CTCLSA expects debutant WindForce share to trade with 29% upside

Co-manager to the IPO, CTCLSA expects WindForce Ltd.’s (WIND) share to trade with 29% upside when its debuts today on the Colombo Stock Exchange (CSE). 

CT CLSA Securities said that, based on a sum-of-the-parts (SOTP) valuation, using discounted cash flows (DCF) of all the power plants based in Sri Lanka, Pakistan, Uganda, Ukraine and the two proposed projects, it values a share of WIND at Rs. 20.7, suggesting an upside potential of 29%. CTCLSA said its current net profit forecast for WIND stands at Rs. 2,476 million; Rs. 2.2 earnings per share (EPS) (up 60% YoY), Rs. 2,695 million; Rs. 2 EPS (up 9% YoY) and Rs. 3,420 million; Rs. 2.5 EPS (up 27% YoY) for FY21E, FY22E and FY23E respectively.

“We expect WIND to maintain its existing dividend payout ratio of 70-80% and return an attractive dividend yield of 10-13% (on the offer price) over the next three years, well above the three-year GoSL Treasury yield of 6.4%,” CTCLSA said in a report on the CSE’s today’s debutant. It said WIND has already declared and paid an interim dividend of Rs. 400 million during FY21E. 

“We believe that WIND may declare a final dividend of Rs. 0.9-1.2 per share for FY21E in the near-term,” CTCLSA added.

WIND’s IPO, the largest on the CSE since 2011, saw an oversubscription of eight times. The Rs. 3.2 billion worth IPO attracted 1,654 applications amounting to a value of Rs. 25.7 billion. WIND offered 202,615,341 shares at an issue price of Rs. 16 per share.

WIND is the largest and most diversified renewable energy company in Sri Lanka, operating 10 solar, seven wind and 10 mini-hydro power plants with a total effective capacity of 126MW – larger than the total combined effective energy generation capacity of the five largest CSE-listed utility companies. In addition to operations in Sri Lanka, WIND is also present in Pakistan, Uganda and Ukraine with a total effective capacity of 29MW.

Solar and wind power accounts for 87% of WIND’s total effective capacity, making it a pioneer in the area. It is estimated that less than 5% of Sri Lanka’s wind and solar power potential has been harnessed currently, which leaves significant room for expansion.

CTCLSA said WIND maintains strong relationships with foreign parties in the renewable energy space which is likely to support WIND’s offshore expansion in the long run amid the global push towards sustainable power generation.

“WIND has locked-in higher tariff rates in Sri Lanka, mainly due to first-mover advantage, which offers them a margin benefit over local peers whilst the company also enjoys higher Plant Load Factors due to WIND’s ability to identify locations with high wind density and solar irradiance,” CTCLSA added.