As the markets have priced out power stocks due to uncertainty over new power policies after May’s election, analysts recommended investors to accumulate, with a focus on large power players that are unlikely to be negatively affected by politics and have strong fundamentals.
For the third quarter this year, KGI Securities advises investors to buy major power stocks, with B. Grimm Power Pcl. (SET: BGRIM) as the brokerage firm’s top pick. Based on attractive reward to risk ratios, profits growth with capacity expansion, and anticipated favorable external factors, the brokerage anticipates limited downside from here.
So, KGI suggests that risk players should accumulate power equities at the current prices, while investors with a lower risk appetite may opt to wait until government plans regarding power policies are more clear.
What investors should take into account 1) the incoming government’s power policies. There are three potential negative outcomes: i) a rate cut of THB0.7/kWh Ft, resulting in prolonging debts of EGAT; ii) a reduction in Available Payment (AP); and iii) the breakup of monopolies.
2.) It is unlikely that SPP margins will recover to previous levels anytime soon because the Ft rate has fallen at a far faster rate than gas prices have.
3.) Despite Vietnam’s PDP8 launch, the bidding timetable is likely in 3Q23 or later. Meanwhile, political uncertainty is making progress on Thailand’s new PDP slow. The 5.3 GWh renewable bidding process needs close monitoring as well. In this context, major players may find it challenging to get new partnerships with attractive internal rates of return (IRRs).
