bets.

Japanese stocks rose, with the Topix (TPX) index poised to halt a three-day loss, as slower-than-expected U.S. economic

growth increased speculation the Federal Reserve will maintain stimulus. Honda Motor Co., a carmaker that gets 47 percent of

its revenue in North America, added 2.2 percent after its outlook was raised at Moody’s Investor Service. Inpex Corp. (1605),

Japan’s No. 1 energy explorer, advanced 0.8 percent after oil rose on optimism about the Fed’s stimulus. The Tokyo Stock

Exchange Mothers Index of smaller companies climbed 2 percent after plunging 12 percent yesterday. The Topix gained 1

percent to 1,079.46 as of 9:09 a.m. in Tokyo, with all 33 industry groups advancing. The Nikkei 225 Stock Average added 1

percent to 12,959.14. (Bloomberg)

HK: Hong Kong Express Plans 30% Cheaper Fares, Challenging Cathay.

Hong Kong Express, an affiliate of Hong Kong Airlines that is backed by China’s HNA Group, plans to have a fleet of 30 planes

in five years, Deputy Chief Executive Officer Andrew Cowen said in Hong Kong yesterday. The airline will have five Airbus

A320s by September, he said. “For too long, the people of Hong Kong have been denied the opportunity to travel at low cost to

China and the rest of Asia because of high fares,” Cowen said. “It is well known that air fares to and out of Hong Kong are

among the highest in the world.”(Bloomberg)

U.S. Bond Funds Have Record $61.7 Billion in Redempt.

U.S.-listed bond mutual funds and exchange-traded funds saw record monthly redemptions of $61.7 billion through June 24

amid signs the country’s central bank may scale back its unprecedented stimulus. The redemptions surpassed the previous

monthly record of $41.8 billion, set in October 2008, according to an e-mailed statement by TrimTabs Investment Research in

Sausalito, California. Investors withdrew $52.8 billion from bond mutual funds and $8.9 billion from ETFs during the period,

said Richard Stern, a spokesman for TrimTabs.(Bloomberg)

EU: Finance Chiefs Said to Reach Deal on Failing Banks.

European Union finance chiefs struck an agreement on how to handle failing banks, a step toward bolstering confidence in the

bloc’s banks and overcoming the euro-area financial crisis. In seven hours of emergency negotiations in Brussels that wrapped

up at about 1:30 a.m. today, ministers settled on guidelines for assigning losses to private creditors resorting to public

assistance.(Bloomberg)

EU: ECB Policy Makers Say Accommodative Monetary Policy to Stay.


Outperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013f 2013f

ADVANC Buy 276.00 293.00 6.2 22.0 4.5

CPN Buy 46.00 73.00 58.7 16.4 1.4

DTAC Buy 116.50 122.00 4.7 20.9 3.0

INTUCH Trading Buy 82.75 104.00 25.7 17.5 5.2

THAI Buy 24.80 42.60 71.8 11.7 3.1

CPF Buy 23.90 38.00 59.0 29.1 2.3 .

Underperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013f 2013f

BJC Sell 49.00 57.00 16.3 25.0 1.3

TVO Buy 18.00 28.00 55.6 7.2 9.5

OISHI Sell 122.00 130.00 6.6 36.0 2.9

BIGC Neutral 189.00 198.00 4.8 24.8 1.2

MAJOR Sell 21.20 18.50 -12.7 20.1 4.4

26 25 24 21 20 26 25 24 21 20

1 ADVANC 553.5 587.8 129.1 650.8 83.2 KBANK -1,507.1 -1,307.5 -292.5 -902.9 -1,550.7 INTUCH 5,733.8 KBANK -7,687.1 INTUCH 41,034.5 SCC -8,115.4

2 INTUCH 371.5 450.1 1,575.3 56.6 -403.3 PTTEP -258.2 1.6 -157.3 -3.9 -246.0 ADVANC 3,753.1 PTTGC -1,663.9 ADVANC 12,148.4 KBANK -3,217.0

3 SCB 245.9 -175.6 -400.7 -648.7 -229.1 SCC -210.4 -78.7 -61.6 -122.8 -80.9 DTAC 1,761.4 BAY -1,515.9 DTAC 11,923.8 BANPU -3,192.4

4 STEC 227.3 18.1 134.5 -14.7 -26.2 BAY -86.6 -159.1 91.0 -449.6 -398.8 MAKRO 1,279.2 SCC -1,387.8 PTTEP 7,427.8 LH -2,811.9

5 MAKRO 218.9 12.1 4.8 -10.8 25.0 DTAC -74.9 4.0 -88.9 335.9 357.2 ROBINS 606.8 PTT -1,336.4 PTT 6,850.2 SIRI -1,296.1

6 TCAP 170.9 50.6 0.6 45.4 -49.5 TMB -50.3 25.2 14.3 24.7 40.1 MINT 577.1 BBL -1,150.9 PTTGC 6,741.6 DEMCO -683.0

7 THAI 114.2 -43.2 14.7 -7.1 52.4 CPALL -36.8 -98.5 -104.7 -118.5 151.2 SPALI 470.5 KTB -1,123.2 BAY 6,522.1 CK -616.4

8 SIRI 113.3 17.0 4.3 9.4 9.4 CPN -35.1 218.7 224.5 149.2 -108.7 GLOW 388.5 PTTEP -995.7 MAKRO 4,407.1 KTB -474.4

9 PTT 107.7 -74.0 -232.3 232.1 -476.8 CPF -31.2 -18.1 -118.7 217.6 115.6 THAI 346.3 BGH -850.9 TMB 3,868.4 UV -439.9

10 LH 97.3 -88.5 -105.5 -37.0 -166.2 DCC -20.4 -19.6 2.7 33.0 14.9 BEC 340.0 SCB -698.0 TOP 3,298.3 BLA -428.5

11 BGH 75.8 16.4 -75.8 -85.1 -115.5 TRUE -19.9 41.2 -57.5 40.6 -38.1 TUF 332.4 LPN -676.7 BIGC 3,186.6 IRPC -379.3

12 AOT 70.0 21.3 -32.5 69.7 -154.2 QH -18.8 -37.4 34.6 -4.7 5.0 DELTA 308.6 QH -511.1 CPALL 2,804.1 RML -330.9

13 SPALI 57.1 8.8 -7.4 153.6 65.7 SINGER -18.5 -8.7 2.0 3.2 -0.4 STEC 306.3 AOT -433.8 THAI 2,767.1 QH -289.6

14 ROBINS 53.8 158.4 86.1 220.3 24.4 LPN -18.5 18.8 -8.1 -37.7 -121.8 CPN 295.8 CPALL -433.0 TCAP 2,723.5 ASP -272.8

15 ITD 51.7 -2.9 7.5 -0.5 -39.3 BANPU -18.3 25.7 -28.7 229.2 52.7 SIRI 225.8 TISCO -429.8 SPALI 2,601.6 MINT-W4 -238.0

16 PTTGC 46.1 -19.7 -15.1 -17.4 -390.7 SPCG -16.5 -26.1 -0.3 -0.4 -0.9 HMPRO 197.9 BTS -390.4 CPN 2,558.0 LRH -197.0

17 AMATA 33.9 0.4 -4.6 31.8 -11.6 CK -16.3 -9.9 -9.5 10.4 -19.9 BIGC 164.8 BLA -352.2 TUF 2,413.4 TRC -196.2

18 DELTA 31.7 0.1 57.8 81.0 29.0 MCOT -16.0 -1.2 19.9 10.7 24.1 THRE 161.9 THCOM -316.6 MINT 2,387.4 STPI -195.7

19 TICON 30.2 25.1 23.2 27.1 -26.6 TOP -13.1 -24.1 -30.9 27.0 -109.1 BCP 147.8 JAS -315.9 CPF 2,248.5 GUNKUL -182.6

20 BEC 30.1 -10.2 -3.1 192.8 -40.3 PF -6.7 -13.1 -6.3 -0.7 -0.7 SPCG 134.4 SCCC -222.4 BBL 2,108.2 AMATA -174.1

% % of % of

Turn. paidup paidup

1 TMB 22.52 1 TISCO-P 66.16 65.86

2 SIRI 21.81 2 BBL 30.56 29.99

3 IEC 2.25 3 KBANK 27.85 28.50

4 QH 7.67 4 SPALI 23.36 17.94

5 LH 36.22 5 E-W1 21.12 22.27

6 TRUE 9.21 6 THRE 20.27 15.50

7 KBANK 31.28 7 INTUCH 19.83 5.41

8 KTB 4.44 8 SPCG-W1 18.58 13.31

9 BLAND 1.14 9 LPN 18.11 21.73

10 CPF 24.67 10 GOLD-W1 17.71 14.87

11 STEC 31.23 11 LH 17.48 21.18

12 ITD 9.49 12 TWFP 16.26 24.77

13 HEMRAJ 34.80 13 DTAC 15.97 13.33

14 BAY 21.86 14 TCAP 14.79 12.60

15 THAI 24.77 15 THIP 14.50 12.64

16 IRPC 16.53 16 AP 14.35 12.92

17 N-PARK 0.36 17 BAY 14.30 13.89

18 TCAP 38.15 18 LALIN 13.78 13.53

19 JAS 1.56 19 PRANDA 13.75 14.59

20 INTUCH 13.01 20 TISCO 13.47 13.69

Source : SET.OR.TH

10,033,500

-1,003,000

5,223,400

7,567,300

5,015,400 10,238,800

-2,486,300

12,132,30011,082,900

3,910,000 4,180,742

10,513,900

6,065,700

4,013,800 6,500,100

10,468,5002,901,200

5,062,700 11,128,400

5,570,610 6,913,409 12,484,019 -1,342,799

11,919,100 338,500 12,257,600

8,000,000 4,666,100

11,580,600

1,049,400

378,217,325 315,525,949 2,367,811,000

1,277,816,397 188,986,080 161,065,653

4,358,700

843,803,210

1,159,700 1,011,300

410,266,479 208,000

99,645,251 727,878,228

8,090,742 -270,742

113,714,000 111,592,900

55,934,500

98,060,218 4,513,042

982,2003,176,300 7,334,800

6,691,358

6,196,700 1,838,000

5,602,200 1,089,158

4,158,500

8,034,700

406,666,954

825,000,000

2,859,920,138

868,848,989

59,270,000

367,964,647

6,074,143,747

2,123,251,472 10,025,921,523 1,752,386,514

1,545,716 2,354,634 9,506,055

1,475,698,768

418,421,323

267,276,536 320,609,239

74,114,598 74,970,598

3,206,420,305

279,999,581

635,768,571 173,363,101

52,029,000 37,278,800

712,135,965 544,461,149

4,942,300

7,480,200 7,349,725

14,024,100 16,899,627

34,404,000 8,985,400

14,829,925 130,475

30,923,727 -2,875,527 3,512,494,860

21,694,700 12,709,300

13,740,530 3,855,930

4,687,100 13,111,480 17,798,580 -8,424,380

8,798,230

1,716,553,249

-35,972,859

347,000,000

2,393,260,193

401,018,892

77,281,246 73,282,042

-6,248,502 307,949,569 14,218,998 20,467,500 34,686,498

572,486,791 36,335,100

666,415,259 682,155,834

583,397,889 22,138,800 80,612,700

93 35,972,952 35,973,045

NetBuy Sell Total

1,908,842,894

36,420,800 58,648,900 22,400 22,300 95,069,700 -22,228,100

58,473,900

33,858

2-Jan-13

Net Buy Net Sell Net Buy Net Sell

2 Jan- 26 Jun 133-26 Jun 13

27 June 2013

Jun13 Jun 13

Total Volume Shares

(Last)

NVDR Shrs. Paid up CapitalNVDR Shrs.

26-Jun-13

Most Active Volume (shares) NVDR Shares to Total Paid-up Shares(%)

NET BUY NET SELL Month to Date Year to Date

Most Active Values (Btmn)

THAI NVDR : Top Ranking

See important disclosures at the end of this report Powered by Enhanced Datasystems’ EFATM

Platform 1

Company Update, 27 June 2013

Electricity Generating (EGCO TB) Neutral (Maintained) Utilities - Electric Target Price: THB142

Market Cap: USD2,229m Price: THB132

Failure In IPP Bid Spurs Share Price Pullback

Macro

2.00

Risks

2.00

Growth

2.00

Value

2.00

90

94

99

103

107

111

116

120

100

110

120

130

140

150

160

170

Electricity Generating (EGCO TB)

Price Close Relative to Stock Exchange of Thailand Index (RHS)

1

2

3

4

5

6

7

8

Ju

n-1

2

Au

g-1

2

Oct-

12

De

c-1

2

Fe

b-1

3

Ma

y-1

3

Vol m

Source: Bloomberg

Avg Turnover (THB/USD) 130m/4.34m

Cons. Upside (%) 9.8

Upside (%) 7.8

52-wk Price low/high (THB) 106 - 166

Free float (%) 44

Shareholders (%)

EGAT 25.4

TEPDIA Generating B.V. 23.9

Thai NVDR 10.3

Kannika Siamwalla, CFA 66 2862 9744

[email protected]

Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover (THBm) 8,609 7,661 14,057 18,865 18,875

Reported net profit (THBm) 6,803 4,990 10,979 6,421 6,504

Recurring net profit (THBm) 6,803 4,990 6,953 6,421 6,504

Recurring net profit growth (%) (13.2) (26.7) 39.4 (7.7) 1.3

Core EPS (THB) 12.9 9.5 13.2 12.2 12.4

DPS (THB) 5.25 5.25 6.00 5.25 5.25

Dividend Yield (%) 4.0 4.0 4.5 4.0 4.0

Core P/E (x) 10.2 13.9 10.0 10.8 10.7

Return on average equity (%) 12.9 8.8 17.5 9.3 8.9

P/B (x) 1.27 1.20 1.03 0.98 0.93

P/CF (x) 22 112 56 17 16

EV/EBITDA (x) 7.8 10.1 12.6 8.5 7.9

Net debt to equity (%) 0.4 2.3 45.2 36.0 31.4

Our vs consensus EPS (%) (8.3) (1.9)

Source: Company data, RHB estimates

EGCO’s recent share price pullback was on the news that the company did not win in the current round of IPP bids although it is still awaiting official confirmation. The company’s shares are currently trading at a discount to its global peer valuation, but given the mere 8% upside potential to our revised THB142 TP, we maintain our NEUTRAL call on this stock.

Keeping our Neutral call. We trim our TP from THB149/share to

THB142/share, based on DCF valuation, based on WACC of 9.1% compared with 8.9% previously. At the current price level, the stock is trading at a 10x P/E and 0.9x P/BV, with a dividend yield of 4%. These valuations may seem attractive vs EGCO’s regional peers’ 13.4x P/E and 1.4x P/BV, as well as 2.5% dividend yield, but given the small 8% upside to our revised TP of THB142/share, we maintain our NEUTRAL recommendation on this stock. .

IPP bidding results disappoint. With GULF sweeping all the 5400MW

of electricity-generating capacity solicited in the current round of independent power producer (IPP) bids, we do not expect any major news in the Thai utilities sector that will throw up any positive catalysts for the utilities stocks under our coverage.

EGCO submitted 2 bids of 1800MW capacity each. These involved

different technical details for the Rayong site, where the existing power plant will be retired in 2014. Although this was not in our valuation, we had expected the company to win at least one bid, which would have boosted our valuation. EGCO has yet to confirm the bidding results as it is still waiting for official word from the Energy Regulatory Board.

Still hope in Rayong power plant, land. Even if EGCO fails to win in

the current round of bidding, it can still negotiate for a five-year extension on its Rayong power plant. Another alternative would be to sell its equipment at salvage value. There is also a possibility that EGCO may lodge an appeal with the Energy Regulatory Board. That said, we believe there may be another round of IPP bids for a coal-fired power plant, possibly as early as 2014.

Electricity Generating (EGCO TB) 27 June 2013


Potential IPPs projects:

Quezon expansion will be a 500MW coal-fired power plant project. This

will be a 50:50 partnership between EGCO and its sole off-taker of the project – Meralco (Philppines equivalent of EGAT). The two are currently negotiating the commercial terms and the plant should be operational by 2017. We believe that this project will be good for EGCO in the long term given the partnership with Meralco. This project has not been included in our valuation.

The new Khanom power plant will have an installed capacity of 977MW,

with contracted capacity of 900MW. This power plant will replace the existing power plant which will be decommissioned in 2016. The project is still under PPA (power purchase agreement) and tariff negotiations. This project is already in our valuation.

Projects under development. EGCO’s three small power plants (SPPs) –

TP Cogen, SK Cogen and TJ Cogen, each with 125WM capacity – are all on track for completion by June 2016, with TJ Cogen to be completed in June 2017. Of the total capacity each plant will sell 90MW to EGAT via under the SPP contract, while the remaining capacity will be sold to industrial customers. These projects are currently undergoing an EIA (environment impact assessment) study and an EPC (engineering, procurement and construction) contract selection. They are 100%-owned by EGCO and have already been included in our target price valuation.

Figure 1: Global peer valuation

Name EV/EBITDA P/E Dvd Yld P/B

Average 9.4 13.4 2.5 1.4

ELECTRICITY GENERATING PCL 13.3 5.7 4.2 1.0

RATCHABURI ELEC GEN HODG PUB 9.2 8.9 - 1.4

GLOW ENERGY PCL 9.5 15.3 3.7 2.5

NEYVELI LIGNITE CORPORATION N/A 6.3 5.1 0.7

RELIANCE POWER LTD 13.2 17.1 - 0.9

JSW ENERGY LTD 4.7 7.3 5.0 1.1

BEIJING JINGNENG CLEAN ENE-H 10.0 14.7 1.7 1.5

HUADIAN POWER INTL CORP-A 7.6 11.5 2.8 0.9

SHANGHAI ELECTRIC POWER CO-A N/A 9.3 - 1.2

ZHEJIANG SOUTHEAST ELEC-B N/A 12.5 - 1.0

INNER MONGOLIA JUNZHENG EN-A N/A 24.0 0.6 1.9

GUANGXI GUIGUAN ELECTRIC-A N/A 13.9 - 2.2

CHINA LONGYUAN POWER GROUP-H 9.6 16.4 1.1 1.6

INFRATIL LTD 7.2 19.3 3.8 1.3

SHANXI ZHANGZE ELEC POWER-A N/A 13.4 - 1.6

XINJIANG TIANFU THERMOELE-A N/A 18.4 - 1.7 Source: RHB estimates

EGCO is trading at a much lower P/E and P/BV, as well as a higher dividend yield than its peers.



Figure 2: Global peer performance Name 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years

Average (12.1) (8.9) (1.6) 3.5 (1.5) (0.5)

ELECTRICITY GENERATING PCL (17.3) (19.2) (13.8) 11.2 20.8 15.8

RATCHABURI ELEC GEN HODG PUB (9.8) (14.3) (11.7) 19.4 18.0 10.3

GLOW ENERGY PCL (4.6) (12.0) (10.6) 9.3 26.0 23.4

NEYVELI LIGNITE CORPORATION (19.9) (16.8) (32.3) (32.0) (27.2) (12.1)

RELIANCE POWER LTD (19.1) 4.3 (33.7) (39.2) (28.3) (16.7)

JSW ENERGY LTD (34.7) (22.0) (39.8) (16.1) (31.0) N/A

BEIJING JINGNENG CLEAN ENE-H (11.0) 13.8 77.8 75.6 N/A N/A

HUADIAN POWER INTL CORP-A (20.1) (33.7) (23.7) (28.1) (8.2) (10.5)

SHANGHAI ELECTRIC POWER CO-A (7.7) (12.7) (8.8) (25.5) 0.3 (2.9)

ZHEJIANG SOUTHEAST ELEC-B (8.4) 1.6 34.3 44.4 16.3 1.1

INNER MONGOLIA JUNZHENG EN-A 22.4 21.3 29.9 12.8 N/A N/A

GUANGXI GUIGUAN ELECTRIC-A (13.3) (9.4) (17.8) (19.5) (9.6) (8.3)

CHINA LONGYUAN POWER GROUP-H (6.8) 2.2 42.3 49.7 0.7 N/A

INFRATIL LTD (10.9) (7.4) (4.6) 9.8 15.2 6.8

SHANXI ZHANGZE ELEC POWER-A (17.0) (28.9) (14.4) (17.2) (9.1) (11.7)

XINJIANG TIANFU THERMOELE-A (16.3) (8.6) 0.6 1.6 (5.4) (1.0) Source: RHB estimates

Figure 3: EGCO’s forward P/BV SD chart Figure 4: EGCO’s forward P/E SD chart

Source: RHB estimates Source: RHB estimates

EGCO has above-average performance over the past five years, but its performance has started to lag over the past six months.



Figure 5: EGCO’s power plant portfolio

Power plant Site Fuel type Installed capacity (MW) EGCO stake % Attribute (MW)

Operating power plants

IPPs

Rayong power plant Rayong Natural gas 1,232 100% 1,232

KEGCO Nakorn Sri Thammarat Natural gas 749 100% 749

BLCP Rayong Coal 1,434 50% 717

GPG (KK2) Saraburi Natural gas 1,510 50% 755

Sub-total 4,925 3,453

SPP

EGCO Cogen Rayong Natural gas 117 80% 94

Roi-Et Green Roi-Et Rice husk 10 70% 7

GEC-GCC Saraburi Natural gas 110 50% 55

GEC-NKCC Saraburi Natural gas 126 50% 63

GEC-SCC Samutprakarn Natural gas 126 50% 63

GEC-GYG Yala Parawood 23 50% 11.5

Sub-total 512 293

Renewable

NED Lopburi Solar 55 33% 18

SPP2 Saraburi Solar 8 100% 8

SPP3 Si Sa Ket Solar 8 100% 8

SPP4 Si Sa Ket & Ubon Solar 6 100% 6

SPP5 Roi Et Solar 8 100% 8

GPS (Phase 1-4) Solar 26 62% 16

Sub-total 111 64

Overseas

Conal-WMPC Phillipines Diesel 110 18% 19.3

Conal-SPPC Phillipines Diesel 55 18% 9.6

Quezon Phillipines Coal 504 98% 494

Nam Theun 2 Laos Hydro 1,087 35% 380

Sub-total 1,755 903

Under construction

GIDEC (MSW) Songkhla Solid waste 7 50% 4

Theppana Wind Farm (TWF) Chaiyaphum Wind 7 90% 6

Solarco Suphan & Nakhon Pathom Solar 57 49% 28

XHPP (Xayaburi) Loas Hydro 1,285 13% 161

Sub-total 1,356 198

Under development

TJ cogeneration Pathumtani Natural gas 125 100% 125

TP cogeneration Ratchaburi Natural gas 125 100% 125

SK cogeneration Ratchaburi Natural gas 125 100% 125

Sub-total 375 375

Potential projects

New Khanom Thailand, Khanom 900 100% 900

Quezon expansion Philippines Coal 500 50% 250

Sub-total 1400 1150

Total installed capacity 10,434 6,436

Source: RHB estimates



Financial Exhibits

Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover 8,609 7,661 14,057 18,865 18,875

Cost of sales (5,678) (5,589) (9,673) (12,796) (12,796)

Gross profit 2,931 2,072 4,384 6,069 6,079

Gen & admin expenses (1,433) (1,678) (2,362) (1,878) (1,878)

Operating profit 1,497 394 2,022 4,190 4,200

Operating EBITDA 3,673 2,367 4,833 6,961 6,971

Depreciation of fixed assets (2,175) (1,973) (2,811) (2,770) (2,770)

Operating EBIT 1,497 394 2,022 4,190 4,200

Net income from investments 6,109 5,200 5,578 4,136 4,156

Other recurring income 386 449 415 449 449

Interest income - - - 90 104

Interest expense (564) (694) (703) (1,369) (1,303)

Exchange gains (56) 22 205 - -

Other non-recurring income - - 4,310 - -

Pre-tax profit 7,373 5,371 11,826 7,497 7,607

Taxation (455) (255) (779) (1,008) (1,035)

Minority interests (115) (126) (68) (68) (68)

Profit after tax & minorities 6,803 4,990 10,979 6,421 6,504

Reported net profit 6,803 4,990 10,979 6,421 6,504

Recurring net profit 6,803 4,990 6,953 6,421 6,504


Cash flow (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Operating profit 1,497 394 2,022 4,190 4,200

Depreciation & amortisation 2,175 1,973 2,811 2,770 2,770

Change in working capital 506 (799) (2,114) (499) (414)

Operating cash flow 4,179 1,568 2,719 6,462 6,557

Interest received - - - 90 104

Interest paid (564) (694) (703) (1,369) (1,303)

Tax paid (455) (255) (779) (1,008) (1,035)

Cash flow from operations 3,160 619 1,236 4,175 4,323

Capex (2,728) 339 (41,679) (352) (1)

Other investing cash flow 5,225 (233) 15,441 3,564 315

Cash flow from investing activities 2,497 106 (26,238) 3,212 314

Dividends paid (2,764) (2,764) (3,159) (2,764) (2,764)

Proceeds from issue of shares 209 933 1,635 - -

Increase in debt (1,155) 2,497 23,832 (5,474) (1,463)

Other financing cash flow 100 219 279 313 313

Cash flow from financing activities (3,611) 884 22,587 (7,924) (3,913)

Cash at beginning of period 5,855 7,748 8,402 4,148 3,611

Total cash generated 2,046 1,609 (2,414) (537) 723

Forex effects 56 (22) (205) - -

Implied cash at end of period 7,957 9,335 5,782 3,611 4,334




Financial Exhibits

Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total cash and equivalents 9,327 10,685 5,026 4,489 5,212

Inventories 2,703 - - - -

Accounts receivable 5,756 6,884 10,015 10,015 10,015

Other current assets 791 2,550 4,805 5,304 5,304

Total current assets 18,577 20,119 19,846 19,808 20,532

Total investments 33,035 39,685 39,232 37,709 41,619

Tangible fixed assets 15,119 13,023 49,912 49,017 46,246

Total other assets 310 129 334 974 975

Total non-current assets 48,463 52,837 89,478 87,699 88,840

Total assets 67,040 72,956 109,324 107,508 109,372

Short-term debt 720 536 11,724 1,251 4,788

Accounts payable 337 327 1,237 1,237 1,237

Other current liabilities 753 853 1,811 1,811 1,397

Total current liabilities 1,811 1,716 14,772 4,298 7,422

Total long-term debt 8,840 11,521 24,165 29,165 24,165

Other liabilities 1,061 1,186 2,067 2,067 2,067

Total non-current liabilities 9,901 12,707 26,232 31,232 26,232

Total liabilities 11,712 14,423 41,004 35,530 33,654

Share capital 5,265 5,265 5,265 5,265 5,265

Retained earnings reserve 40,906 44,065 53,520 57,177 60,917

Other reserves 8,649 8,649 8,649 8,649 8,649

Shareholders' equity 54,819 57,978 67,433 71,090 74,831

Minority interests 509 555 887 887 887

Other equity (0) 0 0 0 0

Total equity 55,329 58,533 68,320 71,977 75,717

Total liabilities & equity 67,040 72,956 109,324 107,508 109,372


Key Ratios (THB) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Revenue growth (%) (5.9) (11.0) 83.5 34.2 0.1

Operating profit growth (%) (42.0) (73.7) 413.3 107.2 0.2

Net profit growth (%) (13.2) (26.7) 120.0 (41.5) 1.3

EPS growth (%) (13.2) (26.7) 120.0 (41.5) 1.3

Bv per share growth (%) 8.4 5.8 16.3 5.4 5.3

Operating margin (%) 17.4 5.1 14.4 22.2 22.3

Net profit margin (%) 79.0 65.1 78.1 34.0 34.5

Return on average assets (%) 10.5 7.1 12.0 5.9 6.0

Return on average equity (%) 12.9 8.8 17.5 9.3 8.9

Net debt to equity (%) 0.4 2.3 45.2 36.0 31.4

DPS 5.25 5.25 6.00 5.25 5.25

Recurrent cash flow per share 6.00 1.18 2.35 7.93 8.21




SWOT Analysis

EGCO has domestic expertise and good connections within the utilities industry through its major shareholder (EGAT).

EGAT’s 25% stake in EGCO is just enough for control, giving EGCO the flexibility of an independent company.

The domestic utilities industry is open to competition and any new entrants can enter the market.

Actively seeking investment opportunities in the domestic and regional markets.

This sector enjoys steady growth in utilities demand, which will lead to more solicitations for IPPs in the future.

EGCO is traditionally very cautious and conservative.

-60%

-35%

-10%

15%

40%

65%

90%

115%

140%

0

2

4

6

8

10

12

14

16

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

P/E (x) vs EPS growth

P/E (x) (lhs) EPS growth (rhs)

0%

3%

5%

8%

10%

13%

15%

18%

20%

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

P/BV (x) vs ROAE

P/B (x) (lhs) Return on average equity (rhs)

Source: Company data, RHB estimates Source: Company data, RHB estimates

Company Profile EGCO is one of the first IPPs to be listed on the Stock Exchange of Thailand (SET), with REGCO and KEGCO as its main assets. The company now has a total of 6436MWe of effective contracted capacity, with 4510.05MWe in operation while the remaining capacity is under construction, development or negotiations.



Recommendation Chart

40

60

80

100

120

140

160

180

Jun-08 Oct-09 Jan-11 Apr-12

Price Close

NR

116

143

152

149

Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Profit Not Rated

Source: RHB estimates, Bloomberg

Date Recommendation Target Price Price

2013-06-03 Neutral 149 164

2013-05-20 Neutral 152 154

2012-11-12 Buy 143 132

2012-08-10 Neutral 116 116

Source : RHB estimates, Bloomberg

5

RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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6

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