RCL a newly liked value stock.

Regional Container Lines (RCL) is one of the three leading players in the regional container shipping industry.

RCL claims a market share of more than 50% on its main line Singapore-Bangkok route and around 25% of the overall market. RCL is the third largest company in terms of container volumes lifted at Singapore Port and ranks as the biggest operator at Bangkok Port. It covers 48 locations in 17 countries and has its operating base in Singapore. Its geographically well spread network ensures that RCL is less exposed to economic downturns in any one country.

Established in 1980, RCL was among the first shipping companies to set up a transshipment (or feeder) service in the region, sailing between deep sea (or hub) ports and small (or spoke) ports. The SOC business provides a feeder service for the Main Line Operators (MLO) that cater for manufacturing and international trading houses. Feeder operations referred to as Shipper-Owned-Container (SOC) service, account for 70 % of RCL's container volumes. The 15 biggest MLO clients, for example MOSK, NYK, Hapang Lloyd and P&O Nedlloyd, provide 75 % of the SOC business.

RCL also carries cargo for individual clients the so-called Carrier-Owner-Containers (COC). Clientele includes transnational companies such as Philips, Toyota, Nestle, Sony, JVC etc. The COC business is considered to have potential because it offers higher value-added services and has relatively few competitors. The ratio of COC to SOC freight has steadily risen over the last three years. RCL aims to balance the two sides equally within the next few years to minimize the risk of being overly dependent on one type of activity.

RCL has Asia's largest independent feeder fleet. Its fleet operations are adaptable as besides having its own ships it charters others and can exchange slots on vessels to vary its trade routes. The fleet has an average age of eight years and is considered relatively modern compared with the industry's average of 12-15 years. This results in both higher operational efficiency and lower maintenance costs. The estimated fair market price of its 26 ships is US $ 184 million or US $2.9 per share, according to the shipping broker Marsoft.

Trade volumes for Thailand and other countries in the region have been on the up trend recently. The pick up in trend has meant higher volumes of products such as canned foods, textiles and especially electronic components etc. which are amongst the regions top 10 exports. Also, a large proportion of the imports have been products for re-export. As most of both the exports and imports are usually carried by container ships, RCL has been a real beneficiary. Furthermore, the global trend towards using containers for general cargo and outsourcing of transportation services by multinational companies augur well for RCL's longer-term growth prospects.

RCL has recently concluded a debt restructing deal with two Singaporean creditors. This has eased RCL's debt servicing obligations, as repayments will be spread over the next few years and will be better matched with its annual EBITDA. Also the issuance of a Bt1 billion debenture on the local market would improve the company's financial liquidity.

RCL currently has US $295 million in outstanding foreign loans. The money was used to invest in a Singaporean office block and on fleet expansion over the past two years. The high cost of the office building and an oversupply of office space in Singapore following Asia's economic crisis changed this investment to a money looser. In 1998 the company set aside a provision of US $6 million. The property is now regarded as a long-term investment with space offered for rental. The occupancy rate has improved from 50% at the beginning of 1999 to approximately

80%. The office block accounts for 18 % of the company's total assets value.

The gross margin of RCL increased from 18.4 % in 9M98 to 20.2 % in 9M99 despite rising world oil prices. It is believed that the recover in regional trade has more than offset the higher fuel costs. The main operating costs are stevedoring costs (36.5 %), followed by vessel operating costs (8-9 %). Its feeder vessels have a shorter turnaround with average voyages of 7 days compared with 30 days for larger ships. Freight rate fluctuations are a risk factor for all shipping companies, but rates tend to be more stable for containerized ships.

On the operating side only a limited downside risk on RCL is foreseen, as evidenced by the operating profits it continued to book during the economic crisis. The share price has dropped by about 15% over the past month with no change in business fundamentals.

RCL reports audited annual financial statements as follows.

Regional Container Lines Co.Ltd (Public)

Audited Ending December 31, (In thousands)

 On March 13^th Tisco Analyst went to RCL's presentation on its 1999 results

The analyst reported back:

1.) USD 1999 results: The company released its US financial statement to confirm its strong operation growth, as grew 75% yoy. This compared to a 242% rose in pre FX from Thai baht version announced earlier. This was due to 14% yoy rise in volume trade as from the post crisis trading activities and an abnormal high demand in shipping as a preparation for the Y2K fear in 4Q99.

2. ) Continue to grow volume ship: Previously, we worry that RCL's profit in 1Q00 would be lower after the Y2K impact. However, it continued to post a 13% yoy growth in transported volume in January, which was even higher than December's. There are higher demand for shipping scross the region and an impressive growth are from its operation based--Singapore, North Asia (China,, S. Korea and Australia). Nonetheless, we conservatively targetonly 8% yoy rise this year.

3. ) Impact from higher oil prices: Definitely, RCL is also affecting from the situation of surge in oil price--as its bunker price was up by 60% yoy in January. This made the cost of oil is now accounting to 8.7& of total operating cost, versus 6.5% in the past. However, as a dominant players in its market, RCL can pass through the higher cost by charging so-called bunker surcharges on top of its normal freight rate to its customers, also thanks to the strong growth in volume that can somewhat offset with the higher cost. Note that we maintain a view that the world oil price should already reach its ceiling and correction is expected in the near terms--after a final talk among OPEC members in March 27.

Valuation:

The company is trading at only 2.7X PER, which is very cheap when compared with our target EPS growth of 14% this year and 17% next year. On the other hand, P/BV is only 0.5x as BV per share are Bt9. Also based on its assets value, replacement value for its 25 ships should be around US$2.9 per share.

Lastly, good news for investors is that the management hinted to resume pay dividend this year as the first time since the country's crisis. This is as a present for its 20th year old celebration. Based on its historical data, we expect DPS at around Bt3.70 per share, or 9.8% yield. "

We thank Tisco and it's usually good research with this report. Many stocks they like we decide ignore but RCL and PDI are two exceptions.

I rate RCL a long term Buy.

Best Regards to all our valued Subscribers,

Paul A. Renaud.

www.thaistocks.com