Recommendation: Take profit

Securities house: Kim Eng Securities (Thailand)

Despite the fact that zinc prices are expected to remain high this year, domestic demand is expected to fall, affecting the company's bottom line.

Zinc prices have jumped 79 per cent from last year's average of US$1,382 (Bt53,600) per tonne to $2,473, due to strong demand in China and lower supplies. Some mines have been forced to close after prices tumbled to $700 or $800 per tonne.

But, the broker says investors should know that Padaeng Industry will not reap full benefits from the higher prices as it has already hedged about 30,000 tonnes, or 30 per cent of existing production, at $1,423 per tonne - well below the current spot price.

As well, Padaeng Industry has reduced zinc ore imports, which account for 50 per cent of its current production, to rein in costs from skyrocketing ore prices and a narrower treatment charge spread. Therefore, the company will enjoy higher prices for a spot volume of only about 20,000 tonnes, or 20 per cent of its total production.

As a result, the broker expects Padaeng Industry to report earnings growth of only 3 per cent, to Bt577 million.

Stock: Quality Houses Plc (QH)

Recommendation: Hold

Securities house: DBS Vickers Securities (Thailand)

Quality Houses will again attempt to sell its office building, Q-House Lumpini, to a property fund by the third quarter, despite failing in a similar bid last December.

The company blames bad timing for the failure, because most investors were away in December. It plans to select a new property fund manager in the third quarter.

Currently, the building is fetching high monthly rental rates between Bt700 and Bt750 per square metre, which place its value at Bt5 billion, up from Bt4.5 billion last year, calculated on Bt650 per sqm.

The broker expects Quality Houses' rental income to surge this year, led by the new Q-House Lumpini office building, with 58,254 sqm of office rental area and 9,973 sqm of retail space. Since opening two months ago, the building has achieved an occupancy rate of 50 per cent. This is expected to rise to 60 per cent by mid-year and to 80 per cent or 90 per cent by the end of the year.

The broker expects Quality Houses' near-term outlook to be weak. Home sales are slower this quarter and tax rates higher, but its long-term outlook remains positive.

Quality Houses plans to launch 15 projects worth Bt17 billion from May onwards, which should boost its sales in the second half.

The broker has set a target price of Bt1.45 for the stock.

oranan@nationgroup.com