Jun-1 May-1 May-1 Apr-1 Mar-1 Feb-1 Jan-1 Dec-11 Nov-11 Oct-11 Sep-11 Aug-11 Jul-11 Jun-1 May-1 May-1 Apr-1 Mar-1 Feb-1 Jan-1 Dec-11 Nov-11 Oct-11 Sep-11 Aug-11 Jul-11 Padaeng Industry - PDI Losses likely to continue on lower zinc prices Bloomberg Reuters PDI TB PDI.BK Report type: Company Update Company Overview PDI is engaged in the zinc mining and smelting business and zinc ore exploration programs both in Thailand and neighboring countries. Its products include special high grade (SHG) zinc metal, zinc alloy and by-products. Euro-zone economic woes, the still fragile recovery of the US economy and slowing economic growth in China would sap global zinc consumption. Note that China is the world s biggest zinc consumer, consuming one third of global zinc supply. In QCY1, average zinc prices on the London Metal Exchange (LME) continued to fall q-q to US$1,97/ton. PDI is also expected to post a fifth straight quarter of losses in QCY1 as average zinc prices dropped from US$,04/ton in 1QCY1 to US$1,97/ton. We cut our full-year revenue and gross margin forecasts for PDI as we fine-tune our model to reflect an increasing proportion of higher-priced imports of zinc ore, zinc price slump and the impact from global economic uncertainty. The above revisions also prompt us to revise downwards our CY1 pre-fx earnings outlook for PDI to a loss of Bt9.05mn from a profit of Bt76.35mn. At current prices, we rate PDI shares a NEUTRAL with a downwardly revised target price of Bt1.40/share. What is the news? Zinc prices remain in the doldrums as euro-zone economic woes, the still fragile recovery of the US economy and slowing economic growth in China pose threats to the global economy, which would in turn sap demand for zinc. How do we view this? PDI is expected to post a fifth straight quarter of losses in QCY1 as average zinc prices dropped from US$,04/ton in 1QCY1 to US$1,97/ton in QCY1. Investment Actions? We rate PDI shares a NEUTRAL with a downwardly revised target price of Bt1.40/share based on a P/B average of 0.66x Padaeng Industry Phillip Securities Research Pte Ltd 6 July 01 Rating 3.00 Neutral - Previous Rating 3.00 Neutral Target Price (Bt) 1.40 Padaeng Industry - Previous Target Price (Bt) 13.75 Rating 3.00 Neutral Closing Price (Bt) 1.60 - Previous Rating 3.00 Neutral Expected Capital Gains (%) -1.6% Target Price (Bt) 1.40 Expected Dividend Yield (%) 0.0% - Previous Target Price (Bt) 13.75 Expected Total Return (%) -1.6% Closing Price (Bt) 1.60 Raw Beta (Past yrs w eekly data) 0.97 Expected Capital Gains (%) -1.6% Market Cap. (USD mn) 90 Expected Dividend Yield (%) 0.0% Enterprise Value (USD mn) 115 Expected Total Return (%) -1.6% Market Cap. (Bt mn),848 Raw Beta (Past yrs w eekly data) 0.97 Enterprise Value (Bt mn) 3,617 Market Cap. (USD mn) 90 3M Average Daily T/O (mn) 0.3 Enterprise Value (USD mn) 115 5 w eek range 11.7-0.8 Market Cap. (Bt mn),848 Closing Price in 5 w eek range Enterprise Value (Bt mn) 3,617 3M Average Daily T/O (mn) 0% 0.3 50% 100% 30.00 5 w eek range 11.7-0.8 Closing 5.00 Price in 5 w eek range 0.00 30.00 15.00 5.00 10.00 0.00 5.00 15.00 10.00 5.00 Volume, mn PDI TB EQUITY SETI rebased 0 1. Bali Ventures Ltd. 1.7. MoF Volume, mn PDI TB EQUITY SETI rebased 13.8 3. BBL 3. Major Shareholders (%) 1. Bali Ventures Ltd. CG Report - 011. MoF (Good) 3. BBL Analyst Phillip Valuation Research Method Team +65 P/B'1 6531140 (0.66x) +65 63367607 research@phillip.com.sg 0% 50% 100% Major Shareholders (%) 1.7 13.8 Key Financial Summary CG FYEReport - 011 1/10 1/11 1/1F 1/13F Revenue (Btmn) (Good) 8,14 7,33 7,18 7,991 Net Profit (Btmn) 419 4 (9) 53 Key Financial Summary EPS (Bt) 1.85 0.0 (1.01) 0.3 FYE 1/10 1/11 1/1F 1/13F Net Profit, adj. (Btmn) 338 (108) (9) 53 Revenue (Btmn) 8,14 7,33 7,18 7,991 EPS, adj. (Bt) 1.49 (0.48) (1.01) 0.3 Net Profit (Btmn) 419 4 (9) 53 P/E (X),adj. 8.5 (6.3) (1.5) 54.8 EPS (Bt) 1.85 0.0 (1.01) 0.3 BVPS (Bt) 1.53 0.6 18.80 19.08 Net Profit, adj. (Btmn) 338 (108) (9) 53 P/B (X) 0.6 0.6 0.7 0.7 EPS, adj. (Bt) 1.49 (0.48) (1.01) 0.3 DPS (Bt) 1.9 0.50 0.00 0.1 P/E (X),adj. 8.5 (6.3) (1.5) 54.8 Div. Yield (%) 0.1 0.0-0.0 BVPS (Bt) 1.53 0.6 18.80 19.08 Source: Bloomberg, PSR est. P/B (X) 0.6 0.6 0.7 0.7 *All multiples & yields based on current market price DPS (Bt) 1.9 0.50 0.00 0.1 Div. Yield (%) 0.1 0.0-0.0 Valuation Method Source: Bloomberg, PSR est. P/B'1 (0.66x) *All multiples & yields based on current market price 4 3 4 3 1 0 1 3. MICA (P) 01/01/01 Ref. No.: SG01_005 1 of 7
Padaeng Industry - PDI Thailand Equities Research 6 July 01 Fourth straight quarter of losses in 1QCY1 PDI made a net loss of Bt47.06mn in 1QCY1, marking the fourth straight quarter of losses. The quarterly loss also reversed a profit of Bt13.45mn in 1QCY11 due chiefly to zinc price slump, escalating costs and the absence of a Bt105.9mn gain from asset disposal as recorded in 1QCY11. In 1QCY1, average zinc prices on the London Metal Exchange (LME) slipped 15.4% y-y to US$,04/ton. The baht fell by 0.95% y-y against the US dollar. Despite falling zinc prices and currency weakness, sales volume growth drove quarterly revenue up 3.95% y-y to Bt,016.14mn. However, a rise in higher-priced imports of zinc ore and soaring electricity, fuel and chemical expenses dragged gross margin for the quarter sharply lower to a mere 0.85% from 13.49% a year earlier. Overall PDI turned in an operating loss after administrative expenses. In this period, the results also included a FX gain of Bt19.78mn. Stripping out FX effects, PDI posted a loss of Bt68.53mn in 1QCY1. Losses likely to continue on lower zinc prices Euro-zone economic woes, the still fragile recovery of the US economy and slowing economic growth in China pose threats to the global economy, which would in turn sap demand for zinc. Note that China is the world s biggest zinc consumer, consuming one third of global zinc supply. Zinc prices remain under pressure from demand concerns in the face of global economic uncertainty. The table below shows average LME zinc prices versus quarterly gains/losses for PDI. In view of average LME zinc prices of US$1,97/ton in QCY1, we expect PDI to post a fifth straight quarter of losses in QCY1. LME zinc prices also fell further to US$1,897/ton on Jul 4, 01, below the US$1,900/ton mark. If zinc prices continue to stay at these levels, further losses could be in store. Quarter Avg. LME zinc price (US$/Ton) Quarterly gains/losses (Bt mn) 1Q11,395 13.45 Q11,54-6.70 3Q11,6-3.48 4Q11 1,897-159.0 1Q1,04-47.06 CY1 earnings outlook revised down to loss of Bt9.05mn To factor in the prospect of weak zinc prices, which would hurt operating performance, we trim our CY1 revenue outlook for PDI to Bt7,18.35mn. We also cut our full-year gross margin forecast for PDI to reflect an increasing proportion of zinc ore imports based on global spot prices. The above revisions prompt us to revise downwards our CY1 pre-fx earnings outlook for PDI to a loss of Bt9.05mn from a profit of Bt76.35mn. At current prices, we rate PDI shares a NEUTRAL with a downwardly revised target price of Bt1.40/share based on a P/B average of 0.66x. of 7
Dec-1 Sep-1 Jun-1 Mar-1 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Padaeng Industry - PDI Thailand Equities Research 6 July 01 Ratings History 30 5 0 15 10 Target Price Market Price Source: Bloomberg, PSR 5 1 3 4 5 Phillip Group Rating System Total Returns Recommendation Rating > +0% Buy 1 +5% to +0% Accumulate/Trading Buy -5% to +5% Neutral 3-5% to -0% Reduce/Trading Sell 4 >-0% Sell 5 Remarks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation 3 of 7
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