Company Updatethe PP will be 7.4%, but this should be offset by EPS growth (full dilution) of around 41.2% CAGR until 2018, compared with 14.6% growth of EPS if there is no capital

Company Update 2 April 2015

1

Please see disclaimer on last page

Gunkul Engineering PCL (GUNKUL)

New TP to reflect new project value

► New investments have become clearer.

► Revised earnings up from 2017 onward, while maintaining

the bright outlook for this year and 2016.

► Growth stock with a new target price of Bt40.70.

New investments become clearer, but needs a fresh cash call

We included further projections for GUNKUL’s new investments,

which have become clearer in how they will be funded and the project

details. The new investments are; 1) 32 MW solar farm in Japan, GK

Sendai, which would begin commercial operations in 2017, and 2) 50

MW wind farm in Korat, KWE, which is scheduled to begin operations

in 1Q17. With the overflow in power plant investments in the next 2-3

years, GUNKUL has called for additional fresh capital through private

placement (PP), which we believe must be completed this year.

However, the earnings increment from the usage of cash from PP

would compensate for the dilution effect.

Revised earnings up from 2017 onward, while maintaining bright

outlook for this year and 2016

With our new forecasts, our earnings projections for 2017 onward

have been revised up to stay above Bt2.0bn thanks to the new power

plant projects which would generate additional stable cash flow

income for GUNKUL. Meanwhile, we maintain our positive view on

the company’s 2015 and 2016 performance. Its 2015 net profits are

expected to come mainly from EPC operations for the construction of

solar power plants, thanks to the government’s policy to accelerate

solar power generation in the country, particularly this year. We

project a 2015 net profit of Bt815mn, increasing 49% YoY. In 2016,

we expect net profit to increase 16% to Bt947mn, driven by the

commercial start-ups of the 60MW wind farm for the WED project,

which can partially offset the YoY drop in EPC revenue.

Growth stock with new target price of Bt40.70

We changed our valuation method for GUNKUL from SOTP to DCF,

in order to reflect the usage of cash on hand after issuing PP. We

revised our 2015F target price to Bt40.70 (full dilution), from Bt28.00,

(Bt33.15 after XD). Please see detailed information of the valuation in

Table 5. Current share price is equivalent to 0.94 PEG and represents

a 13.8% upside. We recommend BUY.

BUY

TP before XD: Bt40.70

TP after XD: Bt33.15

Closing Price: Bt35.75 Upside/downside +13.8%

Sector Energy

Paid-up shares (shares mn) 880

Market capitalization (Bt mn) 31,460

Free float (%) 35.28

12-mth daily avg. turnover (Bt mn) 147.64

12-mth trading range (Bt) 39.50/

11.80

Major shareholders (%)

GUNKUL Group

UOB KAY HIAN (HONG KONG)

59.97

4.55

Financial highlights

Source: Financial statement, AWS

Thailand Research Department

Mr. Napat Siworapongpun

License, No. 49234

Tel: 02 680 5094

Unit: Btmn 2014 2015E 2016E 2017E

Net Profit 545 815 947 2,167

Net Profit Growth -38% 49% 16% 129%

EPS adjusted* 0.50 0.69 0.80 1.82

EPS Growth -38% 38% 16% 129%

P/E (x) 57.7 38.6 33.2 14.5

P/BV (x) 9.4 4.6 4.1 2.8

ROE (%) 17.6 16.1 13.0 23.0

* Adjust for dividend stock, full dilution


2


New investments have become clearer

Apart from GUNKUL’s materialized investments in our prior forecast, we have included

new investments which have become clearer and more substantive how they will be

funded and the project details. The new investments are; 1) solar power plant in Miyaki,

Japan, GK Sendai, with a contract capacity with the provincial authority of 32 MW, and 2)

wind power plant in Korat, KWE, with a contract capacity with EGAT of 50 MW. (Table 1)

Table 1: New investments in power plants

Source: Company data

Table 2: GUNKUL’s power plant projects

Source: Company data

In total, GUNKUL has four core renewable power plants (WED, GNP, KWE, and GK

Sendai) to invest in during 2015-2017, which will be major earnings growth drivers until

2018. However, given the overflow in project investments, we believe the company

needs a call for additional fresh capital, which we estimate to be at least Bt3.0bn.

PPA with EGAT

PPA/ Loan agreement

with local bank

Base tariff +

Adder

FiT

4,249

3,750

1Q17

2017

Miyaki,

Japan

Nakorn

Ratchsima

50

31.75

2. KWE

1. GK Sendai

StatusElectricity

price term

Project cost

(Btmn)

Capacity

(MW)Projects SCODLocation

Energy/

Capacity 2013 2014 2015 2016 2017

GCPG Project 1 Chondan 51% 2011 7.5

GPS Project 1-3 Tasang, Taked, Dong-Khon40% 2012 19.5

GPS Project 4 Bung Samphan 40% 2013 6.5

GCPG Project 2 Petchaboon 51% 2013 8.0

GCPG Project 4 Nakorn Nayok 51% 2013 8.0

GCPG Project 3 Pichit 51% 2013 4.5

GCPG Project 5 Bung Samphan 51% 2013 3.0

NK Kanchanaburi 100% 2013 1.0

Solar Roof/1.1 MW WHA GUNKUL Thailand 25% 2014 4.3

Solar Roof/3.4 MW GUNKUL Thailand 100% 3.4

GKMCP Phase # 1 Yangon, Myanmar 51% 2013 25.0

GKMCP Phase # 2 Yangon, Myanmar 60% 2H15 25.0

Wind # 1/60 MW WED Nakorn Ratchsima 100% 2Q16 60.0

Wind # 2/60 MW GNP Salarnlom 100% 4Q16 60.0

Wind # 3/50 MW KWE Nakorn Ratchsima 100% 1Q17 50.0

Solar Farm/32 MW GK Sendai Miyaki, Japan 100% 2017 31.8

CODLocation

Contract

MWCompany/Project

GUNKUL

stake

Solar Farm/58 MW

Gas Engine/50 MW


3


Table 3: GUNKUL’s equity cash flow needs

Unit Btmn 2015F 2016F

1. Project cost 5,250 9,319

-WED 5,250

-GNP 5,070

-KWE 4,249

-GK Sendai*

2. Acquisition cost** 1,145

3. Running up debt on projects 3,725 6,523

-WED 3,725

-GNP 3,549

-KWE 2,974

-GK Sendai*

Equity injection needs 2,670 2,796

CFO generated 856 1,107

Net cash at the end of prior year Net debt Net debt

Equity needs remaining 1,814 1,689

* Assume develop in 2017 ** Acquisition payment could be delayed

Source: AWS estimate

However, dilution from PP should be offset by earnings increment

GUNKUL’s board of directors has resolved to set a capital increase program through

PP issuance of 8% of paid-up capital, which must not be less than the market price. We

believe this will be approved at the company’s AGM on 10 Apr. The dilution effect from

the PP will be 7.4%, but this should be offset by EPS growth (full dilution) of around

41.2% CAGR until 2018, compared with 14.6% growth of EPS if there is no capital

increase.

Table 4: Scenario analysis of EPS CAGR (2015-18)

Full dilution 2014 2015F 2016F 2017F 2018F CAGR

EPS 0.50 0.74 0.67 0.76 0.86 14.6%

EPS with capital increase 0.50 0.69 0.80 1.82 1.97 41.2%

Source: AWS estimate, adjusting for dividend stock.

Table 5: DCF valuation

Cost of firm assumption DCF valuation

Beta 1.2 Enterprise value 43,170

risk free rate 4% Net debt 3,787

market risk rate 12% minority interest -1

cost of equity 13% Equity market value 39,384

cost of debt 4% no. of share before XD 968

effective tax rate 10% no. of share after XD 1,188

Target Capital Structure

Debt 70% FV before XD (full dilution) 40.69

Equity 30% FV after XD (full dilution) 33.15

WACC 6.5%

Source: AWS estimate


4


Income Statement

Unit: Btmn 2013 2014 2015E 2016E

Sales revenue 2,045 2,977 5,220 4,350

Total revenue 2,856 3,062 5,260 4,390

COGS 1,586 2,253 3,970 3,068

Gross profit 458 723 1,250 1,282

Others revenue 811 85 40 40

SG&A 325 395 653 494

EBITDA 1,107 709 1,028 1,368

Interest expense 47 58 56 167

Net Profit 883 545 815 947

Normalized Profit 180 518 815 947

EPS (Bt/share) 1.34 0.62 0.69 0.80

Norm. EPS (Bt/share) 0.27 0.59 0.69 0.80

no. of shares 660 880 1,188 1,188

Balance Sheet

Unit: Btmn 2013 2014 2015E 2016E

Cash 225 1,509 1,457 235

Account receivable 497 719 1,012 739

Inventories 351 304 485 351

Total current assets 1,323 2,605 3,033 1,398 Investments in associate & joint control 1,078 1,173 1,205 1,239

Property, plant and equipment 658 913 6,163 15,379

Intangible assets 967 2,214 2,644 2,616

Total non-current assets 3,257 4,654 10,366 19,587

Total assets 4,580 7,259 13,399 20,985

Short-term loans 242 2,110 1,500 2,000

Account payable 270 363 828 600

Total current liabilities 1,069 3,433 2,574 3,453

Long-term loans 157 0 3,573 8,337

Total non-current liabilities 390 467 4,040 9,803

Total liabilities 1,459 3,900 6,613 13,257

Issued and paid up share capital 660 880 1,188 1,188

Premium on share capital 425 425 2,977 2,977

Retained earnings 1,670 1,958 2,528 3,475

Total shareholders' equity 3,121 3,360 6,786 7,728

Total Liabilities and Equity 4,580 7,259 13,399 20,985

CG Report

5


Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.

Corporate Governance Report disclaimer

The disclosure of the survey result of the Thai Institute of Directors

Association (“IOD”) regarding corporate governance is made pursuant

to the policy of the Office of the Securities and Exchange Commission.

The survey of the IOD is based on the information of a company listed

on the Stock Exchange of Thailand and the Market for Alternative

Investment disclosed to the public and able to be accessed by a

general public investor. The result, therefore, is from the perspective of

a third party. It is not an evaluation of operation and is not based on

inside information.

The survey result is as of the date appearing in the Corporate

Governance Report of Thai Listed Companies. As a result, the survey

result may be changed after that date, Asia wealth Securities Company

Limited does not conform nor certify the accuracy of such survey result.

Score Range Number of Logo Description

90 – 100

80 – 89

70 – 79

60 – 69

50 – 59

Below 50

No logo given

Excellent

Very Good

Good

Satisfactory

Pass

N/A

BAFS EGCO IRPC KTB PTTEP SAT SIM TOPBCP GRAMMY IVL MINT PTTGC SC SPALIBTS HANA KBANK PSL SAMART SCB TISCOCPN INTUCH KKP PTT SAMTEL SE-ED TMB

AAV BIGC DELTA HMPRO NBC PJW SAMCO SVI TOGACAP BKI DRT ICC NCH PM SCC TCAP TRCADVANC BLA DTAC KCE NINE PPS SINGER TF TRUEANAN BMCL DTC KSL NKI PR SIS THAI TSTEAOT BROOK EASTW LANNA NMG PRANDA SITHAI THANI TSTHASIMAR CENTEL EE LH NSI PS SNC THCOM TTAASK CFRESH ERW LHBANK OCC PT SNP TIP TTWASP CIMBT GBX LOXLEY OFM QH SPI TIPCO TVOBANPU CK GC LPN PAP RATCH SSF TK UACBAY CNT GFPT MACO PE ROBINS SSI TKT VGIBBL CPF GUNKUL MC PG RS SSSC TNITY VNTBECL CSL HEMRAJ MCOT PHOL S&J STA TNL WACOAL

2S BEAUTY CSS IHL MFEC PPM SKR TBSP TSC ZMICOAF BEC DCC INET MJD PPP SMG TEAM TSCAH BFIT DEMCO IRC MODERN PREB SMK TFD TTCLAHC BH DNA IRCP MONO PRG SMPC TFI TUFAIT BJC EA ITD MOONG PRIN SMT THANA TVDAJ BJCHI ESSO KBS MPG PTG SOLAR THIP TWFPAKP BOL FE KGI MTI QLT SPC THREL UMIAKR BTNC FORTH KKC NC QTC SPCG TIC UPAMANAH BWG FPI KTC NTV RCL SPPT TICON UPFAMARIN CCET GENCO L&E NUSA SABINA SST TIW UPOICAMATA CGD GL LRH NWR SALEE STANLY TKS UTAP CGS GLOBAL LST NYT SCBLIF STEC TLUXE UVAPCO CHOW GLOW MAJOR OGC SCCC STPI TMI UWCAPCS CI GOLD MAKRO OISHI SCG SUC TMT VIHAQUA CKP HOTPOT MATCH PACE SEAFCO SWC TNDT WAVEARIP CM HTC MBK PATO SEAOIL SYMC TPC WHAAS CMR HTECH MBKET PB SFP SYNEX TPCORP WINASIA CSC HYDRO MEGA PDI SIAM SYNTEC TRT WINNERAYUD CSP IFS MFC PICO SIRI TASCO TRU YUASA

Source: Thai Institute of Directors (IOD)

Contact

6


Branch Address Phone Fax

Head Office 540 Floor 7,14,17 , Mercury Tower, Ploenchit Road, Lumphini,

Pathumwan Bangkok 10330

02-680-5000 02-680-5111

Silom 191 Silom Complex Building,21st Floor Room 2,3-1 Silom Rd.,

Silom, Bangrak, Bangkok, 10500 Thailand

02-630-3500 02-630-3530-1

Asok 159 Sermmitr Tower, 17th FL. Room No.1703, Sukhumvit 21

Road, Klong Toey Nua, Wattana, Bangkok 10110

02-261-1314-21 02-261-1328

Pinklao

7/3 Central Plaza Pinklao Office Building Tower B, 16th Flr., Room

No.1605-1606 Baromrajachonnanee Road, Arunamarin,

Bangkoknoi, Bangkok 10700

02-884-7333 02-884-7357,

02-884-7367

Chaengwattana

99/99 Moo 2 Central Plaza Chaengwattana Office Tower, 22nd Flr.,

Room 2204 Chaengwattana Road, Bang Talad, Pakkred,

Nonthaburi 11120

02-119-2300 02-835-3014

Chaengwattana 2

9/99 Moo 2 Central Plaza Chaengwattana Office Tower, 22nd Flr.,

Room 2203 Chaengwattana Road, Bang Talad, Pakkred,

Nonthaburi 11120

02-119-2388 02-119-2399

Mega Bangna 39 Moo6 Megabangna, 1st Flr., Room 1632/7 Bangna-Trad Road,

Bangkaew Bangplee, Samutprakarn 10540

02-106-7345 02-105-2070

Rayong 356/18 Sukhumvit Road, Nuen-Phra Sub District, Muang District,

Rayong Province 21000

038-808200 038-807200

Khonkaen 26/9 Srijanmai Road, Tamboonnaimuang, Khon Khaen

40000

043-334-700 043-334-799

Chonburi 44 Vachiraprakarn Road, Bangplasoi, Muang Chonburi, Chonburi

20000

038-053-858 038-784-090

Chaseongsao 233-233/2 Moo2 1st Flr., Sukprayoon Road, Na Meung Sub-

District, Meung District, Chachoengsao 24000

038-981-587 038-981-591

Documents

Company Updatethe PP will be 7.4%, but this should be offset by EPS growth (full dilution) of around 41.2% CAGR until 2018, compared with 14.6% growth of EPS if there is no capital