LVT, the update after meeting with the Founder and Directors.
LVT meeting with several directors, large shareholders and the Founder.
I met with the seniors at LVT a couple of days ago and came away convinced that what they say is what they will do. And I told them if not, I would point this out to all members and followers of Ts.com. It was a good meeting with the Chairman present, a couple of their Directors and most of all the visionary entrepreneur and founder Mr. Nielsen.
It was explained to us that in the distant past they did give MAI and other presentations but it was not well received and they felt “a waste of time”. The company is “focused on operating results and not trying to influence the stock price”. The company does not have capital requirements and so a high stock price, while desirable, is not essential to their profitable operations. The company is “totally self financing” it was stated. LVT has no long term debt -and for now no problems obtaining Letters of credit (L/C’s) on behalf of its customers. The firm's backlog remains at around 2 Bill. Baht.
Even at current of recent low prices of energy it was shown to us on the black board that in producing cement 60%, of the costs remain energy costs (electricity and gas/diesel/ etc..), hence reducing energy consumption in producing cement is and remains a critical component in the production of cement. While the global price of oil has dropped of recent it is still double to that of just a 2-3 years ago.
Jobs go through maintenance budgets.
LVT’s clients do not have to ask for new capital budgets when procuring LVT’s products and services -as these are labeled as maintenance. Hence to date LVT has not seen any drop off in business and in fact it believes that South America is less affected by the global financial crisis and “huge potential there remains in tact”. CEMEX one of the world biggest producer of cement, and now in financial trouble; this might well be a benefit to LVT as more and more cement factories have to get up to the standard of running cleaner/greener, being less energy hogs.
If natural gas supplies from Russia and other remote places remain unreliable and regularly shut the valve, whenever there is an international dispute, LVT believes this unstable situation will allow for more business opportunities in the Ukraine and other such locations. As cheap gas may not be cheap if it is unreliable in delivery.
The company now has a staff of 138 vs. some 98 when I visited them last at mid year 2008. Surely business is brisk and expanding for this company. LVT’s likely single biggest shareholder is FL Smidth& Co of Denmark (owns 15%), this company has just announced some significant layoffs of skilled engineers -and so may allow LVT to attract new specialized talented/experienced people to join LVT which is still expanding.
It was explained by LVT’s founder and key executive/director (and one of its largest shareholders) Mr. Nielsen that there are no problems with L/C’s that the company has excellent relationships with its main bank which if anything have even further improved of late.
When we asked if their large cash position is needed to establish guarantees for the banks they use, we were told “no”. It is believed that some of the cash on hand (likely 260 mill. or more post the warrant conversion in mid Feb) may represent advance payments by some customers, which means this is needed to pay for some procurements to fulfill customer orders on hand. Mr. Nielsen stated he favors LVT in buying back some of its own shares (treasury stock) as he much agrees the stock price is too low. But this needs board of directors approval which is not scheduled until end of Feb ’09.
My own estimate with the help of reliable insiders is that LVT earns some 220 mill. in net profits for year 2008 and then about the same for year 2009. These estimates are now a bit higher then I have given before. I remain convinced this is reasonable and likely conservative but of course we don't know yet for year 2010. Here is what one knowledgeable person in the industry told me just a few days ago “my sources expect 40-60 Mil/Bht for the last Q giving LVT annual profits approx 220-260 Mil/bht and assuming LVT start announcing there order book etc a PE of 4-6 would be a realistic target”. This was obviously a bit too optimistic.
Hence, post the warrant conversion the current p/e remains around 3 for last and this year, or half the MAI average, and so much too low. LVT remains the “strongest buy” rating in my view.
Mr. Nilesen in front of the Chairman and 3 directors, confirmed that the dividend payout ratio will remain in the mid range of 40 to 60% of profits, which is their stated dividend policy. Hence based on clear statements, I could see 0.30 per share in cash dividends which also should be announced by end of February. The company also likes the idea of considering a stock dividend and possibly free warrants on top, all this possible to come in the future. A cash dividend of 0.30 per share would amount to about 100 mill. Baht which is well less then half the firm’s cash balance on hand.
It also so represents a 15% dividend yield on the current market price of 2 Baht per share. And this yield is likely to be sustainable due to year 2009 showing equally good results as last year, as their back log shows. Execution is now the key at LVT.
Hence, LVT not only is the lowest valued stock on the MAI (and likely the SET) but also will likely be the highest dividend yielding stock of the MAI (if not the SET) once the dividend is announced, which is up to the board of directors.
We were assured that more company investor presentations are forthcoming post these announcements in early March, as well as the full year 2008 operating results. LVT’s annual meeting is on April 24 and all shareholders should attend. The MAI is going to visit LVT next week. An LVT "Opportunity Day" presentation on the MAI should follow this.
If I in any way was mislead in this important 2 hour meeting attended by 4-6 people (followed up by phone calls) I will go their annual meeting with my Foreign shares and make a fuss, besides say so at this web site. I urge other members/investors to then join me if this happens. But I don’t foresee this as the meeting went well, was straightforward and all other large shareholders want what we want which is more IR/PR on it operations to investors and a large cash dividend. As was re-afirmed there.
In any event, I came away believing what we were told in front of witnesses -and so while this company may remain off the radar screen to Thai brokers and the business news press, it surely has a formidable “green business” which in time will be discovered by other investors. The dividend rate is the wild card but anything above 0.20 would represent a solid yield to current investors.
In my view this stock should trade at a p/e not much different then the MAI averages (average trading volume should increase once the new converted warrants to shares are released in the market) hence my price objective firmly remains around 4-5 Baht per share. This view was so now re-affirmed based on this company visit we had in person on January 27, 2009. Before and after LVT remains my core focus stock going into year 2009.
Paul A. Renaud.