Letter to MBAX's Managing Director and MAI president.

PaulRen's picture
Company Visit

Thaistocks.com SA                                                                                                           
25, Ave De Bude
1202 Geneva, Switzerland.
e-mail: paulren@thaistocks.com   

March 2‚ 2009    

Mr. Surachai and Mr. Anuwat Suthmahatayangkun
Managing Director.

Dear K. Surachai and K. Anuwat,  Managing Director.
We first met exactly a year ago with you and K. Anuwat when we all visited in person at your company offices, accompanied by Ms.Tharika from the MAI stock exchange.

In this over 1 hour meeting you both gave us earnings guidance for year 2008 of a 5.5% net profit margin, or around 90 to 100 million Baht. While of course no assurances were given to this guidance, you seemed fairly confident in this and repeated it twice.  Of course it was explained that raw material cost make up slightly more then 55% of your total cost and that these are closely related to the global price of oil, which nobody can predict.  The key raw material being polyethylene terephthalate (PET).
Based on this company visit, I then wrote MBAX up with a "strong-buy view", as your earnings guidance came to around 0.80 Baht per share, making the current stock price undervalued.  Many of my members and visitors to our leading web site bought your shares based on our visit and then my positive write-up -and we send you a copy with no response back.  Obviously you felt overall comfortable with what I there wrote.  On Friday Feb 27 '09, you reported MBAX earning 32.8 mill. or 0.26 Baht per share.
Then, shortly thereafter your (now ex) then Chairman K.Vorapot sold out millions of shares into then stock price advance, only created by the buying of followers of Thaistocks.com based on my company visit report.  These were vast insider sales correctly and legally reported to the MAI/SET. What was highly incorrect and probably illegal is that Mr. Vorapot sold out his shares with likley inside information, as MBAX was on its way to poor earnings results over the next couple of quarters. We pointed this out to you but you took no action except to say it was likely coming to an end. (But who knows?)

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We then met again at mid year, here you told us that since oil prices had sky rocketed and the Baht currency was relative firm (MBAX revenues are mostly in US$), the earnings guidance for 2008 had to be lowered to say around 50 mill. Baht.  No promise was made that this now half reduced level could be achieved but it was your opinion that it was a realistic number.  Again, I wrote at our web site to our broad following, that due to sky high raw material prices and firm Baht currency the level of earnings would be around half of what we were guided before.
Since this last meeting in Bangkok at mid year 2008, the global price of oil has collapsed dropping some 2/3 and the US$ has firmed up some 15%, both trends highly in MBAX favor. As we know and as you explained all along.
When we meet with some of my members and the MAI representatives on Dec 17th '08, you re-affirmed to us that the 4Q profit was likely to be strong and so the 50 mill Baht earnings guidance on track.  This was mentioned in a meeting to all of us (see enclosed picture of our group).  I for one was a bit surprised to the modest outlook back then as we all realized how much the raw material and the currency had reverted back favorably for the MBAX.  No question the earnings report just released was a disappointment based on you guidance, yet again.
We also discussed your product being a defensive one, meaning the fall-out in US sub prime mortgages leading to a rapid deceleration in global economic activity would likely have little effect.  Because, as with toothpaste, people use garbage bags in the same way pretty much regardless of economic fluctuations.  Leaving the question, why such a huge shortfall and contrary to your guidance now?
Surely the earnings report of 32.8 mill. Baht you just reported was well shy of this re-affirmed guidance given us by year end 2008.  Surely by Dec 17 you had a good idea how the 4th Q. was shaping up to be, and so we feel we were mislead.  I just state the facts here and draw conclusion on these facts.
Viewing so what happened in year 2008 we are not happy at all with what appeared to be misleading information along with the vast insider and possible illegal selling; as the insider most likely knew that the upbeat assessment you gave us, was not likely to be the true picture.  Mr. Vorapot sold out just as our members were lead to believe me, based  on our visit.

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What other conclusion can we take from our MBAX experience with senior management?  Why should believe you in the future, when the past showed to be irregularities.  The most disturbing of all is the insider selling out all the while you were telling us upbeat news -which turned out to be far too optimistic. In my view, if the MAI wants to be taken seriously, the MAI exchange should issue a fine for Mr. Vorapot  acting on insider information, all the while your guidance to us was not reflective of what was happening.
The earnings report were short of what you guided us on, especially so since the raw material price dropped and the currency worked in your companies' favor in the past 2 Quarters of '08 !   The insider large selling by Vorapot, and this after giving us an upbeat report is most disturbing and against the rules of the stock exchange -and way against the proper behavior of good corporate governance.  Investors will take note.
Based on all this factual experience and with witnesses, can we now be in any position to have confidence anymore to what you are saying? We so must inform the investment community of our poor experience with MBAX to date.  I await your answers to the above wrong way to behave as a listed company.
Best Regards,

Paul A. Renaud.

CC:  Chanitr Charnchainarong.  MAI Stock Exchange President