A pure growth stock in a desirable industry.
January 13 2013.
Anatomy of a growth stock.
UAC is my pick as a pure growth stock in a desirable emerging industry. I would rate it with a long term buy view.
The company just placed last week 24.3 mill. new shares along with 4.86 mill. new free warrants (1 new warrant, for every 5 shares) The pricing was at 7.90 Baht per share. These warrants have a 3 year time period, starting Feb. 1 2013, and are convertable at 1 to 1 ratio, at 7.50 Baht per new share. This public offering (P.O) was sold out at once and heavily over-subscribed -with fewest if any retail investors getting any allocation.
Core business to date has been service/trading. UAC has long expertise in petrochemical products and related-equipment and is the distributor for many world class petrochemical products made by UOP, LCC and PALL Corp. UAC also sells absorbents and molecular sieves, filtration for gas explorers and producers, refineries, petrochemical plants, lube-base oil mixers, polymer, plastics, power and the utility industries. UAC is also a distributor for MEG and DEG used in the painting industry, as well as, solvents used by textile, polymer, engine oil, fuel oil Revenue from Energy and Petroleum account for over 70% of the total. Thailand’s refinery capacity has increased near 6 fold over the past 12 years, from around 200 mill bbl per day, to currently 1100 bbl per day.
UAC is now already operating a most impressive CBG plant in Chiang Mai producing 6,300 LPG tons per year. It plans to construct 20 more such plants over the next 2 years. The Thai Energy Ministry provides a 10 mill. Baht grant for each such a plant. The technology comes from Germany and Switzerland -and the final waste product, after producing all that gas, is 20 to 30 tons per day of a non-chemical fertilizer. It also allows such pig farms to expand if they want as the smell polluting to the neighborhood is now at not an issue due closed system which nearly eliminates this. UAC has a 15 year agreement with PTT to buy all the bio gas from such operations. LPG gas prices are here set to increase, (start floating), in March according to recent press reports -this is so yet another positive for UAC. Thai LPG gas prices will very likely increase soon bringing UAC earnings to beat current earnings estimates.
UAC sees a shortage of NGV and also an actual high NGV cost problem for PTT in northern Thailand. UAC has co-operated with the Department of Alternative Energy Development and Efficiency and the Energy Research Center, at Mae Jo University, to develop a project called “Developing bio-methane gas from swine for transportation” in the year 2011. UAC has rented some swine farms in Mae-Tang, Chiang Mai for 18 years to use the waste from these farms (40,000 swine) mixed with Bana grass bought from regional farmers and fermented by them. When UAC receives the bio-methane gas, UAC will adjust, separate the gas and compress it, resulting in an equivalent to CNG gas for use in automobiles. The waste from the fermentation can then also be sold as a leavening non-chemical fertilizing agent.
Global sales of diesel cars will rise 66% between year 2010 and 2018 to 22 million cars, by then making up 18%% of total vehicles in 2018. Growth will come mainly from N. America Eastern Europe and Asia. According to LMC Automotive.
The company also is in a joint venture with winning Hydroteck to produce and distribute water supply, purifying naturel waters and filtration systems around the region, which will be consolidated to UAC’s financial statements this year and beyond. Customers be industrial zones and provincial municipalities. A 300 mill. Baht UAC/HYDRO water project in Burma is planned for year 2014. Both HYDRO and UAC stock prices have recently set new all time highs -and for good reasons. The current correction is another entry point opportunity to long term growth stock investors.
Background. UAC sees a petroleum production problem of disposal of associated gas’ (waste product for now so not used), hence UAC plans to set up a plant to separate the associated gas from the Burapha-A oil field in Krong Krai Lat, Sukhothai, invested in with Siam Moeco Ltd. and GS Caltex Corporation (70% and 30% stakes, respectively) with a 20-year concession. By-products from this separation plant for the associated gas are CNG 61%, LPG 32% and NGL 7%. PTT has already signed a contract to purchase all the CNG gas, while UAC is negotiating with other customers for the LPG and NGL. This is a 620mn Baht capex. According to a projected D/E of 2:1, 206 mill. Baht for the project will come from the current capital increases.
Net profit margin has increased from 5.3% (year 2009) 13.9% (2010) 8.3% (2011) to currently 16.4%, annualized for last year 2012. Operating margin increased to 14.5% in the 3Q ’12, from 12.1% for the 2 Q. ’12. Net Profits have increases from 37.8 mill (2009) to 108.1 mill (2010) 80.2 (2011) to currently 102.28 mill. Baht, but for just the first 9 months of 2012. ROE has increased from: 23.35% in year 2009 to 29.48% for last year. Paul A. Renaud.
“From the past to the present, the Company:s main business has been an importer and distributor of chemicals and equipment used in various industries such as natural gas exploration and production, oil refinery and petrochemicals, lubricant, polymer and plastic factories, chemical industrial plants, power plants and utilities system including expansion into oil industry as an distributor of several producers in distribution of various products such as basic lubricant, engine oil additives, brake fluid, and chemicals used in the production of engine and vehicles oil, the company also invested in alternative energy such as biodiesel with Bangchak Petroleum Public Company Limited via its associated company.”
1) Compressed Natural Gas (CNG);
2) Liquefied Petroleum Gas (LPG); and
3) Natural Gasoline (NGL). On November 4, 2011, the Company received a Letter of Intent from Siam Moeco Limited indicating its intention to jointly develop the Petroleum Production Project whereby Siam Moeco Limited will provide gas as by-product of petroleum production to be used as major raw material in the Company's Petroleum Production Project. \
The company commenced development and operations of a compressed bio methane gas (CBG) project. During the period years 2011 and 2012. It already finished constructing a CBG production plant at Mae Tang District, Chiang Mai Province. Constructing of such a CBG plant was completed and commercial operation began in November 2012.
The company has one associate company called Bangkchak Biofule Co. Ltd (BBF) in which the company and Bangchak Petroleum PLc. Hold respective proportionate of 30% and 70% in its total paid up capital . BBF is engaged in the business of production and distribution of biodiesel fuel which is liquefied fuel to be used as an ingredient to mix with diesel oil obtained from petroleum production process to obtain variety of biofuels, such B3 and B5 biodiesel.
UAC is able to control fixed costs well and interest expense is negligible.
--For this year I see 1.2 mill. in revenues or 210 mill. in profit, or an estimate of 0.46 Baht per share, this comes to a forward expected p/e for year 2013 of 18.
--For year 2014 I project 1.7 mill in revenues or 300 mill. in profit for an estimate of 0.62 Baht per share this comes to a forward p/e for year 2014 of 13.2
Net profit margin has increased from 5.3% (year 2009) 13.9% (2010) 8.3% (2011) to currently 16.4%, annualized for last year 2012. Operating margin increased to 14.5% in the 3Q ’12, from 12.1% for the 2 Q. ’12.
Net Profits have increases from 37.8 mill (2009) to 108.1 mill (2010) 80.2 (2011) to currently 102.28 mill. Baht, but for just the first 9 months of 2012.
ROE has increased from: 23.35% in year 2009 to 29.48% for last year.
Paul A. Renaud.