A restatement of the mission and a new selection.

April 16 2006.

A new member article at the Thai New Year 2006.

First a restatement of the basice investment theme which is mid to long term investing in value shares, with high dividend yields, on the Thai Stock Exchange.

One of my core original investment theme, which I have consistently advocated since 1997, is that high dividend value investing in Thai smaller cap shares produces over time substantial returns, along with less then SET market volatility. Yes, higher overall returns with less Thai market volatility and combined with low correlation, as compared to developed country stock markets.

The key investment philosophy has been to identify say 7 to a max. of current 12 stocks, at any given time, which combined and overall fit this chosen investor criteria at the time -of low p/e and high dividends. Trading liquidity, ever so cheered by the institutions, is a distant secondary objective. It is more work to implement in practice because one has to change to in thinking "accumulate buy" and "accumulate sell". Not "all at once" as we consumers are so conditioned to. This style of investing is also "off the radar screens" to most institutions, as one key requirement is to not to be a large pool of funds. Dividend yields and p/e ratio's are often nearly twice as favorable to the individual investor whom must not be obsessed by trading liquidity.

After reviewing the member poll again and thinking about this more, what I deliver for members is a strive to identify different companies over time which seem to fit my own likings and then here express why, as I do below and have regularly done in the past. It is then up to the member to check more and decide if it fits their own investment objective and taste. Or, as I recently did with Solar, where I just recently toned down some earlier stated enthusiasm. Over time there will be winners and loosers, but combinded I think I have most always shown superior returns and far more winners then loosers.

***

For some time I have been searching for a higher oil price beneficiary stock which because of this trend will benefit, i.e. from Thai industries changing their energy mix-usage. Most would agree that we are now at a classic break point with global oil prices yet again setting new highs and likely to remain high, permanently. A resulting shift in the energy mix usage should benefit this new found niche leader called UMS.

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Announcement:

I wish to let all members know that I will be in Zurich, Switzerland during the last week of April early days of May. If any member wishes so I would be happy for a brief visit at our offices, by appointment.  And/or if any member think I should meet someone of interest, while in Zurich, this can be arranged as well. Thaistocks.com AG, is headquartered at the center of the business district in downtown Zurich.

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Today I wish to introduce to you UNIQUE MINING SERVICES (UMS 14.6) which I would favor as one selection in any fully diversified yield driven Thai stock portfolio. I became very convinced on the merits of the business of UMS, after recently reading the excellent book called "A Thousand Barrels a Second". Below I review and reflect on favorably on the future earnings prospects of UMS. ( I meant to write up UMS at 14 where it was early last week, but then got a bad case of the cold which knocked me out for a few days).

"Because of the energy cost that produced by coal is the lowest if comparing with the energy cost produced by heavy oil, LPG and natural gas, so there will be a great number of coal consumption for using in generating steam, heat or electricity". Statement by UMS.

UMS (14.6) UNIQUE MINING SERVICES, a growth story in the rebalancing of the Thai industrial energy mix usage, with I sense is now in the making. UMS should much benefit as select factories around Bangkok abandon or reduce their use of Oil for energy use and electricity.   UMS is listed on the MAI, which is a separate board on the SET, As I recall UMS has the second highest market cap, on the MAI.

You can see the company profile and some information at their web site:

www.uniquecoal.com

Their 2004 annual report for download -and soon you will be able to download the 2005 annual report, is at this link:

http://umspcl.uniquecoal.com

Here are some quotes from the excellent book referenced below:

"Light, sweet crude oil is quickly becoming disadvantaged as a fuel…The easiest thing to do during a period of rising energy prices is to try to wait it out. Today, that is exactly the wrong thing to do". *

"Emissions from burning coal have been cleaned up substantially in the past couple of decades." * (I know this for a fact from my earlier bullish views on BANPU, one of the very few larg cap stocks I selected back in 2001.)

"AT $50 per barrel for oil, the alternatives of stranded natural gas and coal start to make economic sense". *

UMS provides industries alternatives to oil, on energy usage in Thailand, by offering the "clean coal’solution along with the coal grades needed, this reduces costs and cuts the dire reliance of still soaring oil demand and prices.

UMS states:

"Type of Business and Nature of Operation:

UMS has engaged in importing superior quality coal with high calorific value and creates low environmental impacts. The company has imported coal from Indonesia for distribution to several domestic industries,

especially, manufacturers in Bangkok and its vicinity and nearly provinces. Its main target industries including food, paper and textile industries. UMS has been successfully implementing its marketing strategies to penetrate into small and medium scale manufacturer, and create more value added to its product, by improving its quality to match each type of boilers. Besides, UMS has also supplied coal to bidding-project customers which normally are large-scale manufacturers in cement and power industry.

Just like the mantra in the 1990's had been for corporations to become lean and mean through use of information technology so the mantra leading into 2010 is for companies to become more productive through smarter use of energy. A shift of energy mix is underway not just around the world but here in Thailand as well.

The reality is

"Growth in coal will accelerate between 2004 and 2010, becoming the fastest growing fuel until the end of the decade" *

UMS seems to benefit from a growing trend among small industries to switch from Oil to Coal for some or all of their electric power needs. Since the price of Oil is still rising besides volatile, it makes sense to switch to an alternative energy source which is still ample. Coal is more polluting, but my understanding is that substantial progress in pollution reduction have been made over the recent 5 years. Clean coal technologies will help greatly alleviate toxic emissions even while greenhouse gases like carbon dioxide is still a big concern. While in Bangkok visiting companies around I never witnessed intense smog or air pollution. Here each investor must make up their own if he/she feels it’s a polluting industry which nevertheless helps solve a problem by reducing oil usage.

"At present, The management is implementing the marketing strategy to increase sell volume by cooperating with boiler distributors to supply boilers (5-10tons) to the small-medium manufacturers. In the future, the company will be a distributor of the boiler sized larger than 10 tons in order to serve the increasing demand. Recently, as of September 2003, the company has already signed memorandum of understanding (MOU) with well known boiler manufacturing company, Siregrand Industrial Limited, to be its sole sales representative of boiler branded "Hamada" in Thailand. The company expects to sell the boiler starting in the fourth quarter of 2004. This project is expected to boost up the company's revenue in two ways: 1. Revenue from selling Boilers, and 2. Revenue from supplying coals which expected to increase around 50,000-100,000 tons per year".    From UMS's prospectus.

Regarding enviromental impact, UMS states:

Environmental Impacts:

"The company's business may create small impact on environment including the dispersion of dust around warehouse. However, the company has seriously been aware of this problems and has set measurements to reduce environmental impact caused by the dust dispersion by way of covering the coal pile, building high fences, growing pine trees around fences, and spraying water to reduce dust dispersion outside warehouse.  Besides, the company always covers the truck with plastic cloth when delivering coal to customers to avoid dust and coal fraction dropping on the road. In the future, the company plans to build the new closed-warehouse (with roof), which will be equipped with complete sprinkle system to prevent dust dispersion outside warehouse".

As well as on the SET website, for the full 2004 prospectus:

http://www.set.or.th/set/companyinfo.do?type=profile    enter the symbol UMS.

At this page you stroll down and so can see their full prospectus in English. You should all take a solid look at this and decide for yourself if you like it.

***

UMS has the desired features of a high dividend, low p/e and better then average future growth rate. All three combined can lead to substantial stock price appreciation as I see it. It was one reason why I pointed out CITY (2.92) and still like it despite its recent price surge. UMS fits that profile and I hope to learn more about them in the future. It is up to the members to decide fore themselves and chose if any, among the recent and older selections I here reviewed. For more on this just take a broader look at all the companies I here favorably reviewed since last June of '05. This was the mid year date I then chose to broaden my previous "maximum bullish view on Ticon", in late 2004.

Here you can a free report from Kim Eng on UMS here:

http://kelive.kimeng.co.th/kelive/UploadPdfs/20050809070523395050809_ums%20q2_e.pdf

Note on how Kim Eng's earnings estimate then of 2.39 for 2005 was close to what UMS earned, 2.35. And while they mysteriously estimate a drop in earnings for 2007, they still see the dividend rate rising by 25%. I agree with Kim Eng the dividend could well increase by 25% next year, from the yield of 6.8%, based on the current stock price of 14.60. The company stock usually goes XD in March, where it just paid a 1 Baht dividend.

From UMS's web site:

"Because of the energy cost that produced by coal is the lowest if comparing with the energy cost produced by heavy oil, LPG and natural gas, so there will be a great number of coal consumption for using in generating steam, heat or electricity"

UMS's Major Customers:

It seems a drop in coal prices would not benefit UMS as they have high recently re-stored inventories also they buy coal in US$ which is good for UMS as the Baht has been rising vs. the US$. But they hedge their currency risk. The future growth rate should be above average as more and more factories will be converting to their non-oil alternative. This is a key assumption to my positive view for UMS.

UMS has restructured to much lower gearing ratios over the past few years. The Kim Eng report shows "cash" as its gearing ratio. The company was founded in 1994 and learned the hard lessons in the 97-98 financial crisis and has since completely restructured. The insiders still own a majority stake in UMS which became a MAI listed company on July 16 2004. UMS does not have BOI privileges but does enjoy some minor tax benefits in being MAI listed.

"Leaders of companies that consumer a lot of energy have a golden opportuntity today to differenttiate themselves by becoming low cost producers withint their peer group. While dinosauer competitorw wait for enegy prices to fall, industry inorvators can separate themselves from the Jurassic herd by investing in more energy-efficent processess. And the time to start is now".*

Insights on Insider selling and major shareholders:

There was some insider selling in the 3Q of last year, where  SOMBOON  SIRIPAIBOONPON the IPO listed Managing Director sold 1 million shares at a market price of just above 16. This person is no longer shown as the current M.D. -and yet still owns 7.9 million shares. No doubt this selling comes from the IPO silent period expiring.  The current MD is shown as Mr. Chaiwat Cruecha-em whom owns 15.7% of the outstanding shares of 11 million, so being the second largest shareholder.  Thai broker Seamico is shown as #5 in the top ten roster, they own 1.2 mill shares, or 1.73% of the common shares outstanding.

UMS has true earnings growth potential, it is a leader in what it does and benefiting from a trend due to high oil prices, has low finacial leverage and likely to continue to pay high dividends. I think UMS could earn up to 2.70 next year and so is trading at current p/e of 6.4 which is expected to drop to around 5 next year, this is too undemanding in my view and so I firmly rate UMS as a "long term buy", in the current enviroment of political turmoil and high global and Thai energy prices.