A member article from exactly one year ago.

As exactly posted for members last October 26 "04.

Ticon (5.95),  a very strong buy opinion!

Ticon’s earnings keep growing leaps and bounds as the number of leased factories is expanding at a 30 to 40% annual rate. The growth rate is not slowing at all and the 3 Q earnings (to be released in 2 weeks) will attest to this. I think earnings per share can attain at least 1.1 Baht or more next year (as I explain further below) and so the p/e is at well less than 6, for calendar year 2005! But if Ticon ends up selling 40 factories early next year, as is proposed, it will generate 1/2 Billion Baht in net income. This translates into 1 Baht a share, on top of the expected .70 Baht per share in operating income.

I just visited Ticon again -and came away most excited. Here I share with you a brief summary of my "strong buy" opinion on Ticon (5.95).

Ticon earned 0.33 per share in year 2002, 0.52 per share in year 2003 and I fully expect around 0.68 per share for this full calendar year 2004. Hence this stock is trading at around 8-9 times this year’s earnings, even while its profits are growing several times more than the SET averages. The current dividend is 0.40 Baht per share (paid already 0.20 for the first half), or a current yield of 6.5%. I expect this dividend to be increased over the next year and beyond, probably significantly.

But here is the real exciting news.....because Ticon is expanding with newly built factories so fast (expected to be 145, at year end, up from 102, last year end and 86 at year end 2002 --and another expected 40 to 50 new ones in year 2005) they have a large requirement of new capital in order to finance this immense growth. Ticon builds and owns its factories and then leases them out typically on a 3 year lease period. Occasionally a tenant asks to buy one of the leased factories, which almost always results in a nice capital gain for Ticon.

This year the company has sold 4 factories, or for a capital gain profit averaging 17.1 Million Baht, each.

Because of the large capital requirement Ticon is now considering setting up a new property fund in the 1Q of next year -and listing it on the SET. (Property funds have some nice tax advantages on the SET and yield nice income of about 6-7%, so they should be popular with yield hungry institutions).

Ticon would still own about 1/4 of this new fund -but sell the rest in newly issued shares in this Property Fund, IPO early next year. There is much global and local institutional demand for such high yielding funds.

The kicker is that they would sell-off about 40 owned factories to this new fund early next year, and then every year again and again, in order to raise the capital needed to expand. The company cannot meet demand and sees high growth for at least 2-3 more years.

Selling these properties will realize an important and yearly recurring new capital gain from such regular factory sales to this new property fund. I expect this gain to be 500 mill Baht or at least 1 Baht per share.

Since they plan on building some 45-50 new factories every year, yearly sales to the fund expansion would not deplete the existing asset base, nor its income. To date the only constraint on growing fast has been capital need requirements. Ticon clearly states it cannot meet the demand for new factories -as leasing factories rather then buying them is now in high demand in Thailand. (Thailand export growth was just reported at a 22% increase, for last month.)

If this plan is approved by the Board on Nov 11, (and I think it will!) Ticon should show a tremendous leap growth in earnings in year 2005, a one time jump to sustainable higher levels. I sort of expect some 1.1 Baht per share next year, but it could be much more as I expect this to materialize. I can see 1.75 EPS for next year, bringing the current p/e to 3.4! ....and the yield "exploding" to at least 10%, on the current stock price.

Ticon is somewhat of a beneficiary to uncertain times -as global companies are trending to lease factories rather than buy them to keep their capital working in what they do best. There is a self-balancing effect here! When times are good Ticon benefits and when times turn less predictable (like next year?) then companies just decide to lease rather then own. There are also tax advantages to this. The average vacancy rate of their factories has been a stable average of 90-92% over the past several years. Also, I duly note on the competition:

1) Ticon does not compete with AMATA (which mostly sells industrial land)

2) nor with HEMRAJ which is most only in one location, whereas Ticon is represented in 11 different industrial estates all around Bangkok. Ticon earnings are growing very fast, and earnings are set to accelerate even more next year with this expected new Property fund which will create a huge capital and recurring gain. The dividend rate is impressive and likely to accelerate as well. Most of all Ticon is not overly dependant on energy prices or global uncertainties, as firms worldwide will lease rather than buy if the uncertainty increases. Also Thai exports keep booming as more firms are reluctant to just expand in China.

The debt to equity ratio is a modest 1.1 to 1. I am impressed with Ticon’s management. As noted in a recent article on Ticon, insiders have been buying the shares.

You can see the latest article on Ticon posted a few weeks ago at this link.

http://www.thaistocks.com/index.php?module=Pagesetter&func=viewpub&tid=1&pid=571

Paul A. Renaud.
www.thaistocks.com

October 26 "04