• Acquired additional 20% stake in RAC; we are neutral on this deal as incremental value would be offset by Bt1.3bn investment cost
• Expect 2Q18F earnings to grow qoq supported by larger weighting of IPP plants and solid performance of Hongsa 
• Maintain OUTPERFORM, SoTP-based TP of Bt62; stock offers 4.6%-4.8% dividend yield over FY18-20F, highest among conventional power peers

Acquiring overseas projects to ensure stable generation capacity

We have a neutral view after the analyst briefing yesterday. RATCH is keeping its target to acquire 700-800 MW of new capacity per year to maintain stable generation capacity because the 700MW TECO plant will expire in 2020. RATCH has secured another 170MW of capacity after buying additional 20% stake in RATCH-Australia Corporation Limited (RAC) to increase its stake to 99.99%. However, the incremental value of Bt1/sh from the 20% stake would be offset by the Bt1.3bn investment cost. RATCH is seeking more overseas power assets, including conventional and geothermal projects in Indonesia and power plants in Australia. Details of new investments are limited but management guided they would acquire 150MW by the middle of this year and another c.500MW by the end of this year.

Expect 2Q18F earnings to grow qoq but be flat yoy

Availability payment (AP) from 3,645MW RATCHGEN and 700MW TECO projects fell 7.7% yoy in 1Q18 because they are older plants. AP of both plants will continue to drop yoy. Moreover, profit contribution from 350MW RPCL plant (25% equity stake) fell 65% yoy to Bt23m in 1Q18 due to planned maintenance as well as falling AP. However, solid EAF at Hongsa (93% in 1Q18) would offset weak operations at its IPP plants and lead core earnings to grow 4.3% in FY18F. We expect 2Q18F core earnings to improve 38% qoq to Bt2.1bn driven by higher weighed factor of IPP plants and solid performance at Hongsa (90% EAF QTD).    

Dividend play with limited downside risk

We maintain an OUTPERFORM rating with a SoTP-based TP of Bt62. Current valuation is undemanding at 11x FY18F PE vs peers’ average of 23x, and the stock offers 4.6-4.8% dividend yield over FY18-20F, the highest among conventional power peers. However, RATCH is good for long-term investors who seek dividend returns rather than capital gain because earnings growth is slower than peers.