Krungsri Upgrades GPSC to “Outperform,” Having GLOW and SPP as Drivers to See TP at ฿80

Krungsri Securities has upgraded GPSC’s rating from “Neutral” to “Outperform” while giving a target price at ฿80.0/share.

On June 29, 2019, Krungsri Securities has upgraded Global Power Synergy Public Company Limited (GPSC)’s rating from “Neutral” to “Outperform” while giving a target price at ฿80.0/share (+18.5% from ฿67.5/share on June 27).

Krungsri states in its analysis that the capital increase (THB 74 billion) in 4Q19 is sufficient to fund GLOW and ERU acquisitions. New capacity from XPCL (4Q19), ERU (3Q23), and expansions at PTTGC and PTT (2020-22) will ensure GPSC’s growth up to 2023. SPP replacement (914MW, under GLOW) will extend their PPAs by 25 years. Thus, Krungsri has upgraded to Outperform, raising a target price to ฿80.0/share, implying 19x FY20F PE vs peers’ average of 23.5x on strong earnings visibility and low execution risks.

After acquiring 95.25% in GLOW for THB 129 billion, GPSC is now in the process of the tender offer for the remaining 4.75%, which would cost THB 6.3 billion and should be completed by 4Q19.

GPSC’s capacity will increase by 143% to 4,748MW. All GLOW’s IPPs and SPPs (except Huay Ho in Laos) are in eastern Thailand and will benefit from growing demand in the EEC. A third of the combined SPP’s power generation is sold to industrial customers, which commands a healthy gross margin at 25% vs 10% for IPP.

The overhang issue on share prices will be removed as GPSC will raise capital (THB 74 billion) by 4Q19, which Krungsri estimates at ฿60/share. The proceeds will be used to repay debt and reduce net D/E to 0.6x from 2.3x. Profit from GLOW would offset the dilution effect and increase FY20F EPS by 12%. GPSC targets THB 10 billion worth of synergies, which Krungsri has yet to factor in our model.

Group captive demand, SPP replacement scheme to ensure growth as PTT’s flagship in power business, this ensures new capacity additions from the group. Recent ERU’s acquisition from TOP and electricity supplier to PTTGC’s expansion for Map Ta Phut Retrofit, Propylene Oxide, and Polyols projects and PTT’s LNG terminal 2 are only examples. ERU will add 250MW in 3Q23.

PTTGC’s expansion projects should add 60MW by 2021. LNG terminal 2 (+7.5mt to 19.0mt in 2022) from PTT would add another 40MW by 2023; the total will increase power demand by 8% by 2023.

GPSC should receive approval of SPP replacement scheme (914MW) this year, which reduces risks of earnings decline beyond 2025. XPCL, which is scheduled for COD in 4Q19, will be the earnings driver next year.

YTD, GPSC’s share price is the 2nd worst performer (after BPP). Krungsri expects share price to outperform peers once the capital increase is done. GPSC is lining up with positive drivers from start-up of XPCL, approval of SPP replacement scheme, and growing power demand in the EEC.

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