ACE: Better Gross Margin but We Stay on HOLD

We maintain our HOLD recommendation on ACE based on our unchanged target price of Bt3.49, implying a downside of 6% from the current price. We think ACE deserves to trade at a premium to Thai Utilities due to its pronounced growth prospects and target a 2021E PE of 23.2x.

Investment thesis:

• Power producer with high growth potential, but already priced in
• Long-term contracts and supply control drive high profitability
• Government driven demand can pose a risk

Interim: ACE’s revenue grew by 19% YoY in 3Q20, but down 9% QoQ. The lower share in the revenue mix of natural gas power makes us revise our gross margin upward in 2020E. Though, higher-than-expected tax payments leave a lower net profit in 2020E.

Risks: Adverse regulatory changes, reliance on a few customers, volatility in fuel prices, unexpected disruptions in production, delays in project execution, change in political leadership can sometimes impact companies.