Global Power Synergy: Best quarter in 2023F
- 3Q23 net profit came in at Bt1.79bn (+441% y-o-y, +479% q-o-q), lifted by softer natural gas and coal costs
- Gross profit margin came in at 17% (vs. 2% in 3Q22 and 8% in 2Q23), despite Ft rate cut
- 4Q23F to be hit by deep Ft rate cut. Yet, share price baked in the negative, in our view
- Maintain BUY rating with FY24F TP of Bt58
Related Stories
Core EBITDA came in at Bt5.48bn (+104% y-o-y, +58% q-o-q).
3Q23 key operating metrics
i) IPP: Performance improved both y-o-y and q-o-q. Total sales volume came in at 235GWh (-88% y-o-y, -5% q-o-q). A drop in sales volume was due to the reverse shutdown order from EGAT since Mar 2023. Gross profit was Bt1.82bn (+10% y-o-y, +16% q-o-q), thanks to lower coal cost and maintenance expenses. Note that the gross profit margin stood at 67% (55% in 3Q22 and 16% in 2Q23).
ii) SPP: Business performance improved both y-o-y and q-o-q despite the Ft rate cut, from Bt1.5492/unit during Jan-Apr to Bt0.9119/unit in May-Aug 2023. Total electricity sales volume was at 3,521GWh (+1% y-o-y, +6% q-o-q). This is thanks to a) stronger q-o-q demand from IUs and no unplanned shutdown of the Glow Phase 5 project (25-day maintenance period in 2Q23). The steam price and tariff averaged Bt1,287/tonne (-24% y-o-y, -18% q-o-q) and Bt3.71/unit (-23% y-o-y, -13% q-o-q), respectively. Gross profit stood at Bt4.14bn (+196% y-o-y, +69% q-o-q) while the gross profit margin improved to 23% (6% in 3Q22 and 12% in 2Q22).
Natural gas cost and coal cost this quarter averaged Bt339/mmbtu (-34% y-o-y, -24% q-o-q) and US$224/tonne (-37% y-o-y, -28% q-o-q), respectively.
iii) Very small power producers (VSPP) and others: This segment saw a performance improvement y-o-y but deterioration q-o-q. Total electricity production was reported at 14GWh (+36% y-o-y, -6% q-o-q). Gross profit came in at Bt60m (+351% y-o-y, -25% q-o-q). This q-o-q deterioration was owing to a) higher feedstock cost and b) higher maintenance expenses.
iv) Equity income was at Bt497m (-33% y-o-y and recovered from a net loss q-o-q). The q-o-q performance improvement was due to higher profit sharing from the XPCL project during the rainy season, when the performance of the hydro power plant improved.
v) 3Q23 extra item includes a) a forex loss of Bt31m and b) hedging gain of Bt97m on financial instruments.
4Q23F to be hit by the mismatch of Ft rate cut and rising natural gas cost. Yet, share price has already factored it in. In Sep 2023, the cabinet passed a resolution on the mechanism of electricity tariff reduction, and electricity bills during Sep to Dec 2023 saw a reduction in the tariff from Bt4.45/unit to Bt3.99/unit per unit. Then, in early Oct 2023, the Energy Regulatory Commission (ERC) announced the new Ft at Bt0.2048 per unit, in accordance with the government order.
As a result, this will have a negative impact on business performance, as the lower Ft rate results in a declining average electricity tariff.
We analysed the impact of the falling natural gas price and Ft rate on GPSC’s business performance and found that there is a net negative impact of c.Bt1.07bn for 4Q23F, showed in the base case column in the table below. Our estimate is based on i) GPSC’s gas cost guidance of Bt320/mmbtu, ii) total natural gas intake and electricity sales volume of 30.5mmbtu and 3,521GWh at end-3Q23, and iii) an Ft rate cut of Bt0.2048/unit. This is shown in the table below.
Cutting the electricity tariff is the first action the government took. Being aware of the margin squeeze of power plants, the government deemed that the pooled gas price must not exceed a fixed estimate of approximately Bt305/mmbtu, so the difference between the actual natural gas price and the collected natural gas price shall be gradually collected back.
As a result, the expected natural gas cost in 4Q23F should be around Bt320/mmbtu, when the spot price stood at Bt380/mmbtu.
However, we deem that the share price has baked in this negative development, as the share price performed c.18% since Sep 2023, underperforming both SETENERGY and SET.
Cut FY23F/FY24F net profit projection by 29%/15%. As one of the key policies from the new government is to keep energy prices low, we deem the electricity tariff will remain at the low level for a certain period and probably would not reflect the change in the cost of production (fuel oil, coal, and natural gas). Thus, we revised our net profit from Bt6.57bn to Bt4.66bn for FY23F (-29% compared to previously) and from Bt6.79bn to Bt5.79bn for FY24F, as we factored in the new electricity tariff for SPP at Bt4.19/unit (-12% compared to previously) and Bt4.00/unit (-10% compared to previously), respectively.
As a result, we cut our FY24F TP to Bt58 (-22% compared to previously), based on a DCF valuation with WACC of 7.88% and a terminal growth rate of 0%.
Maintain BUY. We believe GPSC’s share price has factored in the regulatory risk and weak performance from the Ft rate cut to a certain extent, as the share price has underperformed both SET and SETENERG. We maintain our BUY call with an FY24F TP of Bt58, based on a DCF valuation with WACC of 7.88% and a terminal growth rate of 0%.
Our rating is underpinned by i) Avaada’s improving business performance, along with the additional c.500MWe of Indian solar after winning an auction; ii) LNG and coal cost downtrend; iii) increasing exposure to green businesses such as battery and battery-related businesses; iv) more EEC opportunities; and v) growth opportunities within the PTT Group such as EV-related business.
FY Dec | 3Q2022 | 2Q2023 | 3Q2023 | % chg yoy | % chg qoq |
Revenue | 33,866 | 23,035 | 21,044 | (37.9) | (8.6) |
Cost of Goods Sold | (33,046) | (21,277) | (17,336) | (47.5) | (18.5) |
Gross Profit | 820 | 1,758 | 3,708 | 352.3 | 110.9 |
Other Oper. (Exp)/Inc | (422) | (637) | (607) | 43.9 | (4.7) |
Operating Profit | 398 | 1,121 | 3,101 | 679.3 | 176.6 |
Other Non Opg (Exp)/Inc | 292 | 297 | 304 | 4.0 | 2.1 |
Associates & JV Inc | 683 | 175 | 496 | (27.3) | 183.9 |
Net Interest (Exp)/Inc | (1,069) | (1,342) | (1,359) | (27.2) | (1.3) |
Exceptional Gain/(Loss) | (61.1) | 32.5 | 65.9 | - | 102.4 |
Pre-tax Profit | 243 | 284 | 2,607 | 974.9 | 819.1 |
Tax | 158 | 233 | (500) | (416.3) | (314.5) |
Minority Interest | (69.7) | (207) | (318) | (355.9) | 53.2 |
Net Profit | 331 | 309 | 1,790 | 440.8 | 478.6 |
Net profit bef Except. | 392 | 277 | 1,724 | 339.7 | 522.8 |
EBITDA | 3,662 | 3,953 | 6,290 | 71.8 | 59.1 |
Margins (%) |
|
|
|
|
|
Gross Margins | 2.4 | 7.6 | 17.6 |
|
|
Opg Profit Margins | 1.2 | 4.9 | 14.7 |
|
|
Net Profit Margins | 1.0 | 1.3 | 8.5 |
|
|
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere.
There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
General | This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. |
Australia | This report is being distributed in Australia by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”) or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946. DBS Bank Ltd, DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA. |
Hong Kong | This report has been prepared by a personnel of DBS Bank, who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Bank (Hong Kong) Limited (''DBS HK''), a registered institution registered with the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore. For any query regarding the materials herein, please contact Dennis Lam (Reg No. AH8290) at [email protected] |
Indonesia | This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. |
Malaysia | This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. |
Singapore | This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6878 8888 for matters arising from, or in connection with the report. |
Thailand | This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. For any query regarding the materials herein, please contact Chanpen Sirithanarattanakul at [email protected] |
United Kingdom | This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Bank Ltd, London Branch (“DBS UK”). DBS Bank Ltd is regulated by the Monetary Authority of Singapore. DBS UK is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. In respect of the United Kingdom, this report is solely intended for the clients of DBS UK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS UK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. |
Dubai International Financial Centre | This communication is provided to you as a Professional Client or Market Counterparty as defined in the DFSA Rulebook Conduct of Business Module (the "COB Module"), and should not be relied upon or acted on by any person which does not meet the criteria to be classified as a Professional Client or Market Counterparty under the DFSA rules. This communication is from the branch of DBS Bank Ltd operating in the Dubai International Financial Centre (the "DIFC") under the trading name "DBS Bank Ltd. (DIFC Branch)" ("DBS DIFC"), registered with the DIFC Registrar of Companies under number 156 and having its registered office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS DIFC is regulated by the Dubai Financial Services Authority (the "DFSA") with a DFSA reference number F000164. For more information on DBS DIFC and its affiliates, please see http://www.dbs.com/ae/our--network/default.page. Where this communication contains a research report, this research report is prepared by the entity referred to therein, which may be DBS Bank Ltd or a third party, and is provided to you by DBS DIFC. The research report has not been reviewed or authorised by the DFSA. Such research report is distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS DIFC. Unless otherwise indicated, this communication does not constitute an "Offer of Securities to the Public" as defined under Article 12 of the Markets Law (DIFC Law No.1 of 2012) or an "Offer of a Unit of a Fund" as defined under Article 19(2) of the Collective Investment Law (DIFC Law No.2 of 2010). The DFSA has no responsibility for reviewing or verifying this communication or any associated documents in connection with this investment and it is not subject to any form of regulation or approval by the DFSA. Accordingly, the DFSA has not approved this communication or any other associated documents in connection with this investment nor taken any steps to verify the information set out in this communication or any associated documents, and has no responsibility for them. The DFSA has not assessed the suitability of any investments to which the communication relates and, in respect of any Islamic investments (or other investments identified to be Shari'a compliant), neither we nor the DFSA has determined whether they are Shari'a compliant in any way. Any investments which this communication relates to may be illiquid and/or subject to restrictions on their resale. Prospective purchasers should conduct their own due diligence on any investments. If you do not understand the contents of this document you should consult an authorised financial adviser. |
United States | This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. |
Other jurisdictions | In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. |
HONG KONG | SINGAPORE |
INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: [email protected] | THAILAND |