Euroz increased Target Price

1	Declan Bonnick
2	STX.ASX | FHE.ASX
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5	WA Electricity Tailwinds; STX and FHE Key Listed Names Tied to Thematic
6	Sector Research - Quick Comment
7	Brief Project Descriptions Strike Energy (ASX: STX) is executing on the South Erregulla Gas Peaking Power project, a vertically integrated gas to 85 MW power plant development, connecting to existing 132 kv transmissions lines. The project is located ~350km north of Perth near the town of Dongara in the Mid West, and is currently 72% complete, on schedule and budget for first production target of 1 Oct’26. Frontier Energy (ASX: FHE) is executing on the Waroona Stage 1 Solar/Battery project, comprising a 120 MW solar farm and 81.5 MW battery (6.9hr), located ~120km south of Perth, advantaged by proximity to existing connection points ~500m away from the Landwehr Terminal, connecting to 330kv high voltage power lines. FHE owns 830ha of freehold land for multiple stages of expansion, with Stage 1 targeting online by 1 Oct’27. Event The WA Economic Regulation Authority announced a draft determination for the 2026 Benchmark Reserve Capacity Prices (BRCPs) that will apply in the 28/29 capacity year, with prices increasing to $491,700/MW p.a. (from $360,700 for the 27/28 capacity year). This is a key component of the Reserve Capacity Mechanism (RCM) used to incentivise investment in new capacity to the WA electricity grid. Reserve Capacity Payments through the RCM utilise the BRCP x the certified capacity of the project (i.e. $491,700/MW p.a. x STX’s South Erregulla 85MW capacity = $41.8m p.a.). The final determination of BRCP is expected in Mar’26, however, note that last year the draft determination was $354,000/MW p.a. and the final determination was $360,700/MW p.a.. Impact A 36% increase to LT BRCP forecasts has material earnings uplift to RCM projects. STX ($0.10/sh, $360m mcap) South Erregulla Gas Peaker Plant - online 1Oct’26. Avg. EBITDA increase 20% to $64.8m p.a. (from $53.7m p.a.) Unrisked NPV10 increase to $373m (from $313m). FHE ($0.23/sh, $129m mcap) - Waroona Solar/BESS - online 1 Oct’27. Avg. EBITDA increase 20% to $65m p.a. (from $54m p.a.) Blended valuation increase to $344m (from $272m). Note, ASX-listed renewables focussed peers (i.e. LGI) trade on ~20x EBITDA. Action A likely increase in BRCPs underlines the tailwinds for new WA electricity generators. Additionally, average WA electricity prices were up 10% in CY25 (to $88/MWh, $66/MWh in CY22), which are set to continue as coal-fired power (28% of generation in CY25) is retired by early next decade (Premier recently recommitted to retiring state-owned coal power by 2030), whilst peak prices averaged $120/MWh in CY25 ($97/MWh in CY22). STX and FHE are two ASX-listed names directly tied to the WA electricity thematic. We have a Buy recommendation for STX and a $0.24/sh Price Target, based on a risked sum-of-the-parts valuation, incl. South Erregulla (29% of total SOTP valuation). We have a Speculative Buy recommendation for FHE and a $0.39/sh Price Target, based on a risked, blended, fully-diluted/fully-funded SOTP valuation.
8	Euroz Hartleys [email protected] QV1, Level 37, 250 St Georges Terrace, Perth 6000, Australia
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