Brisk cement demand should provide TPI growth driver

Brisk cement demand should provide TPI growth driver
Published: 17 January 2005

Thailand: TPI Polene’s third-quarter earnings were a disappointment by any measure, but analysts expect better performances ahead for the cement maker on a return to full production after its plant shutdown in the quarter, and from continuing strong demand for cement. TPI Polene (TPIPL) posted a very weak net profit for the third quarter of 141 million baht, down 91 per cent year-on-year and 71 per cent quarter-on-quarter. The result was attributed to a fire at the company’s plant that forced it to close for 20 days.

With production at the plant back on track and demand for cement normally higher in the final period of the year, Tisco now expects much better earnings in the fourth quarter and therefore revised up its full-year profit forecast by 5% to 3.45 billion baht. Tisco also maintains its buy rating with a fair value of 40.50 baht, which at the latest close of 33.50 baht would provide an upside gain of 21%. Over the past 52 weeks the shares have traded in a range between 24 and 53.50 baht.

Tisco sees brisk demand for cement in 2005 with growth of 10% driven by government infrastructure projects and a bright outlook for the company’s petrochemical unit, as the spread between the price of low-density polyethylene (LDPE) and ethylene raw material is expected to remain high until 2007, supported by limited supply in the market. Tisco notes that its projections are based on a conservative worst-case scenario that TPIPL cannot obtain new loans to permit debt refinancing and that it would lose a dispute with creditors related to its debt repurchase at a discount programme’.

SCB Securities views TPIPL as an infrastructure play as 65% of its revenues are construction-related, and thus reiterated its buy rating with a target price of 40 baht. KGI Securities has a neutral rating on the stock with a target price of 35 baht. The rating signifies the stock could provide an excess return over the next 12 months in a range between the top 40% and the bottom 40% of related stocks under KGI’s coverage.

TPIPL obtained approval by the Central Bankruptcy Court in November to amend its debt restructuring plan after creditors had already given their approval. The process involves an extension of the plan for one year to Dec 31, 2005, and permission for the company to repay accrued interest and fees worth roughly five billion baht to creditors in cash rather than by a conversion of debt to equity. KGI notes, however, that a delay in debt refinancing will have an impact on the company’s plan to expand its cement production capacity.