Cikarang Listrindo (POWR IJ): Steady business model
Servicing niche market. Cikarang Listrindo (POWR) has power generation capacity of 1144MW consist of 280MW of coal fired with the remainder gas fired. About 218MW of capacity is back up capacity in case of unexpected shut down. Currently the company is running at utilization rate of 67% supplying electricity to industrial estate (IE) of 2,341 kWh (+4.0% yoy) and PLN of 1,435kWh (+0.7% yoy) in 9M18. There is no long term contract agreement with industrial estate users, it is “pay-what-you-use”, while PLN is based on long term contract of 2x150MW with minimum take-or-pay. One contract will expire in 2031, and the other contract is 6 months with option of 6 months to extend.
Tariff is pegged to USD and fuel cost. Tariff for POWR needs approval from provincial government and Regional House of Representative. Nevertheless, the tariff is formulated to pegged to USD and fuel cost component. In short, any cost increase or decrease is passed through to the customers. In other words, POWR seeks almost fixed USD nominal per kWh produced. Up to 9M18, the company’s EBITDA/kWh averages at USD4.2 cents vs USD3.7 cents in 9M17. This increase was attributed due to the usage of the new coal fired power plant of 280MW in FY18. At the moment tariff for IE was USD13.5 cents/kWh while PLN was USD7.7 cents/kWh in 9M18, relatively stable in passed 3 years.
Expecting 5% growth in FY19. Electricity demand has been relatively shy of 4.8% in FY18. National electricity demand was around 4.2% in FY18. POWR expects electricity volume growth of 5% in FY19, while PLN sees national demand to grow at 6.2%. Due to relative slow demand growth, POWR allocates capex for routine maintenance of USD20-25mn per year. At the moment the company has no major capex plan for acquisition or expanding its capacity. Currently, POWR is running a trial on solar power with only 5MW.
Dividend play. POWR distributed dividend of Rp59/share in FY17, yielding about 6.2%. In FY18, with minimum capex and possible solid EBITDA of USD216mn, we should expect at least similar dividend of Rp59/share. This should translate to a yield of 5.9%.
Valuations. Based on its quarterly earnings and steady business model we expect POWR to trade at PER FY18 of 14.0x and EV/EBITDA of 6.0x, which we think is already expressing its fair value. Nevertheless, on dividend yield the stock could be attractive with return of 6%.
