• Expect 2Q18F core profit to come in at Bt936m (-9% qoq, -2% yoy) following lower power output from wind farms
• EA will not book a loss from a drop in Amita’s share price as it classified Amita as long-term investment
• Maintain OUTPERFORM and lower TP to Bt60 (from Bt77) after reducing valuation for ES business; remains our top pick in renewable power sector

Softer quarter due to low season for wind farms in 2Q18

Following an update with management, EA’s operation could soften qoq due to lower power output at wind farms. Power output at 278MW solar farms should drop 3% yoy due to early arrival of rainy season but grow 5% qoq to 160m units due to summer season. Power output at 128MW wind farms should drop 26% qoq to 50m units, implying 20% average capacity factor (vs 25% in 1Q18), given seasonally weaker wind in April. Average tariffs for solar and wind farms should remain at Bt9.6/kWh and Bt6.3/kWh, respectively. EA will consolidate Bt12m loss from Amita. These would take 2Q18F core profit to Bt936m (-9% qoq, -2% yoy).

No need to book loss from a decline in Amita’s share price

EA holds 70% stake in Amita, which share price has plunged over 40% after the tender offer period ended on 16 April. EA had determined Amita’s fair value in 1Q18 which led them to book Bt895m revaluation gain in P/L. However, following the drop in Amita's share price, there are concerns EA might have to book a loss in 2Q18F. Management assured that EA will not book any gain or loss in P/L because Amita stake is classified as long-term investment. EA acquired the Amita stake in three tranches: the first two adding up to 50.7% stake at average of TWD35/sh (market price) during FY16-17, and the third (19.3%) under a voluntary tender offer at TWD80/sh, vs TWD78/sh fair value estimated by a third party. EA ended up with 70% stake at an average price of TWD47/sh, similar to the current share price. EA will utilize Amita’s expertise and technology to complement their energy storage business as well as drive growth in the next few years.

Construction of 1GW ES factory to start this month

We cut our TP to Bt60 (from Bt77) as we reduced valuation of ES unit to Bt33 (from Bt49) after raising discount rate by 2ppt to 10% to reflect higher market volatility and rising long-term interest rates. We maintain Bt27 for Renewable Energy & Biodiesel and remain optimistic of the ES business, which could lift its earnings to a new s-curve. The construction of the 1GW ES plant should start by this month.