Ratchaburi Electricity Generating Holding

Q4 2012's profit to weaken on seasonal effect. Growth foreseen again in Q1 2013 BUY

Ratchaburi Electricity Generating Holding Plc (RATCH)

Q4 2012's profit to weaken from seasonal effect and maintenance shutdown

We estimate Q4 2012's net profit at B990m, decreasing 50.6%qoq due to following

factors. 1) Availability payment (AP) of the main power plant is projected to

decrease 7.7%qoq on seasonal effect because electricity usage is usually low

during winter (in the 4th quarter). Moreover, running hours of most power plants

have already reached the contract limit in the first 11 months of 2012, so RATCH

could not run its power plants at a full capacity in Q4 2012. In addition, there was

also a 1-month planned maintenance shutdown of RG (major overhaul). 2) Share

of profit from RATCH's investment in subsidiaries, TECO (RATCH holds 50percent stake)

and RPCL (RATCH holds 25percent stake) declined by 57.0%qoq because availability

payment has decreased due to the seasonal effect and power plant running hours

have already reached the contract limit before the end of Q4 2012, as mentioned

above. Moreover, TECO and RPCL would recognize lower Fx gain qoq because

Baht has appreciated only slightly by B0.19/US$. However, although in this

quarter RATCH would have Fx gain of around B575m from Yen depreciation due to

its Yen debt of 15bn, it still could not offset the afore-mentioned pressuring

factors, so a contraction in profit is anticipated in this quarter. FY2012's net profit

is projected at B7.85bn, growing 62.3%yoy.

Full resumption of power plant operations will bring norm profit growth in Q1 2013

We project norm profit in Q1 2013 to revert to growth from Q4 2012 because all power

plants of RATCH will be able to resume their full operations and there is also not a

major overhaul like in Q4 2012. Considering norm profit outlook in 2013, the growth

of 9%yoy is still foreseen because in this year the company will recognize income

from a 15.28 MW Solarta solar power plant which has commenced a commercial

run since Q3 2012 and Huay Bong 3 and 2 wind turbine power plants (with a capacity

of 20.7 MW each) which have started commercial runs in Q4 2012 and Q1 2013,

respectively, for a full year. However, apart from existing projects, RATCH has

also planned to expand its investments locally and internationally in a form of

M&A in order to create long-term growth. In 2nd half 2013 the company will invest in an

alternative energy power plant in Australia as well as join an auction of SPP which

will be opened in the next 1-2 years. For the auction of 6 IPPs of 900 MW each,

RATCH is preparing to participate in the auction by joint venturing with a partner

that has land for using in the bidding.

Buy. Additional upside can be expected if RATCH wins IPP auction

2013's fair value, DCF, is B61.90/share. We still confirm our BUY recommendation

although the upside is quite limited now. It is because there is still possible upside

from the new round of IPP auction, of which the bid winner will be announced by

2H13. If RATCH wins an auction for 1 power plant with capacity of 900 MW, it will

increase fair value of the stock by B9/share or around 15percent from the current

value. Moreover, RATCH is also outshining peers from its projects in hand that will

generate profit growth for the company in the next 3-5 years. Dividend yield can

be expected at 4%p.a. on average.