GPSC - 3Q24: Impact from higher gas cost

GPSC posted a 3Q24 net profit of Bt770mn, in line with consensus, a drop of 46% QoQ and 57% YoY on a net loss from FX and financial derivatives and lower SPP margin on higher gas cost. Going forward, we expect 4Q24 earnings to improve QoQ and YoY, as we expect recovery in ADAAVA operations, the full COD of Taiwan's offshore wind power project and fewer stoppages at the Xayaburi hydropower plant. We maintain our 3-month tactical call of Outperform with a target price of Bt60 based on DCF valuation (WACC: 5.3%, terminal growth: 1.5%).

3Q24 net profit of Bt770mn, down 46.1% QoQ and 57.0% YoY. Profit was in line with consensus, dragged down by: 1) Bt258mn net loss from FX and financial derivatives and 2) 10% QoQ and 4% YoY increase in SPP gas cost to Bt351/mmbtu as the cost of gas returned to normal after an abnormal low in 2Q24 on retroactive benefit from the government's single-pool gas policy. Stripping out the extraordinary item, core profit was Bt1.0bn, down 40.3% YoY and 27.4% QoQ due to lower SPP contribution on the impact of higher gas cost.

SPP earnings down YoY and QoQ. SPP profit (78.0% of total gross profit) declined 4% YoY and 6% QoQ on a weaker gross margin of 23% in 3Q24 vs. 25% in 2Q24 and 23% in 3Q23, as gas cost increased 10% YoY and 4% QoQ to Bt351/mmbtu, while Ft was flat QoQ. However, the negative was partially offset by higher QoQ and YoY steam sales volume and ASP.

Better profit at associates and JVs QoQ but down sharply YoY. Contribution from associates and JVs grew QoQ to Bt109mn on improvement at Xayaburi power (XPCL) from high season of water flow from a loss of Bt16m in 2Q24. However, on a YoY basis, contribution plunged from Bt497mn in 3Q23 due to a 17-day production halt and FX loss from US$ asset revaluation in 3Q24. AVAADA contribution remained weak (3Q24: loss of Bt44mn, 2Q24: loss of Bt14mn, and 3Q23: gain of Bt17mn) from a decrease in solar intensity.

4Q24 outlook. GPSC's 9M24 core profit accounted for 72.3% of our full-year forecast, and we expect operating profit to improve in 4Q24 upon seasonal recovery in ADAAVA operations plus higher installed capacity in its renewable portfolio in India, the full commercial operation of Taiwan's offshore wind power project (149MWe) in 4Q24 and fewer stoppages of the Xayaburi hydropower plant. A risk factor is the high global LNG prices which may push GPSC's gas costs up in 4Q24 while electricity tariff will stay fixed at Bt4.18/unit for the rest of the year. Note that LNG Japan/Korea Platt futures price is up 8% QTD to US$13.5 per mmBTU in 4Q24QTD and this may limit upside for SPP margin in 4Q24.

Action and recommendation. We maintain our outperform rating for GPSC as we expect it to benefit from the expected step down in interest rates and Phase 2 of renewable energy bids and PDP2024 as well as better contribution from associates and JVs. Our TP is Bt60 based on DCF valuation (WACC: 5.3%, terminal growth: 1.5%).

Key risks: Higher than expected fuel cost, delays in Ft adjustment, lower return on new investments and regulatory changes regarding GHG emissions. Key ESG risk is the environmental impact from its exposure to fossil fuels.