3 Stocks for us this Week.
This week I bring 3 stock to your close attention, DEMCO (4.06), PYLON(3.10) and KBS (9.30) which is a new selection.
I just came back from Bangkok and just now like DEMCO, PLYON and KBS allot as mentioned in recent postings. PYLON reported a very strong 1st Quarter -and looks finally set to have earnings soar this year and likely next. I did not visit PYLON last week but its a smaller company I have meet several times in the past. Looks like very honest people to me.
Pylon will have its Opportunity Day presentation right after DEMCO’s on May 31 at 2:45 PM. (Demco’s is at 1:15 PM). Surely I will be closely listening to both! PYLON already earned 25 million or 0.13 Baht per share in the first Q. of this year, vs 32 mill. or 0.16 per share, for all of last year.
PYLON reported 6 new projects just this morning valued at 143 million Baht., for this year, you can see these at this link (notice the short time period to completion of these):
http://www.set.or.th/dat/prsnews/news/0885NWS300520110853560394E.pdf
I also now like the new just IPO listed KBS (9.30) around this price. KBS is a leading sugar company, and on this correction I am a buyer. KHONBURI SUGAR PUBLIC COMPANY LIMITED. The company sold off some 35% of its shares in an IPO which started trading late last week. 150 mill. shares were issued at an IPO price of 9.10 last week.
KBS’s strong profitability outlook and expanding net profit margins this year and next should trigger stock price outperformance. Bualuang was the lead underwriter and calls it “as sweet as it gets”. This quality food related company opened around 10, the high price on its first day of trading was 10.30, but it closed at its low of the first trading day at 9.30. We need to have a good food company in our portfolio’s and this one is my new choice. I see higher earnings growth for KBS as compared to TVO. After visiting with TVO last Thursday, I am a bit less excited there as I see the earnings estimates for this year are too high. (More on TVO later).
Below you can see some additional information. World sugar demand depends on Brazil, Thailand and Australia, the three main global big/net exporters. KBS exports around 61% of its total sales by value and 54% of sugar production, a decline in the global sugar price would negatively impact on KBS’s earnings growth. But sugar prices are correlated with global Oil prices and so there is little chance of a sustained drop of either. The Thai sugar industry is subject to heavy government regulation but this has not affected its profitability. Changes to the domestic controlled price and quotas for domestic sugar sales volume might conceivably hurt KBS’s earnings outlook. (If you write me an e-mail I can forward you Bualuang’s full research report on KBS).
KBS’s reason for IPO is to:
1) --Expansion in power business
2) -- Expansion in production capacity of sugar and development in agriculture machines and sugar cane breed
3) -- Increase in Working capital.
Apart from its sugar business, KBS has diversified into related ventures, including ethanol production and electricity generation. In my view this company is expected to earn about 1.10 Baht per share this year, so on the current price of 9.30 (p/e of 8.4) its too cheap as I see it. The company already earned 0.76 per share for the first 6 months, but that is before its 35% share dilution from the IPO. If oil prices increase this year so should their earnings and visa versa. It has been stated that US$ vs. Baht currency does not affect them much.
KBS is listed in the Agro & Food and Beverage sector where its average p/e of 2011 is shown at 13.8, but KBS biggest competitor, Khon Kaen Sugar Industry (KSL) commands a high p/e of 22. Hence I think KBS’s p/e of just now less then 9, is a value investor investor bargain. Also there should also be a nice dividend coming this year on KBS.
After my visit last week with TVO, I now prefer KBS over TVO as my preferred food related agri stock. Realize I like growth in earnings more then just high dividends and I think TVO’s earnings estimates given by brokers are too high, as stated.
You can see KBS web site is at this link:
The SET link to their profile etc is at this link:
http://www.set.or.th/set/companyprofile.do?symbol=KBS&language=en&country=US
You can see the link to newly listed Thai companies at this link:
http://www.set.or.th/set/ipo.do?language=en&country=US
DEMCO (4.06) will have its presentation on Tuesday. There is no way they can/will proceed with the capital increase unless they obtain in full the massive Wind project, as reported. They stated to me they already received some 200 mill. in revenues from this in the 1 Quarter. Their capital increase announcement seems to be a sign that they are confident it will happen. More speculative investor, or members underexposed in this key “strong buy view on Demco” can consider the Demco “in the money” Warrants #3 which are convertible at price 2.69, 1 new share for each 1 warrant. These expire on 10/02/2012. We should know allot more on DEMCO by end of Tuesday May 31 2012. I will post the summary here and at our Member lounge.
Best Regards,
Paul Renaud.
