New Purchase Recommendation
Carpet International Thailand Public Company (21).
The price of CIT stock was 16 May 11 when I alerted all subscribers with a private e-mailing advocated strong buy on CIT. (You can see a Copy of this letter at the end of this article).
CIT is yet another interesting company, which has a dominant, market share and position in an important industry. Still, CIT is selling at a ridiculous low p/e of 3 on operating earnings and at only 0.2 of its book value.
These shares have recently been relatively liquid even while it’s another smaller capitalized company with only 10 million shares outstanding and a current float of less than 3 million. This company which has some 50% of total sales coming from exports, should nevertheless benefit strongly from a domestic recovery.
I urge you to look at their web site to have a better grasp of CIT at: www.carpetinterthai.com/
For a 5 year stock graph (maybe appropriately called the "slow demise of a small cap. stock") consider: valuebank.com/thset/graphs/forever/cit.html
Thailand is an important carpet exporter in this vast region. CIT’s market is scattered over the USA, Middle East and Asia. The weakened Thai currency as compared to pre-1997 devaluation has smartly increased exports of the company’s products. Currently there is about an even mix of Exports vs. Domestic sales. So CIT fits well with my current advocated model on also owning some domestic Thai recovery shares like Singer and Makro. (Written up in the April 2 "99 issue).
CIT is the largest Axminser carpet weaver in Asia, with its products well accepted in international markets along with an ISO 9002 certificate recently for Axminister products. CIT is "set to enjoy and bring future and continued growth in the export sector". From their latest "98 annual report.
In April "98 Thai Ping Carpet International Group of Hong Kong bought 75% of Carpet International at 40 Baht per share. Tai Ping is one of the world’s leading manufacturers of high-quality custom carpets. For some company information on Thai Ping see:profiles.wisi.com/profiles/scripts/cos01.asp?cusip=C34493830
And Thai Ping’s web page is: www.taipingcarpets.com/
(The pictures make the downloading of this page a bit slow, I like CIT’s web page much better.)
Domestic sales have been stable recently but international sales are growing above 10% per year. CIT is an "export resurgent story" and domestic recovery play
The company has some prominent completed projects.Like the new Convention Center in Las Vegas and San Antonio and many world class Hotels around the world. (see their web page). CIT also owns a spinning mill, which helps integrate the whole manufacturing process. The company has been investing in new machinery over the past 12 months. This is shown with 874 mill. of machinery on the current balance sheet vs. 809 mill in 1997. CIT is clearly getting ready for more production.
The raw material is mostly wool from New Zealand, which is at low prices in world markets and this is not likely to change.
Some accounting observations:The Debt to Equity Ratio has dropped significantly from around 1.5 to 0.7. Long-term debt was shown at 50 mill in "97 vs. 17 million Baht at end of "98. We like companies who reduce debt when things get difficult. In general this shows financial discipline and relative strength. The current book Value is at 82 Baht per share vs. 62 a year ago. The company earned on an operating basis 5.50 Baht per share in calendar 1998. This was an increase of 115% over 1997’s operation profit.Total sales for 1998 were just about the same as 1997’s. CIT has made significant cost reductions in the past 2 years!
I also noted accounts receivables dropped significantly so non-paying customers are not a concern. However in Foot note #5 it show the accounts receivables due from "related parties" increased from 55 mill. to 149 mill. Baht. Better inventory control shows 35 mill. Baht less capital involved in total inventories which fell from 340 mill. in 1997 to 305 mill. and this despite stable sales from "97 to "98.
CIT stock has a high/low price of 220/16 over the past 5 years.
On Impact of year 2000/2YK.CIT says in its annual report: "The company has since July 1998 been implementing the testing, modification and upgrading of its computer hardware and software to development and a contingency plan have been completed since 12/1998. The cost of such modification, upgrading and testing is expected to be insignificant…. there remains risks that other companies with which the company has business dealing may not be able to complete their remediation programs in due time. However, the company believes that such inability would not have a material adverse effect on the company’s operating results."
The below e-mail was send to all subscribers on May 11th. I also then posted a similar text to the subscribers" lounge.
"I am about to publish a new purchase recommendation on yet another stock which represents the "real Thailand". Of course, I want all my subscribers to know about this first!
Carpet International CIT (16) is another interesting company which has a dominant share and dominant position here in its industry. Yet it is currently selling at a ridiculous low p/e of less than 3 and trading at only 0.2 of it’s stated book value.
CIT shares have recently been rather liquid even while it’s another smaller capitalized firm with only 10 million shares outstanding and a current float of less than 3 million.
This company which has some 50% of total sales coming from domestic sales should benefit strongly from a domestic recovery which is now in progress.
I urge you to go visit this firm at their well done web page: www.carpetinterthai.com See for yourself what a prominent position CIT has....look at some of their completed existing projects. I am impressed....who ever said my advocated firms are obscure and unknown? That is such a wrong observation.
Thailand is an important carpet exporter county in this vast region.
Still, CIT’s market is scattered over the USA, Middle East and Asia. The weakened Thai currency as compared to pre-1997 devaluation, has increased exports of the company’s products. Currently there is an about even mix of Exports vs.
Domestic sales so it fits well with my model on owning some domestic Thai recovery shares like Singer and Makro, written up in a previous issue.
CIT is the largest Axminser carpet weaver in Asia, with its products well accepted in international markets along with an ISO 9002 certificate. The company on an operating basis earned 5.6 Baht per share for calendar 1998. So this is trailing a p/e of 2.8. The book value is 82 Baht per share.
Most impressive don"t" you think as 1998 was clearly the worst year in decades for the Thai and Asian economies. I visited this firm in person in February of "99 and was convinced CIT has reputable, alert and smart management.
While I do not have the benefit of having seen the 1 Q. "99 earnings (about to be released), I am confident CIT will be a major earnings recovery story here and as such the expected dividend flow over the next 3 years should be far above average. CIT paid a 2.50 Baht dividend in 1997 but omitted this in 1998, for liquidity reasons. The 5 year high and low in it’s stock price is 220/16. If 1 Q. operating earnings are a positive figure (which I do expect), I would very aggressively buy the shares. In the meantime I rate it a strong buy at current levels."
For some historical accounting date we recommend you look at the SET page and view CIT’s longer term record there. Set your browser to: www.thaistocks.com/f/set.htm Look under company highlight.
Business
Following are the remaining foreign investment transactions as surveyed by Seamico Securities Plc. This was published in the Nation Newspaper on May 10 "99. It gives subscribers some understanding on major business activities in Thailand.
Airlines Several foreign air carriers are looking to take a stake in the 23 per cent of Thai Airways shares to be sold by the Finance Ministry. Lufthansa, Singapore Airlines, and Qantas have been mentioned as suitors. (March 1999).
Automobile
- French auto-maker Renault is studying Thailand as an export production base. - BMW is setting up an auto-plant in Rayong with a capacity to produce 10,000 units a year and with an estimated Bt6.9 billion in foreign currency earnings per annum. - Siam VMC, a pick-up truck manufacturer, is in talks with an Italian partner to export vehicles. - Daimler-Benz is studying plans to make Thailand its export hub for Mercedes components and would work in conjunction with its local partner, Thonburi Automobile Group. - Mazda Motor Corp has injected Bt1.9 billion into its local Mazda unit to take its shareholding up to 93 per cent from 20 per cent. - Sweden-based car-maker Volvo has agreed to inject new capital into its Thai unit Swedish Motors as part of a debt restructuring agreement.
Chemicals
- The OM Group, a US speciality chemical company, acquired Thai Oleochemicals. - TPI will dilute its stake in two subsidiaries -- Thai Caprolactam and Thai Nitrate -- to allow foreign capital injection of up to Bt1 billion. - Thai Plastics & Chemicals is involved in talks with prospective Middle Eastern and US partners for stakes in a proposed Bt5-billion joint venture project to produce ethylene dichloride. - Mitsui & Co and Itochu are courted to take stakes in Thai Paraxylene so that the chemical manufacturer can continue with its plant construction. - German-based Henkel Group is injecting Bt800 million into its Thai unit for a chemical plant relocation and capacity expansion.
Consumer products -Procter & Gamble is to invest about Bt10 billion in a new skin-care products facility. At least 80 per cent of capacity is planned for export. (This is not good news for S & J Enterprises).
Contractors
-Britain’s Extra-K is reported to be interested in taking over the $3.26-billion Hopewell project.
Electronics
-AIG and a unit of Sweden’s Ericsson are investing up to $40 million in Alphatec. -Intek Global Corp is opening a Bangkok office to service the Middle East. -Seagate is investing Bt4 billion to produce hard drive components. Around 3,700 jobs are expected to be created. -American semiconductor giant Advanced Micro Devices is investing up to Bt100 million to increase its semiconductor output in Thailand. -Lucent Technologies will spend US$30 million to double its integrated circuit production and make Thailand its regional hub. -German firm Miessner and Wurst Zander holding GmbH is negotiating with Submicron to revive its electronic manufacturing plant. Up to $1 billion may be needed. -Fujitsu is to invest $500 million in a new computer hard-drive factory.
Hotels
-Goldman Sachs is currently in a bidding war with Royal Garden Resorts for a minimum 26 per cent stake in the Regent Hotel. -The Dusit Thani group is talking with an Australian suitor about their taking a Bt1-billion stake in the Dusit’s Royal Princess three-star hotel chain.
Manufacturing
-Allegiance Healthcare Corp, a rubber gloves producer, is investing $100 million in a new rubber glove production plant. -Trane (Thailand), the local arm of the American manufacturer, will invest over Bt50 million this year to upgrade production and human resources in its local operations. -BancAmerica Equity Partners, the investment arm of Bank of America, and Lombard Asian Private Investment Company LDC have invested $33 million in Indo Worth to acquire 21 per cent of the yarn producer. -Sanyo Kasai announced a Bt2-billion plan to build a chemical factory in Thailand. -Pacific Dunlop of Australia paid Bt1.25 billion to acquire Suretex Rubber from the G Premjee Group. -Jotun (Thailand), a subsidiary of a Norwegian paint maker, will spend Bt1.5 billion building a new factory at Bang Pakong Industrial Park.
-Hambrecht & Quist Asia Pacific took a 94.5 per cent stake in financially-troubled Semiconductor Ventures International. -A $650-million injection is reported to have been made in Nakornthai Strip Mill by a consortium of international partners. -Safeskin, the rubber globe producer, is expanding capacity from one to three billion pairs of gloves annually creating 7,000 new jobs. -Ajinomoto of Japan is to invest $2.5 million in two new warehouse facilities. -Canon Inc is to spend a further $150 million in the expansion of Canon Hi-tec (Thailand) Ltd. -The Enso Group and Oji of Japan have taken a further $104 million holding in Advanced Agro Plc. -US-based Steelcase Inc has acquired a $10-million stake in furnishing company Modernform Plc. -UK-based Berisford has formed a 50:50 joint venture with Somerville (Thailand) to acquire its refrigeration and food service equipment manufacturing facilities. The deal could be worth $25 million over a three-year period.
Consumer product giant Procter and Gamble has said it intends to invest Bt3.1 billion to make Thailand into its worldwide export hub for the company’s soaps, skin lotions and shampoos. -Thai Consumers Group has taken a 20 per cent stake in Siam Cement subsidiary Citypack Co. -German manufacturer Fuchs has taken a 30 per cent stake in Siam Tyre Plc. -Belgium company Magotteaux has agreed in principal to acquire 100 per cent of Siam Magatteaux.
Medical
-Ramsey Health Care of Australia signed an agreement with Prasit Development to help manage hospitals in Thailand. -Diethelm is looking for a partner to invest Bt1 billion in medical products stock management system.
Power
-China Light & Power paid $239.97 million for a 14.9 per cent stake in Electricity Generating Plc. -Belgian energy company Tractabel is looking to increase its holding in Hemaraj’s H-Power from the current 50 per cent, possibly investing up to $100 million.
Retail
-Imperial World Department Store operator Imperial Group (70 per cent owned by a Canadian partner) is planning to sell a 30 per cent stake to an unnamed US investor (Feb 1999). -Tesco Plc, a United Kingdom retailer, has acquired a 75 per cent stake in the Lotus Supercentre chain owned by the CP Group for $350 million.
-The Charoen Pokphand Group has sold a 10 per cent stake in its 7-Eleven stores to the Singapore government’s investment agency. -Hong Kong-based Li Fung is reported to have bought Inchcape’s Asian operations, including its Thai distribution facilities. -The Central Group has sold 66 per cent in its Big C Superstores to Casino (a French retailer), Genant (a Dutch firm), and Saowanee Holding (Thailand) for Bt6.09 billion. (April 1999). -Delhaize (Belgium) has reached agreement with the Charoen Pokphand group to take over five ""Sunny"’supermarkets in Bangkok as part of a major Thai expansion programme. Consideration indicated at around Bt60 million (April 1999).
Services
-TNT International is planning to invest an additional $40 million in the region with Thailand as its hub. -International law firm, Allen & Overy, merged with Bangkok-based MPS & Associates. Shipping -US-based Emery Worldwide, a global cargo player, entered into a joint venture with Thailand’s CTI Holding to provide complete air, ocean, and customs clearance services in Thailand (Feb 1999).
Telecommunications
-US telecom giant GTE has proposed to take over mobile operator Tawan Mobile Telecom (TMT). GTE reportedly is eyeing a 40 per cent stake. The CAT is considering the request (Jan 1999).
-UCOM announced that it had sold 79 per cent of its subsidiary, Logic Telecom to Telecommunication Business Services Ltd of Romania for Bt1.79 billion. -Somers (UK) has increased its holding in UCOM to 36 per cent through a conversion of about $77 million worth of debentures into shares. -South Western Bell is rumoured to be looking at acquiring an interest in Digital Phone Co (a joint venture between Samart Corp and Telecom Malaysia). -Tellabs Oy of Finland is lending $3 million to United Information Highway, a high speed service provider operating under the ""Cherry"" network, a joint venture between Ucom and CAT. -Sing Tel paid Bt8.28 billion for a 20 per cent stake in the Thai cellular operator Advanced Info Services (AIS) (Jan 1999). Textiles -The Indorama Group is to inject $10 million into Indopoly (Thailand). The group recently purchased Siam Polyester for Bt1.7 billion and will invest more than Bt5 billion over the next five years to expand operations. -Indo Worth, an Indorama subsidiary, is raising about $40 million in funds through a private placement with BancAmerica ($20 million) and Lombard ($13 million) to continue its expansion. -The Asian Development Bank is considering investment in the privatisation process of State Enterprises.
Other transactions in progress or completed
-The Asian Development Bank may take an equity position in one or more of the state-owned banks. -Japanese, US and European companies continue to invest in Thailand. Japan is the largest direct investor with 27 per cent of the total accumulated foreign investment. Hong Kong is second with 13 per cent and the US is third with 12 per cent. -US-based Carlyle Group is looking to invest $500 million in the steel, service and energy industries. -US-based Hambrecht & Quist (H&Q) is looking to invest $750 million in a variety of companies in Asia. $80 million has been invested in Thai companies, 10 of them listed.
I am anxiously awaiting the 1Q. "99 earnings reports! So have little more to add until now. Monday May 17, "99 is the last day for them to be published under the SET rules.
Best Regards,
Paul A. Renaud
