Energy:Power sector

Ft charge raised to reflect real cost, in line with projection Neutral

Energy:Power sector

Regulator raises Ft charge by B0.0404/unit

The Energy Regulatory Commission (ERC) or the regulator has approved

a raise of Ft charge for January - April 2013 by B0.0404/unit to

B0.5204/unit (adding to the average base tariff of B3.24/unit, the citizens

will have to pay B3.76/unit). This move is made in order to reflect the

real Ft since late 2011 - early 2012 that had been fixed according to the

government's policy of helping the citizens from the flood crisis which, on

the other hand, made power operators, both government and private,

have to bear rising fuel cost while the Ft was fixed. Due to the policy, the

EGAT, the main burden bearer, had total debt of over B10bn, although a

gradual raise of Ft charge since June 2012 has made the debt decrease to

B6bn at present. The regulator has projected that, with this round of Ft

charge raise, the Egat would be able to repay all debt by 2013. In

addition, the Ft will be kept at B0.5204/unit throughout 2013 under an

assumption for only a slight change in natural gas price and a slight

appreciation of Baht. However, the Ft charge raise still could not make

the overall Ft normalize to B0.60/unit (before the Ft fixing).

Benefit GLOW/GUNKUL/SPCG, but already been included in our forecasts

The Ft charge raise is directly beneficial to power operators whose

electricity selling price is based on the Ft, including GLOW and the

alternative energy operators GUNKUL and SPCG. GLOW will benefit the

most from the change in Ft because 70% of its total income comes from

electricity selling to the industrial sector which bases on the Ft.

Accordingly, for every B0.10/unit increase in the Ft, profit of GLOW will

increase by 2.6% per year based on 2013's forecast. For the alternative

energy sector, electricity selling price partially bases on the Ft (structure

of electricity selling price = adder + base tariff + Ft + CDM). Accordingly,

for every B0.10/unit increase in the Ft, profit of GUNKUL and SPCG will

increase by 1% and 2% per year, respectively, based on 2013's forecast.

However, the raise of Ft charge in January - April 2013 is not beyond our

projection and in line with our assumption for the Ft charge in 2013 at

B0.55/unit. Therefore, we maintain our profit forecast for the sector but

have a better outlook toward the profit in 2013 that will normalize and

not be pressured by the government's policy of Ft fixing like in 2012.

Top pick is RATCH

The news about the Ft charge raise might lead to short-term speculation

in GLOW, GUNKUL, and SPCG. However, considering fundamental factors,

we still select RATCH as a top pick of the sector as it outshines peers in

terms of the current structure that will lead to continuous profit growth in

the next 3-5 months, with dividend yield projected at around 5% p.a. on

average, and it is the only stock in the sector that still has upside left.