Gulf Development Public Company Limited (SET: GULF), Thailand’s leading private sector utilities operator, has recently undergone significant transformation, leading to a strengthened financial position and setting the stage for a new phase of growth.
An analysis by UBS highlights several key aspects of the company, from its post-amalgamation financial health to its future investment plans and valuation outlook. The analysis initiates coverage with a ‘Buy’ rating and a price target of Bt58.00.
Strong Financial Position Post-Amalgamation:
Following the amalgamation with INTUCH on 3 April, GULF has achieved a much stronger financial position. Its net debt-to-equity ratio significantly decreased from 1.8x to 0.8x. This is enhanced by additional annual cash flow of Bt7-8bn from a higher stake in AIS (from 19% to 40%). This improved financial health is expected to help GULF maintain competitive borrowing costs.
Resilient Cash Flow Generation and Growth:
GULF exhibits high visibility in its cash flow and growth outlook. This is primarily due to about 90% of power revenue coming from stable cost-plus PPAs with EGAT and 45% of profit from a growing telecoms business. These factors contribute to a resilient cash flow profile. Earnings are forecast to grow at a 17% CAGR between 2024 and 2026, driven by committed PPAs and AIS growth.
Entering a New Phase of Investments:
With a stronger balance sheet, GULF is entering a new phase of growth focused on future investments over the next five to 10 years. After investing over Bt500bn in the past five years on value creation of gas-fired power assets and the INTUCH acquisitions, UBS expects GULF to allocate around Bt90bn in capex over the next five years. This capex will primarily target Thai power-related businesses, focusing on renewables (79%) and gas (14%). UBS notes that the valuation in this paper excludes potential non-power investments due to low visibility, but states that further value creation is also possible.
Valuation Justified by Growth and Profit Visibility:
The UBS analysis initiates coverage with a ‘Buy’ rating and a price target of Bt58.00. This target is based on a P/BV of 2.5x, reflecting an expected ROE improvement to 7.7%. The valuation is considered justified by the expected 16% 2024-26E EBITDA CAGR, rising ROE, and the high visibility of PPAs and cash flow extending until 2033.
