TPI Polene: solid growth prospects

TISCO Securities has reinitiate coverage of Thai cement producer TPI Polene with a ‘Buy’ based on exciting growth prospects.

Coverage on TPIPL is reinitiated with a 'Buy' rating as the company is expected to post strong three-year CAGR in normalised profit of 160 per cent. Key earnings drivers are: 1) its expansion into alternative fuel power plant with a total capacity of 199MW over the next three years; 2) a 50 per cent increase in its cement capacity from investment in its fourth cement line scheduled to start operations in mid-2015; and 3) expansion in other related businesses.

Power plant and cement expansion drivers
TPIPL's business model has drastically changed as it has expanded into the power business, notes TISCO. The company began selling 18MW power from its waste heat recovery power plant at its cement line 1 to EGAT in January and will sell another 55MW from its Refuse Derived Fuel (RDF) plant in July this year (PPA signed). Its power capacity will rise by another 90MW in 2017, of which 60MW is from its second RDF plant and 30MW from the waste heat recovery power plant from its fourth cement line. These power plants receive THB3.50 adder on the electricity tariff for seven years so the project's IRR is high at 30 per cent. Profit from the power business will be as high as THB929m, THB1.45bn and THB3.3bn in 2015-17.

Strong earnings growth driven by capacity expansion and power business TPIPL's cement earnings should also grow materially as its cement capacity will increase by 4.5Mta (+50%) in mid-2015F. Though this will raise the country's supply by eight per cent, TISCO Securities do not expect to see severe price competition as demand growth and strong export demand should be able to absorb the additional supply.

TPIPL's net profit growth before tax for its construction materials business is forecasted at 21, 31 and 13 per cent in 2015-17 driven by capacity addition and lower energy costs in line with lower oil prices. Altogether, TISCO notes its forecasts suggest that TPIPL should post strong consolidated normalised earnings growth of 415, 89 and 81 per cent in 2015-17 (three-year earnings CAGR of 160 per cent).