Key stories of the day

Stocks to watch today (PPS: The smallest company I have ever recommended but could just be the best thing out there)

• In my effort to find companies related to the construction sector I came across this tiny B500m Mkt Cap company which is nothing less than a Diamond hidden away in the pits of Africa.

• The stock got my attention as the stock has been on the rise over the past few days which forced me to do some homework on it and I am glad I did it.

• Little is known about this company PPS or Project Planning Service which is Thailand’s largest construction consultant company.

• PPS provides comprehensive services on all aspects of project management from initial conception to completion of the project including continuation of services and maintenance tasks. Currently, PPS project management services include

• What the company does is it acts on behalf of the owners to look after construction project.

• Or in lay-man terms I want to build a house but before I get a blue print or hire a developer I hire PPS to consult on everything so I have the best service and my cost is kept under controlled.

• Now take that to the country scale. From government infrastructure projects to Central Embassy to Tesco Lotus express PPS is hired across all major sectors as a consultant (see email for there entire portfolio)

• Company Background in a snapshot

• When we look at potential projects from the government sector. Conservatively 2016-2017 will see as much as B300bn worth of infrastructure projects being awarded with expected timeline of completion between 3-4 years.

• On an average basis 1.75-2% of total cost is consulting fees which means that the cake for this business is as much as B5.2-B6bn spread over a period of 3-4 years.

• With PPS having a market share of 30-40% in this segment we could expect revenues of as much as B300-400m per year from government sector alone.

• From the private sector side PPS has been the consultant of choice for the likes of CPN, TESCO, Crown Property Bureau, AP and many more.

• Currently the company sits on a backlog of B522m over a period 3 years with the main portion of it coming from AOT phase 2.

Apart from being in the right sector at the right time we absolutely love PPS for the five reasons below

o The beauty of PPS lies in its cost structure. The company has about 300 employees with

each employee capable of generating B1-1.5m in yearly revenues.

o As seen from below chart the company’s cost has been stable at B180-200m per year with

additional SG&A of B60-70m which means that any revenue generated above B270bn directly comes into the bottom line.

o In addition the company has the capability to do as much as B350-400m in revenues before it

will need to hire additional people which means that in the best case scenario the company can generate as much as B100-150m without any additional costs.

o The company sits on a cash balance plus cash pledged at B146m or B0.3/share or

nearly 30% of its current share price.

o Based on the company’s 9M16 earnings the company has made a net profit of B15.9m on

track to match its record high earnings generated in 2013. With secured Backlogs coming in starting 2H16 we expect a record year for 2017 with potential earnings reaching to the tune of B40-50m or an EPS of B0.08-B0.1/share. Based on construction companies trading at 20-30x we can expect a significant upside in 2017.

o While it’s hard to put any valuation on PPS but the best example would be to look at

Stonehenge which was bought by Uni Ventures (UV). UV bought a 35% stake in the company for B400m. Stonehenge is half the size of PPS with 140 employee’s vs 300 for PPS. Based on UV’s acquisition price, Stonehenge is valued at B1.1bn or B8.1m per employee. Based on

the same calculation PPS would be worth B2.4bn or more than 4x the current market cap.

o http://www.dealstreetasia.com/stories/thai-realty-firm-univentures-buy-35-stake-local-co-11-

26m-45582/

o http://stonehenge.co.th/2014/index.php/construction-management

o Also do note that PPS is not a typical small company with cooperate governance

concerns. The company has an excellent management team and is flooded with all the available awards despite being a small cap company and has also been awarded with 5 star Excellent CG scoring.

Market Wrap by ASP (22 December 2016)

• SET saw further profit taking today as most big caps saw gains being locked ahead of the holidays. SET closed down 4.45 points or 0.29% at 1504.12 with B27bn worth of shares traded.

• Commerce led the weakness closing down 0.76% with Construction down 0.69%. Banks outperformed closing up 0.27%.

• All three major parties were sellers today led by foreigners selling B786m with Local funds selling B378m and Prop desks selling B249m. Retail were sole

• Buyers at B1.4bn.

• Top movers were

• AMA newly listed IPO was the most actively traded stock at 10.95% closing up 55.16% above its IPO price.

• GL remained in the most active names closing down 4.64%.

• TISCO closed up 2.2% as the company acquired Standard Chartered Thailand’s Retail banking business which is expected to be earnings accretive. More details to follow.

Overnight summary (Bloomberg, CNBC)

• Dow fell 23.08 points, or 0.12%, to close at 19,918.88

• S&P 500 dropped 4.22 points, or 0.19%, to end at 2,260.96

• Nasdaq slipped 24.01 points, or 0.44%, to close at 5,447.42.

• WTI settled up 46 cents, or 0.88% to $52.95 a barrel.

• U.S. Treasury’s fell on Thursday, with the benchmark 10-year note yielding 2.55% and the short-term two-year note yield trading at 1.18%.

• The dollar held slightly higher against a basket of currencies, with the euro near $1.044 and the yen around 117.5.

• On the data front, Initial jobless claims jumped to 275,000 last week, with economists polled by Reuters expecting them to total 256,000. Durable goods orders for November fell 4.6% last month, less than expected.

• Meanwhile, the final read on third-quarter U.S. GDP came in at 3.5%, above the expected 3.2%.

• In Europe, concerns surrounding the region's banks remain. Earlier on Thursday, the Italian government approved a $20.8 billion bailout for Monte dei Paschi, one of Italy's largest lenders and the oldest bank in the world.

• News about the rescue fund came a day after the bank said it could run out of cash in around four months.

• Thai ETF closed down 0.34%

• Indo ETF closed down 1.74%%

• MSCI Emerging market ETF closed down 1.19%

• Key events today

• 10:00 a.m. New home sales

• 10:00 a.m. Consumer sentiment

Avin Sony