Gunkul Engineering Summary
Core Content
Gunkul Engineering, a Thai energy and utilities company, has been focusing on expanding its renewable power business, which is expected to be a significant growth driver. The company has made strategic acquisitions and is on track to meet its 500-MW capacity target by FY17. Its financial performance and valuation metrics indicate a positive outlook, with a 'BUY' rating and a revised target price.
Main Points
- Acquisition of Kentos Solar Project: Gunkul acquired the 66.78-MW Kentos solar project in Japan, which has a 20-year PPA with TEPCO and an estimated EIRR of 12%-14%. The project is expected to start commercial operations in FY22.
- Capacity Growth: Following the acquisition, Gunkul's total net capacity rose to 403 MW, with ongoing negotiations for an additional 50-MW project and the upcoming Agro-Solar Program Phase 2 offering 519 MW of capacity.
- Profit Growth: Gunkul's FY16 net profit is forecasted to increase by 28% year-over-year, driven primarily by its renewable power business. The renewable power business is expected to nearly double its net profit to Bt1,635mn in FY17, up 86% y-y.
- Revenue Breakdown: Revenue from electricity sales is expected to rise to 84% of total revenue in FY17 from 50% in FY15, indicating a shift in business model towards renewables.
- Valuation and Target Price: A 'BUY' rating is maintained with a target price of Bt6/share, based on SOTP (Sum of the Parts) valuation. The target price includes contributions from EPC & trading, existing wind farms, and the newly acquired solar project.
- Financial Performance: The company is expected to report strong earnings growth in FY17, with a projected EPS of Bt0.26 and a P/E ratio of 18.8, down from 35.1 in FY16.
- Dividend Yield: The dividend yield is expected to increase to 2.1% in FY17 from 1.1% in FY16, reflecting improved profitability.
- Corporate Governance: The company is part of the Corporate Governance Rating system, with certain levels indicating compliance with anti-corruption and governance standards.
Key Financials
| FYE Dec |
FY14 |
FY15 |
FY16E |
FY17E |
| Sales (Btmn) |
2,977 |
4,460 |
4,274 |
6,545 |
| Net Profit (Btmn) |
545 |
685 |
878 |
1,635 |
| EPS (Bt) |
0.15 |
0.13 |
0.14 |
0.26 |
| P/E (X) |
31.2 |
36.3 |
35.1 |
18.8 |
| BVPS (Bt) |
0.95 |
1.57 |
1.35 |
1.51 |
| P/B (X) |
5.1 |
3.1 |
3.6 |
3.2 |
| DPS (Bt) |
0.03 |
0.06 |
0.06 |
0.10 |
| Dividend Yield (%) |
0.6 |
1.3 |
1.1 |
2.1 |
| ROE (%) |
17.57 |
12.00 |
10.54 |
18.00 |
| Debt/Equity (X) |
2.18 |
2.06 |
2.18 |
2.94 |
Valuation Ratios
| FYE Dec |
FY14 |
FY15 |
FY16E |
FY17E |
| P/E (X), adj. |
31.2 |
36.3 |
35.1 |
18.8 |
| P/B (X), adj. |
5.1 |
3.1 |
3.6 |
3.2 |
| Dividend Yield (%) |
0.6 |
1.3 |
1.1 |
2.1 |
Growth Projections
| FYE Dec |
FY14 |
FY15 |
FY16E |
FY17E |
| Revenue Growth (%) |
-25.74 |
49.85 |
-4.17 |
53.13 |
| EBITDA Growth (%) |
-68.00 |
55.33 |
152.85 |
87.54 |
| EBIT Growth (%) |
-69.90 |
56.74 |
103.17 |
93.80 |
| Net Income, adj. Growth (%) |
-38.24 |
25.65 |
28.14 |
86.22 |
Margins
| FYE Dec |
FY14 |
FY15 |
FY16E |
FY17E |
| EBITDA Margin (%) |
11.90 |
12.34 |
32.55 |
39.87 |
| EBIT Margin (%) |
11.02 |
11.52 |
24.43 |
30.92 |
| Net Profit Margin (%) |
18.32 |
15.36 |
20.54 |
24.98 |
Key Developments
- Acquired shares in KWE and WED in 2015, which have PPAs with EGAT.
- Acquired shares in GK Sendai in 2014, which operates a 31.75-MW solar power plant in Japan under a 20-year PPA.
- Started supplying electricity to PEA grid at a rate of Bt5.66 per kWh.
Risk Factors
- Economic growth
- Government investment policy
- FX fluctuation
Peer Comparison (as of 04 October 2016)
| Company Name |
Mkt Cap. (Btmn) |
P/E (X) |
P/BV (X) |
Div Yield (%) |
| GUNKUL TB |
30,776 |
39.4 |
3.7 |
1.1 |
| DEMCO TB |
4,382 |
n.m. |
1.4 |
n.a. |
| IFEC TB |
9,483 |
14.0 |
1.8 |
2.5 |
| SPCG PCL |
19,127 |
8.9 |
2.7 |
5.8 |
Company Data
| Metric |
Value (mn) |
| O/S Shares |
6,359 |
| Market Cap. (Btm) |
30,776 |
| Market Cap. (USDmn) |
887 |
| 52-WK Hi/Lo (Bt) |
6/3.98 |
| 3M Average Daily T/O (mn) |
9.22 |
| Par Value (Bt) |
0.25 |
Corporate Governance
- The company is rated at Level 5 (Extended) for anti-corruption indicators.
- It is part of the Corporate Governance Rating system, with various levels indicating compliance and commitment to governance standards.
Conclusion
Gunkul Engineering is transitioning its business model towards renewable energy, which is expected to drive significant growth in both revenue and profit. The acquisition of the Kentos solar project and the upcoming Agro-Solar Program Phase 2 are key to achieving its capacity targets. The company's financial metrics show improvement, with a higher net profit margin and a rising dividend yield, supporting the 'BUY' rating and the target price of Bt6/share.
