Demco lags, here is the update.

PaulRen's picture
Company Visit

July 21 '09.  On the promised Demco update

I spoke to DEMCO yesterday and separately uploaded their latest presentation.

The profit estimate they gave me for this year is around 100 mill. Baht or say around 0.30 EPS. This so assumes a nice turn in 3 and 4Q., so the 2009 p/e is just now around 8. Not really expensive as this year is a down year for DEMCO, so p/e is based on lower then its long term earnings trend. Demco's book value is 2.20 so this stock is trading at almost its book value, which is too low.

The company has a good history of issuing stock warrants, dividends and stock dividends. It did well when I first picked it up a couple of years ago, but recently has been the laggard in my group of picks.

DEMCO's new wind project is now just awaiting final closure on the financing. This got delayed due to the western induced financial crisis. "Wind Energy Holdings" is the company name, DEMCO will only be the contractor. This wind project size (Thailand's first) is about 1.3 Bill Baht with a gross profit margin expected around 15%. RATCH, the large utility company, will own 26%. IT will take 18 months to construct and will yield 60 mgw. of electricity. Yes, this will generate carbon credits.

Located in North Eastern Thailand where the average wind speed is 5.5 meter per second, which is ok. The Thai goverment will give a 3.5 Baht "adder" on the electricity produced, so this makes is viable.

DEMCO is a good company in my view! Year 2009 is a lower profit transition year for them. The company got caught with high steel prices late last year, which dragged profits down this year. This is now behind them. DEMCO has a 1.3 Bill. Baht backlog, after the 2 Q. While the 2Q. profitability will not yet revert (I expect brake even), it will become clear as the year progresses that by 4q '09 and '10 will show strong recovery. When I visited DEMCO lately the parking lot was more busy then ever, the hallways full of workers and the previous empty desks are now filled. Hence my view of "accumulate buy" is maintained. I expect DEMCO announcements on backlog and more by mid August.

Here you can download a presentation given in May '09, so to understand their business better:

This is at the Download link (shown on the left hand side) where other presentations are also available.

Thai reading members can also see a recent MAI presentation by DEMCO at this link, unfortunetely its in Thai language only.


Here is how I wrote Demco last week:

Dear K., Paitoon,

*    I trust all is well with you.  Just wonder if you have your latest DEMCO company presentation in electronic format? Please e-mail me this.
Also may I ask if there is any update on the 60 mgw wind project? As far as when construction will start?
The stock market is always forward looking and even as Demco stock price now sags we have conviction that earnings will turn around in the 4Q. Can you say anything about earnings progress please. We here are long term investors and believe in Demco return to earnings growth path.

Could you also clarify your own company policy on when you officially announce to the MAI newly awarded contracts, or an up to date on back-log?

This would be most help full. Thank you, Savadicrap and Best Regards,


And here is how he answered back, after we also spoke on the phone:

July 23 '09

Dear Sirs,

Q 2  is not so good. Total revenue is less than Q1  because of  decreasing  in  factory revenue. As you know, I can’t mention about profit but I can inform you about the additional back-log that we’ve already got some more projects from private sector, total amount 320 Mill.Baht.  These projects caused us hold the total back-log to 1,300-1,400 MB., after booking 200 MB. as Q2 revenue. For Q3, we’ve 80 % confidence to get more back-log not less than 500 MB.

I would like to say ; this year is the worst for Demco. So, I’m not sure that the Q 4 earning can present the turnaround picture to public but  fully confidence that our next year  performance should be much more better because of the high amount of back-log and the start  of wind project.

For the wind project,  Ratchaburi  and Demco bought more 4 % and 5% shares from

Sustainable Energy Co.,Ltd  then we hold 30% and 9 % of 300 MB.share registration. The project financing  as well as designed for construction are on progress. Anyway, they still waited for the permit to use the land from Forest Department. They hope to receive the permit in September and start construction in  January 2010.

About the company policy on the announcement when got newly contracts, we quarterly reported the conclusion of newly contracts as the update back-log by release the news to press in the opportunity day  meeting.

Best Regards,

Paitoon  Gumchai.

Finance Director of Demco.