Stock Breakdown: Tipco Asphalt

A highly cyclical stock linked with international price of crude and asphalt. 

During the lockdown of China and Malaysia in 1Q, its asphalt sales suffered which led to reduction of asphalt production from its plant in Malaysia – which contributes over 70 per cent of TASCO’s revenue. 

Like many companies holding inventory of oil or oil related products, TASCO booked unrealized inventory loss in 1Q20 due to a sharp fall in oil prices. In 2Q20, it will post inventory gain as oil prices have recovered and international price of asphalt has doubled from low of US dollar 170 per ton seen in March, primarily due to the sudden demand from countries coming out of lockdown and reduced supply from countries still under partial lockdowns. 

Analysts estimates of profit of 1.3 billion baht from reported loss of 785 million baht in 1Q20. TASCO’s business is highly commoditized which leads to volatility in quarterly earnings. This makes it difficult to determine an appropriate valuation benchmark. 

We advise our readers to invest in this stock only if you can predict where the oil price will go and how quickly demand for asphalt will return to normal level. We advise our readers to sell the stock when good profit for 2Q is reported. 

Reality Check: Mega infrastructure projects by the government have little impact on company earnings.

The chart below shows share price often runs ahead of quarterly profit.

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