From Doug Barnett AKA The Warren Buffett Of Thailand
Core Positions: Let’s look at our top 4 positions:
SPCG (17% of our portfolio) is the largest solar farm operator in Thailand. SPCG’s stock price dropped 48.5% from its peak in May 2013 (THB33.0 per share) while installed generating capacity increased 335%, from 55 megawatts (MW) to 239 MW. The remaining 21 MW will begin generating income in 1Q2014. Based on results of their projects that have operated since 2011, SPCG generates revenue of THB18 million per MW with net margins of approximately 45%.
SPCG, at the current price of THB17.0, is trading at 7.1x P/E with over 100% earnings growth in 2014.
Contrast this with Elon Musk’s Solar City (SCTY), the largest provider of rooftop solar systems in the US, with only 156MW of installed capacity spread over more than 80,000 separate customer installations.
Both SPCG and SCTY pay for the entire installation cost up front. However, SPCG sells its power to the Thai Provincial Electricity Authority at 36 cents per KWh for the first 10 years, and 14 cents per KWh thereafter (S&P rates the Thai government at BBB+). SCTY, in contrast, sells their power to 80,000 individuals at a discount to the average retail price of 15 cents per KWh.
SCTY lost $94 million in 2013 and is expected to lose around $160 million in 2014, but is trading on 34.7x Price/Sales with the market capitalization of US$5.3 billion. SPCG, with a larger installed base, already running profitably, and with great growth prospects is trading at only 3.2x Price/Sales and a market cap of just $435 million, less than one tenth the SCTY valuations!
After the completion of its solar farm, SPCG will begin work on both industrial and residential solar roof projects, with a target of 10,000 residential roofs in 2014. We believe that this solar roof business will become one of its growth drivers.
Meanwhile, the Thai government is launching an 800MW plan to provide one solar farm for each village in Thailand. SPCG believes that they will win contracts for about 200 MW from this program.
SPCG also has an excellent relationship with Kyocera of Japan, which provided the solar modules for all of SPCG’s solar farms. The Japanese government has announced a 33 cent per kilowatt-hour (KWh) feed in tariff for solar farms built in Japan, and Kyocera will be a large participant in this plan.
Kyocera is very happy with the build quality of SPCG’s Thai solar farms, and has asked them to provide engineering and construction on all of Kyocera’s solar projects worldwide. Since SPCG has plenty of cash flow from their existing solar farms to cover all of their overhead and staffing expenses, we have suggested that SPCG provide these engineering and construction services to Kyocera in exchange for equity stakes in the solar farms, which will provide a continuing income stream rather than just a one-off fee income.
STPI (17% of our portfolio), the largest world-class steel fabricator in Thailand, has over 30 years’ experience in design, supply and fabrication of “ASTM stamp” high pressure, high temperature and cryogenic vessels and piping systems which are used for Power & Process Plants, Refinery Plants, Industrial Equipment, and LNG liquefaction facilities.