PPS, a core stock selection whose time has now come.

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PPS, a core stock selection whose time has now come. Watch and see.

PROJECT PLANNING SERVICE PUBLIC COMPANY LIMITED (PPS 0.79 Baht) is listed on the MAI and there is one of the few which has the highest corporate governance rating of 5 stars. You can see the companies' basic information at this SET/MAI link:   https://www.set.or.th/set/factsheet.do?symbol=PPS&ssoPageId=3&language=en&country=US

We note PPS was listed on the MAI in September of 2012 at 0.70 Baht at a PAR of 0.25 Baht.  Since listing it has never failed to pay a dividend.
Presently its trading around 0.80 Baht which in my opinion is much too low as some significant major positive changes are in the making and have been announced.  I have of recent taken a keen interest in this company and today here publish the reasons for my strongest buy view. In fact I think PPS stock has the potential to see a significant re-valuation upwards.

Today I present my reasons as its about to embark on a significant and very viable intelligent diversification which will be ratified by the board by mid August. It already sought and got, by a long shot,  shareholder approval yesterday with the Extraordinary Shareholder meeting (ESM), which I attended. Talking to some of their staff both of higher and lower level, I there sensed employees of PPS being excited about this major undertaking -and in favor.

First some background,  know from their web site, core PPS business is in the prominence and high reputation it has achieved in the over 30 years since its been founded.  See:  https://pps.co.th/   It lives up to its statement there: "PPS is of Thailand’s leading technical engineering and professional project management firms with over 30 years proven track record of success".  Its CEO  Dr. Phongthon Tharachai regularly gives "SET Opportunity Day" presentations, the last one being on March 19 2019.  I have met him on several occasions as well as his Father the founder of the company.  I also toured several of its impressive at the time current projects like for example the newly finished awesome Thai Supreme Court Building and a grand new French hotel (forgot the name) which has the biggest dome in Thailand, right in its lobby. Huge.   I will leave it up to the member here to peruse the various and broad high end engineering/construction projects PPS lead and finished.  See here:  https://pps.co.th/projects

The company's earnings and share price stagnated last and this year due to a changing environment and the interim non-elected Government. Also, there is more competition where often quality seems to be a secondary consideration over cost, quality is PPS strength.  The Thai economy slowed, many private projects got delayed as well as public projects, some due to unelected government which now has passed.  However this is now getting better with the company stating the low point has passed and the recovery begun in its core.  The company teamed up with OneWorks (51% owned by PPS) which has tremendous strength, reputations and many projects completed in Airport designs mostly in Europe. Thailand aims to become an aviation center for SE Asia and is in the process of major upgrades not least (and now) at the U-Tapao (Pattaya) airport. See here: https://www.eeco.or.th/en/content/utp-itten .  I expect some exciting news -and projects awarded on this very soon. 

The sizzle which really gets me excited: PPS is about to take its decades long engineering and design expertise and do its own!  For some time PPS has actively and diligently been looking around to expand its business through diversification and to be noted, related in what it knows best.  After over a year of extensive checking, evaluating and talking to many people it has found a supremely attractive 24.5 plot of land, a peninsula. of paradise. I would convincingly say its secured the most attractive, best located, ideally suited private land plot targeted for ultra rich. There is nothing like it here and there is only 9 of them.  In Phuket for some 30 years and totally agree its most attractive and exclusive and a super exclusive location. Completed, I know of nothing better here.

Together with a reputable on that long on location partner it will develop 9 villa's besides an adjoining new Health Center.  One of the Villas has already been sold and paid for, so a profit to be realized, a second one is in the process of being sold, benefits to PPS.  The real attractiveness is that it will soon result in around 55+ mill. Baht profit on each villa sold -and this so when anyone of the 2 Rai land plots sell.  Further profits will be realized when they build them, which is PPS's expertise. There will be a large deposit required paid, 40 to 50%, to assure low risk to PPS.  PPS will own 90% (10% seller keeps) of  all proper "Chanote" title land (best land title in Thailand) and believes realize a total of 500 mill. profit from this, within 2 years.  Best location, because: 

1) This area circumvents the number one Phuket issue, being high traffic -as its barely 20-25 min. to the newer International Airport and the main road
there is being expanded to a 4 lane highway (nearly half completed already)
2) Its barely 20 minutes to all the major international hospitals and by far the islands biggest upscale shopping centers. 
3) Its barely 20-22 minutes straight highway road to Phuket-town. Recently years has come-up in a big way and recently voted by UNESCO as a center of Gastronomy, an increasingly charming town with many high end/exclusive Restaurants and culture.  Location circumvents traffic as while its an private ocean front peninsula on the East coast, well away from all the tourism bussle.

You can see and search the location starting at this link:  https://www.google.com/search?client=avast&q=cape+Yamu   This exclusive peninsula, making up around 50,000 sqmeters, is right adjacent to the exclusive Como Hotel, here:  https://www.comohotels.com/en/pointyamu   Already some of the islands most exclusive Villa's rest on location overlooking the Ocean-Bay and the Phang Na and its majestic islands.  Its one for big yachts  heavens destination in the world.  I will write more about its location, but lets just say: there is no more serene and private location then Cape Yamu; secluded and away from the traffic and tourist congestion. (A side, one of the Island top rated Restaurant formerly called "Breeze", now changed to "Taste@ is located in this high end niche area of Yamu).

The company will at the same time develop an upscale Health Center right next to these 9 Villa's on this same peninsula. Much compliment the entire grand success as Como's hotel has a limited health center (always full) hence highly desirable by the other high end Villa's already existing there.  Their new target clients is a nice diversification to what PPS' client base now is.  Namely,

1) not dependent on the overall Thai economy or stuck in middle income trap, the new PPS's.
2) International niche market to the super rich which has as a class or say cluster been growing in recent years, and again not part of PPS's core.
3) If the Thai Baht currency weakens as some predict a good trend as its target customers are not in Baht currency.
4) Target buyers are likely Middle Eastern, which would benefit if the price of oil rises, as it often does whenever there is some global instability. There are daily direct 6 hour flights from several middle Eastern cities to Phuket through highest quality Airlines, like Ethihad and Quatar.

Even if PPS sells just one of these expected selling price of 250 mill. Baht villa a year, it will generate over 50 mill. Baht in net profit to the company, or more then its average total annual profit, since going public 7 years ago.  The CEO and other pro's on location I have interviewed are very confident, as I am, it will sell all within 2-3 years, or for a total of 500 mill Baht profit. There is no competion and there are only 9 of them. Realistic as extreme exclusivity of it and there being only 9, with one already sold and another just about. 

Again, PPS is a long high quality expert in high end complicated design, construction, plans and architecture..it presently employees some 200 full time engineers, of its total around 350 employees.  Shareholders present at yesterday ESM gave an overwhelming positive and binding vote, (see picture) but note the final vote by the Board is on August 13th 2019.

The company currently has virtually no long term debt its d/e ratio of less then 0.4. To finance the land acquisition (at a very favorable price)  it announced and already passed resolutions to issue a 2 year Bond (debentures) 600 million Baht, with a coupon of around 7%.  The prospectus on this bond and approval of this and support of the financial advisor, which also were present at the meeting yesterday, has already been given. I am told its a done deal, so the financing is in place with no earnings to shareholder dilution.  It also announced private placement and right offering for in the distant future to finance more of this as time goes on and, if needed.  My take is that PPS will also issue warrants next year. But for now there is no shareholder earnings dilution as these other approved capital increases are much further down the road, and only if needed.  BTW, as I asked the question, there is no provision in these debentures which would restrict PPS from paying dividends to shareholders.

While Thai retail investors have been dwindling on the SET of recent (traditional investors in smaller companies like PPS), new ETF small cap Thai funds have sprung up like BMSCG whose mandate is to mirror small cap's,  but only investing in top rated corporate governance companies. With PPS's earning likely to soar next year, so will its stock price not least because it also has a strong record on paying dividends. The outlook for this company will change in a positive way in the near future along with its profit ascent. I am very confident. Even sturdy resilient Thai retail investors will take note.

With PPS' stock price hovering around a multiyear low, besides barely 10% above its listing price, back in 2012 and then considering the viable excitement both at OneWorks and now its Phuket very exclusive property project ready to, which I on location much identify with, I can only feel maximum bullish on PPS (0.80) at its current stock price.  I plan and will write more of this core choice, in the near and into the future, so stay tuned as always comments welcome.

Paul A. Renaud.