A turned around smaller cap stock.
A turned around smaller cap stock. Here is my last pick among the many still favored smaller cap Thai stocks. A high ROE with still a low current p/e besides low debt. An original member only article, as exactly published last April 27th "02.
An original member only article, as exactly published last April 27th "02. Here is my latest chosen Thai value stock at high growth rates which command a premium p/e -not such a discount. A.J. Plastics Public Company Limited. You can see their own web page at: www.ajplast.com/
AJ (34.25 )makes itself 82% of all the raw materials it needs in producing consumer packaging materials, among other things. AJ owns its own Polypropylene factory which is a raw material to make BOPP Film. This company is a recovery story as it got into Dollar debt years ago and now has that burden off its back. AJ is not likely to pay a dividend until at after year 2003. This because this firm still has some unrealized currency losses which it got special SET permission to carry forward. These have been included in my profit projections. Also note the expected solid capacity expansion plans next year. AJ’s long term dividend pay-out ratio is stated at 60% of profits.
The company just issued some free warrants, XW date was on April 19 and they are convertible at 10 Baht per share --but not until at least 2005, which delays any dilution concerns for now.
75% of total costs are raw materials, then labor at 4% and utilities at 7% and then 6% is shown for depreciation. The company plans some conversions so to use more Natural Gas and less electricity which will result in energy savings. As industrial gas prices in Thailand are on the way down. Next year sales are expected to grow strongly again, on top of a "formidable" increase this year. The 1 Q. "02, about to be released, will/should demonstrate what I mean as the raw material cost hit a low point a few months ago.
I think this firm can earn 7 Baht this year and over 10 Baht next --on a conservative platform. But all assuming some kind of global and Thai continued economic recovery. Hence the "02 p/e of just now 5, and 3.5 for year 2003, as the market now rates it. This is way too low in my own view.
I also think the EPS projections by TISCO of 5 this and some 6 Baht next year is considerably understated and in dire need for a revision upwards, when the 1 Q is released.
"A.J.Plast uses only high grade Polyester resin to produce Polyester Film which yields exceptional qualities in terms of Mechanical-Elongation and thermal properties". From their web site.
There are 30 million shares outstanding of which 64% are owned by the family which is the senior management. The shares currently trade pretty well above 100,000 per day and have just corrected some in price after an already nice run from 7 Baht where it sat for very long time until February 22, when in woke-up and then soared. The intraday high of 38, was reached on April 22. But clearly not on blow out volume levels.
At the current price correction I would be a buyer. Here is an other good stock to own in any diversified smaller equity portfolio. As still prevelant most larger institutions must ignore this "jewel", strictly due to smaller market capitalizion.
AJ is 15 years old and has 50% of the total market share in Thailand, this compared to 43% in 1996. Total current capacity is 26,000 TONS/ YEAR which used to be 16,000 Tons/year back in 1996.
The pricing of the end product appears strong and gross margin is expected to vary from 21% to 23% over the foreseeable future. Sales could/should well grow 20% or more annually, during the coming economic recovery. But the p/e is low, at less then 5 for 2002, at a current stock price of 35. In the mid 90’s the p/e then varied between 10 and 20. Interest expense keeps dropping nicely which I always like to notice. The ROE is soaring above 30%.
The company expects to increase capacity by 60% next year. This should be financed internally (?) On April 24th a capital increase headline appeared on the SET news but with no specific details given. I do not belive this is the warrant issue?
The firm has a rather broad customer base and supplies to a number of different industries. 60% of sales go directly to consumer producers like, Candy wrappings, shampoo bottles film, soaps, present wrapping paper etc. Here is another list of products they help produce: BOPP Film,. Polyester Film, Air duct film, capacitor, Audio Vision, Metallized film, adhesive tape etc..
70% of total sales are directly to customers, when AJ exports it usually deals with agents. Exports are expected to be 29% of sales this year but increasing to 45% by 2005. All while maintaining their domestic 50% market share!
This company firmly believes it has the technology & high tech equipment to prevent China or other countries to take over. The Philippines and Indonesia could compete, but transportation cost are too high. Korea and Japan are other quality manufacturers, but too expensive due to much higher costs.
Their Thai competitor is TFI which has all the remaining market share. But I consider this firm too levereged for my taste and AJ is the far more consverative choice.
My medium term price objective is around 48-50 Baht per share and the 1 Q earnings to be released by mid next month, may/should well be the trigger to that objective.
These are my views only. I could be wrong. There can never be guarantees. Past performance can never guarantee that every new idea will always work out. Having said this clearly, I have you note that AJ (34.25) is the last stock here highlighted during our now approaching 5 year anniversary, asThaistocks was founded on April 30 1997.
This article was posted on Saturday at 7 PM, April 27 "02.
Best Regards to all visitors,
Paul A. Renaud & Team.
