Saturday, 12 December 2015

Dolomite - Earnings Will Soon Explode Like Dynamite

Author: Icon8888   |   Publish date: Thu, 10 Dec 2015, 02:09 PM

Executive Summary
(1) Dolomite is principally involved in building material, property development and construction. It was the type of half dead company that looked like will never perform.
(2) However, in  2011, it diversified into steam and thermal power generation in Shandong Province, China. Construction cost for the plant was approximately RM197 mil. The power plant has been commissioned and started production in July 2015. Going forward, this division will provide a significant boost to earnings.  

1. Background Financials 

Based on 276 mil shares (assumed full conversion of 12.7 mil RCPS) and share price of 38 sen, the company's market cap is RM105 mil.

Annual Result:
F.Y.Revenue ('000)Profit Attb. to SH ('000)EPS (Cent)PE

The group has not performed well in the past few years. Based on net profit of RM7.39 mil for FY2014, historical PER is approximately 14 times. However, going forward, earning is expected to grow substantially as the steam and power generation business starts contributing.

The group's performance over past few quarters is as set out below :-

The group's gearing is a bit high. Based on net assets of RM176.5 mil and net borrowings of RM345 mil, gearing is approximately 2 times. The bulk of the loans are project financing related to the China power plant business.

2. Details of the Shandong Steam & Power Generation Project

In 2006, Dolomite obtained the right to develop a power plant in Linpan, Shandong, PRC from a company called Xin Yuen Xin Realty Limited ("XYX") at no cost.

XYX has secured all requisite approvals for the power project from authorities in 2002. However, it was unable to secure financing as the PRC government has in 2004 pohibited lending by local banks to finance certain industries (of which power generation was one of them) with the objective of cooling down the economy.

The project is 100% owned by Dolomite.

In 2011, Dolomite officially kicked start the project after securing financing from Maybank. 

The duration of the concession granted by the Shandong provincial government is 50 years.

The project involved the construction of a coal fired thermal power plant, comprising he followings :-
(a) three units of boiler with a capacity of 75 tonnes per hour each;
(b) two units of turbine;
(c) two units of generator of 12 MW each (total capacity 24 MW). 

Upon completion, the plant will produce steam and electricity whereby the steam will be sold to factories in the vicinity and the electricity will be sold to Shandong Electric Power Corporation (a wholly owned subsidiatry of State Grid Corporation of China).

The company expects steam and electricity to contribute approximately 75% and 25% respectively of the revenue to be generated from the plant.

In the latest September quarterly report, the company indicated that the steam and power plant started production in July 2015. Please refer below :-

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