Advance Paint and Chemical
(Thailand) Plc (APC) reported 4Q02 net profit of Bt13.5mn
(EPS of Bt0.17). However if excluding the gain from reversal
of loss from impairment of assets of Bt14mn and other
extraordinary charges, the company would have posted net
profit of only Bt0.405mn (EPS of Bt0.01).
For the full-year 2002, APC
posted a net profit of Bt608mn (EPS of Bt7.58). However,
this was largely due to a Bt611mn gain from debt
restructuring. If we take out this and other extraordinary
items, APC would have incurred a net loss of Bt9.1mn.
According to SET rules, APC
can move out of the rehabco sector and back into the
building materials sector once its book value turns positive
and the company records a net profit for one quarter. APC
has now completed this requirement.
The management expects the
company will start generating a profit from operations of
Bt61mn with sales increase from Bt28mn to Bt250mn. This
forecast is based on the company reclaiming lost market
share by moving more aggressively into the industrial paint
market. The management expects to achieve a market share of
1.56% next year, increasing to 5% by 2007. We caution
investors, however, that the company may not be able to
fully achieve its sales target and earnings forecasts.
APC's share price adjusted
down from Bt6.40 to Bt3.88 when the stock went XW on
December 24, 2002. At first glance, the stock doesn't look
excessively priced on a 2003 PER of 9.33x, EV/EBITDA of
8.08x and P/BV of 1.77x. However, we are largely using the
company's own sales and earnings targets.
Also, we must take into
account the massive dilution of full warrant conversion
since the warrants are in the money. Assuming full
conversion, our DCF model produces a fair value estimate of
Bt3. Given the stock's current premium over fair value and
the fact that there are more attractively priced stocks in
the market with stronger fundamentals, we recommend
investors to "AVOID"
APC shares.
