Prudent expansion helps GLOW create value

Glow Energy Plc (GLOW) is a group of energy companies with core businesses in generating and supplying electricity, steam, clarified, dematerialised and chilled water to customers. It has a generating capacity of 3,182.55 megawatts of electricity, 1,206 tonnes per hour of steam and 3,400 refrigerated tonnes per hour of chilled water. SET-listed Glow is 69.11% owned (as of December 2012) by GDF Suez Energy International, which owns and operates 113 gigawatts of installed production capacity worldwide. Natthapatt Tanboon-Ek, the vice-president for finance and investor relations, discusses the company’s strategy and outlook.


What is Glow’s business model?

Glow Energy Plc is a power company with a focus on the Thai independent power producer (IPP) and cogeneration sectors. We have doubled our capacity in the past four years to the equivalent of 3,500 MW in total with the start of our latest commercial projects. These resulted from the expansion programme we began in 2008, which comprised increases in both the IPP and cogeneration business as well as expansion into Laos with the acquisition of a 152-MW hydropower plant of Huay Ho Power Co.

Who are Glow’s customers?

Our customer base includes the Electricity Generating Authority of Thailand (Egat), which accounts for 70% or our business, and private industries. Of the latter, 90% are petrochemical industries and the rest in the automotive industry. For private industrial customers, selling prices are based on market prices and sensitive to volume demand. Dealing with the each customer type has its own challenges. For example, petrochemical companies have a high requirement for quality, as their businesses run for 24 hours a day. Even during off-peak hours, they still operate at 80-90% capacity, shutting down only for maintenance. For Egat, we have a pass-through contract so we charge Egat whatever we pay PTT for gas. This is beneficial because we are not exposed to changes in fuel cost despite market changes, so the only issue we focus on is operational efficiency. Thus we are comfortable with our current customer mix and ability to service them efficiently.

How does Glow mitigate the volatility in its raw material prices for fuel (natural gas and coal)?

For Egat we have a pass-through contract, so when PTT changes us X baht for gas, we charge Egat X baht, thus removing the fluctuation in market pricing risk for us. For our coal prices, they are matched to the global index. We plan to lock up our cost of coal for the year ahead and are thus aware of any potential volatility that may exist beforehand. There are instances from time to time when fuel prices rise sharply and the government may not allow for tariffs to rise as well such as in the first half of 2012, just after the floods. However, these are short term in nature.

Is Glow looking to expand into renewable energy or expand abroad?

We are constantly looking at projects and all possible opportunities. However, we focus on enhancing shareholder value, so unless a project fits our requirements, we will not invest. In recent years we were able to expand our capacity to 3,500 MW without needing to raise additional equity and still continued increasing our annual dividend.

What differentiates Glow from its competitors?

The key difference would be in the type of power projects, as Glow has a combination of both cogeneration and IPP, while most of our competitors are purely focused on one type of power project.

Glow’s current debt-to-equity (D/E) ratio looks relatively high at 1.8 times. Why is this?

Glow has been on an expansion programme for the past four years, and our D/E ratio peaked at 2.2 times. We plan gradually to reduce the ratio to one time by 2015, a level we feel is comfortable for the company in the long term, as it gives us the ability to bid for future IPP projects.

What is Glow’s dividend policy?

Our dividend policy is not less than 50% of our normalised earnings excluding translation gain/loss, and since listing in 2005 we have consistently increased our dividends by 5% per year. In 2011 we post a 4-billion-baht net profit and paid a dividend of 2.5 billion. In 2012 we had 5 billion baht in net profit and paid close to 2.7 billion. This year, with all projects fully operational and contributing to a full financial year’s worth of earnings, in our first quarter we achieved a net profit of 2 billion baht and thus expect to continue our dividend policy and continue to enhance shareholder value.

What are the biggest risks facing your business?

The biggest risk for our business comes when a new project is about to be commercialised such as Gheco-One last year. There are critical technical moments in commercialising a new project, and for Gheco-One technical issues caused a substantial delay in the start of commercial operations. But once projects are running, the risks are purely operational, and success relies on our own ability to ensure each plant is operating at its optimum efficiency levels.

Where do you expect to see Glow five years from now?

Glow is very selective in its investments and has a very stringent investment policy. The next five-year period will be one of consolidation and ensuring all the new plants begun in recent years are operating efficiently until we are able to find an attractive investment opportunity that enhances shareholder value. Our goal is not purely to grow our total megawattage. We consider each project on its own merits and will proceed only if there is value creation for our shareholders.


Originally published in the Bangkok Post, 5th July 2013

Source: Bangkok Post

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