Confusion and exageration leaves retail investors behind if not blind.
One more time, broker induced confusion and exageration then creates a sell off.
Here is the Thai into English translation
to the Kimeng report, which created a short term panic in DEMCO stock, where
the shares lost 10% of their value in just one day.
“The resale of 32.4mn treasury shares will have a negative impact on the
investment sentiment in the short term. The current DEMCO share price is now
very close to our 2012 TP of Bt7.45. We thus recommend investors take profit on
DEMCO. For longer term investment, we still like the bright future as DEMCO has
over 60% of 2013 revenue secured at a high gross margin. We thus recommend long
term investors to Hold DEMCO. Whenever the share price falls to Bt6.30, given
the 15% discount to our target price, investors can consider re-accumulating
DEMCO once again.
“Resale of repurchased shares from 11 October. DEMCO has revealed the Board of
Directors have approved the resale of 32.4mn treasury shares, or 5.9% of
registered capital. These shares will be sold between 11 Oct-1 March. The sales
price cannot be below the 5 day average price plus a 15% discount to the prior
trading day.
“Repurchase story. In August 2010, the DEMCO board approved the repurchased of
up to 40mn DEMCO shares, valued less than Bt214mn, in order to reduce company
liquidity between 30 August 2010- 29 June 2011. At the end of 2011, DEMCO
reported the total repurchased shares of 32.4mn valued at Bt165.2mn or at an
average price of Bt5.10/share.
“Impact on DEMCO and investors. This resale program will generate more than
Bt200mn in cash for DEMCO and provide more trading liquidity. This will be good
for the company as DEMCO needs a high cash flow for operations of the new
projects with long construction periods. This additional cash flow will support
the 4-10 wind farm projects. However, we still suggest short term investors
avoid and take profit on DEMCO in the near term as 2H12 earnings will tend to
drop HoH, compounded by the 12% dilution impact of the DEMCO-W4 warrants.
“Confirm share rally reflects 2013 growth. As mentioned in our 5 September
DEMCO report, the share has rallied significantly in past months and broken our
2013 TP. We now suggest investors take profit on DEMCO. For a long term view,
we expect the DEMCO 2012-13 TP will fall to Bt6.40/share then rise to
Bt7.45/share on a PER of 10x similar to the sector average. Long term investors
are advised to Hold."
Kim Eng's Analyst on DEMCO.
Regarding Kim Eng's short term Sell Opinion which was posted in Thai language at Kim Eng's research page, last Friday.
Dear Mr Andrew Stotz,
As the CFA and long standing pro in our business and as with the title of MD to foreign investors at Kim Eng, I wish to draw the following to your attention in good faith. As here posted to my web site after reading the Kim Eng short term sell recommendation.
A rebuttal today and professionally setting it straight. This shows again how brokers here can misreport, even making “mistakes” due to their trading induced bias which can be to the point contrary to new client wealth creating.
Some (but not all) nonsense by Kim Eng's young analyst on DEMCO, which made this stock promptly loose 10% of its value. All geared to get finance uneducated retail naive's in a selling mode just for broker trading commiss., or worse? This will effect DEMCO as well as they will be selling out their treasury shares at a perhaps now lower average price due in part to this part faulty analysis.
[But its fine for us here as it allows under new or under exposed seasoned members here to buy on this broker induced correction, or shall we say mis-correction as I think time will show us.]
1 1) Their Warrant #4 conversion/dilution is not until next Feb 2013, so its at best confusing as stated. There is no dilution from these W#4 this year as stated, so in fact this is wrong....because again, these warrants don't expire until early next year!
2) 2) Hence the inflammatory conclusion stating "earnings will tend to drop in 2H'12." No Monsieur. This should be corrected by the analyst, as its premise is mistaken. Also, W#4 conversion next year results in DEMCO getting some 335 mill. Baht in new equity capital which is positive so to fund their massive and very profitable projects going forward. (77 mill warrants as I recall times the 5 Baht conversion price.) That is real money. Hello retail analyst, are you paying attention?
Very unlikely this stock may drop back down to 6.35 as he states -as the company's fundamentals are just too strong. Many so whom sold out last week, will likely not get it back, all due to incomplete/mistaken information. Time will tell, but the shares only dived this week because of the above part mis-analysis. A Thai member may translate this article and circulate it among retail investors so to discredit this kind of manipulative analysis which can be rampant here.
Only a "negative impact in the short term", yes because of the way this analyst explains it, or shall we say mis/explains it. Why would one sell a quality growth stock trading at below its industry p/e average, yet growing much faster then that industry -in a desirable sector- along with higher then average dividends...and has he does rightly say: at "a high gross margin". The same analyst projects EPS for DEMCO to explode from 0.27 Baht last year to 0.68 this year 0.87 next and 1.40 in 2014. That is less then 1 1/2 years away and so translates into a p/e of 5 for calender 2014 with an implied dividend yield of just about 8% by then. Now why would a rational person sell this stock out?
Also this faulty opinion was released in Thai language before English version so in effect Thai language readers' see this first and many of such investors here just don't know how to counter such part faulty analysis, as most are unsophisticated retail "Johnny short term traders". All induced by their often over-hyper marketing officers, whom just take such reports and scream "SELL".
Further and unlike so implied, this was not unexpected news at all as these Treasury shares have been on the DEMCO books and reported from the start every time the company purchased these, a couple of years ago; and its a fact they must be sold back to the market within 3 years as stipulated by the SEC/SET. Nothing newsy here. Hardly a surprise as the report implies and so perhaps geared up in just knocking the shares down to create trading volume, or worse for all we know... to let institutions on the sidelines buy in on the cheap -as these do understand far too well the above. I know institutions are now interested in this stock albeit higher prices but much higher market cap!
We understand brokers make a living from transactions, but we also hope their endeavor does not breach good/correct analysis besides proper professional practices which should put investors first. Anything less over time will keep most retail people out of the SET due to distrust which is already the status here.
Best Regards,
Paul A. Renaud.
www.thaistocks.com
