Defensive stocks

Energy firms benefit from quasi-monopoly status and generally provide stable returns on investment in the long term

The energy sector remains promising with stable revenues in the long run, but in terms of returns to investors, a handful of listed companies in the sector stand out. They include Unique Gas, Banpu Plc, Lanna Resources and PTT Exploration and Production Plc.

But only Unique Gas and Petrochemicals Plc, Banpu and Lanna offered positive returns to investors who held all of their stocks over the past three years, when the country was just beginning to climb out of its economic slump.

Unique Gas, acquired earlier this year by the British industrial gases giant BOC Group, led the one-year table with a return of 175%. It was followed by Siam United Services Co at 77% and Banpu at 58%. Debt-ridden Bangchak Petroleum was at -60% over one year and -20% over five years.

Prapharat Tangkawattana, head of Banpu's corporate finance unit, said energy businesses such as power plants, mines and gas producers enjoyed steady revenue streams under long-term purchase contracts lasting a decade or more.

Oil companies, if well-managed, could enjoy not only healthy long-term revenue but also high growth since they have a lot of cash for business expansion, she said.

As well, the nature of the energy business is that it is a quasi-monopoly. With the country's resources still abundant, companies in the sector were in a position to enhance returns.

Ms Prapharat said Banpu had a policy to sustain earnings growth. One approach has been to make its financial structure more flexible by rescheduling debt repayments over longer terms, allowing the company to prepare financial plans in advance and expand business and investment continuously.

She said the continued earnings growth would improve capital gains for investors. But whether the stock is worth investing in would depend on how much of a return investors expected. Banpu's policy is to pay out 60% of net profits in dividends.

PTTEP president Chitrapongse Kwangsukstith said capital gains from energy shares were difficult to assess because regional economies were still not out of the woods. However, given the performance of individual firms in the sector, many were in a position to provide high returns both in the short and long terms.

Last year, PTTEP made a dividend payment of 18 baht a share as part of its policy to pay out at least 30% of net profits.

He said the company had set aside 53 billion baht to invest in petroleum exploration and production both locally and overseas from 2002 to 2006. The investment plan, he said, was expected to ensure satisfactory returns in the long run, like other companies in the sector.

He conceded that many investors were reluctant to invest in the energy sector because they remained worried about huge debts incurred by oil refineries.

But Viset Choopiban, president of PTT Plc, said his company's performance had not been affected by its refining business because its core businesses including natural gas, oil retailing and and petrochemicals remained highly profitable.

He attributed the inactive movement of PTT share prices to the sluggishness of the stock markets around the world, dampened by the economic slowdown in the United States.

Pichai Chunhavajira, PTT Plc's senior executive vice-president for corporate finance and accounting, said energy shares were usually considered defensive stocks in the portfolios of investors, particularly foreign ones, whose other holdings were being weakened because of global uncertainty.

He said the energy sector would become stronger in a crisis situation and that PTT, with its large market capitalisation, had potential not only in Thailand but also in the region. _Busrin Treerapongpichit and Yuthana Praiwan

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