TPI Polene: upgrade to Buy on improved outlook

TPI Polene: upgrade to Buy on improved outlook
Published: 20 May 2011

Thailand-based TPI Polene posted better than expected 1Q11 earnings due mainly to higher margins for its Low Density Polyethylene (LDPE) business. Profit forecasts were revised up to reflect this factor as well as the improved industry outlook. TISCO Securities have upgraded its rating from Hold to Buy with a new target price of Bt15.60.

TPIPL booked a normalised 1Q11 profit of Bt1.03bn, up 107% YoY and 65% QoQ. Its strong result was mainly due to its gross margin widening to 32.3% from 19.8% and 29.2% in 1Q10 and 4Q10 respectively. This in turn mainly reflected a higher before-tax profit margin of 26.8% on LDPE compared with 12.2% in 1Q10. However, its cement margin (before-tax profit) narrowed from 7.3% in 1Q10 to 6.8% despite a cement price hike this quarter.

TPIPL should benefit from projected growth in cement demand driven by higher public spending. While the cost of coal is likely to rise, this should be offset by higher cement prices.