DEMCO's mishap on restatement of earnings.

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DEMCO's mishap on restatement of earnings.  As explained to the SET on April 9th. 2104

DEMCO told me all along that their first 2 wind farms, when complete, will produce around 150 mill. in tax free dividends through their 26% ownership of Aelous.  It is based on this expected number, which did hold up, that DEMCO decided to initially invest in these -and so that target has been met. 

At this point, I don’t know how its possible that the much higher numbers initially reported where not caught by the CFO or MD, as I also asked this question (why such a high number) to the analyst at Maybank/Kim Eng which follows this company in great detail…and which after their restatement still maintains a buy view on DEMCO. 

The CFO reportedly also had inquired about this but the accounting firm reaffirmed this as correct and its their only job is to check all the numbers.  They are the ones’ which primarily have egg on their face.  Remember too its DEMCO first experience with an investment in an associate company.

I will spend some expense money and time attending their annual meeting on Monday April 28  (see below), so to see myself how this transpires what further explanations they give and to ask them point blank, why they did not see this error before, i.e. “too good to be true”.  Hours after that, I fly to Australia to celebrate my 60t Birthday which coincides with 17th anniversary  -but will report to members here as soon as possible what I there learned.  Perhaps some of you members/shareholder will be there as well?

Note the company states that it informed on its own free will immediately to the SET when it discovered this mistake and I feel DEMCO never mislead me as they told us all along this annual 150 mill. Baht number, which then was greatly exceeded and should have been viewed as “too good to be true”.   Too often when delighted we don't ask more questions?  This is a business when things are good we must ask how long can it last and is it true, and when things are bad, well they are bad.

Last year was a difficult year for DEMCO as the first half had some mishaps (well previously explained) while being the startup first year for the 2 wind projects, as these were completed in February 2013.  I so view year 2013 as the transition year into a much more profitable company and previous to that the gearing up.

Its noteworthy that these 2 wind projects were completed on time and did/do produce earnings as expected in their first year.  Many critics doubted that a couple of years ago. 

Looking forward the situation looks bright with the company stating it will shortly announce a new project in Laos, after zero last year has resumed its G4 steel fabrication factory with higher then average net profit margin orders likely to be near 500 mill. Baht (revenue) this year.  And now moving full steam ahead with Wind Energy Holdings (WEH) not least, due its planned infrastructure IPO next year. This was reaffirmed recently at their SET Oppt. Day presentation.  There is still a likelihood of a small extraordinary dividend announced in August due to the profits realized by their investment in the Aelous (associate company).   But this will depend if the company makes other investments or gears up on a new venture like their Laos project?

I just here wrote a separate article estimating what the value to DEMCO might be on its 4% ownership in the WEH IPO next year  -and its impressive.

Feel free to here post other questions/concerns or observations which I hope to then bring up at their annual meeting, if time permits as I would expect the room to be full.

I realize that for now maybe Gunkul will end up being the better pick (post hindsight) then DEMCO this year?  But year to date my choice is still way ahead of the SET index -and even if I end up choosing the second or third best (far from certain as my conviction remains in tact even while a bit more guarded), I feel we got and should hold on to this winner into year 2015! Before and after its a great non-cyclical industry with a bright future and if my choice ends up being second best, so be it.

My buy view so remains with a welcome price correction to any new investor.

Best Regards,

Paul A. Renaud.

"DEMCO would like to inform you that the General Meeting of Shareholders Annual Meeting 2014 will be hold at The Chaophya ballroom, floor 2, Chaophya Park Hotel,  No.247 Rachadapisek Road, Dindaeng, Bangkok 10400, starting at 2 PM.   Registration will start at 12 PM."