GULF on track to be Thailand’s largest power producer
GULF sells electricity to the Electricity Generating Authority of Thailand (EGAT) and industrial customers (IC) in industrial estates. Currently it has a total gross installed capacity of 11,126 MW with a net capacity of 6,329 MW, which makes GULF a power producer with the highest capacity in the kingdom. GULF has a total of 28 power plants, 17 of which have commenced commercial operations and now commands a market share of more than 7%. It aims to increase its market share to 20% by 2023.GULF owns stakes in three major firms: Gulf JP (40%), Gulf MP (70%) and IPD (70%).It will receive an additional capacity of more than 5,300 MW from IPD which should help drive its profit growth going forward.
FY17 profit forecast to grow a whopping 573% with continued growth of 32%seen for FY18
We forecast an FY18 net profit of Bt3,715mn, up 32% from the previously estimatedBt2,811mn in FY17. Our new forecast is built on assumptions that (i) GULF will recognize full-year operations of four new SPP power plants with a combined 349equity MW capacity (based on its 52.49% stake in GMP) for the first year and (ii) GULF will add an additional 4,226 equity MW of capacity from 2018 to 2024, which more thandoubles the present capacity of 2,031 equity MW and should provide a boost to itsprofit CAGR of 20.45% over the next seven years.
GULF the best play in the power sector
In our view, GULF’s attractiveness lies in the fact that (i) its development pipelineshould more than double its net capacity over the next five years and it has best-inclass growth among its peers in terms of capacity, and (ii) most of its projects are stillyoung with an average of three to four years while the oldest project still has more than 20 years to generate cash flow.
Initiation of coverage with a ‘SELL’ rating and an FY18 target price of Bt60/share
We initiate our coverage of GULF with a ‘SELL’ rating to reflect our view that futuregrowth prospect has already been priced into the current stock price. We also set an FY18 target price of Bt60/share for GULF. The target is SOTP-based. Its currentproject portfolio and future development pipeline have already been factored into our target price. Of the above target price, Bt13.2 came from its 52.49%-owned subsidiary GMP, Bt16.27 from its 40%-owned associate GJP and Bt30.52 from its 70%-owned subsidiary IPD. However, GULF has a downside of around 18.77% based on its current trading level of Bt74.5/share and an FY18 dividend estimate of Bt0.52/share.