Energy & Petrochemical Sector

February 2019
Kaweewit Thawilwithayanon
y

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 Energy Sector – Crude price strikes back

 Maintain Neutral with a more positive view toward crude price in 1H19 thanks to i) OPEC supply cuts of
1.2MBD, effective January 2019 and ii) the expiration of US waivers for eight countries on Iran crude import in May. We
maintain our Dubai crude price assumptions of US$67/bbl in 2019 and US$65/bbl in 2020 with a long-term price of
US$65/bbl. Quota of OPEC+ supply cuts
 Supply cuts of 1.2MBD
1 2MBD from OPEC+ in 2019. 2019 OPEC No. Country Reference Output (KBD) Target Cut (KBD) Output Target (KBD)
output declined by 750KBD MoM to 31.6MBD in 1 Algeria 1,057 -32 1,025
2 Angola 1,528 -47 1,481
December 2018. Saudi Arabia plans to reduce its output 3 Congo 325 -10 315
in Januaryy byy deliveringg a larger
g cut than its committed 4 Ecuador 524 -16 508
5 Eq.
E GGuinea
i 127 -44 123
target of 10.3MBD. Russia also guided to gradually 6 Gabon 187 -6 181
7 Iraq 4,653 -141 4,512
reduce and achieve its target cut of 230KBD in April. 8 Kuwait 2,809 -85 2,724
9 Nigeria 1,738 -53 1,685
OPEC crude p
production has increased since June 10 Saudi Arabia
11 U.A.E.
10,633
3,168
-322
-96
10,311
3,072
OPEC production, MBD Total OPEC 26,749 -812 25,937
1 Azerbaijan 796 -20 776
32.2
32.1 32.1 32.0 2 Bahrain 227 -5 222
31.9
31.7
3 Brunei 131 -3 128
4 Kazakhstan 1,900 -40 1,860
5 Malaysia 627 -15 612
31.0 6 Mexico 2,017 -40 1,977
30.9 30.8 30.8 7 Oman 995 -25 970
8 Russia 11,421 -230 11,191
9 South Sudan 132 -3 129
10 Sudan 74 -2 72
Total Non-OPEC 18,320 -383 17,937
2016 2017 1Q18 2Q18 3Q18 4Q18 1Q19F 2Q19F 3Q19F 4Q19F
Total OPEC+ 45,069 -1,195 43,874
Source: EIA’s STEO on December 2018, KGI Research Source: OPEC, Bloomberg, KGI Research

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 Energy Sector – Crude price strikes back

 Iranian crude production to likely to drop for May onward. In November 2018, the US granted waivers of up to
180 days to eight countries, representing almost 80% of Iran’s crude exports (totally 1.2MBD), from re-imposing
sanctions on Iran. The waivers for the eight countries expire in May so we believe Iran’s exports will start declining again
in March-April.
 US sanction
ti on state-owned
t t d V
Venezuelan l oil
il company iin llate t JJanuary. Venezuela
V l exported
t d approximately
i t l
500KBD of crude to the US in 2018. This is a new catalyst to support crude price now.
 Upward trend in US crude production. We believe US production will continue to increase significantly in 2H19 as a
series of US pipeline projects with total capacity of about 2MBD could resolve the bottleneck and are scheduled to start
commercial operations in 3Q19. Thus, higher US crude production is still the key pressure on crude prices.
 Our top picks are PTTEP* and TOP*.
US crude output has stood at 11.7
11.7-11.9MBD
11.9MBD since Nov Global oil demand g
grows byy 1.4MBD in 2019
Number of US oil rigs, units (LHS); US crude output, MBD (RHS) Non-OPEC supply cuts, KBD
1,000 13.0
900
12.0
800
11.0
700
600 10.0
500
9.0
400
8.0
300
Botton of 316 rigs in late May 2016
200 7.0
Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
US oil rig count US crude output

Source: Baker Hughes, Bloomberg, KGI Research Source: IEA’s Oil Market Report on October 2018, TOP Pcl., KGI Research

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 Refinery Sector – IMO's policy to support domestic GRM

 Positive sentiment from IMO's upcoming policy in 2020 (possibly 2H19). On January 1, 2020, IMO plans to
implement an environment-friendly global policy to reduce sulfur in bunker fuel (fuel oil) from 3.5% to 0.5%. The change
should lead to significantly greater demand for diesel and lower demand for high-sulfur fuel oil in 2020, while fuel oil
which meets IMO's new standard of 0.5% sulfur will get more premium.
 Still b
bearish
i h on th
the outlook
tl k ffor gasoline
li d due tto hihigher
h utilization
tili ti rates t ffor existing
i ti refineries.
fi i US refinery
fi
operators increased their crude runs to 93% in 2018, up YoY from 91% thanks to cheaper domestic crude cost than
overseas after the spread of crude price between WTI and Dubai widened from a normal range of US$1-3/bbl to US$7-
10/bbl in 2018.
2018 With maximizing
maximizing-gasoline
gasoline US refineries
refineries, we expect the gasoline market to be pressured by oversupply.
oversupply
 Reiterate our positive view on the refinery market. We expect GRM to recover significantly in 2H19.

Higher utilization rates of US refineries High global refinery shutdown in May and October
Utilization rate, percent Planned refinery maintenance in 2019, MBD
95.4
6.7
93.6 6.1
93.1 5.7
92.5 5.1
43
4.3 4.7
4.3
90.8 90.8 3.0 3.6 3.4
90.0 2.9
1.7

2016 2017 1Q18 2Q18 3Q18 4Q18 2018 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: EIA, KGI Research Source: TOP, KGI Research

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 Petrochemical Sector – First big wave of new US crackers

 Maintain our bearish view on the olefins market. We are concerned about eleven large new US olefins plants with
total capacity of 10.5MTA coming in 2017-19, up 6% from the current global supply. There are planned COD of five new
US crackers with total capacity of 4.75MTA in 2019, up from 3.4MTA in 2018. We have also seen some signals of the
beginning of a down cycle for the PE market after HDPE spread dropped to a 9-year average of US$610/ton in December
2018 from
2018, f US$700
US$700-800/ton
800/t ini 1H18.
1H18
 Polypropylene (PP) outlook would still be good in 2019. PP spread in 2018 was US$655/ton, higher than its 7-
year average of US$630/ton thanks to cancellations or delays of China’s new CTO/MTO plants last year, which build PE
and PP from coal-based
coal based feedstock.
feedstock In addition,
addition the market expects stronger global PP demand growth of 4.5MTA
4 5MTA in 2019
from China’s recycle ban, higher than its new supply of 3.5MTA.
The first big wave of US crackers with 10.5MTA total capacity in 2017-19F
No.
o Company
Co pa y Capac ty
Capacity Location
ocat o Sta t up
Start-up Status
1 OxyChem/Mexichem JV 544KTA Ingleside, Texas 1Q17 Commercial operation
2 LyondellBasell 336KTA Corpus Christi, Texas 2Q17 Commercial operation
3 DowDupont 1.5MTA Freeport, Texas 3Q17 Commercial operation
4 Chevron Phillips Chemical 1.5MTA Cedar Bayou, Texas 1Q18 Commercial operation
5 ExxonMobil Chemical 1.5MTA Baytown, Texas 3Q18 Commercial operation
6 Indorama 400KTA Lake Charles, Louisiana 4Q18 Commercial operation
7 Sasol 1.5MTA Lake Charles, Louisiana 1Q19 Under construction
8 Westlake/Lotte 1.0MTA St Charles, LA 1Q19 Under construction
9 Shintech 500KTA Plaquemine, LA 1Q19 Under construction
10 Formosa Plastics 1.25MTA Point Comfort, Texas 2H19 Under construction
11 DowDupont 500KTA Freeport, Texas End 2019 Under construction
Total 10.5MTA
Source: PTTGC Pcl. KGI Research estimates

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 Petrochemical Sector – Continued huge aromatics capacity
addition
 Maintain our negative view on the aromatics market. Two PX plants - Nghi Son with 0.7MTA capacity and Fujian
Line I with 0.8MTA capacity - delayed their startups by about six months to 3Q18 and 4Q18, respectively. In addition,
there are two new aromatics plants scheduled to start commercial runs in 2H19; Fujian Line II with 0.8MTA capacity and
Heng Li with 2.25MTA capacity. Thus, the market estimates effective new PX capacity of 3.4MTA in 2019, which is almost
three times higher than demand growth of only 1.3MTA.
1 3MTA
 BZ market to be negatively affected by US-China trade war. The market expects a higher effective new BZ
capacity of 1.3MTA in 2019, slightly outpacing demand growth of 1.2MTA in Asia Pacific and the Middle East. In
addition BZ demand growth in 2019 still has downside risk from the trade dispute between the US and China,
addition, China leading
to shrinking BZ demand from downstream users.

Higher huge PX capacity addition in 2019 Slightly higher BZ capacity addition in 2019
Additional demand and supply in AP&ME, mn ton Additional demand and supply in AP&ME, mn ton
3.8
1.8
3.4 3.4
1.6

1.3 1.3 1.3 1.3

1.2
2.2 1.1 1.1
1.8
1.6
1.3 1.3 1.3
0.5
0.5

2016 2017 2018 2019F 2020F 2016 2017 2018 2019F 2020F
Demand Effective Capacity Demand Effective Capacity

Source: TOP estimates, KGI Research Source: TOP estimates, KGI Research

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 Petrochemical Sector – HDPE, PX, and BZ spreads dropped
QoQ, but PP spread rose QoQ in 4Q18
HDPE spread over naphtha PP spread over naphtha
US$/t
US$/ton US$/t
US$/ton

798
734 743
716 717
672 683 689 683
648 659 660 647 655
639 621
600
570

2016 2017 1Q18 2Q18 3Q18 4Q18 2018 2019F 2020F 2016 2017 1Q18 2Q18 3Q18 4Q18 2018 2019F 2020F

Source: Bloomberg, KGI Research estimates Source: Bloomberg, KGI Research estimates

PX spread over condensate BZ spread over condensate

US$/ton
$ US$/ton
$
549
501
446
395 380 381 400 380
354 357
318
261
212 214 215
180 171
115

2016 2017 1Q18 2Q18 3Q18 4Q18 2018 2019F 2020F 2016 2017 1Q18 2Q18 3Q18 4Q18 2018 2019F 2020F

Source: Bloomberg, KGI Research estimates Source: Bloomberg, KGI Research estimates

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 Coal Sector – Coal to still play an important role in global
energy mix
 Slight demand growth while new supply is tight. We believe the slight increase in global coal demand, driven by
India and Southeast Asia (SEA) is enough to support a high coal price as coal supply is tighter thanks to the difficulty in
opening new mines due to stricter environment-friendly energy regulations by coal producing countries.
 Vietnam to be an exciting coal market in Southeast Asia. The country requires 30GW of additional coal-fired
power capacity, while
h l its ddomestic supply
l is insufficient
ff to support ddemandd growthh so the
h market
k expects Vietnam to
raise its coal imports from 4mn tons in 2017 to 87mn tons in 2030, implying 13-year CARG of 6.4mn tons.
 Maintain a positive view on coal market. We expect coal price to stand above US$100/ton in 1Q19, supported by
stricter safety measures for Chinese mines after a domestic coal mine collapsed in December 2018.
2018 In addition,
addition heavy
rain in Indonesia now, especially in South Kalimantan, would disrupt coal production and loading activities in January.
Coal price has still stood over US$100/ton Vietnam’s coal growth opportunities
Coal price, US$/ton

118
104 106 104 108
95 90
90 85 85 85
66

2016 2017 1Q18 2Q18 3Q18 4Q18 2018 2019F 2020F 2021F 2022F 2023F

Source: BANPU Pcl., KGI Research estimates

Source: BANPU, KGI Research

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 Coal Sector – World energy demand by fuel in 2025

World energy demand by fuel in 2025

Source: IEA, BANPU Pcl., KGI Research

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 PTT Exploration and Production (PTTEP.BK/PTTEP TB)*
Outperform, target price Bt145.00
King
g of Gulf of Thailand Year to Dec Sales
(Bt mn)
Sales growth
(%)
EBITDA
(Bt mn)
NP
(Bt mn)
EPS
(Bt)
EPS growth
(%)

 Forecast PTTEP’s 2019 earnings to be Bt44.2bn, up 2016

2017
150,217
147,725
(18.5)
(1.7)
106,867
103,875
12,860
20,579
3.24
5.18
N.A.
60.0
2018 171,809 16.3 124,863 36,206 9.12 75.9
22% YoY thanks to the absence of Bt1.2bn extra loss from 2019F 183,477 6.8 136,271 44,184 11.13 22.0
2020F 181,773 (0.9) 131,151 39,064 9.84 (11.6)
the divestment of the Montara project in 3Q18. Excluding the Year to Dec GM EV/EBITDA PBV PER Dividend ROAE
(%) (X) (X) (X) Yield (%) (%)
extra item,
item core earnings before taxes (EBT) are expected to 2016 27.5 4.6 1.3 38.3 2.6 3.1
2017 38.1 4.6 1.5 23.9 3.4 5.2
rise 9% YoY in 2019 due to 3% higher ASP and sales volume 2018 43.3 3.7 1.4 13.6 4.0 9.4
2019F 43.3 3.1 1.3 11.1 3.6 11.0
to US$48.5/BOE and 318KBOED, respectively. 2020F 39.7 2.8 1.2 12.6 3.2 9.1
Sector Energy 52-week trading range (Bt) 110-160

 Nearlyy FID for the Mozambique q LNG project

p j in 1H19. 12M target price (Bt/shr)
Upside/downside (%)
145.00 Mkt cap-Bt bn/US$ bn
16 9 Outstanding shares (mn)
16.9
458/13.9
3 970
3,970
The percentile of excess return (%) 40.0 Free floating shares (mn) 1,376
One of the key factors toward FID for the project with a Dividend yield-13/14F (%) 3.6 Foreign ownership (mn) 530
Book value/shr-13/14F (Bt) 94.8 3M avg. daily trading (mn) 15.2
planned two-train 12.9MTPA capacity is a SPA that requires 8- P/B-13/14F (x) 1.3 Abs. performance (3,6,12M)(%) -7.4; -9.8; 4.2
Net debt/equity-13/14F (%) 12.5 Rel. performance (3,6,12M)(%) -7.1; -5.5; 17.3
9MTPA. Currently, there are three SPAs with total capacity of
Better sales volume in the next five yyears (2019-2023)
about 3.0MTPA
3 0MTPA for the Mozambique project
project, consisting of
Sales volume, KBOED
CNOOC (1.5MPTA), EDF (1.2MPTA), and Tohoku (0.28MTPA).
350 351
 Maintain Outperform with a target price of Bt145.00. With
our view of a higher crude price in 1H19, we believe PTTEP will 326
325
be the biggest beneficiary among our nine big energy 318
310
companies when the crude market recovers. We also have a
positive view on winning the Bongkot and Erawan bids.

2018F 2019F 2020F 2021F 2022F 2023F

* The company may be issuer of Derivatives Warrant on those securities Source: Company data; KGI Research

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 Thai Oil (TOP.BK/TOP TB)*
Outperform, target price Bt85.00
King
g of crude inventories Year to Dec Sales
(Bt mn)
Sales growth
(%)
EBITDA
(Bt mn)
NP
(Bt mn)
EPS
(Bt)
EPS growth
(%)

 Expect 4Q18 forecast for TOP at a net loss of Bt3.2bn. 2016

2017
274,739
337,388
(6.4)
22.8
33,972
37,531
21,222
24,856
10.40
12.18
74.2
17.1
2018F 375,557 11.3 23,589 12,082 5.92 (51.4)
The net loss would be mainly due to huge stock loss of 2019F 352,418 (6.2) 31,407 17,118 8.39 41.7
2020F 372,569 5.7 33,803 19,168 9.40 12.0
Bt6.2bn and NRV loss of Bt1.2bn for the quarter from the Year to Dec GM EV/EBITDA PBV PER Dividend ROAE
(%) (X) (X) (X) Yield (%) (%)
impact of crude price cracking in 4Q18.
4Q18 Excluding stock loss 2016 10.0 4.9 1.4 7.1 6.1 20.3
2017 9.5 4.0 1.2 6.1 7.1 20.8
and NRV loss, we estimate core earnings to drop QoQ as its 2018F 4.7 6.2 1.2 12.5 4.0 9.3
2019F 7.1 5.3 1.1 8.8 5.1 12.4
base GRM would decline 15% QoQ to US$4.2/bbl in 4Q18, 2020F 7.4 6.1 1.0 7.8 5.7 13.0
Sector Energy 52-week trading range (Bt) 63.8-105
given the poor gasoline spread of only US$4.7/bbl. 12M target price (Bt/shr)
Upside/downside (%)
85.00 Mkt cap-Bt bn/US$ bn 107.1/3.6
15 3 Outstanding shares (mn)
15.3 2 040
2,040
The percentile of excess return (%) 53.0 Free floating shares (mn)
 Forecast TOP’s 2019 earnings to be Bt17.2bn, up 42% Dividend yield-13/14F (%) 1.6 Foreign ownership (mn)
911
411
Book value/shr-13/14F (Bt) 40.9 3M avg. daily trading (mn) 8.2
YoY thanks to huge stock gain of Bt2.2bn this year after P/B-13/14F (x) 1.8 Abs. performance (3,6,12M)(%) -11; -12.9; -32.4
Net debt/equity-13/14F (%) 38.3 Rel. performance (3,6,12M)(%) -10.7; -8.7; -23.9
Dubai crude price dropped to US$57/bbl in December 2018. Its
CFP value p
proposition
p
base GRM is also expected to grow 30% YoY to US$6.1/bbl
US$6 1/bbl
from a low base last year and benefits from IMO’s policy to
cap 0.5% low-sulfur fuel oil ahead 2020.
 Reiterate Outperform with a target price of Bt85.00. With
our view of a higher crude price in 1H19, the second largest
beneficiary in our view would be TOP as it has Thailand's
largest crude inventories, implying materially higher stock
gains in 1Q19.
1Q19

Source: Company data, KGI Research

* The company may be issuer of Derivatives Warrant on those securities
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 Energy Sector – Neutral; PTTEP* and TOP* are top picks

Valuation and recommendation

Target price Current price Upside 17 EPS 18F EPS 19F EPS 18F EPS 19F EPS 18F PER 19F PER 18F PBV 19F PBV 18F Div 18F ROAE
Rating
(Bt) (Bt) (%) (Bt) (Bt) (Bt) growth (%) growth (%) (x) (x) (x) (x) Yield (%) (%)
PTT* N 50.50 49.50 2.0 4.73 4.38 4.36 (7.4) (0.5) 11.3 11.4 1.7 1.6 4.4 9.9
PTTEP* OP 145.00 124.00 16.9 5.18 9.75 11.13 88.2 14.1 12.7 11.1 1.4 1.3 3.5 10.0
PTTGC* N 74.00 69.50 6.5 8.72 8.90 7.96 2.2 (10.7) 7.8 8.7 1.1 1.0 6.4 13.8
IVL* OP 65.00 48.75 33.3 3.98 4.73 4.43 18.8 (6.3) 10.3 11.0 2.0 1.7 2.3 19.4
TOP* OP 85.00 73.75 15.3 12.18 5.92 8.39 (51.4) 41.7 12.5 8.8 1.2 1.1 4.0 9.3
IRPC* OP 7.00 5.80 20.7 0.56 0.36 0.51 (34.5) 39.9 15.9 11.4 1.3 1.2 3.1 8.3
BANPU* OP 21.00 16.60 26.5 1.53 1.60 2.15 4.8 33.8 10.3 7.7 0.9 0.9 3.9 7.7
SPRC* N 13.00 10.80 20.4 2.05 0.91 1.29 (55.7) 41.6 11.9 8.4 1.1 1.1 6.3 9.3
BCP* N 36.50 32.75 11.5 4.20 1.88 4.13 (55.2) 119.7 17.4 7.9 1.0 0.9 3.7 4.9
Sector Neutral 43.13 38.45 44.34 (10.8) 15.3 12.2 9.6 1.3 1.2 4.2 10.3
Source: KGI Research

* The company may be issuer of Derivatives Warrant on those securities

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 Confidential

Power Sector
February 2019
Voranart Meethavorn

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 Power Sector – Greater growth, plus reliability

 Promising FY19 core earnings growth of 13.5% 13 5% YoY expected.

expected We expect sector earnings to grow 13.5%
13 5% YoY in
2019 to Bt49.8bn from an expected Bt42.9bn in 2018. The growth would be driven by full-year contribution from new
capacity in 2018 and the acquisition and partial contribution from new capacity in 2019. However, we selectively foresee
interesting growth for some players.
 Conventional with earnings growth and overseas platforms as investment theme. Even though renewable
players would have greater growth than the conventional players, we prefer the conventional players based on their
stronger arms overseas for future investment. Electricity Generating (EGCO.BK/EGCO TB)* not only has a strong
investment platform (most experience in countries and power types), its FY19 core profit should grow 18.6% YoY, greater
than the sector growth. B.Grimm Power (BGRIM.BK/BGRIM TB)* should post the highest core earnings growth among
the conventional group at 57.6% YoY. Moreover, it already has a platform in Vietnam and would potentially expand in
South Korea, where the renewable market could provide investment opportunities.
 4Q18
Q 8 eaearnings
gs to be low
o season
seaso oof tthe
e yea
year. Secto
Sector 4Q17
Q eaearningsgs should
s ou d not
ot be very
e y exciting.
e c t g Even
e though
t oug mostost
power operators are expected to show earnings growth YoY from new capacity in the past 12 months, their earnings
would drop QoQ due to IPPs seasonality (weight factor in Availability Payment to be the lowest in the year in the fourth
quarter) and increased in gas price.
 Rate the sector Neutral; EGCO and BGRIM are top pick
pick.

* The company may be issuer of Derivatives Warrant on those securities

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 Power Sector – Promising FY19 core earnings growth of 13.5%
YoY expected

Expect sector earnings to grow 13.5% in 2019 from of new New capacity in 2019 about 2.5GW to commercialize,
capacity in 2018 (full year basis) and new capacity in 2019. supporting the earnings growth
E i
Earnings growth,
th percentt (LHS);
(LHS) NNormalized
li d earnings,
i Btb
Btbn (RHS) I t ll d capacity,
Installed it GW

20.0 60.0 25.0

15.0 24.0
40.0 11.7%
23.0
10.0
20.0 22.0
5.0
21.0
00
0.0 00
0.0
20.0
2017A 2018F 2019F
2018 2019F
Sector earnings Sector earnings growth

Source: Company data, KGI Research Source: Company data, KGI Research

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 Power Sector – Conventional is more interesting than
renewable

Conventional: Four players to have more solid growth than Renewable: All players to have more solid growth than the
the sector sector growth
C earnings
Core i growth,
th percentt C earnings
Core i growth,
th percentt

80.0 80.0
62.7
60.0 60.0
40.0
40.0 33.4
20.0 Sector growth of 13.5%
16.5
0.0 20.0 Sector growth of 13.5%

(20 0)
(20.0) 0.0
BGRIM GULF CKP EGCO GPSC WHAUP BPP RATCH GLOW GUNKUL TPCH BCPG

Source: Company data, KGI Research Source: Company data, KGI Research

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 Power Sector – Conventional is more interesting than
renewable
We selectively foresee interesting growth for some players including BGRIM
BGRIM, CKP
CKP, EGCO
EGCO, GULF
GULF, BCPG
BCPG,
GUNKUL and TPCH. However, we prefer the conventional players based on their stronger arms overseas for
future investment and upside.

BGRIM BPP CKP EGCO GLOW GPSC GULF RATCH WHAUP BCPG GUNKUL TPCH

Core earnings growth

57.6 2.6 26.4 18.6 0.4 14.3 42.9 0.3 3.7 16.5 62.7 33.4
(%)
Beat sector's growth
Yes No Yes Yes No No Yes No No Yes Yes Yes
of 14.1%

Key earnings driver

New capacity
447 87 482 544 0 392 434 35 32 29 34 30
in 2019 (MW)
Effective capacity as
1,212 1,945 425 5,144 1,206 1,525 2,254 6,801 510 317 305 33
of ending 2018 (MW)
Capacity growth
36.9 4.5 113.4 10.6 0.0 25.7 19.3 0.5 6.3 9.1 11.0 89.8
in 2019 (%)

Full year of new

245 44 0 0 0 0 291 223 31 4 142 4
capacity in 2018

Source: Company data; KGI Securities (Thailand)

* The company may be issuer of Derivatives Warrant on those securities

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 Power Sector – Conventional is more interesting than
renewable
Due to limited upside
p domestically,
y overseas would remain the sector’s keyy investment highlight.
g g Besides
cash readiness, variety of platforms in countries and experience in power types would be success factors.
Countries Thailand Laos Vietnam Japan Indonesia Philippine China Australia Others* Total
BGRIM 0 0 0 3
BPP 0 0 0 0 0 5
CKP 0 0 2
EGCO 0 0 0 0 0 0 6
GPSC 0 0 0 3
GLOW 0 0 2
GULF
GU 0 0 0 3
RATCH 0 0 0 3
WHAUP 0 0 2

Fuel types Gas Coal Hydro Solar Wind Biomas Geothermal Waste Others Total
BGRIM 0 0 0 0 4
BPP 0 0 2
CKP 0 0 0 3
EGCO 0 0 0 0 0 0 0 7
GPSC 0 0 0 3
GLOW 0 0 0 0 4
GULF 0 0 0 3
RATCH 0 0 0 0 0 0 6
WHAUP 0 0 0 0 0 5
Source: Company data; KGI Securities (Thailand)
*Others
h include
l d Korea ((EGCO)) and d Oman (GULF).
( )

* The company may be issuer of Derivatives Warrant on those securities

This material is for your information only and may not be reproduced or redistributed to any other person. 18
 Power Sector – Trading opportunities for earnings momentum

We expect BGRIM, EGCO and GULF to have uptrends in quarterly earnings during 2019 thanks to the start-
up of new projects during the year

BGRIM EGCO GULF

1Q19 ABPR3 full quarter contribution Paju full quarter contribution GT4, GNC full quarter contribution
Start-up GNLL2, GNPM, Solar VN#1

2Q19 Start-up Nam Che, Solar VN Paju full quarter contribution Start-up GNRV1, Solar VN#2-3
ABPR4 full quarter contribution

3Q19 n.a. Paju full quarter contribution GBL full quarter contribution
Start-up GNRV2

4Q19 ABPR5 full

f ll quarter
t contribution
t ib ti PPaju
j ffullll quarter
t contribution
t ib ti GBP full
f ll quarter
t contribution
t ib ti
Start-up XPCL, SBPL

Source: Company data; KGI Securities (Thailand)

*EGCO would start realize Paju’s contribution in January 2019 where the transaction was completed.

* The company may be issuer of Derivatives Warrant on those securities

This material is for your information only and may not be reproduced or redistributed to any other person. 19
 Power Sector – 4Q18 sector core profit to be low season of the
year

Sector 4Q18 earnings should not be very exciting, due to low Moreover, we expect net unrealized FX loss impact on the
season sector earnings
C profit,
Core fit Btb
Btbn C profit,
Core fit Btb
Btbn

14.0 30.0
12.0 25.0
10.0 20 0
20.0
8.0
15.0
6.0
10.0
4.0
2.0 5.0
0.0 0.0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18F 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18F

Source: Company data, KGI Research Source: Company data, KGI Research

This material is for your information only and may not be reproduced or redistributed to any other person. 20
 Power Sector – 4Q18 sector core profit to be low season of the
year

Even though most power operators are expected to show earnings growth YoY from new capacity in the
past 12 months, their earnings should drop QoQ due to IPP seasonality and increase in gas price.

Core profit (Btmn) Change (%) Btmn Growth Key highlight

4Q18F 4Q17 3Q18 YoY QoQ FY18F FY17 (%)
BCPG 358 193 412 85.6 (13.2) 1,518 1,648 (7.9) (0) lower amortise helps growth YoY, but Japan projects contribute lower earnings QoQ
BGRIM 352 236 413 49.5 (14.6) 1,830 1,342 36.4 (0) new projects support growth YoY but increased gas price pressure earnings QoQ
BPP 976 734 1,158 33.1 (15.7) 5,483 5,577 (1.7) (0) Hongsa runs on higher EAF YoY, but BLCP planned shutdown pressures earnings QoQ
CKP 151 39 407 284.5 (62.9) 632 278 127.2 (0) NN2 has higher dispatch v olume YoY but drop QoQ
EGCO 1 559
1,559 1 911
1,911 2 688
2,688 (18 4)
(18.4) (42 0)
(42.0) 8 859
8,859 9 773
9,773 (9 4)
(9.4) ( ) the
(-) th absence
b off MPPCL andd llow season off IPP
IPPs
GLOW 1,689 1,741 1,928 (2.9) (12.4) 8,105 7,807 3.8 (-) pressure from high gas price and low season of IPPs
GPSC 661 721 917 (8.3) (27.9) 3,546 3,174 11.7 (-) higher SG&A, higher interest expense and low season of IPPs
GULF 667 542 754 23.1 (11.5) 2,966 1,551 91.3 (0) new projects support growth YoY but increased gas price pressure earnings QoQ
GUNKUL 284 224 692 26.7 (59.0) 1,148 629 82.4 (0) wind projects hav e higher dispatch v olume YoY but drop QoQ
RATCH 1 274
1,274 880 1 936
1,936 44 8
44.8 (34 2)
(34.2) 6 564
6,564 6 515
6,515 08
0.8 (0) Hongsa runs on higher EAF YoY,
YoY but low season of IPPs pressures earnings QoQ
TPCH 94 78 92 20.5 2.7 358 269 32.9 (+) higher dispatch v olume from its all projects YoY and QoQ
WHAUP 285 190 506 49.9 (43.7) 1,868 1,407 32.8 (0) new projects support growth YoY but low season of IPPs pressure earnings QoQ
Total 8,351 7,488 11,903 11.5 (29.8) 42,876 39,971 7.3

Source: Company
p y data;; KGI Securities ((Thailand))

* The company may be issuer of Derivatives Warrant on those securities

This material is for your information only and may not be reproduced or redistributed to any other person. 21
 Power Sector – FY18 Sector’s core profit and net profit would
be in upward trend

Core profit growth of 7.3% on the back of new capacity and Net extra gain from divestment assets would support
full-year run of new capacity in 2017 strong FY18 net profit growth of 25.7%
C profit,
Core fit Btb
Btbn C profit,
Core fit Btb
Btbn

60.0 70.0
50.0 +7.3% 60.0 +25.7%
50.0
40 0
40.0
40.0
30.0
30.0
20.0 20.0
10.0 10.0
0.0 0.0
2015 2016 2017 2018F 2015 2016 2017 2018F

Source: Company data, KGI Research Source: Company data, KGI Research

This material is for your information only and may not be reproduced or redistributed to any other person. 22
 Electricity Generating (EGCO.BK/EGCO TB)*
Outperform, target price Bt290.00
Year to Dec Sales Sales growth EBITDA NP EPS EPS growth
(Bt mn) (%) (Bt mn) (Bt mn) (Bt) (%)
Interesting outlook in 2019 2016
2017
22 794
22,794
30,018
43 2
43.2
31.7
15 486
15,486
19,459
8 321
8,321
11,818
15 8
15.8
22.4
92 6
92.6
42.0
2018F 37,393 24.6 31,476 23,021 43.7 94.8

 Attractive year. We forecast FY19 core earnings to 2019F

2020F
37,591
37,805
0.5
0.6
19,031
19,525
10,508
11,357
20.0
21.6
(54.4)
8.1
Year to Dec GM EV/EBITDA PBV PER Dividend ROAE
reach Bt10.5bn (+18.6% YoY) on the back of the (%) (X) (X) (X) Yield (%) (%)
2016 34.9 14.8 1.3 12.6 3.3 10.4
commercialization of XPCL (1,280MW
(1 280MW hydro power plant 2017 28.9 11.6 1.3 9.6 3.2 13.9
2018F 26.2 5.9 1.3 6.0 3.8 24.0
12.5% owned by EGCO) and SBPL (455MW coal-fired 2019F
2020F
26.3
26.2
10.1
9.2
1.2
1.2
13.2
12.2
3.2
3.2
9.7
9.9

power plant 49% owned by EGCO) and the contribution Sector

12M target price (Bt/shr)
Power (Conventional)
290.0
52-Week Low/High :
Mkt cap Btbn/US$bn :
216-262
137.9/3.89
Upside/downside (%) 10.3 Outstanding Shares (mn shrs) : 526
j project.
from the Paju p j The percentile of excess return (%) 51.0 Free Floating Shares (mn shrs): 263
Dividend yield-12/18E (%) 3.8 Foreign Ownership (mn shrs): 188

 Outstanding investment platform. Not only does its Book value/shr-12/18E (Bt)
P/B-12/18E (x)
199.4
1.3
3M Avg. Daily Trading Volume (mn shrs):
Abs. Perform. % (3M, 6M, 12M):
0.9
12.9; 13.4; 20.2
Net debt/equity-12/18E (%) 0.4 Relative Perform. % (3M, 6M, 12M): 15.3; 18.9; 34.5
portfolio cover six countries (most in the sector), it also Note: EGCO ‘s core PER18 would be 15.6x , excluding one-off profit Bt14bn from asset divestment
has the widest experience in power types. Earnings outlook 2018
2018-20
20
Profit growth, percent (LHS); core profit, Btbn (RHS)
 Maintain Outperform. There is upside of 10% to our
40.0 12.0
target price while its low risk, strong business platform
30.0 10.0
and sizable cash on hand could provide long-term 20.0 8.0
sustainability. 10.0 6.0
0.0 4.0
(10.0) 2.0
(20.0) 0.0
2016A 2017A 2018F 2019F 2020F
Core profit Core profit growth
* The company may be issuer of Derivatives Warrant on those securities Source: Company data; KGI Securities (Thailand)
This material is for your information only and may not be reproduced or redistributed to any other person. 23
 B.Grimm Power (BGRIM.BK/BGRIM TB)*
Outperform, target price Bt35.00
Year to Dec Sales Sales growth EBITDA NP EPS EPS growth
(Bt mn) (%) (Bt mn) (Bt mn) (Bt) (%)
Strongest core earnings growth in 2019 2015
2016
23 943
23,943
27,747
20 6
20.6
15.9
4 033
4,033
7,318 1,380
36 00
0.0
0.7
(91 5)
(91.5)
1,489.1
2017 31,482 13.5 9,207 2,127 0.8 11.7

 Robust core earnings outlook in 2019. Two solar 2018F

2019F
36,779
41,603
16.8
13.1
9,448
12,492
2,073
2,884
0.8
1.1
(2.5)
39.1
2020F 43,594 4.8 14,569 3,744 1.4 29.8
projects in Vietnam (437MWe) and Nam Che (11MWe) Year to Dec GM EV/EBITDA PBV PER Dividend ROAE
(%) (X) (X) (X) Yield (%) (%)
would commercialize in 2019 and the new projects in 2015
2016
15 7
15.7
20.5
16 6
16.6
10.1
na
n.a.
n.a.
na
n.a.
n.a.
na
n.a.
n.a.
05
0.5
14.8
2017 21.4 6.8 2.9 35.2 1.0 11.4
2018 would run for the full year. Thus, we expect core 2018F 19.3 8.4 2.7 37.4 1.2 7.7
2019F 23.6 6.7 2.5 26.9 1.9 9.7
earnings to post attractive growth of 57.6% YoY, the 2020F
Sector
26.3 5.5
Power (Conventional)
2.2
52-Week Low/High :
20.7 2.4 11.1
22.5-30.5

g
highest amongg the conventional. 12M target price (Bt/shr)
Upside/downside (%)
35.0
17 6
17.6
Mkt cap Btbn/US$bn :
Outstanding Shares (mn shrs) :
77.6/2.18
2 607
2,607
The percentile of excess return (%) 46.2 Free Floating Shares (mn shrs): 812
 Oversea investment as key catalyst. It already has a Dividend yield-12/18E (%)
Book value/shr-12/18E (Bt)
1.2
10.8
Foreign Ownership (mn shrs):
3M Avg. Daily Trading Volume (mn shrs):
1,041
10.2
P/B-12/18E (x) 2.7 Abs. Perform. % (3M, 6M, 12M): 7.2; 17.8; 0.8
platform in Vietnam and would potentially expand in Net debt/equity-12/18E (%) 2.0 Relative Perform. % (3M, 6M, 12M): 9.5; 23.2; 12.8

South Korea, where the renewable market could provide Earnings outlook 2018
2018-20
20
investment opportunities. Profit growth, percent (LHS); core profit, Btbn (RHS)
70.0 4.0
 Maintain Outperform. There is upside of 18% to our 60.0
3.0
target price. We also expect potential upside from new 50.0
40 0
40.0
investment and refinancing. 2.0
30.0
20.0 1.0
10.0
0.0 0.0
2016A 2017A 2018F 2019F 2020F
Core profit Core profit growth
* The company may be issuer of Derivatives Warrant on those securities Source: Company data; KGI Securities (Thailand)
This material is for your information only and may not be reproduced or redistributed to any other person. 24
 Power Sector – Neutral; EGCO and BGRIM are top picks

Valuation and recommendation

Target Current Upside 17 core 18F core 19F core 18F EPS 19F EPS 18F PER 19F PER 18F PBV 19F PBV 18F Div 19F Div 18F ROAE 19F ROAE
Rating
price (Bt) price (Bt) (%) EPS (Bt) EPS (Bt) EPS (Bt) gr. (%) gr. (%) (x) (x) (X) (X) Yield (%) Yield (%) (%) (%)
Conventional
BGRIM* OP 35.00
35 00 29 75
29.75 17 6
17.6 00.51
51 0 70
0.70 1 11
1.11 36.44
36 57.66
57 42 4
42.4 26 9
26.9 27
2.7 25
2.5 12
1.2 19
1.9 65
6.5 91
9.1
BPP* OP 28.00 23.10 21.2 1.83 1.79 1.83 (2.0) 2.2 12.9 12.6 1.6 1.5 2.2 2.8 12.7 11.9
CKP* U 3.80 4.94 (23.1) 0.04 0.09 0.11 127.2 26.4 57.6 45.6 1.2 1.1 1.4 1.5 2.0 2.5
EGCO* OP 290.00 263.00 10.3 18.56 16.83 19.96 (9.4) 18.6 15.6 13.2 1.3 1.2 3.8 3.2 8.4 9.5
GLOW* N 88.00 91.75 (4.1) 5.34 5.54 5.42 3.8 (2.2) 16.6 16.9 2.3 2.2 6.3 6.3 13.7 13.2
GPSC* N 58.00 62.00 (6.5) 2.12 2.37 2.71 11.7 14.3 26.2 22.9 2.2 2.1 2.5 2.8 8.4 9.2
GULF N 80.00 88.50 (9.6) 0.73 1.39 1.99 91.3 42.9 63.6 44.5 4.6 4.2 0.6 0.9 7.3 9.5
RATCH* OP 63.00 55.75 13.0 4.49 4.53 4.54 0.8 0.3 12.3 12.3 1.2 1.1 4.3 4.4 9.4 9.0
WHAUP* OP 9.00 6.10 47.5 0.37 0.49 0.51 32.8 3.7 12.5 12.0 1.7 1.6 4.0 4.2 13.8 13.3
Sector 28.9 23.0 2.1 2.0 2.9 3.1 9.1 9.7
Renewable
BCPG*
BCPG N 18.00 16.80 7.1 0.83 0.76 0.89 (7.9) 16.5 22.0 18.9 2.1 2.0 2.3 2.6 9.7 10.7
GUNKUL* OP 4.90 3.10 58.1 0.08 0.15 0.25 82.4 62.7 20.0 12.3 2.1 1.9 1.7 3.2 10.7 15.7
TPCH OP 16.50 10.20 61.8 0.67 0.89 1.19 32.9 33.4 11.4 8.6 1.3 1.1 1.7 2.3 11.2 12.4
Sector 17.8 13.3 1.8 1.7 1.9 2.7 10.5 12.9
Rating Neutral

Source: KGI Securities (Thailand) estimates

* The company may be issuer of Derivatives Warrant on those securities

This material is for your information only and may not be reproduced or redistributed to any other person. 25