Glow Energy

Q4 2012F: Normalized profit could miss target BUY

Glow Energy Plc

NNP missed target but FX gain gave support. Management said 4Q12F could miss

the previous target due to unexpected factors of lower power consumption by

customers and a technical problem at a coal-fired cogeneration power plant. We

estimate normalized net profit (NNP) of ~Bt1.5bn (flat QoQ but +69% YoY). This implies

full-year NNP of Bt5.1bn (vs. previous estimate of Bt5.4bn). A FX gain of ~Bt600mn will

lift reported net profit to Bt5.7bn, over SCBS and Bloomberg consensus forecast of

Bt5.4bn. Key drivers for 4Q12F were more profit contribution from GHECO-One and fullquarter

impact of Ft rate at Bt0.48/kWH.

Problems with cogeneration caused lower profit than planned. Management

guided that earnings contribution from its cogeneration business was lower than

previously expected after a coal-fired plant experienced technical problems and

demand declined after key customers cut back on utilization. These problems have

been solved and operations returned to normal in 1Q13.

2013F looks good. Earnings will continue to rise in 2013F boosted by lower coal price,

higher sales volume from SPP phase 5, more contribution from GHECO-One (despite a

45-day maintenance shutdown) and SPP12 (started operations in Dec 2012). Also,

GLOW should benefit from a full-year of a higher Ft rate of Bt0.52/kWH, which will

boost margin on sales to industrial customers. NNP could reach Bt8bn in our view, up

more than 50% YoY from Bt5.1bn in 2012.

Ft rate may not be raised in 2013. Management views that Ft rate is unlikely to

increase further in 2013F after the adjustment of Bt0.04/kWH in January since EGAT's

debt burden - brought by efforts to minimize the impact of higher energy price on

consumers - has dropped from Bt20bn to Bt5bn. Also, lower oil prices could bring

energy costs down in 2013F.

IPP bidding is proceeding. Management GLOW will submit bids for at least

2,000MW of new IPP production. It will propose the same sites as in 2007 for when it

bid for gas-fired power plants, though it admitted the competition could be tougher

and investment costs higher now. Management also noted that the power purchase

agreement for this round has been changed from the previous two rounds, which may

make it more difficult to fund the projects by cheap loans from foreign banks.

BUY maintained with TP unchanged at Bt82. We continue to expect the company

to deliver strong earnings in 2013F with growth of 51% YoY on a full year of operations

at GHECO-One as well as higher sales to industrial customers from its SPP Phase 5. We

maintain our BUY rating with end-2013 TP of Bt82, offering 9.6% total return (6%

potential capital gain and 3.6% dividend yield).