Stock up – Kasikorn Securities Co., Ltd. shines on shares of RATCH Group Public Company Limited or RATCH plans to buy 51% shares in Sahacogen (Chonburi) (SCG) worth 3.4 billion baht if approved by the shareholders. SCG shares on Dec. 7, RATCH has to make a tender offer for the remainder of SCG. Research has raised its 2022-23 net profit forecast by 0.2%/0.3% to 8/8.2 billion to reflect the acquisition. 51% stake in SCG, which will increase production 1.3% in 2022, maintain BUY rating and raise price target to Bt57.25 from Bt57.00.
RATCH will purchase 51% shares in Sahacogen (Chonburi) Public Company Limited or (SCG) worth 3.4 billion baht through 1) the purchase of 384.78 million shares or 33.07% stake after the capital increase from 34 shareholders of SCG and 2) the acquisition of 208.70 million additional shares or equivalent to 17.93% of the total issued and paid-up shares of SCG after the issuance and allocation of SCG’s newly issued ordinary shares at the subscription price per share. 5.75 baht, SCG will increase its capital from 955 million baht to 1.16 billion baht, with a par value of 1 baht per share as before.
The total capital increase of 208.70 million shares will be issued. SCG’s capital increase plan must be approved by the Extraordinary General Meeting of Shareholders on December 7, 2021 if SCG is approved by the shareholders and RATCH can enter. To purchase shares under the said plan, RATCH must make a tender offer for the remainder of SCG in accordance with the regulations of the Securities and Exchange Commission (SEC).
Details about SCG currently has a total production capacity of 228.8 MW in 2020, consisting of 1) a 214 MW gas power plant located in Chonburi Province, which started commercial production since 1999. This power plant provides electricity to Both the Electricity Generating Authority of Thailand (EGAT) and industrial users 2) The 9.6 MW biomass power plant located in Lamphun Province, started operating in 2001 and supplying electricity to the Provincial Electricity Authority. (PEA) and 3) a 5.3 MW biomass power plant located in Kamphaeng Phet Province, starting production in 2012 and supplying electricity to PEA. In addition, SCG has developed a gas power plant. Capacity of 73 MW to replace the expired power plant in Chonburi Province, scheduled to start production in 2024
Benefits from this deal 1) Expand RATCH’s power plant portfolio This investment will increase 2022 capacity by 112 MW or 1.3% to 8,482 MW as part of RATCH’s long-term target of Capacity expansion to 10,000 MW by 2025 2) Increase RATCH’s net profit immediately as SCG is an asset under operation and reports a net profit in 2020 of 106 million baht. Increase net profit for RATCH at 30-60 million baht per year, based on 51% shareholding. Therefore, the 2023-23 net profit forecast is raised by 0.2%/0.3% to 8.0 billion baht/8.2 billion baht. and 3) Value Added SCG has stable demand from power purchase agreements with EGAT and will benefit from growth in industrial demand. Therefore, it is expected that the said investment will increase in value at 0.25 baht/share to the target price of the research department. Based on project investment at 30 million baht/MW, loan at 50% and EIRR at 6%.
Research raised its RATCH price target to Bt57.25 from Bt57.0 to reflect its 51% stake in SCG, while maintaining a BUY recommendation on capacity expansion, which will be a key driver of long-term growth. Include a dilution effect from RATCH’s capital increase plan based on the assumption of a PPO price of Bt39.00, while a lower net debt to equity ratio after the capital increase will help power expansion. Future production meets RATCH’s long-term target of 10,000 MW by 2025.