DEMCO confirms Wind Energy project.
DEMCO confirms the Wind energy mega contract is now happening.
We just listened to Demco’s Opportunity Day presentation which lasted longer then their time allocated as there were many questions. Bottom line is, it confirms my continued bullishness on this core selection, despite its stock price drop and then rise again, of late. After some delay, the wind energy is now back on track starting in January '11! Yes, the Chairman came himself to says so.
The company has have already started on the main 70 kilometer main underground cable which will bring all this wind electricity power directly to EGAT, Thailand's main electricity utility company.
According to their own conservative estimation DEMCO, will generate 2-3 Bill Baht revenues at a preset 15% net profit margin with this wind energy contract in year 2011. Likely recurring for a number of years for a total of 10 projects. Next year they will work on 2 of these 10, estimated between 2-3 Bill. Baht for 2011. They stated: 2.5 bill coming from their core business next year which sees NP Margins closer to 10%. (A 30 MGW Solar project will start likely in late 2011 -not included in the projections).
So my back of the envelope estimates are fairly straight forward and based on their guidance today, so confirmed:
So say 2.7 Bill Baht Wind Energy at NPM 15% = 405 mill net profit.
Plus 2.5 Bill, core business, at NPM 10% = 250 mill net profit.
I can so see DEMCO earning a total 635 mill. net profit Baht next year, or some 1.30 per share, not adjusted for 2 latest warrants. This comes to a very low p/e of 4, on the current mkt. price of 5.20. If you reasonably assume all warrants #3 and #4 will convert and so full dilution to new shares, this still works out to around 1 Baht earnings per share for next year. Again at the market price of 5.20 just now, this so has a projected year 2011 p/e of only 5! Far below the averages of other similar companies and/or the MAI!
Assuming a 40% dividend payout ratio, I can see a dividend of 0.40 or a yield of 7.7% on the current market price. Also, DEMCO stated today it will keep buying back its own shares because it views them as undervalued . Members had plenty of opportunity in accumulating more DEMCO on the recent price correction to as low as 4.10. My upbeat view here was stated repeatedly. Today you know why. :)
Members whom are over-exposed on this pick and/or have a 50% profit since my table pounding buy view last February, may chose to diversify some into GUNKUL which is also an interesting quality “green” company, more focuses on SOLAR energy, as I noted in our member lounge today. Yet, DEMCO remains on my stronger buy list going into year 2011, even despite its recent rise and its over 50% rise (adjusted for dividends and 2 free warrants), since last February '10.
Here is what I posted in our membership lounge today, but before I had listened to their presentation:
DEMCO (5.20) shares have soared of late, just as GUNKUL's (6.70) have dropped from the recent IPO fanfare over enthusiasm.
GUNKUL is a high quality Solar power/electical..."The company is a power producer company which focuses mainly in sustainable resources such as wind and solar etc." From what I know its top quality and just had its own "Opportunity Day" presentation today.
See their web site:
http://www.gunkul.com/Home/Index.php?language=en
I now sense slowly pairing down on-over exposure on DEMCO on this price strength -and diversifying some into GUNKUL on its price weakness. So to balance over exposure. My twin, rather the solo "green play", going into 2011 and beyond.
Best Regards,
Paul Renaud.
