OSK Research | See important disclosures at the end of this report THAILAND EQUITY Investment Research Daily 30 July 2012 On The Platter Central Plaza Hotel Pcl (CENTEL TB; FV THB17-BUY) 1HFY12 Results Review: A Decent Showing Despite a seasonally weaker 2Q12 compared with the tourism peak in 1Q, we expect Central Plaza Hotel Plc (CENTEL) to post decent y-o-y growth for 2Q12 and 1H12, supported by healthy growth in its hotel and food segments. We maintain our forecasts and Buy call on CENTEL, albeit at a higher FV of THB17.00, vs THB14.60 previously, after rolling over our EPS from FY12 to FY13 at a 20.6x PER. This incorporates the company’s food business and the historical valuation of its hotel business, as well as the valuation of the regional hotel sector. Dynasty Ceramic Pcl (DCC TB; FV THB61 – BUY) 2Q12 Results Review: A Disappointing quarter • Sales rose 1.4% y-o-y but fell 10% q-o-q due to competition from a subsidiary of the Siam Cement Group • Bottom-line declined as GPM slipped to 39.2% • Announces a quarterly dividend of THB0.79 per share for 2Q12 • Maintain Buy, with a lower revised TP of THB61 (+17% upside) IRPC Pcl (IRPC TB; FV THB3.89-NEUTRAL) Company Update: 2Q12 Numbers Hit by Stock Loss • The share price has declined from THB4.34/share to THB3.54/share since our SELL recommendation in April 2012. We upgrade this stock from SELL to NEUTRAL, with our TP maintained at THB3.89/share (based on a 1x 2012 PBV). • We believe that the share price may have hit bottom, in view of what we expect to be its worst quarterly earnings for the year with a whopping net loss of THB4bn. We expect the company's 2H12 performance to improve as the volatility in crude oil price subsides. Precious Shipping (PSL TB; FV THB11.85-SELL) 2Q12 Results Review: Results Below Expectations • Results below expectations. 2Q12 vessel operating revenue rose +26%, q-o-q, +22% y-o-y to THB991m, lifting 1H12 revenue to THB1.78bn (+15% y-o-y). • Pressure on freight rates from excess supply. • Valuation: Cut TP from THB14.30 to THB11.85. Downgrade to SELL. MEDIA HIGHLIGHTS • Local media firms tie up with global giants • Centara (CENTEL) wants Europe hotels • THAI to put off new plane purchases • Heineken extends deadline to buy Asia Pacific Breweries • NBTC wants post-concession guidelines to be ready by mid-September
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Investment Research Daily 30 July 2012€¦ · 30/07/2012 · Despite a seasonally weaker 2Q12 compa red with the tourism peak in 1Q, we expect Central Plaza Hotel Plc (CENTEL) to
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OSK Research | See important disclosures at the end of this report �
THAILAND EQUITYInvestment Research
Daily 30 July 2012
On The Platter
Central Plaza Hotel Pcl (CENTEL TB; FV THB17-BUY) 1HFY12 Results Review: A Decent Showing Despite a seasonally weaker 2Q12 compared with the tourism peak in 1Q, we expect Central Plaza Hotel Plc (CENTEL) to post decent y-o-y growth for 2Q12 and 1H12, supported by healthy growth in its hotel and food segments. We maintain our forecasts and Buy call on CENTEL, albeit at a higher FV of THB17.00, vs THB14.60 previously, after rolling over our EPS from FY12 to FY13 at a 20.6x PER. This incorporates the company’s food business and the historical valuation of its hotel business, as well as the valuation of the regional hotel sector.
Disappointing quarter • Sales rose 1.4% y-o-y but fell 10% q-o-q due to competition from a subsidiary of
the Siam Cement Group • Bottom-line declined as GPM slipped to 39.2% • Announces a quarterly dividend of THB0.79 per share for 2Q12 • Maintain Buy, with a lower revised TP of THB61 (+17% upside)
IRPC Pcl (IRPC TB; FV THB3.89-NEUTRAL) Company Update: 2Q12 Numbers Hit
by Stock Loss • The share price has declined from THB4.34/share to THB3.54/share since our
SELL recommendation in April 2012. We upgrade this stock from SELL to NEUTRAL, with our TP maintained at THB3.89/share (based on a 1x 2012PBV).
• We believe that the share price may have hit bottom, in view of what we expect to be its worst quarterly earnings for the year with a whopping net loss of THB4bn. We expect the company's 2H12 performance to improve as the volatility in crude oil price subsides.
+22% y-o-y to THB991m, lifting 1H12 revenue to THB1.78bn (+15% y-o-y). • Pressure on freight rates from excess supply. • Valuation: Cut TP from THB14.30 to THB11.85. Downgrade to SELL.
MEDIA HIGHLIGHTS
• Local media firms tie up with global giants • Centara (CENTEL) wants Europe hotels • THAI to put off new plane purchases • Heineken extends deadline to buy Asia Pacific Breweries • NBTC wants post-concession guidelines to be ready by mid-September
OSK Research | See important disclosures at the end of this report �
Key Market Indices (27 July 12) Key Statistics Value Change % Change % YTD SET Value by investor Type: Daily SET 1178.01 5.09 0.4% 14.9% Buy (THBm) Sell (THBm) Net (THBm) SET50 812.36 3.57 0.4% 13.1% Institution 2,300 2,689 -389 SET100 1769.79 7.95 0.5% 13.5% Proprietary 3,328 4,495 -1167 Foreign 8,888 8,129 759 Dow Jones 13075.66 187.73 1.5% 7.0% Retail 12,145 11,348 797 S&P500 1385.97 25.95 1.9% 10.2% Nasdaq 2958.09 64.84 2.2% 13.5% SET Value by investor Type FTSE 5627.21 54.05 1.0% 1.0% MTD (THBm) YTD (THBm) FSSTI 2998.49 -6.08 -0.2% 13.3% Institution -3,862 -42,186 Hang Seng 19274.96 382.17 2.0% 4.6% Proprietary -1,673 -442 Nikkei 8566.64 123.54 1.5% 1.3% Foreign -2,483 61,058 KLCI 1624.94 1.03 0.1% 6.2% Retail 8,018 -18,431 SHANGHAI SE
2128.77 2.76 0.1% -3.2% JCI 4084.21 79.44 2.0% 6.9% SET50 Index Future Long Short Net MTD YTD SET 5-yr avg 2011 2012F Institution 7,745 6,010 1,735 1,223 4,623 PE (x) 15.6 15.2 12.5 Foreign 1,340 3,971 -2,631 -4,861 -4,177 P/BV(x) 1.8 2.1 2.0 Local 13,882 12,986 896 3,638 -445 Yield(%) 4.2 3.7 3.7
SET Intraday Chart
Market Review
The Thai market last Friday rebounded strongly in the morning session on the back of elevated confidence as Mister Mario Draghi claimed he is “ready to do whatever it takes to preserve to Euro”. The market interprets this as a signal that the Eurozone central bank might intervene in the bond markets; as a result, yields on Italian and Spanish bonds have decreased, and most Asian stocks climbed during the early market. However, the Thai market was underperforming its regional peers as it barely closed in the positive territory after going up by as high as 17 points in the morning. The selling pressure was on the energy sector, especially BANPU which has been heavily sold for two days in a row. The retail sector which consists of the 7-11 operator CPALL has started experiencing selling pressure as well. Today, we expect the market to rebound in tandem with foreign markets as Germany and France said they stand strong behind the Eurozone. Nevertheless, selling pressure on the blue-chip shares might continue, limiting any substantial upward movement. US GDP growth was 1.5 percent for the second quarter which is slightly higher than what the market had expected, so it is unlikely that the Fed would signal any easing measures during the meeting this week. This means the shares of energy and petrochemical industries are still short of strong catalysts.
OSK Research | See important disclosures at the end of this report �
MEDIA HIGHLIGHTS
Local media firms tie up with global giants
GMM Grammy plans to partner with two leading global digital music streaming services - Sweden's Spotify and France's Deezer. GMM has already developed its supporting technology, equipment and human resources for this coming service. The company expects to see 500,000 downloads via the new iTunes Store in Thailand this year, generating at least THB15m in sales. RSiam, the country music business of RS, is also seeking strategic partners in Laos and Cambodia as the music and entertainment group bids to expand its operations regionally. It expects to strike the first deal in Laos. The company plans to introduce music downloads via mobile phones in the two countries. (The Nation)
Centara (CENTEL) wants Europe hotels
Central Plaza Hotel Plc (CENTEL) is looking for opportunities to introduce its brand in European gateway cities, paving the way for future business expansion. The weak euro makes this an ideal time for Centel to expand its hotel business to Europe. Centara wants to introduce its brand in Europe, starting with four- or five-star labels. Potential European locations are London and Paris. In 2014, their hotels will increase to 55 from 31 now, for a total of 10,691 rooms. In Asia, CENTEL covered all the important gateway cities except Singapore and Hong Kong. Apart from Asean, The company also kept an eye on China and India. Centel believes the mid-tier and budget hotels segment has high potential in Southeast Asia, India, China and other Asian countries. Apart from the existing three-star Centara Hotels, another budget brand will be introduced in the third quarter, with a prototype hotel under construction in central Bangkok. Demand is growing for low- and middle-class hotels as low-cost airlines expand. Budget hotels also are also more flexible to competition, offer quicker return on investment and cost less to build. (Bangkok Post)
THAI to put off new plane purchases
Thai Airways International will delay the purchase of 47 new aircraft due to its poor financial performance this year. The purchase plan itself will still be submitted to the Cabinet for approval this month. Of the total, 38 aircraft will be bought for THAI and nine for low-cost subsidiary carrier THAI Smile. This year the firm would miss its sales-growth projection of 3% to THB200bn. The firm would be even less likely to meet its net-profit target of THB6bn this year. THAI would suffer a loss of THB2bn during the off-season period, which covers 2Q12 and 3Q12. Management has refused to drop the plan to launch a new low-cost airline. The firm is still studying the feasibility of a launch in 2013 by forming a joint venture with Nok Air, a low-cost airline in which THAI holds a 49% stake. THAI Smile, which marked its first flight on July 7, had received a good response from the market so far and claimed it had a cabin factor (percentage of seats sold) of 80-90% (The Nation)
Heineken extends deadline to buy Asia Pacific Brewer ies
Heineken gave Singaporean food and beverage group Fraser and Neave (F&N) one more week to consider its USD4.1bn takeover offer for Asia Pacific Breweries. Heineken last week set a July 27 deadline for APB's parent to accept a buy-out but agreed to a one-week extension amid rumours of a potential takeover battle for F&N's assets involving Thai Beverage and Japan's Kirin Holdings. Heineken was keen to agree a consensual deal with F&N but if it were denied the ability to extend its offer to all APB shareholders, it will review all options available to protect its commercial interests. Heineken's offer came after companies linked to Charoen Sirivadhanabhakdi secured separate deals to buy a 22% stake in F&N and an 8.6% stake in APB. Charoen's Thai Beverage has since moved to raise its stake in F&N to 23.9%. (The Nation)
NBTC wants post-concession guidelines to be ready b y mid-September
The more than 18 million subscribers of TrueMove and Digital Phone Co (DPC) are expected to learn before the middle of September this year how they will be taken care of when the concessions of these two cellular operators end on September 15, 2013. The plan has to be complete one year in advance of the expiry of the concessions. The NBTC source said the telecom committee had also drawn up the terms of reference to hire an adviser to study the economic value of the 1,800-megahertz spectrum to back up the legitimacy of its claim to retrieve the spectrum from CAT for reallocation once the TrueMove and DPC concessions end. The adviser will focus on the scenarios of whether the spectrum is reallocated by the NBTC or is used by CAT to provide its own service. The NBTC will auction the 2.1GHz spectrum in October. Another option is that the NBTC extends TrueMove's and DPC's concession terms by two years to give them time to transfer their subscribers to other networks. But that might breach the Telecom Business Act, which allows private concession holders to operate only until the concession ends. (The Nation)
OSK Research | See important disclosures at the end of this report �
Outperform
Current Target Upside/
Recc. Price Price Downside PE (x)
Yield (%) Remarks
(Bt) (Bt) (%) 2012f 2012f
OISHI Buy 157.50 190.00 20.6 23.1 2.2
BAY Buy 31.75 36.00 13.4 13.4 3.0
KBANK Buy 166.50 188.90 13.5 12.6 2.4
BJC Buy 39.00 50.00 28.2 23.8 1.3 Heineken extends deadline to buy Asia Pacific Breweries
Most Active Volume (shares) NVDR Shares to Total Paid-up Shares(%)
NET BUY NET SELL Month to Date Year to Date
Most Active Values (Btmn)
THAI NVDR : Top Ranking
30 July 2012
OSK Research | See important disclosures at the end of this report 1
THAILAND EQUITYInvestment Research
Daily 2Q12 Results Review Thailand Research Team +66 (2) 862 9999 ext. 2030
Dynasty Ceramic PCL. A Disappointing quarter
Sales rose 1.4% y-o-y but fell 10% q-o-q due to competition from a subsidiary of the Siam Cement Group
Bottom-line declined as GPM slipped to 39.2% Announces a quarterly dividend of THB0.79 per share for 2Q12 Maintain Buy, with a lower revised TP of THB61 (+17% upside)
BUY Fair Value THB61.00 Previous THB65.00 Price THB52.25
CONSTRUCTION MATERIALS DCC, founded in 1989, is the largest tile manufacturer and distributor of ceramic tiles in Thailand. The company’s main customers are low- to middle-income earners who live mostly upcountry.
Stock Statistics Bloomberg Ticker DCC TB Share Capital (m) 408.00 Market Cap ($USm) 687.7 52 week H│L Price (THB) 67.75 47.50 3mth Avg Vol (‘000) 702.29 YTD Returns (13.64) Beta (x) 0.69 Major Shareholders (%) Saengsastra Family 37.0 Mr. Vibon Wacharasurung 7.3 State Street Bank Europe 4.9 Share Performance (%) Month Absolute Relative 1m 0.0 -0.1 3m -15.8 -14.3 6m -11.9 -21.4 12m 10.8 -0.7
Share Price Performance
Siam Cement’s subsidiary grabs market share DCC recorded a 2Q12 net profit of THB321.8m and EPS of THB0.79, down 5% y-o-y and 14% q-o-q on the back of a higher natural gas cost, diesel price and labor cost. Although natural gas price reached THB412/mmBTU in the first quarter (+10.9% q-o-q), it rose by another 19% on average in the second quarter. DCC was also negatively affected by the minimum wage hike as labor costs have increased 15% since April 2012. These costs shaved DCC’s GPM to 39.2% in 2Q12 from 39.6% in 1Q12. The company had previously told us that it raised its wages three months ahead of schedule in 1 Jan, but it now appears to have been the case for only some of the staff. Revenue fell to THB1.9bn (-10% q-o-q) due to a price cut by its competitor Sosuco from the Siam Cement group. Note that the total market grew 6% in 1H12 - according to management - which suggests that DCC lost market share during this period since its growth was only 2.6% and 1.6% of this was from price increases. DCC has announced a dividend per share of THB0.79, to be paid on 23 Aug, which is still a full payout of profit. Management’s 2012 8% sales target too optimistic. Management has revised down its sales target for 2012 to about 8% from 10% previously in view of its YTD performance (in March they told us the company could achieve 15% sales growth). However, we suspect that its new growth projection is still be too optimistic given its 2.6% sales growth YTD, and it would therefore have to expand by 13.4% in 2H to meet the target. We believe this would only be achievable if DCC reduced its prices aggressively, but given the management’s focus on GPM, we do not believe this would happen. Moreover, DCC’s revenue jumped 10.3% in 4Q11 to THB1.6bn, which partly counters any claim that its 4Q12 growth will come off from a low base y-o-y. As the July-October period is the monsoon season, which is also the low season for tile sales, winning back market share during this time when promotion and sales campaigns generally proliferate may prove difficult. Besides, the company does not appear to have embarked on this strategy yet and we’re already one month into 3Q. Nevertheless, we have reason to believe that sales growth in 2H12 can improve, and pricing is related to sales. Lowering forecasts but still positive on 2H. Our revenue and net profit forecasts have fallen by approximately 7% to THB7.6bn and THB1.4bn, respectively. Although the 15-outlet expansion (+7.2%) aimed at outperforming industry sales growth will take time to materialize, more than half of the stores will open in 2H12 when the provincial economies are more likely to rebound. In fact, our economist expects most of the 2012 GDP growth to come from 2H12, boosted not only by the low base effect but also government spending and the positive impact of the higher minimum wage. We see DCC offering discounts on some product lines as well as spurring sales of larger tiles, which may help prop up GPM. This aside, DCC’s economies of scale are also the best in the domestic industry. Attractive yield We maintain a Buy on DCC, with a TP of THB61.00 p/share based on our DCF forecast. The stock also trades on a 6% yield. DCC’s position as the largest domestic tile producer with a dominant market share and niche in the rural areas should also help to ensure that it competes effectively (DCC claims that its share of rural shoppers is up to 80%).
GPM to widen in 2H12 while slightly cheaper prices unlikely to hurt. The company’s 1H12 GPM is the lowest in many years. In 2011, DCC achieved a GPM of 42.5% against the company’s usually target of a minimum 40%. However, we expect gas prices to drop by fall on average 20% q-o-q in 3Q12, which will provide DCC some room to compete on price without further compromising its GPM. Moreover, based on our projection a 5% average selling price (ASP) reduction could increase sales by 6% and have limited additional impact to net profit. However, deeper price reductions would negatively impact shareholders’ returns. Our scenario analysis. Our sensitivity analysis on DCC assumes that DCC lowers the ASP. Note that the ASP increased 1.6% q-o-q to approximately THB131.0 per sq.m in 2Q12. Our model assumes a 5% and 1.5% reduction in ASP in 3Q and 4Q respectively in order for the company to sell more tiles. The gas cost declines as outlined below and other costs increase by 4.5% and 1% in 3Q and 4Q, respectively. The result shows an EPS of THB3.33 per share, which is the same as the base case where the company does not reduce prices or increase volume sales.
1HFY12 Results Preview Thailand Research Team +66 (0) 2862-9999 Ext.2030 Central Plaza Hotel Plc. (CENTEL)
A Decent Showing
Despite a seasonally weaker 2Q12 compared with the tourism peak in 1Q, weexpect Central Plaza Hotel Plc (CENTEL) to post decent y-o-y growth for 2Q12 and1H12, supported by healthy growth in its hotel and food segments. We maintain ourforecasts and Buy call on CENTEL, albeit at a higher FV of THB17.00, vs THB14.60previously, after rolling over our EPS from FY12 to FY13 at a 20.6x PER. Thisincorporates the company’s food business and the historical valuation of its hotelbusiness, as well as the valuation of the regional hotel sector.
BUY Fair Value THB17.00 Previous THB 14.60 Price THB15.60
FOOD & BEVERAGE
CENTEL is the operator and manager of many hotels in Thailand and international countries under brands Centara Hotels & Resorts and Centra brands. The Company is also the pioneer QSR brands in Thailand such as of Mister Donut, KFC and Auntie Anne's.
Strong occupancy. We gather that the occupancy rates at the company’s hotels improved in 1H12 to 70%, compared to 64.4%in 1H11, fueled by a higher number of local and foreign leisure and business travelers. The 2Q12 occupancy rate of 64.8% was lower q-o-q compared to 74% in 1Q12, since the latter was a peak tourist season, but higher y-o-y vs the 58.1% recorded in 2Q11. Due to stiff competition in 1HFY12, CENTEL’s average room rate (ARR) increased only marginally to THB3,921 from THB3,911 in the same period last year. Despite its strong brand name in the mid-end market, we think the company may still find it rather difficult to raise room rates given the intense competition. Consequently, we expect any boost in revenue per available room (RevPar) to be largely driven by higher occupancy instead of increased ARR. Good appetite in food business. We also gather that CENTEL’s food business recorded a same-store-sales (SSS) growth of 10.9% y-o-y in 2Q12, up from 3.8% y-o-y in 1Q12. The higher growth was attributed to the better numbers in its light food business during the school holidays as well as the rebound in consumption from the cutback in 1Q12 due to last year’s floods. CENTEL recorded a SSS growth of 7.4% y-o-y in 1H12, ahead of its target of 5% for FY12. It opened 17 new outlets in 2Q12, adding to the 617 as at end-1Q12. Its main target market is still Bangkok and its vicinity as the company focuses on expanding the Ootaya chain it bought in Sept 2011. Nevertheless, the company also plans to expand its portfolio to the provinces, along with each new retail and department store developed by within its parent company, Central Group. Revenue from its upcountry stores accounted for 45% of CENTEL’s food revenue in 1Q12.
Maintain BUY. We maintain our forecasts and BUY recommendation on CENTEL, but at a higher FV of THB17.00 against THB14.60 previously after rolling over our EPS from FY12 to FY13 at a 20.6x PER. This incorporates its food business and the historical valuation for its hotel business, as well as the regional hotel sector valuation. The favorable outlook in the tourism sector and the robust Thai consumer spending should provide the catalyst for its hotel and food businesses.
OSK Research 30 June 2012
OSK Research | See important disclosures at the end of this report 2
Rising number of tourists. Thailand recorded about 10.5m international tourist arrivals in 1H12, which is a 7.6% y-o-y increase. Nationals from the East Asia region accounted for about 52.3% of the total arrivals, while Europeans made up 28.3%. Despite the current economic uncertainty in Europe, the number of arrivals from that region has grown by 11.1% y-o-y. We believe this is partly due to Thailand’s position as a value-for-money destination. Provided that the domestic political landscape in Thailand remain stable coupled with the absence of any major crisis, we believe it is very likely for Thailand to be able achieve its target of 21m tourist arrivals this year up from 19m last year.
Figure 1: Monthly tourist arrivals in Thailand for the 1H 2009-2012
Company Update Kannika Siamwalla, CFA +66 (0) 2200 2086 [email protected]
IRPC Pcl. 2Q12 Numbers Hit by Stock Loss
The share price has declined from THB4.34/share to THB3.54/share since our SELL recommendation in April 2012. We upgrade this stock from SELL to NEUTRAL, with our TP maintained at THB3.89/share (based on a 1x 2012 PBV).
We believe that the share price may have hit bottom, in view of what we expect to beits worst quarterly earnings for the year with a whopping net loss of THB4bn. Weexpect the company's 2H12 performance to improve as the volatility in crude oil pricesubsides.
NEUTRAL Fair Value THB3.89 Price THB3.54
ENERGY IRPC is an integrated refinery and petrochemicals company with a total refining capacity of 215kbpd. Its products are refined oil, lube base oil, asphalt, plastics and other petrochemical products.
Stock Statistics Bloomberg Ticker IRPC TB Share Capital (m) 20,434.42 Market Cap (RMm) 72,337.84 52 week H│L Price (RM) 5.90 3.10 3mth Avg Vol (‘000) 38,176.50 YTD Returns (13.24) Beta (x) 1.51 Major Shareholders (%) PTT Pcl. 38.51 Government Savings Bank
Stock loss blows off earnings. IRPC posted a 2Q12 net loss of THB4bn, which was notunexpected as the plunge in crude oil price led to a stock loss of THB3.4bn in that quarter. Sales jumped 10% y-o-y to THB75bn on a higher sales volume (+13% y-o-y) but
lower product prices (2% y-o-y). Total crude intake stood at 171k bpd against 172k bpd in 2Q11 on stable utilisation y-
o-y at 80%. The utilisation rates for petrochemicals were 63%, 88% and 89% foraromatics, olefins and styrenics respectively, up from last year’s 79%, 96% and 79%respectively.
Market gross integrated margins (GIM) stood at USD7.24/bbl, with that for petroleumat USD2.6/bbl, petrochemical (USD2.88/bbl) and power and utilities (USD1.76/bbl).This was lower than 2Q11’s USD8.8/bbl due to thinner gross refining margin (GRM).However, the petrochemicals and power segments did better y-o-y due to higherproduct to feed market and higher power and utilities contributions as its power plantstarted operation in June 2011. Accounting GIM shrank to USD0.22/bbl fromUSD12.83/bbl in 2Q11 on stock losses and lower of cost or market (LCM) totalingUSD7.02/bbl (THB3.4bn) in 2Q12, vs a stock gain of THB1.8bn (USD3.95/bbl) in2Q11.
A loss from revaluation of its investment in TOP came to THB262m, while IRPC alsosaw rising depreciation (+THB207m), financing cost (+THB128m) and forex loss(THB208m) y-o-y.
Other growth areas. IRPC’s upcoming propylene booster project will propel its propyleneproduction from 312k tonnes per annum (tpa) currently to 412k tpa while its TDAE capacity(part of its lube base business) should go up from 25k tpa to 45k tpa. Both projects areexpected to start by 3Q12. IRPC expects to see benefits arising from the internalupgrades/improvements from its Phoenix projects. These should come in at aroundTHB510m, THB1.4bn and THB3.4bn from 2012-2014, which are included in our forecasts. Improving spreads. Spreads should improve in 2H12 on seasonally stronger demandfrom China while the refinery side may post GRM of about USD4-5/bbl. Overall grossrefining margins should improve slightly over 2011 as there are no major planned plantshutdowns for the year, and in view of the expansion in propylene and TDAE production. FYE Dec (THBm) FY10 FY11 FY12f FY13f FY14f Revenue 221,611 246,888 273,460 273,460 273,460 Net Profit 6,108 4,129 5,843 6,843 8,662 % chg y-o-y 13 (32) 41 17 27 Consensus 5,007 7,785 9,682 EPS (Bt) 0.3 0.2 0.3 0.3 0.4 DPS (Bt) 0.2 0.1 0.1 0.1 0.2 Dividend yield (%) 5.1 3.4 3.3 3.8 4.9 ROE (%) 8.2 5.4 7.3 8.2 9.8 ROA (%) 5.1 3.1 4.3 4.6 6.2 PER (x) 11.9 17.5 12.4 10.6 8.4 BV/share (Bt) 3.7 3.7 3.9 4.1 4.3 P/BV (x) 1.0 1.0 0.9 0.9 0.8 EV/ EBITDA (x) 11.5 9.2 8.5 8.3 8.0
DMG & Partners Securities Pte Ltd may have received compensation from the company(s) covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication. of this publication
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30 Jul 2012
SINGAPORE EQUITY Investment Research
DMG & Partners Research 2Q12 Results Review Private Circulation Only
Downgrade to SELL. Precious Shipping (PSL)’s 2Q12 net profit of THB13.1m (-97% YoY) was below our below-consensus estimate of THB164m and street estimate of THB265m due to the continued weakness in bulk freight rates. The BDI averaged 1,019 points in 2Q12, up from 880 in 1Q12, but remains under pressure from excess capacity in the market. In our view: (1) falling scrap prices and still-high order book could delay the recovery of the dry bulk sector; (2) ship prices could fall further before a sustainable recovery takes place. We lower our FY12 average earnings per ship by 6% and cut our FY12F net profit by 44% Downgrade PSL to a SELL with a TP of THB11.85. Results below expectations. 2Q12 vessel operating revenue rose +26, QoQ, +22% YoY to THB991m, lifting 1H12 revenue to THB1.78b (+15% YoY). The sequential improvement in 2Q12 revenue was largely driven by higher average earnings per ship, which came in at US$9,130/day (+10% QoQ, -29% YoY), while fleet size has expanded from 21 ships in 2Q11 to 30 ships in 2Q12. Based on its vessel delivery schedule, PSL is expected to add 12 new ships (4x34k DWT, 2x54k DWT, 4x57k DWT and 2x20k DWT cement carriers) in 2012 (some vessels are likely to be delayed/cancelled as they are running behind schedule). Pressure on freight rates from excess supply. The supply situation in the dry bulk freight market is worrying. The sector added 6% new capacity YTD June, and fleet growth could reach 10% by year end, far outpacing the demand growth. Valuation: Cut TP from THB14.30 to THB11.85. We lower FY12 net profit by 44% to THB255m as we cut average earnings per ship to US$9,491/day (old: US$10,073). We expect average earnings per ship to average US$10,100 in 2H12. We value PSL based on: (1) fleet value at market price; (2) adjust for net debt, investments, and advances for vessel purchase; (3) and a 10% discount on the total equity value to reflect the risk of further decline in ship prices and depressed earnings.
Thailand Research Team +66(0) 2862 999 Ext.2030 (TH)
See important disclosures at the end of this publication 2
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DMG Research
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Figure 1: Quarterly financial summary
FYE 31 Dec (THBm) 11Q2 12Q1 12Q2 QoQ
(%) YoY (%) 1H11 1H12
YoY (%) Remarks
REVENUE 812 788 991 26 22 1,544 1,778 15 Average earnings per ship of US$9,130 in 2Q12 (US$12,782 in 2Q11) and US$8,747 in 1H12 (US$12,454 in 1H11).
Hire income 534 446 594 33 11 1,111 1,040 -6
Freight income 278 342 397 16 43 433 738 71 More voyage charter vs. time charter
COST OF GOODS SOLD -463 -660 -795 20 72 -905 -1,455 61
Vessel operating costs -304 -467 -563 -586 -1,030
Vessel running expenses -202 -265 -317 57 -419 -582 39 Primarily due to higher operating days (~40% YoY). Avg. opex of US$4,575/day in 2Q12 vs.US$4,545/day in 2Q11.
Voyage disbursements -34 -47 -61 78 -53 -108 103 Due to higher voyage charters
Bunker consumption -68 -155 -185 173 -114 -340 198 Due to higher voyage charters
Depreciation -156 -192 -230 -315 -422
Cost of services -3 -1 -2 -4 -3
GROSS PROFIT 349 127 196 54 -44 640 323 -50
SG&A EXPENSES -71 -63 -64 2 -10 -146 -127 -13
Admin expenses -46 -43 -43 -95 -86
Management expenses -25 -20 -21 -51 -41
NET OTHER INCOME 5 -20 3 nm nm -3 -17 Nm
Service income 1 1 1 3 3
Exchange gains 3 0 2 3 2
Other income 0 0 0 0 0
Dividend received 1 0 0 1 0
Bad debts 0 -19 0 0 -19
Other losses 0 0 0 0 0
Exchange losses 0 -2 0 -9 -2
OPERATING PROFIT 282 44 134 204 -52 491 179 -64
Interest income 5 7 5 12 12
Interest expense -73 -87 -117 -176 -204
Share of results of associates/JVs -1 -4 -7 -1 -11
Exceptional items 188 0 0 190 0
Gains on sales of vessels and equipment 0 0 0 1 0
Gains on sales of newbuild under Novation 188 0 0 188 0 No exceptional gain this year.
See important disclosures at the end of this publication 4
See important disclosures at the end of this publication
DMG Research
OSK Research
OSK Research DMG Research
Figure 5: Global dry bulk capacity could grow by 10% in 2012 Remarks
Jan'12 Capacity mDWT 615.2
From Clarkson as of 1-Jul-2012
End June 2012 Capacity mDWT 654.8 From Clarkson as of 1-Jul-2012
Scheduled delivery in 2H12 mDWT 80.6
From Clarkson as of 1-Jul-2012
Slippage 50% DMG estimate
Projected delivery mDWT
40.3
Estimated demolition in 2H12 mDWT -16.2 DMG estimate. Similar pace to 1H12
End FY12 tonnage mDWT
678.9 10% fleet growth
Source: Clarkson, DMG estimates
We note that PSL’s share price has low correlation with the Baltic Dry Index and Baltic Handysize Index since Jan 2011. See Figure 6 and 7. Figure 6: Baltic Dry Index and share price movement since Jan 2011
Source: Bloomberg
Figure 7: Baltic Handysize Index and share price movement since Jan 2011
See important disclosures at the end of this publication 5
See important disclosures at the end of this publication
DMG Research
OSK Research
OSK Research DMG Research
We value PSL based on: (1) fleet value at market price; (2) adjust for net debt, investments, and advances for vessel purchase; (3) and a 10% discount on the total equity value to reflect the risk of further decline in ship prices and depressed earnings.
Figure 8: Target price derivation Description Value Remarks
Fleet value US$m 350.5 Estimated based on current market value
Fleet value THBm 11,041
Cash THBm 2,197
Total debt THBm -7,861
Advances for vessel purchase and construction THBm 7,940
Net other investments THBm 370
Net asset value THBm 13,686
Shares m 1,040
Equity value per share THB 13.17
Discount 10%
Target Price THB 11.85 17% downside from current level
Source: Company data and DMG estimates
See important disclosures at the end of this publication 6
See important disclosures at the end of this publication
OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months (scenario analysis in the text may indicate different target prices)
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated (NR): Stock is not within regular research coverage
All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report is produced by OSK Securities (Thailand) PCL and is distributed in Singapore only to “Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an “Institutional Investor”, “Expert Investor” or “Accredited Investor”, this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd (“DMG”). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Securities (Thailand) PCL. Published by OSK Securities (Thailand) PCL, 10th Floor, Sathorn Square Office Tower, 98, North Sathorn Road, Bangrak, Bangkok. OSK Securities (Thailand) PCL. (A subsidiary of OSK Investment Bank Berhad)
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