Electricity Generating

IPP exposure

Electricity Generating Plc (EGCO)



Event

We maintain an Outperform rating on Electricity Generating (EGCO) and raise our target price to Bt166 from Bt137, as we upgrade earnings and factor in potential new IPP projects from the 2013 bidding. EGCO remains our top pick in the sector given its attractive valuation and sensitivity to the IPP bidding. Following our upgrade, our target price is 16% ahead of consensus on this name.

Impact

Still our favourite play on IPP bidding: EGCO has indicated that it plans to bid for two sites, each of 1.8GW, in the 2013 IPP program. We think the company is highly competitive in this bidding round given its access to competitive financing and due to location advantages (close to LNG terminal, existing transmission lines). Regardless of the outcome, we believe EGCO has the highest re-rating potential given its earnings and valuation sensitivity to new IPP projects. As such, from both a fundamental perspective and sentiment, we believe EGCO offers the most attractive exposure to the current IPP bidding.

Philippines expansion not yet concluded: Another key catalyst that we have been waiting for is the announcement of an expansion in the Philippines, for which we initially targeted end-2012 as the deadline. However, the company is still in negotiations with Meralco on the final PPA. We believe the conclusion will be forthcoming in the short term.

Earnings, TP upgrades: We upgrade our 2013/14E earnings by 12%/1.9% due to a higher-than-expected contribution from Quezon consolidation as well as renewable projects. We also provisionally include a value of Bt8/sh to account for a potential uplift from IPP bidding. Consequently, we upgrade our target price to Bt166 from Bt137.

Earnings and target price revision

TP raised to Bt166 from Bt137; 2013/14E EPS raised by 12% and 1.9%.

Price catalyst

12-month price target: Bt166 based on a DCF methodology.

Catalyst: IPP bidding, Philippines expansion announcement.

Action and recommendation

EGCO remains the most attractively valued stock in the sector, trading on 1.2x forward P/BV while offering a 3.7% yield. We believe the stock offers the best leverage to current IPP bidding both from fundamental and sentimental perspectives. Maintain Outperform rating, TP raised to Bt166.