Earlier write-up on STA

Industry Review:After rice natural rubber and it's byproducts are Thailand's biggest export contributors. Indonesia, Malaysia and Thailand are by far, the prominent rubber producers for the world. The combined output of these three countries alone, account for more than 73 % of the world's total rubber production. According to the annual report, global rubber production is on the rise, with more than 70% of this demand being for "blockrubber" and "rubber smoked sheets". (Both of which Thailand, is the world's, top producer).

Recently blockrubber is most popular for export. Concentrated latex is also a growth area where exports are growing over 20% per year. The role natural rubber plays in Thailand's overall economy will increase. Since 1991 Thailand has produced the bulk of the world's natural rubber and this has increased some 10.5 %, per year since. In 1995, Thailand produced a total of 1.8 million tones of which 1.63 million was exported. Japan remains the primary market for Thai rubber products followed in order of significance: China, South Korea, and the US.

Company Review:STA was founded on April 23, 1987 and the company was listed on the SET in 1991. Since, the company has grown rapidly. STA owns 13 Factories and employees around 5500 people. The company now has interests in 14 related subsidiaries. STA has 55 new smoked drying compartments to their Trang (southern Thailand) factory, making this one of the largest and most efficient rubber smoked sheet (RSS) production facility in the world.

Since 1992 the company began to produce concentrated latex. With Thai Board of Investment Tax privileges, STA now has an annual capacity of over 100,000 tons in this important product line. Since 1993 STA also produces TTR block rubber and has entered into a joint venture with Itochy of Japan. The company has steadily increased production of this to now 120,000 tons annually. With the new currency advantage over the Yen much incremental new growth can come about.

STA is innovative in that is seeks out (and has initiated) new partnerships with companies exhibiting industry expertise in specialized productions. For example, Siam Sempermed Corp. is a joint venture with Semperit of Austria, which was established to produce and distribute medical examination gloves. This company received ISO 9001 certification in 1996 (from TUV Gmbh, Germany) and is the largest producer of this product in Thailand. Another joint venture manufacturer is for various handrails for escalators. Another growth line for the new technology dominated world era.

Semperflex Asia Co., is an Austrian joint venture to produce high-pressure hydraulic hoses for uses in the machinery and the construction industry. Austrian engineers are now permanently stationed at the firm's factory to insure proper technology transfer. In 1997 STA was already exporting such high-pressure hoses and other rubber and plastics molded parts for use in various global industries. It is the first company in Thailand to produce such hoses with production capacity for '97 at 3 Million meters a year.(That's 3,000 km.!) As stated in the last annual report, "The quality (of such high pressure hoses) is equal or surpases those currently imported".

Yet another is Semperform Pacific Corp. this subsidiary produces rubber and plastic moldings used in several industries, notably the plastics molded parts used in rail track production, electric power lines, and the automotive industry.

The company in its annual report states it is committed in automating much of its production. It has "identified its costs very carefully and is continuously introducing many labor saving devices". This is significant, as too often corporate Thailand seems to (stubbornly) just rely on cheap wages. In 1997 the company expects to attain 3 more ISO 9001 certifications.

While cultivation will remain primarily labor intensive, virtually all other aspects of the rubber industry will benefit greatly from increased applications of advanced and innovative technology. STA claims to be on the leading edge of this in Thailand. STA for example, was the first company in Thailand to apply advanced technology to the production of high-pressure hydraulic hoses. This technology was acquired through a joint venture. STA emphasizes joint ventures with foreign partners as the key to obtain knowledge and newest technology. This is increasingly viewed as an essential needed association in the new more competitive global economy.

All of its 14 subsidiaries are in closely related businesses to STA's core endeavor. One is even in Phuket called Thai Tank installation, which rents and leases storage tanks for latex, waiting to be exported. A friend who visited this facility describes it as "a highly professional operation".

Further Industry remarks:Market and production trend assessment, project a world shortage of 400,000 to 500,000 tones of rubber by the year 2000. Malaysia and Indonesia have already reached their maximum limit for rubber under cultivation. Thailand should be able to maintain its favorable market position, although it could also face labor shortages similar to those already experienced by Malaysia and Taiwan. Current economic conditions however make this least likely for now. While relatively inelastic, still the current Asia crisis will surely dampen some final demand. New exports to hard currency countries will more than make up for this.

One key aspect of a 10-year company plan by STA, involves the firms systematic, large-scale expansion in rubber cultivation in Northeastern Thailand. Some local newspaper has reported that rubber trees grown in the north, actually show a better quality & quantity of natural rubber produced in this more remote area, than in the highly cultivated south. Also labor costs are abundant and most inexpensive in Issan, Thailand's Northeast.

No man-made product can replace natural rubber. It is unclear to me how ( + I welcome any remarks) synthesized rubber will ever erode the demand for natural rubber? For sure, industrialized and developing countries a like, depend on this raw material in many ways. Throughout the past decade, annual consumption of rubber smoked sheets has remained at a constant 1.2 - 1.3 million tones whereas, block rubber consumption has increased from 500,000 tones to 2.3 mill tones annually. STA is focussing on block rubber and concentrated latex, shifting away from rubbers smoked sheets. This shift is a logical result of technological advances and innovations. STA is determined too further diversify into areas of finished and added value products. Relatively low rubber prices on the world's market currently, are in fact a positive in controlling cost when producing these finished products. STA states in the last annual report, it has "entered virtually into every area of the rubber industry".

Comments on 1996 results: While total sales for STA dropped in 1996 vs. 1995 (due to the drop in world rubber prices), net profit for 1996, was at record levels. This shows clearly STA is in the added value business and not by any means just another commodity producer. STA's sales are mostly all from exports and so is a huge beneficiary of the substantial Baht's depreciation

Valuation and Recommendation: I recommend accumulate buy.

Adjusted for the just recent rights offering completed, I expect this company to earn at least 10 Baht per share this year and around 12-13 Baht for calendar, 1998. The current trailing (last 4 Q.) p/e, fully adjusted for the rights offering, is 6.5. The 1997, expected p/e is 5.4. The 1998, expected p/e is 4.5. The company has a stated dividend policy of paying out 60 % of net profit in dividends. This should bring the yield (on current market price) to 11.11% for '97 operations and 13.3% yield for 1998, operations. The trailing industry p/e (Agribusiness) is 7.3 and the trailing industry dividend yield is only 4.37 %. Since the company is an enormous beneficiary of a lower Baht currency, earnings surprises should be on the upside.It does trade with occasional good volume. Average daily volume exceeding 30,000 at times.

Accounting Notes:

• The company does not show any foreign loans. The domestic long term loans are stated at 1996-year end balance sheet, to total 525.6 mill. Baht. Ø
• Interest expenses are shown to be 121.3 mill. Baht for '96 and 94.5 mill. for '95. Ø
• STA only shows 13 million Baht in listed securities, under short-term investments. (This being the cost price, the market price of this was 6.5 mill. at year-end '96.) This shows the focus is on its core business. Ø
• Depreciation and amortization is shown at 45 mill. Baht for '96 and 42.5 mill. Baht for, '95. Inventories are shown at 311. Mill. Baht for '96 and 590. mill. Baht, for '95. Ø
• The boards of directors own 16.2% of the new total shares outstanding. (30 Million) Ø
• The other major shareholder is the STA holding company, which owns 25 % percent of the outstanding shares. ·
• The Auditors report is clean with no notes or clarifications, as prepared by Pradit R. CPA, S.E.T. auditor Registration # 218.

SRI TRANG AGRO-INDUSTRY PUBLIC COMPANY LIMITED. STA (56)

On July 23, 1997 the company posted the following announcement to the SET:Sri Trang Agro-Industry Plc. (STA) announces resolutions passed at its board of directors' meeting no. 10/1997 held on July 22, 1997, saying STA was resolved to invest in Standard Thai Rubber (STR) project by constructing a plant on the company's own land in Tung Song, Nakornsri Thammaraj. The plant will have an initial production capacity of 48,000 tons p.a., and will expectedly require an investment of about Bt2 million, not including land and working capital. The board foresees the future demand of rubber in the global market increasingly changing into STR, so it decided the company should have more production lines to maintain its leadership standing as well as its market share in the rubber industry. The company's own capital and loans it already has for the project will fund the investment. Expected Benefits: Boosted sales by about Bt1 billion a year or an increase of 12% based on 1997 expected sales. Investment Value: 8.32% of STA's total assets

SRI TRANG AGRO-INDUSTRY PUBLIC COMPANY LIMITED (STA, 56) Address :10 SOI 10 PETCHKHASEM ROAD, HAT YAI, SONGKHLA 90110, ThailandTelephone : (074)232931, 233281, 237832 Fax : (074)234372, 237423Sector : Agribusiness Authorized Capital :300.00 M.BAHTPaidUp Capital :

• Common Stock
• Preferred Stock

Foreign Limit : 35.00 %Foreign shares Available: 5,150,000 SHARES as Dec. 20th '97Dividend Policy: Not less than 60% of net profitMajor Activities: Exporting firm of smoked rubber manufacturing and various products related to this. At present, approximately 99 percent of STA's output is exported directly to the major tyre producers represent the company's primary market. The secondary market comprises overseas importers such as Japan, China, Korea and Taiwan. Best Personal Regards to all our select and highly valued subscribers.

Paul A. Renaudwww.thaistocks.com