Analyst Upgrades BGRIM’s TP to ฿46, Expecting Growth Capacity to Follow Guidance
Analyst Upgrades BGRIM’s TP to ฿46, Expecting Growth Capacity to Reach 2,455MW in 2055.
The capacity growth of B.Grimm Power Public Company Limited (BGRIM) was expected to follow the guidance with a 5.1% CARG in 2019-2025, but would be overshadowed by the lower demand in 2020 from the effect of COVID-19, stated an analyst from CLSA Securities.
CLSA stated that the electricity sales to the Electricity Generating Authority of Thailand (EGAT) has guaranteed payments, which comprises 65% of BGRIM’s revenue. However, the sales to industrial users is not guaranteed.
The demand for electricity was stable in the first quarter of 2020, but CLSA expected it to take a direct hit starting from April mainly due to the temporary plant closures in the automotive sector, which is 50% of the industrial users volume, amid the outbreak of coronavirus. The overall demand in industrial users is expected to drop by 15-20% YoY in April.
For the past five years, BGRIM has a track record of capacity growth of 21.5% from a low base of 687MW, and CLSA expects the growth to continue per guidance in 2019-2025. BGRIM’s capacity is expected to rise from 1,819MW in 2019 to 2,455MW in 2025, reflecting a 5.1% CARG. However, CLSA expected the benefit from capacity growth in 2020 of 8% to be overshadowed by weak demand from industrial users.
In this regard, CLSA cuts BGRIM’s net profit in 2020 by 21% and in 2021 by 3% due to the impact from COVID-19. Per CLSA’s forecast, the virus outbreak would also delay BGRIM’s profit growth expectation to 2021, while revising down BGRIM’s net profit in 2020 from ฿3.2bn to ฿2.6bn. The estimated electricity sales volume to industrial users would drop by 9% YoY. The government policy of reducing the electricity tariffs by 3% in April til June would reflect a drop of 2% in electricity tariff.
In addition, CLSA maintained an “Underperform” rating on BGRIM, but upgraded its DCF-based target price to ฿46.00/share with a new WACC of 6.3% from the previous 6.4%. Moreover, the share price it currently traded at 34.5x forward PE, which is above its historic average of 33.9x.