Thai Plastic & Chemicals
Q1 2012 earnings beat forecast; momentum to continue HOLD (maintained) Target Price: Bt28.00 Price (24/04/12): Bt29.50
Thai Plastic and Chemicals Plc (TPC)
Above expectations: TPC reported a 1Q12 net profit of Bt755m, up by 47% YoY and 1,115% QoQ. Stripping out an FX gain of Bt19m, core earnings would be Bt741m, up by 18% YoY and 792% QoQ. The result was somewhat above our estimate, due to better-than-expected spreads and a lower-than-modeled effective tax rate.
Results highlights: The YoY revenue contraction was due to a weaker PVC sales price (down by 7% YoY to US$954/t). Furthermore, domestic sales volume declined 5% YoY because of slow demand recoveries among downstream producers following the 4Q11 flooding, while overseas sales volume dropped 11% YoY, due to the economic slowdown. The QoQ revenue growth was driven by a 4% rise in the PVC price on the back of a demand recovery. The strong earnings expansion was driven by a fatter PVC-EDC spread (up by 28% YoY and 11% QoQ to $658/t). However, the PVC-0.5Ethylene spread declined by 19% YoY and 16% QoQ to $329/t.
Outlook: The price and spread of PVC are both expected to be sustained strong in 2Q12, driven by high seasonal demand across the region. We, therefore, anticipate that 2Q12 earnings will remain good. As the average PVC-EDC in 2Q12 QTD has increased by 11% YoY and 7% QoQ to $705/t, while the PVC-0.5Ethylene spread has weakened by 39% YoY and 2% QoQ to $321/t, we think TPC’s profit will be flattish, both YoY and QoQ.
What’s changed? We have revised up our FY12 net earnings forecast by 21% to Bt2,612m (up 39% YoY) to reflect an 8% increase to our PVC-EDC assumption to $580/t. As such, we have raised our YE12 target price to Bt28 from Bt26.50.
Recommendation: We think market anticipation of strong earnings in 2Q12 and a dividend yield of 6.6% for FY12 should continue to support the stock price. However, the indicative purchase price offered by SCC for its tender offer of Bt30/share is likely to cap the scope for share price upside. Moreover, the stock currently trades at a YE12 PBV of 1.7x—a premium to its long-term mean. We, therefore, maintain our HOLD rating.
