Stock focus:TPI Polene
KGI Securities (Thailand) has maintained a "neutral" recommendation on TPI Polene stock.
According to the brokerage, after a massive cash call in July to prepay its debt under the master restructuring agreement, TPIPL's financial position is becoming stronger. Moreover, it plans to refinance its outstanding debt under the agreement to stretch the debt's tenor to seven years, thereby freeing more cash flow for investment and dividend payments. In addition, should the debt-repurchasing programme be dissolved, a hidden gain of Bt2.4 billion could be realised. Domestic cement consumption should improve by the end of 2007, while the LDPE-ethylene spread is poised to go up following the softening ethylene price. While full-year 2006 performance is likely to be dismal given its disappointing earnings in the first nine months, KGI Securities expects TPIPL's 2007 core earnings to grow by a substantial 48.9 per cent. This forecast is based on the following assumptions: TPIPL successfully raises Bt10 billion from local syndicated lenders with an interest rate of 7.25 per cent per year and a tenor of seven years; it exits rehabilitation by 2008, thereby saving legal fees and selling, general and administrative expenses; it enjoys cost savings from its heat recovery plant of Bt510 million per year (20 per cent lower than management's estimate) starting in late 2008. Despite the good news, the upside potential is limited to 11.2 per cent after the recent share price rally. Therefore, KGI Securities maintains its "neutral" recommendation.
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