ALERT Thailand Inter Far East Engineering (IFEC.BK/IFEC TB) A trip South to see new era for wind farms in Thailand Outperform Maintained Price as of 3 Apr 2015 13.50 12M target price (Bt/shr) 17.40 Unchanged / Revised up (down) (%) N.A. Upside/downside (%) 28.9 Key messages Last week, we had the privilege to join the auspicious main post ceremony for Pak Phanang wind farm. IFEC’s pilot wind farm project in Southern Thailand. The project will boost both investor and industry confidence. The key highlight from our trip was the strong support the local community and NGOs are giving the project. We maintain our rating of Outperform on the counter with a target price of Bt17.40, our best case scenario target is Bt27.00. The previous panic selling on the counter is a good chance to accumulate at a lower cost. Event Last week, we visited IFEC’s first wind farm. It is located in Pak Phanang district, Nakhon Si Thammarat province. The project is under construction and expected to COD in late 3Q15. We also visited the wind farm in Koh Yai district, Songkhla Province and talked with an NGO leader. Impact Pak Phanang wind park, boosts investor confidence The auspicious main post ceremony for the Pak Phanang wind farm project was held April 3. We have seen some of the wind turbines manufactured by Goldwind that will be used in the project (Figure 3). The project is expected to COD in late 3Q15, delayed from midyear, as management decided to adjust the install capacity to 10.4MW from 10.0MW to maximize the power production yield. Three wind farms with capacity of 270MW ready to start, waiting for PPA Inter Far East Wind International (IWIND), IFEC’s subsidiary, already has completed the feasibility study on another three sites, each with 90MW capacity. The company has LOI for all three sites and is awaiting PPA, which is expected to be launched by midyear. A key highlight from the trip was the strong support from the local community, which is a key obstacle to other power plant projects. During our trip to Koh Yai district, Songkla province, we had a chance to talk with a local NGO leader. He believes IWIND’s wind farm could stimulate the local economy as it will be a new landmark for tourists to Southern Thailand. Valuation & Action IFEC’s share price dropped 29% in March after reaching our base case scenario target price. We believe this was from profit taking (IFEC’s share price has risen around 80% since KGI initiated coverage on November 4, 2014) and investors fear selling pressure from capital raising with right offering (RO) at a cost of Bt4.0, which began trading during mid-March. Additionally, there were rumors on the street about IFEC’s projects during the price fall. We believe investor confidence will grow if the first wind farm project CODs in late 3Q15. We recommend to accumulate the counter and maintain a rating of Outperform with a target price of Bt17.40, while our best case scenario target price is Bt27.00 (Figure 13). Risks Delays to any of IFEC’s projects could cause a significant mismatch to our forecast recognized revenue and changes in plans would affect our valuation. Suchot Tirawannarat 66.2658.8888 Ext.8850 [email protected] Assistant analyst Poonpat Chaikumhan 66.2658.8888 Ext.8856 [email protected] April 7, 2015 *The Company may be issuer of Derivative Warrants on these securities. http://research.kgi.com; Bloomberg: KGIT <GO> Please see back page for disclaimer 1 Thailand Inter Far East Engineering Figure 1: Wind farm at Pak Phanang district location Source: https://maps.google.com; KGI Research Pak Phanang wind park, a new era of wind farm in South Figure 1 shows the location of the company’s wind farm in Pak Phanang district with total area of ~200 rai and is located on the beach (Figure 2-5). We had the privilege to join the auspicious main post ceremony for the project (Figure 6-9). The ceremony implies the project is starting up. According to Dr. Sumet Suttapukti, IWIND’s management, onshore wind farm projects normally take 6 months to construct and we expect the project to COD in late 3Q15 or early 4Q15. The management plans to design the wind farm to be a wind park, which will be a new landmark for tourists to Southern Thailand. The park is designed by Rafa Plus Architect. The hidden value for the project is the value of the land, if the project is a new landmark for tourists in the future. Although, the project has a value of only Bt0.32 per share, Figure 13, success for the project would be a key to opening a new era for wind farms in Southern Thailand. Currently, all commercial wind farms in Thailand are located in the Northeast. Figure 2: Pak Phanang wind park is under construction Figure 3: Some part of the wind turbines were delivered from Goldwin Source: Company data, KGI Research estimates Source: Company data, KGI Research estimates April 7, 2015 *The Company may be issuer of Derivative Warrants on these securities. http://research.kgi.com; Bloomberg: KGIT <GO> Please see back page for disclaimer 2 Thailand Figure 4: Pak Phanang wind park is under construction Source: Company data, KGI Research estimates Figure 5: Wind park on the beach, a new landmark Source: Company data, KGI Research estimates Figure 6: The auspicious main post Brahmin ceremony Source: Company data, KGI Research estimates Figure 7: The auspicious main post Brahmin ceremony Source: Company data, KGI Research estimates Figure 8: The robe offering ceremony with local comminuty at Pak Phanang Source: Company data, KGI Research estimates Inter Far East Engineering Figure 9: The robe offering ceremony with local comminuty at Pak Phanang Source: Company data, KGI Research estimates Another three larger wind farms, each 90MW IWIND is studying another three wind farms in Southern Thailand; i) Koh Yai district, Songkhla province, ii) Ron Phibun district, Nakhon Si Thammarat province, and iii) Bang Lang Dam, Yala province. All three sites already have LOI and are awaiting PPA, which is expected to be launched at midyear. We had chance to visit the wind farm at Koh Yai and talked with an NGO leader during the trip. We sense that IWIND’s wind farm at Koh Yai has strong support from the local community, because the locals and NGO believe IWIND’s wind farm could be developed to be a new landmark for tourists in Koh Yai and stimulate the local economy. Protests by the local community and NGO are a key obstacle for other wind farms. April 7, 2015 *The Company may be issuer of Derivative Warrants on these securities. http://research.kgi.com; Bloomberg: KGIT <GO> Please see back page for disclaimer 3 Thailand Inter Far East Engineering Figure 10: Micro-siting wind resource assessment at Koh Yai district Source: Company data; KGI Research Figure 11: The wind farm in South has been studied by PEA Figure 12: The wind farm in South has been studied by PEA Source: Company data, KGI Research estimates Source: Company data, KGI Research estimates Figure 13: Valuation Power plant Solar Solar Solar (Cambodia) Solar Biomass Wind (Pakpanang) Wind (Koh Yai) Wind (Yala) Wind (Nakorn Srithamarat) Solar (Cambodia) Wind (Korea) Wind (Korea) MW 13 17 20 100 37.5 10 87.5 90 90 80 33 100 %holding 100% 100% 100% 100% 100% 80% 80% 80% 80% 100% 20% 10% Value/share 0.81 1.13 1.27 3.90 2.09 0.32 3.42 4.47 3.37 5.07 0.51 0.55 Total value per share 0.81 0.81 1.13 1.13 1.27 1.27 3.90 3.90 2.09 2.09 0.32 0.32 3.42 3.42 4.47 4.47 3.37 5.07 0.51 0.55 Status/Note Operating expect to achieve 2015 COD by 2H15 expect to achieve in 2015-2016 expect to achieve in 2017 COD by 2H15 COD by end 2015 expect to COD in 2016-2017 expect to COD in 2016-2017 expect to achieve in 2015-2016 expect to achieve in 2015 expect to achieve in 2018-2019 Value/share 26.92 Upside case 17.42 Base case Source: Company data, KGI Research April 7, 2015 *The Company may be issuer of Derivative Warrants on these securities. http://research.kgi.com; Bloomberg: KGIT <GO> Please see back page for disclaimer 4 Thailand KGI Locations China Shanghai Inter Far East Engineering Room 1907-1909, Tower A, No. 100 Zunyi Road, Shanghai, PRC 200051 Shenzhen Room 24D1, 24/F, A Unit, Zhen Ye Building, 2014 Bao’annan Road, Shenzhen, PRC 518008 Taiwan Taipei 700 Mingshui Road, Taipei, Taiwan Telephone 886.2.2181.8888 ‧ Facsimile 886.2.8501.1691 Hong Kong 41/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong Telephone 852.2878.6888 Facsimile 852.2878.6800 Thailand Bangkok 8th - 11th floors, Asia Centre Building 173 South Sathorn Road, Bangkok 10120, Thailand Telephone 66.2658.8888 Facsimile 66.2658.8014 KGI's Ratings Rating Definition Outperform (OP) The stock's excess return* over the next twelve months is ranked in the top 40% of KGI's coverage universe in the related market (e.g. Taiwan). Neutral (N) The stock's excess return* over the next twelve months is ranked in the range between the top 40% and the bottom 40% of KGI's coverage universe in the related market (e.g. Taiwan).1.3 Under perform (U) The stock's excess return* over the next twelve months is ranked in the bottom 40% of KGI's coverage universe in the related market (e.g. Taiwan). Not Rated (NR) The stock is not rated by KGI Securities. Restricted (R) KGI policy and/or applicable law regulations preclude certain types of communications, including an investment recommendation, during the course of KGI's engagement in an investment banking transaction and in certain other circumstances. Excess return = 12M target price/current priceNote Disclaimer April 7, 2015 When an analyst publishes a new report on a covered stock, we rank the stock's excess return with those of other stocks in KGI's coverage universe in the related market. We will assign a rating based on its ranking. If an analyst does not publish a new report on a covered stock, its rating will not be changed automatically. KGI Securities (Thailand) Plc. (“The Company”) disclaims all warranties with regards to all information contained herein. In no event shall the Company be liable for any direct, indirect or any damages whatsoever resulting from loss of income or profits, arising by utilization and reliance on the information herein. All information hereunder does not constitute a solicitation to buy or sell any securities but constitutes our sole judgment as of this date and are subject to change without notice. *The Company may be issuer of Derivative Warrants on these securities. http://research.kgi.com; Bloomberg: KGIT <GO> Please see back page for disclaimer 5
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