Thai Plastic & Chemicals

Thai Plastic & Chemicals Plc (TPC)

Below expectations: TPC reported a 4Q11 net profit of Bt62m, down by 91% YoY and 88% QoQ. Stripping out an FX loss of Bt30m, core earnings would be Bt83m, down by 71% YoY and 83% QoQ. The firm also posted an FY11 net profit of Bt1,880m, up 1% YoY. The results were somewhat below our forecast and the consensus, due to lower-than-expected spreads and a higher-than-modeled effective tax rate.
Results highlights: The YoY and QoQ revenue contraction was due mainly to a weaker PVC sales price (down by 6% YoY and 16% QoQ to US$920/t), brought about by concerns over the global economic slowdown. Furthermore, domestic sales volume declined 5% YoY because of low season and weak demand from downstream producers as a result of the flooding. However, overseas sales volume rose 2% YoY, driven by greater demand in Vietnam and Indonesia, mostly related to the manufacturing of construction materials. Note that the PVC-EDC spread rose 27% YoY (but declined 5% QoQ) to $591/t, while the PVC-0.5Ethylene spread dropped by 15% YoY and 25% QoQ to $518/t.
Outlook: The price and spread of PVC are both expected to rebound in 1Q12, driven by high seasonal demand in the domestic market and restocking flows across the region. Moreover, we expect TPC’s effective tax rate to normalize in 1Q12. We, therefore, anticipate that 1Q12 earnings will rise QoQ.
What’s changed? We have revised down our FY12 net profit forecast by 9% to Bt2,167m (still growth of 15% YoY) to reflect higher assumptions for interest expenses and TPC’s effective tax rate. As such, we have cut our YE12 target price to Bt26.50 from Bt27.
Recommendation: We think that the current share price has already priced in weak 4Q11 earnings. Anticipation of bottom-line growth in 1Q12 should support the stock price going forward. However, the indicative purchase price offered by SCG to connected persons of Bt30/share is likely to cap the share price. Moreover, the stock currently trades at a YE12 PBV of 1.8x—a premium to its long-term mean and equal to the regional average PBV. We, therefore, maintain our HOLD rating.