• Expect 2Q18F core profit to came in at Bt540m (+5% qoq, +18% yoy) driven by ABPR3 and ABPR4 SPP plants
• Extension scheme for SPP’s PPAs should be finalized by July; we assumed 10-year extension
• Maintain OUTPERFORM with Bt30 TP, implying 35x FY18F PE, justified by solid 26% earnings CAGR over FY18-20F.

More power sales to EGAT and IU to drive 2Q18F core profit

Following an update with management, we expect BGRIM to deliver strong earnings growth in 2Q18F amid seasonal peak demand. Revenue should grow 4% qoq and 7% yoy led by 4% higher power sales volume. Sales volume to EGAT rose 6% qoq driven by full-quarter operation at ABPR3 and one-month operation at ABPR4. BGRIM started to sell the additional 5MW capacity at ABPR3 to industrial customers (IU) in mid-April after a three-month connecting period, which could raise IU sales volume by 2%. Gross margin should inch up 30bps to 21.4% with higher utilization rate. Interest expense should be flat qoq due to lower average financing cost of 4.4% vs 4.5% in 1Q18 after BGRIM refinanced Bt6.7bn debt for BIP1&2 in May (from 5.2-5.6% to 4.95%). This could reduce interest expense by Bt95m p.a. Overall, BGRIM’s earnings should grow 5% qoq and 18% yoy to Bt540m in 2Q18F.     

Expect extension scheme for SPP’s PPAs to be finalized by late July

BGRIM’s share price has been pressured in the past month due to concerns on the expiring PPAs in 2019-2025 to be extended by three years instead of 10. We think this is unlikely to happen and maintain our assumption of a 10-year extension scheme for BGRIM’s SPP plants ABP1, ABP2 and BPLC1 (expiring in Sep-19, Sep-22, and Jul-22, respectively). We expect more clarity after the ERC meeting at end July. Separately, BGRIM is considering either Asia or Ang Thong industrial estates for 240MW BGPR1 & 2, to replace the VRM industrial estate, Ratchaburi (EIA not approved). Asia Industrial Estate, Samut Prakan, could see strong demand from Japanese customers due to close proximity to the airport and EEC area. This industrial estate is a good location for supply chain of 10-target industries for EEC. However, they would incur Bt200-300m additional cost to improve the sub-station. For Ang Thong Industrial Estate (2,000 rais), it is targeted to be the hub for World Food Valley of Thailand and would see strong demand from food producers.   

Maintain OUTPERFORM rating, SoTP-based TP of Bt30

Our TP implies 35x FY18F PE, justified by solid 26% earnings CAGR over FY18-20F. We see limited downside to BGRIM’s earnings supported by strong demand from IUs and high plant availability. There is upside risk from Vietnam solar project, 99MW wind farm in Korea, and 340MW hydro power plant in Laos.