Brief Thailand: EPG: Revenue from Auto Parts and EPP Buoyed Earnings to Grow YoY and more

In this briefing:

1. EPG: Revenue from Auto Parts and EPP Buoyed Earnings to Grow YoY
2. GPSC To Proceed With Glow Takeover, But At What Price?
3. Catch-Up Session with Intuch Group
4. GOLD:  Expect FY1Q19 Earnings to Be Bottom Out
5. Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies

1. EPG: Revenue from Auto Parts and EPP Buoyed Earnings to Grow YoY

EPG reports FY3Q19 net profit of Bt225m (+24%YoY,-14%QoQ). The FY9M19 result was in line with and accounts for 69% of our full-year forecast.

• A YoY increase in earnings was mainly caused by sales contribution from automotive segment (+28%YoY). While a QoQ fall in earnings was due to a seasonal drop in sales of thermal insulators segment and narrow gross profit margins due to rising raw material costs.
• We maintain our positive outlook toward its FY19-20E earnings driven by growth in every business units: 1) sales recovery from EPP segment (22% of total sales in FY9M19) from changing its product mix toward more on food packaging; 2) revenue contribution from Flexiglass after acquired it during FY1Q19, and, 3) consistent sales growth for Aeroflex (28% of total sales)

We maintain our BUY rating  with the target price of *Bt10.40 derived from its 2-years average trading range of 25xPE’19E.

*We make no changes to forecast, recommendation, and target price at the time of result announcement.

2. GPSC To Proceed With Glow Takeover, But At What Price?

Global Power Synergy Company Ltd (GPSC TB) announced on the 20 June last year an intention to acquire 69.11% of Glow Energy Pcl (GLOW TB) from Engie SA (ENGI FP) at Bt96.5/share (reduced to Bt94.892/share subsequent to an interim dividend of Bt1.608), valuing Glow at US$4.4bn or 2.86x P/B. Once the acquisition was approved, the remaining 30.89% of shares would be subject to a mandatory tender offer.

The key issue raised at the time was that the transaction would give GPSC a monopoly on power purchase agreements in Map Ta Phut, Thailand’s largest industrial park.

Despite what appeared to be a non-issue from an anti-trust point of view (as discussed in Anti-Trust Should Be A Non-Issue In The GPSC/Glow Deal), on 11 October 2018 the Energy Regulatory Commission (“ERC”) notified the public of its decision not to give its approval for the transaction. Glow’s shares declined ~6% on the news.

An appeal to reconsider ERC’s decision was dismissed on 14 December.

After an announcement alluding to multiple interests for Engie’s stake, on the 27 December Glow announced that ERC has resolved to approve the merger with GPSC, provided Glow sells its Glow SPP1 plant before or at the same time as the merger. A number of conditions were also attached to some of the remaining power plants.

No price has been disclosed for the 69.11% stake in Glow, ex the SPP1 plant.

The current upside is (at best) 6.8% to an indicative offer price Bt95.86, assuming Glow can sell SPP1 at the same multiple under GPSC’s initial offer and GPSC continues to assign the same multiple to Glow even after the sale of SPP1. That would appear a stretch. However, SPP1 is estimated to account for just ~5% of Glow’s energy output and revenue. And media are reporting Engie itself may acquire the plant, which should smooth and expedite the completion of the transaction.

3. Catch-Up Session with Intuch Group

We caught up with Intuch Group this week to check how things were going on with them and their subsidiaries, AIS and Thaicom. It’s good to touch base, since it’s been a while, and many things have changed in the interim:

• Intuch self-congratulated themselves for a narrowing of their discount to NAV from 28% to 20% in 2018 while introducing three new investments and announced the breakeven of their shopping network, a joint venture with Hyundai.
• Wongnai, an online foodie guide and one of Intuch’s largest investments, underperformed our revenue forecast significantly, but managed to post impressive revenue growth nevertheless. While profitable, their rapid expansion also means they are unlikely to meet their own internal profitability expectations.
• Thaicom posted a loss in Q4 and almost non-existent earnings in 2018 largely due to asset impairments, but there is some hope in the future with the government’s various PPP (public-private partnership) schemes mentioned in the meeting.
• AIS, the Group’s flagship company, posted flat earnings of Bt30bn and is in the process of reversing a decline in revenue market share through aggressive push in enterprise and consumer services.

4. GOLD:  Expect FY1Q19 Earnings to Be Bottom Out

GOLD reported FY1Q19 net profit of Bt459m (-26%YoY, -13%QoQ), the lowest in past six quarters. The FY1Q19 result was 21% of our full-year forecast and 10% lower than our forecast.

•  The disappointed FY1Q19 result (ending Dec 18) was mainly due to flat sales from real estate at Bt3.76bn which contribute 89% of total sales. Meanwhile, gross margin also fell to 30.4% compared to 32.3% in FY1Q18 due to higher marketing cost. We expect FY1Q19 earnings to be the bottom out as the company adjusted down unit selling price in order to boost sales during the last quarter last year.
• We maintain our positive outlook toward its FY2019-20 performance and beyond driven by new projects and upside from sale of FYI CENTER to GVREIT and operate the Sam Yan Mitrtown large mixed-use complex.

We maintain our forecast and BUY rating with a target price of Bt15 based on 13xPE’19E.

5. Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies

We analyse the sale of a stake in the Mako gas field in Indonesia to Coro Energy PLC (CORO LN) by West Natuna Exploration Limited, majority owned by private Singapore company Conrad Petroleum and UK listed Empyrean Energy PLC (EME LN), which has a 10% stake. It has implications in terms of read-through valuations for other S.E. Asia focused energy companies especially those with Indonesian gas production such as Premier Oil PLC (PMO LN), Ophir Energy (OPHR LN) and Medco Energi Internasional T (MEDC IJ).