DEMCO remains the top pick.

PaulRen's picture
Company Visit


DEMCO's Huay Bong #2 and #3 mega wind project are on track and construction has started!  Here is an update since their announcment.

I was just able to speak to DEMCO's (4.16) senior management.  My strong bullish buy view remains in tact and so today is re-affirmed.

As you all recall this company is investing in Huay Bong # 2 and #3.  Huay Bong #3 was just announced on Aug. 1, its sealed and started now all as expected. We here then wondered about the smaller #2 project which was not mentioned in DEMCO's announcement on that same day.   I assumed it may have been dropped?  But I was not too worried thinking it would still be forthcoming in the near future, or if not it was not a big set back as the project value would still remain around 1.8 Bill. Baht.  Yet, it left us here wonder what happened to Huay Bong #2 ?  Another member rightly cautioned not to conclude Huay Bong #2 was just dropped.  And in fact it is not!

The start of the Huay Bong #2 project was postponed for 2 months which in fact benefits DEMCO.  This due to the time value of the money invested and giving the company a longer period to complete its 27% investment in Aeolus next year.  It has so not changed nor affected the numbers, as here reviewed all along.  Namely and this is important:  the IRR stated rate of return remains the same, the total syndicated Bank loans approved remains at 12.2 Bill. Baht.  The total construction value of this mega wind project to DEMCO remains at 2.3 Bill. Baht.  And most of all, the gross profit margin (re-confirmed today!) remains the same around 14%.

DEMCO through AEOLUS company have a commitment to finish Huay Bong #3 by August 12, 2010.  The Huay Bong #2 is expected to be completed by Dec 12. 2012.  This planned time schedule does not conflict in any way with their contract to finish on time as originally signed for.   Nor does it change things in any way for DEMCO, except that it  helps in giving the company a bit more time to complete its large 27% investment in AEOLUS.  One previous potential concern was that DEMCO made very large cash payment commitments for this investment, over a short 4 quarters. This new time frame gives the company more time and that is good.

DEMCO confirmed that broker visits are planned with them later this month.  I told DEMCO that Ms. Pongrat at Bualuang needs her mouth corrected as she went with nonsense on talking about how this wind project is for next year.  DEMCO takes this seriously and will be contacting this analyst to correct that nonsense.

There you go. I got the update for us and despite the lethargic stock price, the fundemental good story remains the same for DEMCO!  Which among other things means soaring profitability for them through the construction of Thailand's mega biggest Wind project over the next 12-18 months.  Remember, 14% gross profit margin of 2.3 Bill Baht comes to 322 million Baht,  gross profit on this alone!  Their core business on top is doing well  -and so I can see some 1 Baht in earnings per share over the next 4 Quarters.  That means DEMCO keeps trading at a forward p/e of 4-5 which is far too cheap considering the business it now has firmly in the bag.

Best Regards,

Paul A. Renaud.