Gunkul Engineering

Raise forecast and up fair value to B31.04

Gunkul Engineering Plc (GUNKUL)

Raise forecast. Norm EPS in next 4 years to grow aggressively 25%p.a. (CAGR)

According to a wind speed test for the 50-MW wind power plant project so-called Vayu,

the wind speed is recorded at 6.1 meter per second, higher than a standard of 5.5 meter

per second. Therefore, we are confident that the project will be able to start a

commercial run in the end of 2014 as planned and consequently include the project in

our profit forecast since 2015 onward. As a result, 2015's profit is raised by 35percent from

2014's forecast, considered as continuous growth in the next 4 years. Norm EPS in the

next 4 years is anticipated to grow average by 25%p.a. (CAGR). Norm profit in 2012 is

projected to skyrocket by 165%yoy, making a new high from profit in 4Q12 which is

estimated at B152m or a slight decline of 9.2%qoq from EPC income recognition that

decreased following projection progression which had fully recognized in the previous

quarter. Furthermore, in 2013 the company's profit would also thrive by 59%yoy due to

recognition of income from a 47.3-MW solar power plant for a full year and from a 10-

MW wind power plant for 1 quarter (4Q13). An expansion of investment into an

alternative power business is a key factor to generate significant profit growth for

GUNKUL as the power plant business has high net margin of 70% (as the concession it

got has an adder of B8/unit for a solar project and B3.5/unit for a wind project),

compared with existing businesses which has net margin only 10%. Accordingly, this will

help boost overall net margin.

To grow aggressively. Add value to the business without capital increase

GUNKUL will be showing aggressive growth in the next 1-3 years, focusing on creating

value added to the business continuously without capital raising. Instead of capital

raising, the company will use a strategy of cutting its shareholding in existing power

plants and turning to new projects that have higher margin. Now GUNKUL is negotiating

about new investment projects, both the solar and the wind-generating power plants, to

create growth in the future. The conclusion on the new projects would be reached by

1Q13. However, considering from current existing investment projects, the solar power

plant will enter the system entirely in 1Q13, mounting the total capacity to 57 MW (47.3

MW from GUNKUL). In addition, the company will start recognizing income from Huay

Lom Bong 1 and 2 power plant with total capacity of 10 MW (GUNKUL holds 70%) within

4Q13, as well as start a construction of the 50-MW Vayu wind power project (GUNKUL

holds 70%) by 2H13 (to be completed by 2014). Moreover, for a power plant EPC

business, the company will be able to maintain a high income from a significant

expansion in alternative energy projects at present as well as electrical system hardware

selling business will has also benefited from the growth in domestic sales from the

government's investment in basic utilities.

Up 2013's fair value to B31.04. Growth stock in alternative energy sector. Buy

Under the new forecast, 2013's fair value, using DCF and SOTP, is B31.04/share (up

from B23.14/share) from the company's aggressive growth from local projects and an

investment on a wind power plant in Burma. Now the company has received a

concession for 1,000 MW and if it succeeds in negotiating for building the power plant, it

will be an add-on for its current business in Burma which is a sale and distribution of

electrical hardware, which have still not been included in our forecast.