Originally published in the Bangkok Post 6th Jan 2012

Gunkul Engineering Plc was established on Aug 5, 1982 by Gunkul Dhumrongpiyawut as an importer and provider of electrical equipment in order to support the fast-growing Thai economy. It was listed on the Stock Exchange of Thailand on Aug 10, 2009, aiming to raise funds for future growth and become Thailand’s top producer of power generated from renewable energy resources and provider of electrical equipment. The company has steadily increased its registered capital, which now stands at 400 million baht. Managing director Sopacha Dhumrongpiyawut discusses the company’s strategy and outlook.

What is Gunkul’s business model?

Gunkul was initially established as a trader and distributor of electrical products in 1982. It supplies a full range of products such as components for electricity plants, transmission systems, substations, and low-voltage systems. Gunkul has over 5,000 different types of electrical products of which 300 are manufactured in-house. Since 2009, Gunkul has seen the opportunity of expanding its business into the renewable energy sector by supplying megawatt-class wind turbines to Egat (Electricity Generating Authority of Thailand). With a strong intention to expand our business into the renewable energy sector, Gunkul in 2010 fully owns a 56.9-MW power purchase agreement (PPA) for operating solar power plants.

Why did Gunkul decide to expand into the solar industry? How does Gunkul make the transition from a trading company to an engineering, procurement and construction (EPC) company?

As a company, we were thinking about how our company could grow to the next level and given that we already had the expertise and knowhow about products in the renewable energy sector, this was a natural evolvement of our business model. Apart from that, Gunkul has the capability to supply the components of solar power plants and to manage the projects in a very efficient manner. The construction of each power plant project can be completed within 6-8 months depending on the size of the project.

Is Gunkul investing in the solar projects or only providing the EPC? What is the progress on its current plants?

Gunkul fully owns the 56.9-MW PPA for operating solar plants and provides the EPC for other companies that are interested in investing in solar business in Thailand. Gunkul owns nine projects in total. The first (3.0 MW) was completed on Jan 4, 2011 and the second project (4.4 MW) in October 2011. The other three solar plants with a capacity of 19.5 MW are scheduled to COD within the first quarter of 2012. The remaining plants with a capacity of 30 MW will finish construction within 2012. In addition, Gunkul is a solar EPC contractor for an 8-MW solar power plant which has a contract value of 752 million baht. We also are in the final stage of negotiations to sign another 8-MW solar EPC contract with a private company.

Please explain more on Gunkul’s expansion into Burma.

Gunkul has been doing business in Burma since 1992 but business had been slow and uncertain because of the sanctions issue. In the past couple of years, we have seen an increase in business because Burma would like to expand its electricity infrastructure to keep up with rising demand as the country is opening up more to foreign investors. Recently, Burma set up a 20-year budget of between US$1.6 billion and $2.2 billion to expand its power grid. Gunkul expects to achieve a 10-12% market share each year. Moreover, with the support from the Thai Government for more investment in Burma, Gunkul believes that there are many opportunities for the company to grow there.

What differentiates Gunkul from its competitors?

In order to do business with customers in the government sector such as the Provincial Electricity Authority (PEA), Metropolitan Electricity Authority (MEA), Egat, as well as utilities in Burma, a company needs to have a supply record and to be on the approved vendor list. Apart of that, it needs to prove that it has the financing and sourcing capability to deliver products on schedule. Moreover, it needs to have an established relationship and contacts with multinationals and government enterprises. With more than 30 years of experience, Gunkul has earned trust from the customers and has proven that we are able to provide a wide range of quality electrical products to serve the customers’ needs.

How does Gunkul fund its expansion into solar? Will the company look to raise equity in the future?

It’s a combination of equity from our internal cash flow of current businesses and project financing provided by local commercial banks. Becoming a publicly listed company on the Stock Exchange of Thailand (SET) provides several channels to obtain low-cost funds to finance current projects with full ownership. We do see further opportunities in the renewable energy sector and will probably look to have an investment partner in future projects.

What are the biggest risks facing your business today?

In the past, our biggest risk was to secure financing for the business in Burma. Thankfully, after explaining to Thai commercial banks that Burma is more open to foreign investors and plans to grow at a rapid pace, our LTV for works there decreased from near 100% to normal rates.

Was your business affected by the floods?

We got affected by the floods since our target schedule to sell electricity to a utility was postponed for a month because the utility was unable to access our second solar plants to make the connection. Other solar projects located in Phetchabun, Nakhon Sawan and Chai Nat were not affected by the floods.

Where do you see Gunkul five years from now?

Gunkul will continue to be a distributor and manufacturer of electrical products and look to expand further into the renewable energy sector. We currently have solar power plant projects in our portfolio and we also plan to do wind power projects.

The Executive Q&A Series is presented by ShareInvestor, Asia’s leading financial internet media & technology company, and the largest investor relations network in the region with more than 400 listed clients. The interview is conducted by Pon Van Compernolle.