TPI: Cheap valuation still offers implied upside

TPI: Cheap valuation still offers implied upside
Published: 21 September 2009

Despite the SET’s recent rally Buy call is reiterated for TPIPL based on its positive earnings outlook with an expected recovery in demand and wider gross margin due to higher product prices and cost savings, says TISCO Securities. Also the valuation remains undemanding compared with its local and regional peers. Forecasts have been upgraded and the consensus estimate is expected to be lifted soon.

The recent cement price rise of Bt500/t followed by an increase of Bt150/m3 in the price of concrete has improved TPIPL’s earnings outlook. However, the benefit will not be seen until 4Q09 as TPIPL has locked-in prices for orders carried forward from 1H09. Also its 3Q09 result will be held down by the planned shutdown of its LDPE plant for almost 30 days this month for maintenance. However, the bottom line should be boosted by an extra gain from a disputed debt repurchase with a haircut in 3Q/4Q09, as some creditors have agreed to the discount and collected deposits through the court.

TISCO Securities see a promising earnings outlook for 2010 based on an expected demand recovery. Higher public sector investment suggests that the recent cement price hike should hold. Also a Bt600m cost saving from its waste heat generator is anticipated. TISCO Securities assumed a local cement price hike of Bt150/tonne from 2008 so upside is possible if the price hike of Bt500/tonne is sustained.

Earnings forecasts were raised for 2010-11 by 13% and 17% to reflect cement price hike so TP (based on the EV/CE model for 2010F earnings) was also raised from Bt9.90 to Bt11.50. Key risks are tougher price competition for cement, the cyclical nature of LDPE and coal prices, and baht depreciation. Also potential losses from three court cases including a Bt6.9bn fine for share price manipulation, a Bt2bn loss from a case involving a machinery supplier and the disputed debt repurchase program should be acknowledged.

(TISCO Securities: 18 September 2009)