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Published on April 7, 2008

A "sell" recommendation remains on the stock of Padaeng Industry, a local zinc miner and smelter, unless it can find a new strategic partner, an analyst at Phillip Securities said late last week.

Trading in Padaeng's shares was halted in Friday's morning session and suspended in the afternoon by the Stock Exchange of Thailand due to a big lot sale of 46.9 per cent worth Bt6.45 billion by the company's major shareholders, Umicore and Nyrstar. The size of the transaction could have disrupted trading in Padaeng's shares.

"If the newcomer is in the zinc mining industry and can support Padaeng's growth, its stock might be upgraded," said Siam Tiyanont, the Phillip Securities analyst.

Padaeng's 2007 fourth-quarter revenue dropped 12.75 per cent on year to Bt2.59 billion due mainly to the falling price of zinc as well as the appreciation of the baht by 7 per cent, Siam said. The company's full-year sales volume was up 7 per cent to 101,325 tonnes, but the zinc price was down 1 per cent.

Phillip Securities was bearish on Padaeng's 2008 results, considering the unfavourable price of zinc and the delay in the renewal of the company's concession for its zinc mine in Tak.

With 2007 net profit sliding 47 per cent to Bt930 million on the sagging zinc price, Padaeng was also tagged as a "trading sell" by Kim Eng Securities' research unit.

Brokerages are not keen on Padaeng's performance outlook for this year either, given the downward trend of zinc prices. Zinc is being quoted at US$2,315 per tonne, down 29 per cent from the average price of last year, according to Kim Eng Securities.

Padaeng also posted a net loss of Bt35 million for the fourth quarter of last year, compared to a net profit of Bt522 million in the last quarter of 2006, due mainly to the 38-per-cent decline in the zinc price to $4,204 per tonne.

The suspension of operations at the Tak mine caused by the end of the concession has resulted in a sharp fall in the company's stocks of zinc ore and silicates. Padaeng's fourth-quarter zinc inventory was down 49 per cent on year, meaning that the company had to import zinc ore at high prices for smelting.

Kim Eng Securities noted that Padaeng's gross margin was getting squeezed in the fourth quarter, falling to 6 per cent from 28 per cent in the last quarter of 2006.

However, the brokerage said the renewal of Padaeng's Tak concession was expected to come through this quarter.

Kim Eng also revised down its forecast of 2008 net profit for Padaeng by 14 per cent to Bt682 million, or Bt3.02 a share, resulting in a downgrade in Padaeng's price target from Bt35 to Bt30 a share.

Sasithorn Ongdee

The Nation