DEMCO's Valuation Matrix.
DEMCO stock price in early June 2015, has been hovering around 13.50 Baht per share.
January 26 2013. Research comments from the past. Regular updates since to contributing members. DEMCO has been a core stock pick I here favorably view for some years. Here are some research notes from the past, as an example.
DEMCO (7.30), valuation matrix and more. -An update and synopsis-
See here on this industry:
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A review why I view the longer term investor fan opinion on this favorite listed SET stock going into 2014. While noting that in March 2013, I did post a "take profit" opinion here when the stock passed 16.40 Baht per share then. At the current prices around 7, I view it with a strong buy ratings.
The company's net profit margin of around 6% or revenues seems realistic. (recently it was 6.59%) we can so guestimate net earnings from operations and tax free dividend income for all of year 2013 is likely to be close to around 455 mill. Baht.
Their first mega wind farm is now reported producing electricity above expectations as the wind is blowing stronger. Demco owns 26% in this project. We know that large solar projects will be the leader in 2014 and that the 3 & 4 G steel tower projects will take off at last, perhaps in a significant way now. These command higher profit margins. (All as has been guided by the company). Also that global steel prices remain on the decline by more then a small amount.
I just believe that with all the good experience and so enhanced expertise it gained the past 3-4 years, we can also presume that net profit margins are likely to be maintained.
Maybank's Kim Eng along with Tanachart have extensively researched this company over the past year or more -all have buy opinions on DEMCO.
As of now DEMCO has 629 mill. shares outstanding plus the new 125. 8 mill new rights offering shares from mid last year. Total of 754.8 mill. shares.
I am not taking into consideration of the Warrants #5, or W#6 as they are not convertible until 2015 and 2016, respectively.
DEMCO backlog and recent financial and broker research can be seen from the below links:
DEMCO for years already regularly gives detailed and professionally presented "SET Opportunity Day" presentations.
For year 2014 the company gives us guidance of around 6 Bill in revenues but I think this may be conservative as its embarking on mega new wind/solar projects and will likely cash in on the a planned infrastructure fund listing on the SET of its first wind project in early 2015. (DEMCO owns 25.56% of Aeolus which owns the Huaybong 2 and West Huaybong 3 already in operation wind farms, by far SE Asia’s largest. It also owns 4% of Wind Energy Holding, which has massive wind projects planned next year.)**
In my view I can see DEMCO net profits earnings, near a billion baht in 2015.
So for example say 900 mill. Baht divided by 900 mill shares outstanding by then (warrant #5 conversion, comes to 1 Baht earnings per share, or at the present price of 7.30, this comes to a year 2015 p/e of 7.3. At a payout ratio of 40% this comes to a dividend yield of 5.5% on the current price far above SET average yield.
By year 2015 things should really start cooking for DEMCO, as by then construction of 5 additional mega wind projects will be started with expected completion in 2016. EGAT has already approved to buy electricity with the 3.5 adder rate, on all 5 of these. Convincing factors that this leading company has strong and above average visible earnings growth in a non-cyclical industry and likely no effect by the current political impasse.
DEMCO has stated it will also expand in Vietnam, India and eastern EU, huge realistic potential markets -especially the first 2.
Considering DEMCO is one of the Thai eader in the renewables industry, along with its other core business strengths, it has a bright future which is not dependent on slowing exports, maxed out consumers, peaking China growth or local politics etc..
Demco's core has a captive market, i.e. that EGAT must buy all its electricity and that electricity rates are on the increase -and the 3.5 Baht adder rate in place for 10 years.
TISCO which brought GUNKUL(12) public (and covers this company) is the likely equal level competitor to DEMCO. GUNKUL's dividend yield is likely to be less as compared to DEMCO. DEMCO' trades around 2.55 times stated book value, vs. GUNKUL which trades double that.
Here are some further up to date research notes and helpful links to support this:
The Thai SET has stopped going down of late despite continued stalemate with the politicians. Yesterday the central bank here did not reduce interest rates giving a vote of confidence to the economy.
Anyway, DEMCO should not have any earnings effect as its in the renewable energy business -the leader! The reason this is is because of their long and vast electrical engineering background and having completed a year ago, by far SE Asia largest wind energy park. Called Huabung 2# and 3.
Their web site is in English as well but you have to click on the English tab on the top right.
The link to DEMCO's English language broker research is here:
http://demco.listedcompany.com/report_research.html
Note how even after the stock rocketed up to 17-18 last March '13, Maybank-KimEng kept up the buy on it and still do.
Demco reported superb and in fact historical record 3 Q earnings in November, but the market here just then started to fall on politics, so it only gave it a knee jerk reaction.
At the below link one can see their strong 3 Q earnings, look at the The Consolidated Financial Statement as it includes their large tax free dividend they now regularly receive from the massive Huabung 2# and 3 project, where they are a 26% owner. (Since then the wind has been blowing more then usual, the company told me.) We know their 4th Q 2013 will continue to impressive. Confirmed this in front of investors at their "Set Opportunity" day presentation, in early December '13. We think for all of last year DEMCO will earn 0.75 Baht per share, hence the stock is trading at a trailing p/e of below 8! Way too cheap for this leader in my view.
Here is a helpful link to get you started:
http://www.set.or.th/set/companyhighlight.do?symbol=DEMCO&language=en&country=US
(click on "news" there, so to see DEMCO's SET official recent news releases & earnings.
My guestimate is likely a 4.5% annual yield, on the current market price of 7.30 today. Note, DEMCO pays dividends twice a year, once in April/May another in August. DEMCO pays 40% of its net profit per share, in dividends per share.
--DEMCO also has a steel fabrication plant which makes those steel telecom towers we see all over now. As Thailand upgrades to 4 G this will be a massive new business at higher then their core biz. operating net profit margin.
--This year among others DEMCO will complete some 3 massive solar projects and electrical sub stations for EGAT, Thailand's official electricity authority. Also one mega wind project. The company projects 6.2 Bill of revenues this year, plus the tax free dividends from their existing wind project. (Around 150 mill. a year)
--Next year, DEMCO will construct very large new wind energy projects for "Wind Energy Holdings", and become there as well a minority shareholder. All approved and with no effect from whichever government.
The stocks price sold off too much, is undervalued, not related to the current turmoil and pays a nice dividend while you wait. Also the Thai Baht vs. US$ has lost about 5% since the turmoil started here last Nov., so you likely have some currency upside as well, in time. I know the company for 6 years now, wow time flies, and have never been mislead by them. In the December company presentation they told us there would be no significant FX losss/gains in the foreseeable future.
Any comments by our contributing members -as always- most welcome by posting below!
Best Regards,
Paul A. Renaud.
