This is my personal opinion on the IPO price. The IPO price is expensive but you have a full control on whether you want to buy or not.
In essence, this firm is selling the 'future' cash flow from its solar and wind farm operations (Ignoring the existing business - biodiesel manufacturing - which I think it does not command any value due to fierce competition and lack of competitive advantage). These plants aren't in operation yet and the firm needs money to develop them hence the IPO. So there are several risks and uncertainties surrounding this company such as
- Construction cost overrun
- Solar cell efficiency
- Rising interest rate
- Tariff price fluctuation
- Operation and maintenance expense
- etc.
In the prospectus, it disclosed what the NPV would be for the Lopburi (8 MW) and Nakornsawan (90 MW) solar farm. Let's ignore the Lopburi solar farm because this project is tiny when comparing with the other three under development. The estimated NPV is about 4,800 MB for the Nakornsawan. If we assumed the other two (Lampang and Pitsanulok) have similar NPV then the total NPV of these 3 solar farms is approx 12,290 MB (based on discount rate of 8%).
Excluding the value of wind farm, the intrinsic value would be the summation of these 4 components:
1) Book value = 1,100 MB (assume this is the value of the business before the IPO)
2) Cash raised from IPO = 3,080 MB
3) 270MW solar farms = 12,290 MB
4) CAPEX already included in solar farm = 860 MB
which is equal to 17,730 MB. At 5.50, the market cap would be 20,515 MB which implies that the value of the furture wind farms (761 MW) is approx 2,785 MB.
As I said before, the IPO price is at the top of the range and doesn't have much room for error. Yet, it doesn't price in much on its wind farm operation mainly because it's still in the fledgling stage.
One thing I would like to highlight is that all risks associated with building and operating solar farm will be transferred to the new shareholders (15%). Equities required to build each solar farm is about 1,670 MB therefore the cash raised from IPO is sufficient for building 2 solar farms (the third one will be funded by the cash flow from the first two plants and debt). In other words, the existing shareholders/owners (85%) don't even put in a single Baht to develop these 3 solar farms. This is how the existing shareholders/owners monetise the lucrative solar and wind farm license with the PEA.
From the information contained in the prospectus about the 90 MW Solar Farm Nakornsawan, I've created a spreadsheet to calculate the present value of the future free cash flow of this project (in zip file attached). The prospectus stated the NPV is 4,800 MB. Somehow I only get 3,271 MB. Just wondering where the mistakes are.
I've also plotted the FCFF over the life of the project. The obvious fact is that majority of the cash flow will be generated in the first 10 years. Given such a profile, one would use DCF to determine the value. To my amusement, some financial experts (including the underwriters) still value the firms using PE ratio.
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