Analysts Rate “BUY” on CKP, Citing Upside Potential from Luang Prabang Project

CK Power Public Company Limited (CKP) was rated “BUY” by two analysts due to the significant upside potential from the Luang Prabang Hydropower Plant, as well as the continued positive forecast for 3Q21 as a result of the stormy season and flooding.

 

Maybank Kim Eng (Maybank) expected CKP’s earnings outlook for 2Q21 will be outstanding and increasing in 3Q21, driven by China’s releasing lots of water from dams into the Mekong  River. This year the rain began to frequently fall and recently, tropical storm “Koguma” has moved into the upper Lao PDR. This is where the Xayaburi and Nam Ngum 2 hydroelectric power plants are located. This will boost water significantly. Maybank estimated 2021 profit to hit a new record high of 2.16 billion baht, soaring 449% YoY. Thus recommended TRADING BUY with a target price of 6.50 baht per share.

The tropical storm Koguma has moved ashore in upper Vietnam last week and moved into the upper Lao PDR, causing heavy rain. This will positively affect CKP’s two hydroelectric power plants in Lao PDR, Xayaburi (XPCL) and Nam Ngum 2 (NN2). The rain started to frequently fall this year. Given the first storm in northern Laos, there is a tendency for  many more storms to follow  as many  experts predicted this year will see a La Niña. Consequently, there will be more water flowing into the Xayaburi and Nam Ngum 2 power plants.

In April-May, the water inflows into the Xayaburi hydroelectric power plant increased significantly due to China releasing more water. As a result, electricity sales in April –May rose to 1,290GWh and tends to rise further to 2,000GWh (+70%QoQ, +49%YoY) in 2Q21, making a profit of 1.335 billion baht for Xayaburi hydroelectric power plant. With 37.5% stakes in the power plant, CKP will realise a profit of 500 million baht. The Nam Ngum 2 power plant has announced that it sells electricity at 510GWh (+24%QoQ, +156%YoY). When combining BIC and BKC power plants that may stabilise from 1Q21, Maybank expected CKP to have a remarkable 2Q21 profit of 750 million baht, skyrocketing 555% QoQ, from a loss of 95 million baht in 2020. The outlook for 3Q21 will improve further due to the stormy season and flooding and CKP profits should reach 1 billion baht.

From expected outstanding 2Q21 and 3Q21 earnings of 750 million baht and 1 billion baht, respectively, Maybank forecast 2021 profit to hit a new record high of 2.1 billion baht, skyrocketing 449% YoY. For the 1,410 MW Luang Phrabang hydroelectric power plant (CKP holds 42%), with a project value of 135 billion baht, close to Xayaburi, it should be finalised and signed in 2H21. 

 

KTBST Securities (KTBST) held a BUY rating on CKP but raise the target price to 6.20 baht per share from 5.80 baht based on DCF, assuming WACC of 5.5% and no terminal growth value, following the earnings forecast upgrade and to reflect an increase of share in the Xayaburi Power Plant by 5% to 42.5%. 

According to KTBST inquiries, electricity output from Nam Ngum 2 surged +210% YoY in April-May and that from Xayaburi rose +54%, while an acquisition of 5% interest in Xayaburi will complete in 3Q21E, for which the investment of 1.8 billion baht will be raised through debentures or bridging loans. As for the 1.5-GW Luang Prabang Power Plant (CKP holds 42% interest), the project has negotiated for tariff rate, which is expected to finalize by YE2021E, but KTBST saw a high possibility after CK, thus far, has invested approximately  1 billion baht for site preparation, according to CK’s guidance. 

KTBST thus upgraded 2021E/2022E core profit forecast by 2%/8% to 1.8 billion baht (+367% YoY)/2.5 billion baht (+39%) to reflect an increase of interest in Xayaburi. In the near term, KTBST held the view that core profit will grow further in 2Q21E and peak in 3Q21E on the business high season.