Analyst Points to EGCO’s Low D/E and Solid Operations, Rates as “OP” with a TP at ฿370

KGI Securities has given an “Outperform” rating on Electricity Generating Public Company Limited (EGCO) with a target price at ฿370.00/share on low interest-bearing D/E and solid overall operations.

 

According to the analyst meeting, KGI stated that Yunlin Offshore Wind Farm Phase 1 (88 MWe,SCOD 4Q20) and Nam Theun 1 Hydropwer Plant (161 MWe, SCOD 2Q22) are slightly behind schedule due to the COVID-19 outbreak. However, management believes the contractor can accelerate construction after the lockdown eases. Meanwhile, progress on Gangdong (fuel cell) and the Thai pipeline network is on track.

Though KGI was concerned about declining power demand overseas (South Korea and Philippines), Paju’s operation remained resilient in 1Q20 with higher dispatch rate (based load power plant) despite South Korea power demand declining 4% YoY. Meanwhile, there would be some negative impact on SBPL and QPL in 2Q20 due to i) lower dispatch rate for QPL (-8% YoY) during the full lockdown in Luzon, and ii) 4-5% cut in electricity charge from the government (impact to SBPL only).

 

Despite the negativity, KGI asserted that EGCO has more opportunities from offshore wind farms in Taiwan, South Korea and Japan. After EGCO gained its first offshore wind farm in Taiwan, there would be more opportunities from 5GW offshore wind farms for post 2026 development. There are also opportunities from Renewable Energy 3020 plan, which sees 12GW in new offshore wind power by 2030 in South Korea, and Japan currently has 15GW in offshore wind projects in the pipeline, which imply growing momentum. EGCO continues to look for offshore wind farms in North Asia.

 

In addition, KGI maintained a rating of Outperform with a 2020 target price of Bt370 based on DCF. The company’s low interest-bearing debt to equity of 0.9x as of 1Q20 implies lots of room for overseas expansion. Though 2Q20 core earnings are expected to decline YoY and QoQ due to planned maintenance of Paju, EGCO’s overall operation remains solid with its portfolio concentrated in IPPs.

KGI noted that risks to EGCO would be delays in new capacity allocation, changes in the country’s regulations, power plant outages, and delays in the construction of new projects.