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Assumption University of Thailand

Martin De School of Management


FIN3711 Investment
Semester 2/2011 Term Project

Industry: Property and Construction (Construction Materials) Company: TPI POLENE PUBLIC COMPANY LIMITED
Submit to A. Marisa Section: 402
Tongxin Li Patcharapol W. Nathasak N. Nguyen Hong Ngoc Jian Li MD. Asjad Hussain 513-5710 521-0001 521-0121 521-5151 521-5518 521-5803

Executive Summary

This coursework is a part of our FIN3711 Investment subject for the semester 2/2011. The purpose of this project is to be able to analyze on a companys attractiveness by starting with finding information about the economic outlook, followed by analyzing the industry level to the analysis of the company and its stock valuation to determine the fair value. In this case, weve been assigned TPI Polene Public Company Limited (TPIPL) from the Construction materials sector. TPIPL is Thailands third largest cement manufacturer and hence we would be analyzing its performance to determine if we should buy or sell its stock. 1. Review the macro economy and forecast the interest and inflation rate for the next period. 2. Analyze the profitability of the construction and materials sector via Porters Five Forces model. These five forces of competition include competition from substitutes, competition from entrants, competition from established rivals and the bargaining power of suppliers and buyers. 3. Construct qualitative analysis of the company based on the information found by using SWOT analysis. 4. Perform quantitative analysis from the 3-year financial statements (times-series analysis) of the company to find the appropriate ratios needed to analyze the firms performance. 5. Obtain the required rate of return by using information of the market index and stock price from the last 60 months and their percentage change to get the beta, the real risk free rate from 10 years real GDP growth rate and forecasted interest rate from the economic outlook. 6. Find the intrinsic value of the companys stock through Discounted Cash Flow models and Relative Valuation Techniques. 7. Include recommendations for TPI Polene. 8. Apply Technical Analysis to help determine whether to buy/sell the companys stock.
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Table of Contents
Page
Part I: Economic Outlook Part II: Industry (Sector) Analysis
Five Competitive Forces

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Part III: Company Analysis and Stock Valuation 3.1 Company Analysis
Qualitative analysis on a company (SWOT analysis) Quantitative analysis on a company (Financial statement and ratio analysis)

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3.2 Stock valuation


Required rate of return (CAPM) Valuation of stock Recommendation

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37 39 41

3.3 Technical analysis

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Supplementary
References

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Page FIGURE 1.1: GDP forecasting 2012-2013 FIGURE 1.2: Detailed Summary of Forecasts FIGURE 1.3 Production Index FIGURE 1.4 Government spending details FIGURE 1.5 Foreign book orders vs. Export condition (3-mth expected) FIGURE 1.6 Thailand Imports FIGURE 1.7: Headline Inflation Projection 2012 FIGURE 1.8: Core Inflation Projection 2012 FIGURE 1.9: Thailand Interest Rate FIGURE 3.1: Balance Sheet FIGURE 3.2: Income Statement FIGURE 3.3: TPIPL Income Statement FIGURE 3.4: SCCC Income Statement FIGURE 3.5: TPIPL Long-term Trend FIGURE 3.6: TPIPL Medium Trend FIGURE 3.7: TPIPL Short-term Trend FIGURE 3.8: Looking Closely into Short-term Trend Using Moving Average Lines TABLE 2.1: Companies Total Assets TABLE 2.2: Market Share of Industry TABLE 3.1: LIQUIDITY RATIO TABLE 3.2: EFFICIENCY RATIO TABLE 3.3: FINANCIAL LEVERAGE RATIO TABLE 3.4: FINANCIAL LEVERAGE RATIO ADJUSTED TABLE 3.5: PROFITABILITY RATIO TABLE 3.6: PROFITABILITY RATIOADJUSTED TABLE 3.7: DUPONT ANALYSIS TABLE 3.8: Standard deviation of TPIPL TABLE 3.9: Table Standard Deviation of SCCC TABLE 3.10: Financial Risk Analysis TABLE 3.11: Percentage Change in Index TABLE 3.12: Percentage change in Thailand real GDP 15 18 27 28 30 31 31 32 33 35 36 37 37 39 5 6 7 8 9 10 10 11 12 25 27 35 35 43 44 45 46

Part I: Economic Forecasting


FIGURE 1.1: GDP forecasting 2012-2013

(Source: Bank of Thailand)

Under the baseline scenario, the Thai economy is likely to grow at low rate in 2011 due to the severe impact of the flood. The economy is then projected to rebound in 2012, as domestic demand picks up with reconstruction efforts, before external demand steps up its contribution in 2013. Office of the National Economic and Social Development Board (NESDB) reported that Thailands 3Q11 GDP expanded by 3.5% year on year, and 0.5% quarter on quarter. Growth was lower than the markets expectation of 4.5% year on year. GDP is expected to contract 1.9% year on year in 4Q11. NESDB forecast Thailands economy to grow 1.5% this year, revised down from its previous forecast of 3.5-4.0%. However, it kept its 2012 growth forecast at 4.55.5%. Thailand's central bank slashed its 2011 economic growth forecast to 2.6% from 4.1% because of flooding while still keep the growth in the year 2012 at 4.1%, as recovery from the preceding years low level of output will likely offset with the global economic slowdown.

Forecasting of GDPs Components The Thai economy in 2011 Q4 is poised to contract from the previous quarter, largely owing to the flood incidents starting late in the third quarter. The widespread floods have disrupted not only agricultural production in the Northern and the Central Region, but also activity in major industrial estates in Phra Nakhon Si Ayutthaya and Pathum Thani. These industrial areas, in particular, serve as major production bases for automobiles and parts, electronics products, and hard disk drives. FIGURE 1.2: Detailed Summary of Forecasts

(Source: Bank of Thailand)

The Thai economy in 2012 will recover from the flood on the back of domestic demand, while external demand is likely to soften with global growth prospect. Economic activity is projected to return to normal condition in 2012 Q3 Economic recovery will be supported by reconstruction and replacement spending, improved investors confidence, quick rebound on private consumption, and fiscal stimulus. Consumption [C] The Democrat Party has promised to raise farmers' income by 25 per cent through an income guarantee scheme. Pheu Thai Party has promised farmers a hefty Bt15,000 a tonne for paddy if it wins. That is 40 per cent higher than the Bt11,000 farmers obtain currently from the income guarantee program, a scheme implemented for two years by

the Democrat-led coalition. Higher income will stimulate higher consumption of household. (Source: http://www.nationmultimedia.com/2011/05/30/opinion/Policies-to-woo-farmerswill-hurt-them-the-country-30156523.html) Private consumption expanded 1.7 percent month on month, after contracting for three straight months in 2012. These improvements were due mainly to recovery work and the government's post-flood rehabilitation initiatives that have led to higher automobile sales and fuel consumption, while imports of capital and consumer goods also rose substantially, along with cement sales and value-added-tax collections. "To keep pace with the market competition, the bank decides to slash interest rates for loans and deposits in line with the Bank of Thailand's monetary policy," said SCB President Kannikar Chalitaporn. Then people would like to borrow more and spend more. (Source: http://www.nationmultimedia.com/business/Siam-Commercial-Bank-cuts-rates30176444.html)

Private Investment [I] FIGURE 1.3 Production Index

(Source: Bank of Thailand)

Improved confidence will support investment recovery and help bring manufacturing back to normal levels. After October of 2011 that the flood had happened, the production

index increased to 53.1. It shows high confidence of investors that would like to go back and invest to recovery their business. In particular, investment momentum will benefit from reconstruction and repair of production bases damaged by the floods, and also from businesses, preparation to accommodate the anticipated pick-up in demand after the floods recede.

Government Spending [G] Government spending plays a crucial role on economic recovery in 2012. FIGURE 1.4 Government spending details

(Source: Bank of Thailand)

Government will spend 400 billion Baht budget deficit in the fiscal year 2012, as the graph showed the consumption will expand by 10.4% year on year. General government final consumption expenditure (formerly general government consumption) includes all government current expenditures for purchases of goods and services (including compensation of employees). It also includes most expenditure on national defense and security, but excludes government military expenditures that are part of government capital formation. A new project of water management scheme that could improve on levee and drainage system, develop database and warning system, and develop flood prevention and mitigation system in critical and flood-prone areas will be introduced over 3years and expense 350 billion Baht. The project contributes 1.8% direct expenditure to help economic recovery in 2012. Moreover, Governments stimulus both through direct
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spending and measures including the rice pledging scheme, the minimum wage raise, and the reduction in corporate income tax.

Net Export [X-M] Exports will gradually resume their pre-flood trend in Q3 in line with manufacturing production, though global demand remains weak. FIGURE 1.5 Foreign book orders vs. Export condition (3-month expected)

(Source: Bank of Thailand)

Exports will improve with the revival of manufacturing production after the flood receded, especially for the high-tech sector, with its production bases yet to recover fully from the floods and advanced economies, demand expected to soften with the global economic slowdown, but will be partially offset by the slowdown in trading partners demand. As the data showed, the order of export has increased to 54.3 and export has increased to 55.6 that have much more capacity to fulfill the demand on December after flooding. With the production ability is recovering at this moment, the export ability will increased as a trend.

FIGURE 1.6 Thailand Imports

(Source: www.tradingeconomics.com/ Bank of Thailand) Imports contains machinery and parts, vehicles, electronic integrated circuits, chemicals, crude oil and fuels, iron and steel are among Thailand's principal imports. Its main import partners are: Japan, China, European Union, United States and Malaysia. Imports has decline at end of year 2011 due to the flood situation that less consumption or demand in domestic. At beginning of 2012, the data shows increased the demand of imports due to the recovery of economic situation by post-flood stimulates formulated by government to increased high consumption and high demand of goods and services. With the trend the imports will increase. Inflation forecasting FIGURE 1.7: Headline Inflation Projection 2012

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(Source: Bank of Thailand) Downside risk: Lower demand pressure if economic growth turns out lower than expected

Upside risk: Elevated crude oil price due to the conflict in the Middle East Accelerated spending and rising inflation expectations due to government measures

FIGURE 1.8: Core Inflation Projection 2012

(Source: Bank of Thailand) Downside risk: Softer oil commodity prices in the world market Weak demand pressure in case of slowdown in trading partners growth

Upside risks: Greater pass-through of production costs to consumers during recovery Accelerated spending and rising inflation expectations due to government measures

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Inflation pressures in 2011 Q4 are likely to lessen thanks to the governments reduction on oil fund levy and the extension of cost-of-living subsidy measures beyond the scheduled termination at the end of October. Under the baseline scenario, the Bank of Thailand projects headline inflation to be 3.8% in 2011, slightly lower than the previous projection. Core inflation forecast which excludes energy and fresh food prices stays unrevised at 2.4%, as pass-through of food prices from costs to inflation in 2011 Q3 was greater than expected. Inflation pressures in 2012 will remain elevated at 3.5% for headline inflation and 2.5% for core inflation despite the fact that pressures from oil and commodity prices should subside with the global demand slowdown. Pressures from rising input costs are bound to rise due to a number of factors. First, domestic labor costs will rise with the minimum wage hike at the rate of 39.5 percent starting in April 2012. Second, rice prices will rise due to the rice pledging scheme. And third, transportation costs should also rise if the government reintroduces the oil fund levy on gasoline and gasohol, as well as the excise tax on diesel fuel (terminated in August 2011). Besides these cost-side factors, demand pressures are also likely to build up amid recovery from the flood, pressuring inflation in 2012 further to the upside.

Interest forecasting FIGURE 1.9: Thailand Interest Rate

(Source: www.tradingeconomics.com/ Bank of Thailand)

The benchmark interest rate in Thailand was last reported at 3 percent. In Thailand, interest rate decisions are taken by The Bank of Thailands Monetary Policy Committee.
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The Monetary Policy Committee (MPC) assessed that the risk of a global economic slowdown has increased while consumer and business confidence remained weak. With upside inflation risks expected to be limited, the current accommodative monetary policy can provide further support to economic restoration and investment. The MPC therefore voted 5 to 2 to reduce the policy rate by 0.25%, from 3.50% to 3.25% per annum, with 2 votes in favor of a 0.50% reduction. But when the Thai economy is restored, the upside risk of inflation in 2012 could make the MPC to impose a higher policy rate according to the rise in inflation itself.

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Part II: Industry (Sector) Analysis


Porters Five Forces Model
The industry/sector intended to analyze is the construction materials (CONMAT). The firms in this industry are producers and distributors of materials used in building, both in private and government sector. In this construction materials segment, the dominating players are Siam Cement Plc (SCC mostly known as SCG), Siam City Cement Plc (SCCC), TPI Polene Plc (TPIPL), and Tisco Asphalt Plc (TASCO) Now the framework implemented to analyze the sector is Porters Five Forces model. This framework is divided into 5 parts as below.

Threat of New Entrants/ New Competitors (Low) Profitable markets that yield high returns will attract new firms, which eventually will decrease profitability for all firms in the industry except some kinds of barriers to entry exist. However weve concluded that there are fewer chances for new entrants to penetrate the construction materials sector due to the existing high entry barriers.

Below are some major factors of barriers to entry; 1. Economies of scale (high) With their dominance in the construction materials segment, big players such as SCC enjoy superior cost advantages as they operate on a large scale basis with economies of scale in utilization of assets that proves to be intimidating and unavailable to new entrants. Without economies of scale new firms are deterred to enter because they would be forced to come in on a large scale or to accept a cost disadvantage. 2. Capital requirements (high) The need to invest substantial financial resources in Construction materials segment in order to compete creates a barrier to entry. Capital is necessary not only for fixed facilities but also for customer credit, inventories, and absorbing start-up losses. Thus new firms could be discouraged to enter due to the big financial investment.

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TABLE 2.1: Companies Total Assets Company SCG (excluding chemicals and paper product line) SCCC TPIPL TASCO Source: www.set.or.th Total Assets (Million Baht) 85,814 25,934 71,874 14,065

The capital more than 1,000 million baht is almost impossible for normal firms to raise fund. On the other hand, it is not much the problem for very large multinational firms. 3. Product differentiation (medium to low) Construction materials offer lowdifferentiated products such as steel, cement and concrete to consumers so there can be indifferent views when selecting the firms to purchase for those basic products. For sure, the quality and specific characteristics of each material may be different, but it is possible and easy to substitute when technological development(e.g. synthetic materials). For example, not too long time ago, lumbers are one of the most important construction materials. Today, many kinds of new materials (mostly synthetic) can replace lumbers as Thai regulation is stricter in deforestation activities. 4. Brand Loyalty (high) Brand identification creates a barrier by forcing entrants to spend heavily to overcome customer loyalty because established brand is perceived with quality provided. It would be a long way to go for new entrants to be able to develop a trusted brand among customers who have become too acquainted to Siam Cement Group.

Hence the threat of new entrants is low for the construction materials sector because of high capital requirement and economies of scale, high brand loyalty and moderate to low product differentiation.

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Threat of Substitute Products or Services (Low)

The existence of products and services outside of the boundaries of the industry analyzed can increase the customers tendency to switch to such alternatives. For example, the substitutes for Coke and Pepsi are water, tea, or coffee.

The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The Construction material sector faces less or very unlikely competition from substituting products. It is like drinking water; homogeneous but difficult to substitute due to specific uses. Nevertheless it should be noted that construction materials threat of substitutes can be triggered by developments in technology advancement. The emergence of communication technologies with the likes of hot-decking and teleworking could replace the needs or influence the demands of infrastructure and buildings as a substitute.

Moreover, another common construction material is wood. Cement and wood have the same function. Nowadays, a use of wood are more and more limited due to the regulation of deforestation. Synthetic wood is also another substitute. Fortunately, manufacturing of synthetic wood need some cement (e.g. Conwood). So we implies that the demand of cement will gradually increase.

Bargaining Power of Customers/ Buyers (Medium to High)

This is the ability of customers to put the firms under pressure, which also affects the customers sensitivity to price changes. Customers have obstacles from changing brand, such as high customer switching costs (It is very difficult to replace steel and concrete with other materials when building a property).

There are only few big main players and it seems that they have enough power to dominate the price of products. According to the last flood, they help Thai people by not raising the price of their own goods. In order to do that, you really have to be a big player otherwise the price war will occur as the demand for construction material increases.
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The quality of various products is outstanding. As a result, local customers have not changed their loyalty for a long time according to annual reports of leading companies (i.e. TPIPL, SCC, SCCC,). Customers (mostly well-known corporations like LANNA, CONWOOD, etc.) do not seem to be sensitive to price. They emphasize on quality instead and these companies focus on the quality of products for a long time (more than 10 years). Besides, these companies also have good corporate social responsibility (e.g. local social development, environment friendliness, green manufacturing process, etc.) so they all have strong brand images. However, these leading companies in construction materials export in large amount so their international risks (for example; political risk, shipping risk, currency risk, commodity price risk, etc.) increases as the international sale increases. Hence the bargaining power of buyers is medium to high because of a number of large volume buyers and customers high switching costs.

Bargaining Power of Suppliers (High)

Suppliers of raw materials, components, labor, and services to the firms can be a source of bargaining pressure over the firms, e.g. suppliers can refuse to work with the firm or change excessively high prices for unique resources.

Most leading companies, such as SCCC, purchase raw materials from various local and international suppliers (e.g. Chemical substances form U.S. for SCC). Eventually, these companies focus on international suppliers, mostly no substitute inputs according to contractual constraints and specific qualification of materials. Before purchasing materials, the companies carefully select the source of materials in order to maximize quality of products. So it is quite obvious that if the main international suppliers have some problems in supplying inputs, companies will face a shortage. These companies cope with this problem by inventory management. Degree of differentiation of inputs differs amongst each company. Fluctuation in material prices always happens, such as crude oil for TASCO, coal for TPIPL, SCCC, and SCC, petroleum products like naphthalene, olefins, etc. In conclusion, the whole industry depends on these suppliers to provide quality and standardized materials and most companies do not have much bargaining power to manage supplies.
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Rivalry of Existing Firms (High)

TABLE 2.2: Market Share of Industry Company SCC SCCC TPIPL ASIA Cements Market Shares 38% 27% 18% 9%

Source: http://www.siamturakij.com/home/news/display_news.php?news_id=1497 http://www.scb.co.th/LIB/th/article/ktb/data/k8-38.html In some industries, firms compete aggressively sometimes to the extent that prices are pushed below the level of costs and industry-wide losses are incurred. In others, price competition is muted and rivalry focuses on advertising, innovation, and other non-price dimensions. 1. Concentration and Diversity of Competitors (high) Seller concentration refers to the number and size distribution of firms competing within a market. It is most commonly measured by the concentration ratio: the combined market share of the leading producers. The more number of leading players there are, the more the intensity of competition.

There are only few firms that have the leading market shares. It means that the competition type is Oligopoly which competition within an industry is high.

The extent to which a group of firms can avoid price competition in favor of collusive pricing practices depends upon how similar they are in terms of origins, objectives, costs, and strategies. If the firms with different origins (i.e. different countries) are gathered to compete with each other, some are clearly having absolute cost advantage and making the competition more intense.

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2. Product Differentiation (low) The more similar the offerings among rival firms, the more willing customers are to substitute and the greater the incentive for firms to cut prices to increase sales.

The main types of construction materials are concrete, cement, metals, wood, and plastics. Each one is very homogenous in nature but its specification for usage is somewhat different, for example, different types of structural steel cannot be easily replaced. However, the format of the materials specification is universal so two firms in different countries can produce the same construction materials, for instance, the same Ibeam steel bars. This means customers are relatively easy to switch between producers if the same specification of materials is available and firms are relatively easy to cut prices to boost sales. 3. Exit Barriers (high) Barriers to exit are costs associated with capacity leaving an industry. Barriers to exit may be substantial where resources are durable and specialized, and where employees are entitled to job protection.

To sum it up, all companies cannot safely exit easily due to many factors, such as a large number of expensive capital goods (e.g. high technological machines) which makes the liquidation process very difficult. Moreover, those goods are used specifically, so the liquidity natures of those assets are very low. The debt issue is also another immense setback. Long-term debt is paramount and also the most familiar one that we can obviously see from the financial statement of the leading companies. If the firms want to exit the market, they would have to settle all short-term and long-term debt immediately.

The high barrier to exit places a high cost on abandoning a product and hence firms are unable to leave the industry when the situation is not profitable anymore. If this happens, the competitive rivalry will increase enormously as firms have no other choices but to fight vigorously.

4. Cost Conditions: Scale Economies and the Ratio of Fixed to Variable Costs (high) When excess capacity causes price competition, how low will prices go? The key factor is cost structure. Where fixed costs are high relative to variable costs, firms will take on marginal business at any price that covers variable costs.
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As mentioned above, the firms in construction material industry have very high fixed costs in their cost structure. We can divide these costs into two categories: operating leverage costs and financial leverage costs. The operating leverage results from high investment in long-term fixed assets and the financial leverage comes from the heavy use of debt financing. Most firms in this industry have both in an extreme way especially for the financial leverage (the average firms have more than 2.0 in debt to equity ratio).

When firms have excess capacity and high fixed to variable cost ratio, they tend to produce more as much as possible to lower their cost per unit. If many firms do this simultaneously, they are making a price war. This means that even though firms in the industry now are competing for quality of products, there is a considerable chance that devastating price war can occur throughout the industry, destroying the profitability of all firms. In conclusion the rivalry among existing firms is high due to high concentration of players, high fixed costs and exit barriers and low product differentiation.

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Part III : Company Analysis and Stock Valuation


3.1 Company Analysis
Qualitative Analysis: SWOT Analysis

1. Strengths They are one of the most important internal factors that a company possesses and they pave the way for the companys success over the long-term. Strengths generally give a company a competitive edge over its rivals in its respective industry. TPI Polene possesses a number of strengths that play a crucial role in its successes: High Product Quality that Meet Global Standards All the Companys cement products meet the ISO/TIS certifications of industrial standards, ASTM Industrial Standards and EU Industrial Standards. Besides, TPI Polene (TPIPL) is the first cement manufacturer in Thailand, to have been awarded ISO 9002 Certification from the International Standard Institute for surpassing industrial and environmental protection standards. This enables TPIPL to export cement to California State, where surrounding communities are highly aware of the importance of environmental conservation.

High Operation Efficiency With technologically advanced machinery, TPIPL operates three cement production plants in a single and strategic location, adjacent to a limestone quarry, and an efficient transportation distribution network throughout the country. This gives TPIPL its low-cost competitive advantage over its competitors.
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Market Share and Production TPI Polene is the third largest cement manufacturer in Thailand and maintains the highest market share for mortar cement in the domestic market. In addition, TPIPL are the second largest ready-mixed concrete manufacturer in the country. As for TPIPLs plastic resin business, the Company has strengthened its position as a leading player, with the largest market share for LDPE and EVA in Thailand. In addition, the Company is the sole producer of EVA in Thailand-and one of the few producers of EVA in the world who can develop proprietary EVA production technology. 2. Weaknesses Weaknesses are the internal factors that inhibit a companys operations and adversely affect their chances of being successful in its industry. Weaknesses place a firm at a relative disadvantage to the competition. TPIPL possesses a few weaknesses: Low Financial Flexibility Financial flexibility refers to a firm's ability to take advantage of unforeseen opportunities or their ability to deal with unexpected events depending on the firm's financial policies and financial structure. TPIPL has a history of low financial flexibility, and concerns raised in the 2003 auditor's report about the total amount of outstanding debt, and several unresolved lawsuits and contingent liabilities, have caused the company's financial position to deteriorate in the event of adverse rulings by the court, negatively affecting the company's rating.

Window Dressing Issues Due to its vast amounts of outstanding debt and high accounts payable, TPIPL have supposedly relied on unethical actions through window dressing, where they have deceitfully altered information in their financial statements to better appeal to investors, resulting in intransparency in the information conveyed to the public. This has negatively affected the companys rating.
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3. Opportunities Opportunities are crucial to firms because they are the external situations and probabilities that can give the firm a chance to capitalize on either favorable economic conditions by increasing sales and earnings or take advantage of other companys weaknesses and setbacks. TPIPL can take advantage of a few opportunities: Thai Economic Recovery As the Thai economy slowly looks to recover from its flood-related ordeal last year, the increasing demand for concrete and cement in the domestic market as a result of prospective demand in real-estate products could give TPIPL an opportunity to expand its production and thereby significantly increase its sales and earnings revenue.

Barriers to Entry Due to the risky nature of the business coupled with a very high initial outlay requirement, TPIPL dont have to worry much about future competitive threats and can use its reputation in terms of sustainable market share to attract future investors giving it the opportunity to raise funds to financially support its day to day operations. Also the low threat level probability could help sustain TPIPLs monopoly of being the sole manufacturers of EVA in Thailand.

4. Threats These are the external factors that could inhibit a companys success by forcing the company to face tremendous losses, lose market share or even go out of business. Every company looks to overcome and prepare for threats in order to stay alive in its field of business. A few threats could significantly hamper TPIPLs operations and profitability: Industry Cycle Threats The cyclical nature of both the cement and petrochemical industries is a major threat factor to TPIPL. The volatility of the industry life cycle poses risk in terms of sales and profitability declines whenever the Thai economy slips into a recession and could also cause the companys operating performance to fluctuate.

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Competitors Although TPI Polene is the third largest cement manufacturer in Thailand and maintains the highest market share for cement in the domestic market, there are a number of competitors in the market. They are a competitive threat to TPIPL. In addition, price competition among cement producers due to excess supply and relatively high raw material costs will cause the profit margin of TPIPL to remain unsatisfactory.

Adverse Exchange Rate Fluctuations Besides domestic production, TPIPL is noted for being one of the largest Thai exporters of concrete, cement and EVA with the primary importers being the USA, Canada and Europe. Adverse fluctuations in the exchange rate, particularly the appreciation of Thai baht could hamper TPIPLs exports and thus its revenues from these exports. In fact, TRIS Rating reported that the flotation of the Thai baht, which resulted in the de facto devaluation, coupled with the contraction in demand for cement since the onset of the Asian financial crisis in 1997, badly hurt TPIPL's financial profile.

Recent European Crisis and Slow Growing US Economy Outside problems such as the recent European crisis and slow growing U.S. economy could threaten TPIPLs exports of cement, EVA and LDPE and thus its export earnings.

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Quantitative Analysis: Ratio analysis

FIGURE 3.1: Balance Sheet

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http://www.setsmart.com/ism/financialstatement.html

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FIGURE 3.2: Income Statement

http://www.setsmart.com/ism/financialstatement.html

TABLE 3.1: LIQUIDITY RATIO Liquidity Ratio Current Quick (Acid test) 2011* 1.59 0.43 2010 0.63 0.26 2009 0.52 0.22

Managers and creditors must closely monitor the firm's ability to meet short-term obligations in the near future by using the current sources of funds. The current and quick ratios are used to measure the firms internal liquidity.

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The result of the time-series analysis show that TPIPLs liquidity status has been increasing over the past three years. For the Current Ratio, the year 2010 saw that the firms ability to pay short term debt rose slightly over 2009 while 2011 has shown a significant improvement to 1.59, indicating that for every baht in current liabilities, the firm has 1.59 in current assets that can be converted to cash in the short term. Another indicator of a firms short term liquidity position is its Quick or Acid test ratio. The quick ratio takes only the most liquid assets of the firm into account (cash, marketable securities and net receivables) to pay immediate debt without using inventory(the least liquid asset). It can be seen that the firm has rising numbers of quick ratio, following the increasing trend of the current ratio. However it must be noted that the firms current ratio is significantly higher than its quick ratio, which is a clear indication that the companys current assets are dependent on sales of inventory. Additionally, the firms quick ratio in 2011 still hasnt reached 1.0 which further clarifies that the firm might have to issue stock or bond if the companys sales decline as they have insufficient liquid assets to meet short term needs. This proves to be a weakness of the firm. Thus we can conclude that although the TPIPL firms current ratio has improved significantly, its ability to meet short term obligations is still limited by the slow-growing quick ratio (the firm has built up too much inventory) and hence would need to convert inventories to cash or account receivables to improve its liquidity position. 2011* Data obtained from TPIPLs financial statements http://www.tpipolene.co.th/ENG/investment_2.html

TABLE 3.2: EFFICIENCY RATIO Efficiency Ratio Accounts Receivable Turnover Average Collection Period Inventory Turnover Inventory Processing Period Accounts Payable Turnover Accounts Payable Payment Period Cash Conversion Cycle 2011 13.13 27.42 2.29 157.37 8.82 40.83 143.95 2010 12.94 27.82 3.66 98.45 8.86 40.62 85.65 2009 12.82 28.09 3.59 100.15 8.74 41.18 87.06
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Fixed Asset Turnover Total Asset Turnover

0.40 0.34

0.38 0.34

0.35 0.31

Efficiency ratio measures the firms efficiency in using its resources (investments, assets) to generate sales. The Accounts Receivable Turnover ratio measures the number of times the firm can collect cash from accounts receivable within a year. The figures from the past three years data show that accounts receivables increase slightly in 2010 and rose considerably in 2011, indicating that the firm is more efficient in collecting its accounts receivables in the past year. This is further illustrated in the Average Collection Period ratio which represents the average number of days the firm uses to collect accounts receivables; 2011 saw a small drop in the average collection period ratio showing the firm takes lesser time to collect cash from credit sales of accounts receivables. Thus these two ratios confirm that TPIPL is quite efficient in generating sales from accounts receivables showing that the firm has a good accounts receivables monitoring system in terms of billing clients and receiving prompt payments. This is considered as strength of the firm. The Inventory Turnover ratio represents the number of times inventories are turned-over or replaced during a year. Not surprisingly, the ability of TPIPL to convert inventory into sales has declined significantly which conforms to the above analysis of the quick ratio where weve concluded that the firm held too much inventory (there is a decrease in the number of times inventories are being replaced). It should also be noted that the firm would need to spend heavily on the cost of carrying inventory, namely storage cost. Correspondingly, the Inventory Processing Period ratio shows amplification in the processing time of inventories, implying that TPIPL had to keep inventories on hand twice the time it did in 2009 and 2010. This is considered as a weakness of the firm. The Accounts Payable Turnover ratio shows investors how often payables are turned over during a year and also demonstrates how the firm handles its outgoing payments. The ratio exhibits a stable trend which means that the firm is making prompt payments to pay off its suppliers overtime which enhances the credit worthiness of the firm. This is further shown in Accounts Payable Payment period ratio which shows that TPIPL take approximately the same number of days as it did in 2009 and 2010 to pay its trade

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creditors. Thus the firm is paying its bills at about the same speed. This is considered as strength of the firm. The Cash Conversion Cycle (CCC) combines information from the receivables turnover, inventory turnover, and accounts payable turnover. This ratio can be used to measure the management effectiveness and illustrates the duration of time it takes a firm to convert its activities requiring cash back into cash returns.
CCC = Average Collection Period + Inventory Processing Period - Payables Payment Period

The figures show that the length of the cycle remained stable for 2009 and 2010 but increased dramatically in 2011 to nearly twice the number of days. In this case the firm has cash tied up for 144 days within the operations. Thus CCC further proves that TPIPL have too much inventory built up (possibly outdated ones) that cannot be sold. This is considered as a weakness of the firm. The Fixed Asset Turnover ratio measures the firms ability to utilize its investment in fixed assets to generate sales. For TPIPL, the ratios fluctuate very little with the final increase in 2011. This implies that the firm is slightly more efficient is using its fixed assets to generate sales but is yet to improve on its overall efficiency. Another ratio, the Total Asset Turnover ratio realizes the dollar amount of sales generated from each dollar invested. This is similar to the fixed asset turnover ratio but incorporates the total assets of the firms to generate sales. Despite being relatively stable from 2010 to 2011, the total asset turnover ratios are extremely low (.34 < ideal 1) showing that the firm has still has some difficulty in using its total assets due to poor assets management. This could be attributed to unproductive assets that the firm has been storing without generating any revenue for the firm. This is considered as a weakness of the firm. TABLE 3.3: FINANCIAL LEVERAGE RATIO Leverage Ratio Debt Ratio Interest Coverage 2011 0.14 45.85 2010 0.23 18.77 2009 0.23 21.54

The Financial Leverage ratio provides an overview to a companys method of financing and its long-term solvency. The Debt ratio indicates the extent to which the total assets of the firm have been financed using borrowed funds. From the first look, the firms debt
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financing has decreased in 2011 compared to the previous two years, implying that the firm uses lesser leverage to finance its total assets. However much of the reduction in the total liabilities is due to a lower provision for fine in 2011, a constitution of current liabilities. Hence this cannot be considered as a strength or weakness because it is unclear. The Interest Coverage ratio measures the ability of the firm to meet its interest payments from its operating earnings. For TPIPL, a triple increase in ratio implies that the firm has better ability to make its interest payments. However this is not due to the firms lesser reliance on long-term debt financing which subsequently reduced its financing costs. From the companys balance sheet we can see that the amount of long-term borrowings actually increased from 2010 together with TPIPL. In fact, the reason for higher interest coverage is the result of the company able to book reversal of provision for fine of B 6,900.3 M as nonrecurring profit after the Appeal Court dismissed a lower court verdict, making TPIPL wins the case. For further analysis we need to recalculate by subtracting the nonrecurring profit from earnings before interest and taxes to derive at the real interest coverage ratio. TABLE 3.4: FINANCIAL LEVERAGE RATIO --ADJUSTED Leverage Ratio Debt Ratio Interest Coverage 2011 0.14 16.27 2010 0.23 18.77 2009 0.23 21.54

This adjusted Interest Coverage ratio shows that TPIPL ability to meet its interest payments has actually exhibited declining trend overtime. This means that the company is generating lesser revenues to cover its interest payments. This is considered as a weakness of the firm.

TABLE 3.5: PROFITABILITY RATIO Profitability Ratio Gross profit Margin Operating Profit Margin 2011 0.27 0.44 2010 0.23 0.12 2009 0.22 0.25
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Net Profit Margin Return on Assets (ROA) Equity Multiplier

0.40 0.14 1.17

0.10 0.03 1.29

0.22 0.07 1.31

Profitability ratios show a firms overall efficiency and performance. It measures how well a company is performing by analyzing how profit was earned relative to sales, total assets and net worth. Gross Profit Margin ratio shows the management and ability of firm to minimize the firms cost of goods sold. It is represented by gross profit to net sales. There has been an increase in gross profit margin over time for TPIPL. This means that the firm has a greater ability to control its cost of goods sold and can generate more gross profit from sales. This is considered as strength of the firm. Operating Profit Margin ratio measures the overall operating effectiveness which reflects both cost of goods sold and operating expenses. The firms operating profit margin ratios exhibited a fluctuating trend, with a decline in 2010 and soaring in 2011. The final increase shows that the firm can control its cost of goods sold and operating expenses well. At the same time it implies that the company has an improvement in ability to generate operating profit from sales. This is considered as strength of the firm. Net Profit Margin reflects the remaining portion of revenues after paying all expenses together with the amount of net profit that can be generated from each baht of sales. The ratio has increased significantly to 0.4 in 2011 after declining in 2010, showing a great deal of improvement in the firms ability to generate net profit from sales. This means the firm has stronger ability to control its overall expenses (cost of goods sold, operating expenses, interest expenses and taxes). This is considered as strength of the firm. Note: We can see that TPIPL profitability ratios have been favorable for 2011. However since quality-financial statements must only reflect repeatable earnings, we should exclude the reversal of provision for fine which the company realized in 2011 from total earnings in the income statement. The following table reflects the firms real profitability status after the reduction of gain from the nonrecurring items. TABLE 3.6: PROFITABILITY RATIO--ADJUSTED

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Profitability Ratio Gross profit Margin Operating Profit Margin Net Profit Margin Return on Assets (ROA) Equity Multiplier

2011 0.27 0.15 0.12 0.04 1.17

2010 0.23 0.12 0.10 0.03 1.29

2009 0.22 0.25 0.22 0.07 1.31

The recalculated figures show that TPIPLs operating profit margin, net profit margin and its return on assets indeed improved in 2011, but not to the great extent as before deducting the reversal of provision for fine. Hence the firm has overstated its profitability status with the nonrecurring profit. DuPont Analysis DuPont Analysis is a technique that breaks down Return on Assets (ROA) and Return on Equity (ROE) into their component parts. Return on Assets (ROA) shows the after tax earnings of assets and is an indicator of how profitable a company is. Return on assets ratio is the key indicator of the profitability of a company. It matches net profits after taxes with the assets used to earn such profits. The calculation of ROE can be derived from 1. Net Profit Margin which measures the overall profitability 2. Total Assets Turnover which indicates the level of firms efficiency 3. Equity Multiplier which represents the amount of debt used to finance the assets ROE= Net Profit Margin x Total Assets Turnover x Equity Multiplier ROA TABLE 3.7: DUPONT ANALYSIS DuPont Analysis Net Profit Margin Total Assets Turnover Equity Multiplier 2011 0.12 0.34 1.17 2010 0.10 0.34 1.29 2009 0.22 0.31 1.31

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Return on Equity (ROE)

0.05

0.04

0.09

Return on Equity (ROE) measures the rate of return (%) that investors earn from net income from being shareholders of the firm. The small growth in TPIPLs ROE can be attributed to the following factors: 1. One of the factors that contributed to the growth of the firms ROE is the slight growth in Net Profit Margin 2. The firm was able to maintain the same Total Assets Turnover ratio as 2010 but hasnt shown improvement in utilizing its assets to generate sales. 3. The firm financed its assets with lesser proportion of debt, hence the decline in equity multiplier for 2011. As a result, the growth of TPIPLs ROE is reflected mainly in its ability to generate marginally higher profits and not from its continued low efficiency and lower debt financing. This also implies that the firm is not necessarily performing very well which could be attributed to the recent flood crisis in the late 2011 that has hampered the firms sales. The firm needs to improve strongly in its operating efficiency to help generate a higher return on equity for shareholders.

Quantitative Analysis: Risk analysis


Business Risk A business risk is a circumstance or factor that may have a negative impact on the operation or profitability of a given company, or put simply as uncertainty in a firms operating income. It can be measured by standard deviation of sales revenue or the coefficient of variation (C.V.). The two primary determinants of business risk are sales variability and fixed costs of production. Here we will use sales variability to determine the business risk. For this part, we will compare TPIPL risk analysis with competitor through cross-sectional analysis.

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FIGURE 3.3: TPIPL Income Statement

Average (X) = = 23,252.0758 Million Baht

FIGURE 3.4: SCCC Income Statement

http://www.setsmart.com/ism/financialstatement.html

Average (X) = = 18,590.3745 Million Baht TABLE 3.8: Standard deviation of TPIPL Year
2007 2008 2009

(xn-X) Million Baht


402,458.25 5,865.25 763,473.25

(xn-X)2 Million Baht


161,972,642,993.06 34,401,157.56 582,891,403,465.56
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2010

-1,171,796.75 (xn-X) n n-1 Variance (2) Standard Deviation ( )

1,373,107,623,310.56 2,118,006,070,926.75 4 3 706,002,023,642.25 840,239.27

TABLE 3.9: Table Standard Deviation of SCCC Year


2007 2008 2009 2010

(xn-X) Million Baht


1,779,277.50 13,098.50 -1,190,459.50 -601,916.50

(xn-X)2 Million Baht


3,165,828,422,006.25 171,570,702.25 1,417,193,821,140.25 362,303,472,972.25 4,945,497,286,821.00 4 3 1,648,499,095,607.00 1,283,938.90

(xn-X)
n n-1 Variance (2) Standard Deviation ( )

The coefficient of variation represents the ratio of the standard deviation to the mean. For TPIPL, when using C.V. by comparing the average of total revenue of 2007 to 2010 with standard deviation, the result will be 3.6136% (840,239.27/23,252,075.75). Also, the C.V of comparing the total revenue with the standard deviation, the result is 3.8054% (840,239.27/22,080,279.00) which is not different from the average. Therefore it can be concluded that the business risk of TPIPL is not high. FOR SCCC, when using C.V. by comparing the average of total revenue of 2007 to 2010 with standard deviation, the result will be 6.9065% (1,283,938.9/18,590,374.5). This means that SCCC has a higher coefficient variation compared to TPIPL. The lower the ratio of standard deviation to the mean return is better so it can be concluded that TPIPL has lower business risk than its competitors. Financial Risk

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Financial risk is risk that firms earnings available for shareholders may differ from expected due to firms fixed financing costs. TABLE 3.10: Financial Risk Analysis Risk Analysis (TPIPL) Debt Ratio Interest Coverage (Times Interest Earned Ratio) Cash Flow to Long-Term Debt Ratio Cash Flow to Total Debt Ratio 2011 0.14 16.27 0.71 0.24 2010 0.23 18.77 1.43 0.21 2009 0.23 21.54 5.43 0.12

The Debt ratio shows a decline in number for 2011 because the firm had a massive reduction in its provision for fine and hence it cannot be concluded that TPIPL uses more proportion of equity than debt to finance its assets. The Times Interest Earned ratio can show the ability of the firm to meet interest payments from its annual operating earnings. For TPIPL the number decline to 16.27 times implying that the company has lesser ability to meet its interest payments than in 2009 and 2010. Cash Flow to Long-Term Debt ratio is a coverage ratio that measures how much cash is available to pay for long-term debt. Over three years, TPIPL has a decline in its ratios from 5.43 in 2009 to 1.43 in 2010 and eventually 0.71 in 2011. This shows that the company has lesser ability to meet its fixed financing costs (interest expenses) and pay back to creditors due to a significant increase in long term debt financing. Additionally the Cash Flow to Debt ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The company improved its ability to pay its obligation in 2011 because of a significant reduction in current liabilities (provision for fine set aside by the firm)

3.2 Stock Valuation


Required rate of return (CAPM method) TABLE 3.11: Percentage Change in Index
Time Period Market Index %Change in SET Stock Prices %Change in

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February 28, 2007 March 30, 2007 April 30, 2007 May 30, 2007 June 29, 2007 July 31, 2007 August 31, 2007 September 28, 2007 October 31, 2007 November 30, 2007 December 28, 2007 January 31, 2008 February 29, 2008 March 31, 2008 April 30, 2008 May 30, 2008 June 30, 2008 July 31, 2008 August 29, 2008 September 30, 2008 October 31, 2008 November 28, 2008 December 30, 2008 January 30, 2009 February 27, 2009 March 31, 2009 April 30, 2009 May 29, 2009 June 30, 2009 July 31, 2009 August 31, 2009 September 30, 2009 October 30, 2009 November 30, 2009 December 30, 2009 January 29, 2010 February 26, 2010 March 31, 2010 April 30, 2010 May 31, 2010 June 30, 2010 July 30, 2010 August 31, 2010 September 30, 2010 October 29, 2010 November 30, 2010 December 30, 2010 January 31, 2011 February 28, 2011 March 31, 2011 April 29, 2011 May 31, 2011 June 30, 2011 July 29, 2011 August 31, 2011 September 30, 2011 October 31, 2011 November 30, 2011 December 30, 2011 January 31, 2012

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

(SET) 677.13 673.71 699.16 737.4 776.79 859.76 813.21 845.5 907.28 846.44 858.1 784.23 845.76 817.03 832.45 833.65 768.59 676.32 684.44 596.54 416.53 401.84 449.96 437.69 431.52 431.5 491.69 560.41 597.48 624 653.25 717.07 685.24 689.07 734.54 696.55 721.37 787.98 763.51 750.43 797.31 855.83 913.19 975.3 984.46 1005.12 1032.76 964.1 987.91 1047.48 1093.56 1073.83 1041.48 1133.53 1070.05 916.21 974.75 995.33 1025.32 1083.97

-0.51% 3.78% 5.47% 5.34% 10.68% -5.41% 3.97% 7.31% -6.71% 1.38% -8.61% 7.85% -3.40% 1.89% 0.14% -7.80% -12.01% 1.20% -12.84% -30.18% -3.53% 11.97% -2.73% -1.41% 0.00% 13.95% 13.98% 6.61% 4.44% 4.69% 9.77% -4.44% 0.56% 6.60% -5.17% 3.56% 9.23% -3.11% -1.71% 6.25% 7.34% 6.70% 6.80% 0.94% 2.10% 2.75% -6.65% 2.47% 6.03% 4.40% -1.80% -3.01% 8.84% -5.60% -14.38% 6.39% 2.11% 3.01% 5.72%

(TPIPL) 12.2 12.2 12.6 13.7 14.6 16.7 16.8 16.2 16 13.3 7.45 6.4 7.3 6.6 7.05 6.8 6 5.35 4.18 3.2 2.28 2.52 3.16 3.1 2.88 2.74 3.44 5.1 5.6 7.1 7.75 10.6 9.6 8.65 8.85 8.35 7.75 8.7 8.2 8.25 10.4 13.1 12.8 13 12.4 12.2 12.3 10.8 11 12 12.6 13.1 11.7 13 12.9 12.2 12.9 15.3 15.1 16.4

TPIPL 0.00% 3.28% 8.73% 6.57% 14.38% 0.60% -3.57% -1.23% -16.88% -43.98% -14.09% 14.06% -9.59% 6.82% -3.55% -11.76% -10.83% -21.87% -23.44% -28.75% 10.53% 25.40% -1.90% -7.10% -4.86% 25.55% 48.26% 9.80% 26.79% 9.15% 36.77% -9.43% -9.90% 2.31% -5.65% -7.19% 12.26% -5.75% 0.61% 26.06% 25.96% -2.29% 1.56% -4.62% -1.61% 0.82% -12.20% 1.85% 9.09% 5.00% 3.97% -10.69% 11.11% -0.77% -5.43% 5.74% 18.60% -1.31% 8.61%

Average monthly return Average annual return

1.09% 13.85%

Beta

0.3381

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TABLE 3.12: Percentage change in Thailand real GDP


Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Average GDP at constant 1988 price (Billions Bt) 3,008.4 3,073.6 3,237.0 3,468.1 3,688.1 3,858.0 4,054.5 4,259.0 4,364.8 4,263.1 4,596.1 3,513.5 %Change 2.17% 5.32% 7.14% 6.34% 4.61% 5.09% 5.04% 2.48% -2.33% 7.81% 3.10% 4.22%

*The average cumulative data from January - February. The rate of change is estimated by the Bank of Thailand.

Real risk-free rate = 4.42% Expected headline inflation = 3.50% Therefore, nominal real risk-free rate = 7.72% ( )

= 7.72% + 0.3381(13.85% - 7.72%) = 9.79% (Cost of equity or ke)

Cost of Debt (kd) We use implied cost of debt mentioned below as the firm does not issue any bonds. TPIPL's long-term debt (including current portion) in 2011 TPIPL's Interest Expense in 2011 Implied cost of debt in 2011 Cost of Debt, after-tax (kd) Weighted Average Cost of Capital (WACC) WACC = Weight of equity * ke + Weight of debt * kd = (0.9229 * 9.79%) + (0.0771 * 4.56%) = 9.39% 4,600,088,000 233,331,000 5.07% 4.56%

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Valuation of stock
Discounted Cash Flow Techniques:

1.) Present Value of Dividend (DDM)

2.) Present Value of Free Cash Flow to Equity (FCFE)

3.) Present Value of Free Cash Flow to Firm (FCFF)

Required Rate of Return (CAPM) Risk-free rate Beta Market Return Cost of Equity Weighted Average Cost of Capital (WACC) Weight of Debt After-tax Cost of Debt Weight of Equity Cost of Equity Cost of Capital (WACC) Growth Rate (Sustainable Growth Model) Retention Rate Equity Reinvestment Rate Reinvestment Rate Return on Capital (ROC) Return on Equity (ROE) Growth Rate (FCFE method) Growth Rate (FCFF method) Growth rate (for DDM method) Number of shares outstanding

7.72% 0.3381 13.85% 9.79%

7.71% 4.56% 92.29% 9.79% 9.39%

52.00% 12.16% -7.50% 5.35% 4.94% 0.60% -0.40% 3.14% 2,019,000,000


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Present Value of Dividend Dividend Discounted Model (DDM) Dividend Per Share (DPS) Growth rate (for DDM method) Cost of Equity Intrinsic Value per share (2011) Present Value of Free Cash Flow to Equity Free Cash Flow to Equity (FCFE) Free Cash Flow to Equity per share Growth Rate (FCFE method) Cost of Equity Intrinsic Value per share (2011) Present Value of Free Cash Flow to Firm Free Cash Flow to Equity (FCFF) Free Cash Flow to Firm per share Growth Rate (FCFF method) Cost of Capital Market Value of Debt Intrinsic Value per share (2011) 1.38 -0.40% 9.39% 2.28 11.81 0.22 0.60% 9.79% 2.45 0.55 3.14% 9.79% 8.30

Comparing Intrinsic Value of CPF to Current Market Price Method Present Value of Dividend (2011) Present Value of Free Cash Flow to Equity (2011) Present Value of Free Cash Flow to Firm (2011) Intrinsic Value 8.30 2.45 11.81 Market Price 30.75 30.75 30.75 Comparison Overvalued Overvalued Overvalued

All of these values compared to the current market price of CPF, we got overvalued stock as market price is higher than intrinsic value.

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Relative Valuation Technique (P/E)

Relative Valuation Technique Implied Price/Earning Ratio Market P/E 4.70 3.26

Notes: Market Price Earning Per Share (2011) 15.90 4.88

Recommendations According to the result of using three methods of Discounted Cash Flow Techniques: Dividend Discount Model (DDM)

Free Cash Flow to Equity Model (FCFE) Free Cash Flow to Firm Model (FCFF)

The result of those analyses is contradicted with Relative Valuation Technique. Most of those analyses indicated that Price of TPIPL Stock is OVERVALUED. As a result, you should sell TPIPL Stock. (Market Price > Intrinsic Value)

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3.3 Technical Analysis


FIGURE 3.5: TPIPL Long-term Trend

If you are looking at long-term trend, in this case the 3-year period, stock price is recently moving in the sideway even though the trend is upward for the whole 3 years. I would suggest you to wait and see for a while because the trend can be either up or down. Since you have already passed the buying point in October, 2011 already, the point at which it reached resistant level, you should wait for the coming signal. But if you invest with buy-and-hold strategy, it would have nothing to be afraid since the price will appreciate as there has been an upward trend.

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FIGURE 3.6: TPIPL Medium Trend

If you are considering medium-term (within a year), you can see that the current trend is changing into bearish form. The downward trend can be substantial or the trend will rebound and become the higher upward trend. The price itself is hitting the support line drawn horizontally from December, 2011 so waiting to see the further movement of prices is the best strategy for this time. We should not think that the price becomes cheap so we should buy now because the price can become cheaper consistently.

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FIGURE 3.7: TPIPL Short-term Trend

If focusing at the short-term trend (3-month period), it is quite obvious that the trend is bearish now. And now it is reaching the support line as mentioned above. If we invest at this point, the chance of loss will be large when there is a break-out of support line. For speculation purpose, we should not buy now unless our strategy is to only look at long-term trend.

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FIGURE 3.8: Looking Closely into Short-term Trend Using Moving Average Lines

Now we use moving average (MA) lines to support our technical analysis in Short-term trend. MA line represents the average price over past period. When short-term MA is above long-term MA, there is a bullish signal for buying stock. When short-term MA is below long-term MA, there is a bearish signal for selling stock. In this case, we apply MA10, MA20 and MA40. The blue line represents MA10, the purple line represents MA20, and the red line represents MA40. From the figure, the short-term lines (MA10 and MA20) now are below the MA40 line. This makes the bearish signal very strong especially in short-term. If we buy TPIPL stock now, the loss will possibly incur. But from the long-term trend mentioned earlier, this bearish signal may or may not be strong enough to affect the bullish long-term trend. To sum up, the technical analysis of TPIPL cannot be concluded as many signal contradicted to each other. As the result, we focus the analysis mainly on fundamentals.

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Supplementary
References

http://www.gotomanager.com/resources/?menu=resources,company&m=profile&n=1&p h=1&id=788 http://www.blogth.com/blog/Financial/Marketing/8193.html http://www.positioningmag.com/magazine/Details.aspx?id=66436 http://news.mjob.in.th/realestate/cat6/news546/ http://www.siamturakij.com/home/news/display_news.php?news_id=1497 http://www.tpipolene.co.th/Document/finance_mangement/20112554/LetterT/AR%20TPIPL%202010%28t.%29S.pdf http://www.dmr.go.th/news_dmr/data/0772.html http://www.scb.co.th/LIB/th/article/ktb/data/k8-38.html http://www.rmutphysics.com/charud/transparency/9/metal/4/4.files/frame.htm http://www.siamturakij.com/home/news/display_news.php?news_id=1497 www.oie.go.th/industrystatus1/r_s45_46/s45_46_9_9.doc http://www.tpipolene.co.th/Document/Annual%20report/2011-54/TPIPLT2.pdf http://www.newswit.com/.fin/2006-03-01/t4-66407/ http://www.newswit.com/.fin/2007-07-27/5b049eea841b980306b6a4488da94a07/ http://www.newswit.com/fin/2008-03-10/0145-24b8e8f589d7eed8ec84e72dc3d/ http://www.newswit.com/fin/2010-07-14/e02878eb981e57c10844d339ef99f1f2/ http://202.57.163.2/kelive/userview/DetailPage.jsp?cntry=TL&lang=en&cat=SF&contId =7785 http://www2.bot.or.th/statistics/ReportPage.aspx?reportID=409&language=eng http://www.setsmart.com/ (login required) http://www.chaloke.com/ (login required) http://www.newswit.com/.fin/2007-07-27/5b049eea841b980306b6a4488da94a07/ http://www.newswit.com/fin/2008-03-10/0145-24b8e8f589d7eed8ec84e72dc3d/ http://www.newswit.com/fin/2010-07-14/e02878eb981e57c10844d339ef99f1f2/ http://www.positioningmag.com/magazine/Details.aspx?id=66436 http://www.rmutphysics.com/charud/transparency/9/metal/4/4.files/frame.htm
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http://www.positioningmag.com/magazine/Details.aspx?id=66436 http://news.mjob.in.th/realestate/cat6/news546/ http://www.scb.co.th/LIB/th/article/ktb/data/k8-38.html http://tha.sika.com/th/group/Aboutus/SikaProfile/innovation/products_and_technologies/ construction_chemicalsandmortars.html http://www.asiawood.com/shera.html http://www.conwood.co.th/th/faq.asp http://www.engineeringtoday.net/magazine/articledetail.asp?arid=539&pid=74 http://www.siamcement.com/th/ir/ar.html http://www.tpipolene.co.th/Document/finance_mangement/2011-2554 /LetterT/AR%20TPIPL%202010%28t.%29S.pdf http://www.siamcitycement.com/downloads/yearly_reports/2010/AR-TH.pdf) http://www.manager.co.th/mgrweekly/viewnews.aspx?newsID=9540000140083 www.oie.go.th/industrystatus1/r_s45_46/s45_46_9_9.doc http://www.blogth.com/blog/Financial/Marketing/8193.html http://www.positioningmag.com/magazine/Details.aspx?id=66436 http://news.mjob.in.th/realestate/cat6/news546/ http://www.siamturakij.com/home/news/display_news.php?news_id=1497 http://www.scb.co.th/LIB/th/article/ktb/data/k8-38.html http://www.rmutphysics.com/charud/transparency/9/metal/4/4.files/frame.htm http://www.dmr.go.th/news_dmr/data/0772.html http://www.siamcement.com/th/ir/ar.html http://www.tpipolene.co.th/Document/finance_mangement/2011-2554 /LetterT/AR%20TPIPL%202010%28t.%29S.pdf http://www.siamcitycement.com/downloads/yearly_reports/2010/AR-TH.pdf http://www.dmr.go.th/news_dmr/data/0772.html

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