Another high grower at low valuation and high expected dividends.

TLUXE 2.36. High expected
growth & dividend rate -at one half the SET average
valuation.

TLUXE was founded in 1978 and got off to a slow start. Yet
today, after visiting TLUXE, I think they are about to go into a
fast track growth rate now. TLUXE is my pick in the Agri sector.
I rate this stock at current prices of 2.36, with a "strong buy"
to long term rational investors whom use a diversified portfolio
approach. Below I share my research notes after a good 75 minute
visit I had with TLUXE’s senior management in late June.

After lingering around a single digit number, TLUXE’s ROE has
just seen a jump to 21.5% last year. This carried forward to the
1 Quarter of 2006 and I think it will continue at this impressive
level this year and beyond.

Economies of scale are picking up and the time has come for
TLUXE to see growth explode in sales and earnings. The 3 Quarter
will support more production capacity. My own estimate is for
TLUXE to see 2 Billion in sales for year 2006 and the EPS to
approach or exceed 0.60. At these 2006 earnings estimates per
share, the stock is trading at an undemanding p/e, of barely 4
(not adjusting for the warrant conversion).

Since the company states it will "pay 60% of net profits in
dividends", one could envision a dividend of 0.30 to 0.32 or
more, per share over the next 12 months. This would present a
yield an annual yield of 12.7% on the current stock price of
2.36. If this is achieved as I think it will, TLUXE commands
among the, highest expected dividend rate of any SET stock! The
company has an impressive long term historical high dividend pay
out record. For example from year 1993 to 1996 TLUXE earned a
total of 31.55 Baht per share (cumulative during this 4 year
period). During this same 4 years it paid a total of 19.35 Baht
in dividends, per share. This so averages 61% of net earnings
back then.

For the first quarter of 2006 the company reported a 35%
increase in net earnings and a 55% increase in total revenues.
Total revenues for 1Q 2006 approached 400 million Baht, making my
yearly estimate of 2 Billion, I dare to say, realistically
achievable. Besides overall strong momentum, economies of scale
are increasing… While margins are contracting a bit
(mostly due to higher energy prices) the strong sales growth will
sustain impressive earnings growth. One key reason for this
growth now is a noticeable change of Thai (and global) consumers
to switch in consuming more seafood, rather then chicken and
beef, obviously for 2 big health reasons: better nutrition with
less fat and no chicken flu or mad cow etc.. diseases. In the
long run eating more farmed fish is a superior sustainable way
for our globe to feed a still expanding world population
base.

Also, the ocean fishing industry are more and more leaving
their boats at ports due to now very high energy prices besides
the oceans being over-fished. This bodes well for the future of
more & better fish farming. Thailand has some 550
professional fish farms around the country and TLUXE knows &
supplies these farms with its food and know how. For example
farmed fish can taste allot better (less muddy) if they are
raised in river cages, or if not there, if the water is properly
treated and continued circulating. When done correctly, all the
used water gets recycled and so is not contaminating.

From their annual report:

Regarding the
chemical residues, Fisheries Department of Thailand created a
Code of Conduct requiring Certification of shrimp farms with
campaigns to drop usage of chemicals. In this nexus, The company
is taking an active role disseminating knowledge to farmers to
avoid chemicals when raising aquatic animals.

Here some measures why I call TLUXE a deep value stock with
solid long term investment merit:

The stated book value at year end 2005 is 2.63 per share and
TLUXE’s D/E ratio is a miniscule 0.20. The company has no long
term debt to speak of. Hence this company is one of few which
trade below its book value.

Further, the company owns some 250 Rai of land near its
current factories, this land is listed on the books at some 1/100
of its replacement cost and is available for production expansion
in the future. The company has important BOI tax benefits, one
running for 8 years (100% tax exempt) and another for 5 (50% tax
exempt).

The company’s production is expected to expand 30,000 tons
within 12-15 months to 60,000 tons per year.

Here are some other details I noted:

--The company has 400 employees of which 300 are in the
provinces. TLUXE owns and operates 11 distribution centers around
Thailand.

--The company is in the top 5 of its industry but market share
is growing and mgt. feels it can be in the top 3 within 2-3
years.

--One headache the company does not have to deal with is
packaging as all this is outsourced.

---CPF and some others are competition for TLUXE, but they are
a smaller far more flexible company which so believe they can
manage changes better and so excel more.

---TLUXE plans to forward integrate by offering some new fish
fillet products directly to the consumer next year.

---TLUXE has expanded in Vietnam where they started a joint
venture 3 years ago, to supply the Vietnam market.

Here is a quote from their 2005 annual report, which comes
like so many these days in CD form:

"Aquatic feed business is concerned directly with public
consumption of aquatic animals. The greater the demand, the
greater will be the production to meet the demand. Over the past
years, consumption of aquatic animals has been rising as a result
of fear associated with bird flu, mad cow disease, and other
diseases in the pig production. Moreover, public awareness of
health issues has risen, coupled with the need for nutritional
values found in aquatic animals which is rich in protein and
contain minerals beneficial to the body such as amino acid and
DHA, especially fish protein. All these advantageous give
consumers greater confidence to consume more in aquatic
animal."

More information from their 2005 annual report:

"The Company’s business operations can be divided into 2
parts, the production of Shrimp Feed and the production of Fish
Feed. The Company has two production facilities, one in Samut
Songkram Province and the second factory located in Petchburi
province. Both factories constitute to the Company policy to
engage in the entire business chain, by beginning from the
acquirement and procurement of raw materials, production, sales
and distribution.

Throughout the period of its business engagement since its
establishment, the Company had consistently and progressively
developed and improved its manufacturing standard by acquiring
advanced technology. The Company had been awarded the ISO 9001 :
2000 from the British Institution of UKAS, as well as the
awarding of the GMP and HACCP Certificates. The company is the
first aqua feed manufacturer who has been awarded and HACCP
before the government announced 2004 to be the Year of Food
Safety The Company is a leading company in the field of
agriculture business in Thailand.

Moreover, the Company has expanded production capacity
along with its marketing operations to increase sales in various
kinds of aquatic animal to make the business complete in all
respects. In this process, the risk factors facing the Company
have also widened. Business accomplishments come by means of
joint venture and investment with Betagro Agro Group Public
Company Limited by setting up the Betagro - Thailuxe Holding
Company Limited to make investments for manufacturing aqua feed
in Vietnam.

Currently, the Company shareholding structure is 60%, and
also making joint investment in SMP Food Products Company Limited
with the aim of manufacturing and sale of frozen food.

The company has issued and sold of warrants to purchase
ordinary shares of the company for 125,000,000units to the
existing shareholders of the company for free of charge at the
ratio of 2 ordinary shares to 1 unit of warrant (Fraction of
shares were disregarded), term of warrant is 4 years, exercise
price is 1.50 Baht per 1ordinary share, whereas the exercise
price may be adjusted after the right adjustment.

Moreover, the company has issued and sold of warrants to
purchase ordinary shares of the company to directors and
employees of the company under the ESOP scheme for no more than
7,500,000 units, term of warrant is 4 years, exercise price is
1.50 Baht per 1 ordinary share, whereas the exercise price may be
adjusted after the right adjustment.

The company has changed the company" s par value of the
ordinary shares to 1 Baht per share, which made the number of
ordinary shares increased to 250,000,000 shares. And also,
increased the register capital of the company by another
133,760,000 Baht, divided into 133,760,000 ordinary shares at a
par value of 1 Baht from the existing registered capital of
250,000,000 Baht to a new registered capital of 383,760,000 Baht,
divided into 383,760,000 ordinary shares at a par value of 1 Baht
to reserve the number of ordinary shares as a result of warrant
exercise by the existing shareholders, directors, and employees
of the company".

Always diversify your stock holdings!

Best Regards,

Paul A. Renaud.

www.thaistocks.com