• Expect 3Q18F core profit to come in at Bt435m (+13% qoq, -36% yoy) led by solid operations at geothermal plants and wind farm
• Target to secure up to 200 MW solar rooftop assets by 2023, and up to 200-300 MW of RE assets overseas
• NEUTRAL, raised TP to Bt18 (from Bt17) after moving valuation base to FY19F and adding 100 MW of solar rooftop capacity

Solid net profit led by gain from sale of 27.6MW Japan solar assets

We expect 3Q18F core profit to grow 13% qoq but drop 36% yoy to Bt435m, the yoy drop mainly due to recognition of 1Q-3Q17 geothermal project profit after the acquisition was completed in 3Q17. Thailand solar output should drop 5% qoq to 63m units due to the rainy season. Japan solar output could grow 3% qoq supported by full-quarter contribution from 4.4MW Gotemba (COD Apr-18) and summer season. Gross margin should slip 50bps qoq to 71.2% due to smaller power output and stable average tariff at Bt11/kWh for Thailand and Bt10/kWh for Japan solar projects. Equity income should grow 378% qoq to normal level of Bt91m supported by 90% utilization rate at geothermal plants and 30% CF at wind farms. BCPG could book Bt350-400m one-off gain from sale of assets (27.6MW Japan solar assets) in the quarter, which would drive net profit to a new high of Bt835m.

Solar rooftop power is new key growth driver

BCPG is in a good position to capture new opportunities, such as solar rooftop projects as the government plans to implement peer-to-peer platform under the latest PDP. It had secured a 20-year 12MW solar rooftop contract at Chiang Mai University and a 2MW contract at Sansiri’s T77 community. BCPG targets to secure up to 200MW of solar rooftop assets by 2023. We factored in 100MW at Bt0.7/sh based on (i) 11% EIRR, (ii) 15% discount to base tariff at Bt3.8/kWh, and (ii) Bt35m investment cost. The company also targets to secure 200-300MW of RE assets in Australia and Vietnam. BCPG is starting to focus on Vietnam after the government extended the COD for the solar project in Ninh Thuan province to end-2020 from Jun-19, and raised wind project tariff rate to US$8.5-9.8 cents/kWh from US$7.8 cents. This could drive up project EIRR to over 12%, in line with the company’s target. But this project may take some time to bear fruit.   

Need new investments to sustain earnings

We maintain a NEUTRAL rating for BCPG with a higher TP of Bt18 (from Bt17) after moving valuation base to FY19F and including 100MW of solar rooftop capacity. The stock is now trading at 21x FY19F P/E, at a premium to peers’ average multiple of 15x. It is challenging for BCPG to fill the earnings vacuum after divesting the Japan solar assets to an infrastructure fund, as new projects might offer only 10-12% EIRR compared to 15% average currently.