Fair value -> 10,875LAK, currently trading at 4,650LAK
As Laos continues to develop, utility companies will benefit from the growing populations and increasing infrastructure that’s able to carry products and services to more of the populous country. EDL is currently trading at 5x 2012F earnings with a 11% dividend yield (based on a 50% payout ratio). While highly geared at 92%, this will rapidly dissipate as the consistent earnings streams come through. Peers in the region are trading at 25x 2012F earnings and don’t have the growth profile that EDL does. EDL presents another opportunity to profit from a rerating and investors will be paid to hold it an wait.
Fair value -> 15,000LAK, currently trading at 6,950LAK
BCEL is in the right position to benefit from the increasing penetration of banking and subsequent loan growth in Laos. Loan penetration in Laos in 2010 was only just above 12% (Loans as a % of GDP), compared to the Philippines at 34%, Thailand at 86%, and Malaysia at 149%. As Laos develops, BCEL is ideally positioned to leverage the growth from increased foreign capital flows and debt penetration.
Currently, BCEL is trading on 6x FY2012E earnings, with 50% of pre-tax profits paid out as dividends, giving it a 12% dividend yield. Even if BCEL doesn’t rerate closer to ASEAN peers, which are trading on 13x FY2012E earnings and 3% dividend yields, investors will still be paid handsomely to hold it.
I believe that BCEL is worth 2x the current price on valuation metrics and considering the level of growth that it is going to experience in the next decade.
I’m beginning the journey investigating investments in Laos for a number of reasons. Firstly, when I recently visited the country, I noticed a massive amount of development compared to when I was last there in 2008. While the infrastructure still leaves a lot to be desired, it appears that Laos is beginning to get momentum. Secondly, there are only 2 companies listed on the exchange (BCEL, a bank and EDL, an electricity generation company) making the screening process easier. Thirdly, on my most recent visit to Vientiane I opened up a brokerage account giving me the ability to access this exotic market.