Further dwelling on Ticon.

Further dwelling on Ticon (6).  The stock has dropped another 35%, and so more then the SET,  so where is the floor?  Ticon has gone to a new low price today, evenwhile the SET is bouncing around its previous low.

I have closely covered this company since year 2004 and I think next year will be the worst year for rental factory business.  Ticon (6) stock price is now back to where it first was when I got all excited in late October of 2004.  Ticon stock price has precipitously dropped more then the SET index in the last couple of months. Hence one starts to wonder where the bottom is?  I do believe there is good support at the current price of 6, as now its back to where the Ticon story all started.

You can see my original article here, October 27 2004:
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While bottom fishers may want to accumulate back its shares now (I removed it from my buy list between 9-10 not long ago) the concern remains its overexpansion stated ambition in a dire environment.  Ticon does not fit my choice of  other picks, which are far more removed from the current global slowdown. 

Net addition for factory portfolio next year should be very few. I expect only 40,000
sq.m, 55% drop from this year (TICON currently has prelease of around 45,000sq.m), which means I expect only few new factory contracts to be signed next year. But fortunately, it now also has warehouses for rent. At least 40,000sq.m will be rented out next year according to current contracts. According to a reliable source "the firm will sell at least 70,000sq.m to TFUND next year". Yet, I wonder?

If that holds up, TICON will still be able to pay dividend of 0.80-1 Baht per share -and I expect/hope TICON will probably pay 1 Baht for its 2008 year operation, but remain at 1.20 as they told me not long ago.  Ticon management with me, remained upbeat and disagreed with my concerning views all the way down. To be fair, some minor insider buying has taken place, all along.

The share buy back remains a smart idea, this rather then expansion -but I obviously don't know everything as the firm may be reserving cash for using in more profitable new projects which it is not disclosing yet? I would think just about any new expansion/new projects are now a bit suspect. :)

If vacancy rates rise, both the TFUND (10.30) and TICON may have to trim its ambition and so dividends.  This would be a blow to TFUND.  As is clear, Ticon and its fund remains rather nakedly exposed to the world slow manufacturing down, surely coming in 2009.

The company seems to have an attitude, "we build & they come rent"...and I wonder if during the worst recession since WW2, expected next year, how long they can keep this up?  I know the argument regarding "clients rather rent then buy, during economic uncertain times".  At the same time in Europe employers now are ditching temporary workers much faster then regular ones, as its easier to get rid of those. 

Similar with Ticon, it might be easier for some of their customers to just stop the rental contract, then to bail out on a factory they own.  Hence, I wonder if all the now bullish Thai analyst incorporate in their view the real possibility of vacancies to rise next year, especially since they are glutting the market with ever more factories.  (Also how confident can we be that they keep up their dividend?)
 

My own view is that management there seems a bit lame these days.  Bad local politics and global recession looming, I don't know what could benefit from that for Ticon now?  Stock markets are forward looking and they see slowdown in capital letters for Ticon’s core business.

Also, I think some are/will be selling out of TFUND more due to concern on rising vacancy rates, especially if we conclude the factory rental business will be bad next year. TFUND has dropped about 5% already recently, even as global interest rates have/are tumbling including in Thailand. Hence I would trim the TFUND as well while still a profit in hand and for foreign investor a currency gain likely on top, as the Thai Baht has increased lately in value vs. EU and other non $ currencies.

The Ticon rise and fall story is an example why buying and holding a seemingly great company is not the answer, even to longer term value investors.
 
Best Regards,

Paul Renaud.
www.thaistocks.com