“Energy stocks earnings powered high up” – First Capital | Daily News

“Energy stocks earnings powered high up” – First Capital

First Capital Holdings maintained buy recommendations on two major listed energy counters on the stock exchange. The rating was based on favourable weather conditions during the quarter.

The Utility sector Sep 2021 quarter earnings surged by 18.9%YoY to LKR 1,843.0Mn compared to LKR 1,550.0Mn in Sep 2020 quarter. Capacity expansions of the companies, strong electricity generation and favourable weather conditions during the quarter supported the earnings growth for Sep 2021. WIND has contributed largely to the sector earnings for the quarter, generating LKR 881.0Mn followed by VPEL (LKR 234.0Mn) and LVEF (LKR 220.0Mn).

LVL Energy Fund

LVEF earnings declined by 13.5%YoY to LKR 220.1Mn in 2QFY22 primarily attributable to the surge in tax expenses by 792.5% to LKR 95.6Mn amidst the inclusion of dividend tax. However, LVEF PBT grew by 18.8%YoY on the back of the robust revenue increase of 24.3%YoY, attributable to the strong electricity generation from the hydropower plants, resumption of electricity generation from wind plants and recovery of demand from thermal power plants in Bangladesh. The management is confident that they will commission 5MW solar power plants in Kandy and Kurunegala district and will commence a 10MW hydropower plant in Nepal by 4QFY22E. Considering the anticipated positive future outlook of LVEF supported by the accumulated capacity over time which will generate sufficient earnings in the upcoming years, we maintain our fair value target for FY22E and FY23E at LKR 13.0 and LKR 19.0, respectively. (Maintain buy)

Windforce

WIND recorded earnings of LKR 881.0Mn (+19.0%YoY) in 2QFY22 primarily driven by share of associate company profits improving by 212.0%YoY to LKR 108.3Mn and reduction in net finance cost during the quarter amidst revenue posting only a marginal growth of 3%YoY.

The construction of the largest wind power project to date, Hiruras, the 15MW wind project in Mannar, has begun and is expected to be commissioned in mid-2022.

Whilst continuing to expand the Solar footprint in Sri Lanka, WIND in Sep 2021 acquired 100% in Sky Solar (Pvt.) Ltd from Sunshine Energy (Pvt.) Ltd and Sky Solar currently own and operates 2.2MW of rooftop solar at eight factories located in and around Colombo.

Meanwhile, the 6MFY22 performance of WIND is slightly above our earnings forecast and therefore we upgrade FY22E earnings to LKR 2.5Bn while FY23E earnings are broadly maintained at LKR 3.3Bn. However, considering the higher risk-free rates applicable for valuations with the potential rise in interest rate environment, we maintain fair values for FY22E and FY23E at LKR 21.0 and LKR 25.0. (Maintain buy)


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