Thai Plastic and Chemicals
Q2 2012 earnings below forecast; strong profit expected in Q3 2012 HOLD (maintained) Target Price: Bt28.00 Price (24/07/12): Bt27.00
Thai Plastic and Chemicals Plc (TPC)
Below expectations: TPC reported a 2Q12 net profit of Bt681m, down by 11% YoY and 10% QoQ. Stripping out an FX gain of Bt9m, core earnings would be Bt675m, down by 10% YoY and 9% QoQ. The result was slightly below our estimate, due to higher-than-expected SG&A expenses.
Results highlights: The YoY revenue contraction was due to a weaker PVC sales price (down 12% YoY to US$1,035/t). Furthermore, domestic sales volume dipped 2% YoY because of a slow demand recovery among downstream producers following the 4Q11 flooding, while overseas sales volume jumped 27% YoY, attributable to greater volume allocated to exports.
The QoQ revenue growth was driven by an 8% rise in the PVC price, due to a demand recovery. The earnings contraction was mainly because of high SG&A costs—the SG&A/ sales ratio rose to 8.6% in 2Q12 from 6.9% in 2Q11 and 8.3% in 1Q12 (even though the PVC spread improved). The PVC-EDC spread increased by 16% YoY and 12% QoQ to $736/t, while the PVC-0.5Ethylene spread rose by 34% QoQ (but fell 17% YoY) to $442/t.
Outlook: The price and spread of PVC are both expected to be sustained strong in 3Q12, driven by high seasonal demand. We, therefore, anticipate that 3Q12 earnings will remain strong. As the mean PVC-EDC spread in 3Q12-to-date has increased 10% YoY (but softened 4% QoQ) to $698/t, while the PVC-0.5Ethylene spread has weakened by 26% YoY and 2% QoQ to $404/t, we expect TPC’s profit for the quarter to improve YoY but be flattish QoQ.
What’s changed? 1H12 earnings represent 55% of our FY12 forecast of Bt2,612m (up 39% YoY), which we maintain unchanged.
Recommendation: We think market anticipation of a strong 3Q12 profit and a dividend yield of 7.2% for FY12 will support the stock price. However, the indicative purchase price offered by SCG in 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 1.6x—a premium to its long-term mean. We, therefore, maintain our HOLD rating.
