LVT, another key investor choice to beat the energy crisis.
Last week I visited in person with LVT (2.72) management and came away as excited as in the past.
This key selection has doubled in price since picking it as my turnaround situation a year ago. I have written upbeat about LVT ever since and re-state my case again today. The company is a direct beneficiary of high energy prices as it saves energy (and so increases production) in the process of cement production. Oil/electric/coal/gas is by far the highest cost component in the making of cement and LVT is at the forefront of this.
Most engineers and management come are ex-Siam Cement experts, including the current MD and chairman of the executive committee, Mr Chuchat Bunnag, which has a near 30 previous career with SCC, Thailand biggest cement producer. He graduated from Chulalongkorn, Faculty of Engineering. He was the Senior Engineer of Civil Engineering Department of Siam Cement Industry.
LVT exports its energy saving device to all corners of the World:
Russia,
SE Asia,
South America (especially Brazil)
Middle East ,
China
The backlog stands at a record high at 2.2 Bill Baht and the first quarter net profit was a record and revenues are projected to grow to 1.7 Bill baht this year with profit forecast at 142 million Baht, or more then double last year. This comes to 0.65 Baht per share and so the stock is still trading at a p/e of a low 4.15! Of course there are some warrants outstanding as mentioned in my previous report so there will be some dilution next year but the medium term growth rate of this company is so formidable that LVT will need the capital (conversion of the warrants at 1.25 per share) to expand next year.
While LVT is reluctant to make projections for next year, they note that Brazil is a strong new market for them and we know that this country is in an outright boom just now with a strong currency. They are likely to open an office there due to the far distance.
LVT is more of a service engineering firm as the seller of its products. As much added value is in the engineering recommendations ,when they review an existing cement production facility. LVT supplies the drawings and some of the devices, the client must supply most of the steel and installation material for the installation, hence LVT does not take on price of steel and material risks etc.. There is not much after sales service (but these are high margin), but what most often happens is that when re-visiting an existing client, they are so happy with the energy saving, that they often order more and expanded features. So more “Tailor made” higher margin solutions result.
The company has an associate Indian company (49%) owned which is doing extremely well as the MD there is most capable and long experienced -and the boom for cement in India unmatched, after China. This company I recall is called LNV plans listing on the Indian stock exchange within 2years or so and so then will result in a large capital gain for LVT. There are no plans to list other associate companies as of now.
But they have plans to use their altered technology in paper production, which will similarly save energy. I am still in the process of asking about Patent expiry and will post their answer in the lounge. I note insiders keep accumulating LVT shares, and on the 3 of April an insider bought 2.1 million warrants at 1.30.
LVT with its 120 employees in Bangkok and occupying 3 floors at the KPN towner is not worried about a major global downturn as it benefits from efficiency and expansion. Should the world economies contract, there will be even more pressure for cost savings and cement is used in so many applications from building to infrastructure to factories, dams etc.. and there always is a geographical place booming somewhere around the world. LVT is now a globally experienced company and learned that the hard way in the early years, as explained in my previous reports. Their web site is www.lv-technology.com
The company is prudently and managed with experience and just a few months ago hired its previous auditor as financial controller so she has an indebt understanding of LVT’s books. LVT regularly reports to the MAI new awarded contracts, but only once the Letter of Credit (LEC) has been granted. The most recent one is a couple of weeks ago for 4 million EU, by SAS TOBE Technologies LTD from Kasakhstan.
The book value of LVT is just slightly above 2 Baht and the current dividend yield around 5% on the current market price. For the first quarter LVT reported an increase of 80% in net profit to 0.18 per share, and I think by the 3rd Quarter LVT will show even further momentum making me so believe that the 0.65 per share earnings estimate for this year is too low. But this will depend somewhat on the Dollar/Baht exchange rate as if the Baht increases more vs. the US$ in the second half of the year (I doubt it), then a minor portion of their existing $ contract will be effected, but during out meeting it was confirmed that is negligible.
The company does not sell much in Thailand as in the past few years there has been a huge contraction in cement production here. Thailand operates at still only 60% of its total cement capacity, still overhanging from the Asian Crisis in 1997.
On the current minor price consolidation my strong buy opinion/view in LVT remains in tact and was re-affirmed by my 1 ½ visit last week. I welcome any questions as I think mgt. is receptive to inquires. Note how no Thai broker has visited them in recent years, nor written any reports despite their fabulous growth and so deserved interest by individual investors.
Here you can see some basic MAI information on LVT.
http://www.mai.or.th/mai/companyAllInfo.do?symbol=LVT
Best Regards,
Paul A. Renaud.
