Addressing DEMCO's colorful history.

From a long standing member posting today to our active member-lounge.

“Jeremy29”,  a many year long member posted the following concern on DEMCO on December 15/12/2015,  post the latest set back on DEMCO(7.30)  a core stock choice here favorably viewed for some 5 years.   Jeremy29, one does not incur a loss until one sells as my view is to hold on and accumulate more if you can stomach it in your particular situation.  When DEMCO traded just below 7 a few days ago, I dared to call it a “screaming buy”.  Members here did have a chance to nail profits when this stock soared 2 times to nearly 20 Baht -and I think will one day again.

"Seeking reassurance about DEMCO

“Hello Paul, as one who has drawn courage from you and held on to all his DEMCO shares, losing millions in the process, and badly wants to believe the good things you say about the management, could you possibly tell me some more concrete reasons for the strong assertions you have made for their integrity? You have said out that they very properly held back the bad news from everyone last month, but wouldn't it have been much more honest still to have been up front about the news and to have given it to everyone as soon as it was confirmed instead of releasing it at the last possible legal moment.  After fifteen years experience investing here based on little apart from your insights and earnings reports, I have come to have a bad taste in the mouth about the companies that are always last to report.   Also, it is all unpleasantly reminiscent of that time a couple of years ago when DEMCO issued a rosy earnings announcement only to announce later that it was an accounting mistake.  I was staggered at the time that a management could avoid the severest consequences possible for this.  After all, millions of shares were likely bought on the basis of the false report. Sorry to play devil's advocate, but sometimes it can be the best way to win convincing evidence that one is wrong."

My Answer in the fewest words possible is: thank you for this comment/question but,  No Monsieur.

--DEMCO was very correct besides SET/SEC legal in not releasing to their internal contacts, certain analysts, nor friends, insider proprietary information first. Instead they, as is proper, correct and legal, released it to the market all at the same time. Through the official SET news release which happened to coincide with their 3Q earning reporting.  They were likely aware of the problem some time before yes, but did not realize/or could assess how serious it was, nor the estimated cost to fix this. This is why in fact they did not agree to any analyst meetings or conference calls in September/October, as I witnessed. Nobody knew about this before all, until we all knew, all at once.  Fair, correct besides legal. This in fact is evidenced as the stock price even rose a bit before and despite a falling market, days before.

--DEMCO as far back as I can remember always publishes its earnings on the final day, yes as so many other companies do.  Nothing unusual about that nor different then in the past so consistent!

-- Regarding the mishap of a couple of years ago, DEMCO endured the embarrassment of an honest mistake when their own internal auditor made a simple math mistake, on not correctly tabulating a percentage, on a percentage.  When they discovered this only days later (just as this company was on a Singapore road show), they immediately informed the SET and announced this mistake, again to all and at once.  Then, at the annual 2014 shareholder meeting which I back then attended, this was well explained and they bowed their head to us apologizing to all the present shareholders. Explaining again that it was an honest mistake made by their own accountant which sat in the front of the podium in acknowledgment.  Yes it should have been caught by mgt. but no insider buying/selling took place during that same time.  Mistakes happen just like the mistake of global SIEMENS which recommended the high level PhD engineer here whom designed the faulty foundations.  For which now DEMCO is taking the heat -besides incurring the full expense.

Yes,  true that DEMCO has had a colorful history (for lack of a better word) since I first visited them rating it as a strong buy around prices of 3.20–3.50 Baht. Yes, a few setbacks along the way, but hitting 2 times a stock price of 18,  surely a huge increase and solid chance to realize big profits from those first days of low single digit.  Even at the current price of 7.30,  if one adds the 6 free warrants and regular twice yearly dividends along the way it has outperformed the SET index during this same time.  These set backs included:  its original founder suddenly retired and sold all his shares out, the odd accounting mistake you point out (however corrected within days).  Then, barely a year ago when the original founder of Wind Energy Holding (WEH) left Thailand abruptly due to a personal non-DEMCO related outside business issue.  Leaving our company hanging for a while with its near 1 Billion Baht investment in WEH.  Yet, as we have been assured back then -and as has happened since- prominent KPN bought out the WEH founding shares and so again its on track to launch its massive IPO by 3Q. 2016. 

Last I must add, that the remedial costs to repair the 81 wind foundations estimated around 332 mill. Baht, as has been already provisioned, is just now a bit of a contentious issue as we are assured they will not exceed 15% of the cost estimate given.  Not counting the down time on the turbines, which is understandably difficult to forecast and this concerns me less.  Yet if the remedial costs turn out to be low balled by being inaccurate by a large amount, I will be disappointed and state here today openly so.

I am glad you raised this here so I can address & review the long DEMCO rise and fall and likely rise again.  I never promised investors "a rose garden".  This also shows how many times (especially expat foreigners) do get it wrong or half right, sometimes assume the worst -and then so make bad conclusions all on misinformation.  Even while -occasionally understandably so- as there are many bad/poor/rogue/dishonest other instances or just silly mistakes which do take place here.  But in my strong view not with DEMCO, which never mislead me. We must remember, they are in a new (renewable) industry where even a few short years ago no Thai company had any experience at all. 

But also different sometimes only due to culture, as compared to our own or shall we say to the “international standard”.  Surely there are horrors in the Western culture as well which raises eyebrows in the East!  Examples are plenty but I will spare the reader here on naming even a few obvious recent ones.

Remember the saying:  “East is East, and West is West, and never the twain shall meet” From “The Ballad of East and West,”  a poem by Rudyard Kipling.

Best Regards,