SPPT, another leading growth company.

SPPT (4.48), Single Point Parts (Thailand ) Public Company LTD.

A leader with high growth, dividend income and undemanding stock valuation.

SPPT Incorporated in July of 1997 and achieves continued and renewed BOI tax privileges.

SPPT’s IPO was for 50 million shares at par 1, for 2.40 Baht issued on February 17 05.  Its in the business of high tech machines making a wide variety of high precision and key components parts needed by all kinds of hard disk drives. Some 150 computerized control machines are imported from Japan. (This year alone they ordered a total of 36 new ones).

The company’s products include pivots, spindle motor, fluid dynamic bearings, parts for mini 1 inch hard disks, optic fiber joints pars and digital camera parts. You can see their mostly in Thai language web site at: http://www.spp.co.th/home.php

And this link will show what key products they make:

http://www.spp.co.th/product.php

SPPT was brought to your attention already when the price was at 3.50. I then rated it in my view as "speculative buy". After my visit and further study,, I now view this company as a "strong buy".

The machine parts I have seen are astounding…a top grade stainless steel from Japan machine cut to 1-5 microns in size, then laser checked for size and spindle. Hard disk drives are forever getting smaller along with more capacity, SPPT is at the forefront and so should benefit, of this global trend. Their market is expanding forever more into consumers electronics of all kind.

Main customers: Minebea Group of companies (Thailand). (The leading company in the world in this business). Seagate, JVC, SEIKO and others. In fact, 4 out the top 6 HDD manufacturers are right here in Thailand. Thailand is now the top global producer of this key IT component, having taken this position from Singapore, just this year.

The much touted local auto parts industry employees some 110,000 Thai workers, but the far less know HDD manufacturers, employ almost as much or, some 100,000 workers. SPPT’s industry produces some 14% of total Thai manufactured exports.

This is one reason why I want key exposure here, more then in the Thai Auto parts supply industry. SPPT is also part of the "Fluid Dynamics Bearing" (silent HDD drives a new growth segment) and produces some parts for the Automotive industry.  The company's  gross margins have grown to 33% this year vs. 25% last year.

Employees 540 people as of October 2005, Sales have soared starting with 310 mill. in 2003, 415 mill. in 2004, and so far 479 mill. for first 9 months of ’05.  My own estimate/view is that SPPT can generate sales of some 640 mill Baht this year growing to 1 Billion Baht in calendar year 2007. This as I figure guest-imeate could translate into say 160-170 mill. Baht in profit this year, or an earnings per share of 0.70, then growing to 1.04 for calendar 2007. Hence the p/e is dropping from year 2005 of 6.8 to less then 4.5 for year 2007. There are a total of 250 mill. shares outstanding. No warrants.

SPPT’s cost brake down:

Raw Material: 50%

Depreciation: 15%

Labor : 17%

Other: 18%

Management plays down large gyrations in the cost of its raw material, like highest quality stainless steel imported from Japan.  Later I found they also use the metal Brass as a key raw material component. But then, I was not able anymore to ask about the global price trend of brass but am not conerned as margins have been on the increase all the same.  

Realize as well, that the Japanese Yen currency has depreciated in value this year vs. the Thai Baht, so for now this is another positive.

The company has plans to move and expand to a larger factory next year. The move should have minimum business disruption as the machines can very easily be moved and all the needed preparation of the new factory does not disrupt current operations.  There are no plans to increase capital as the relocation and increase in production can be financed by large internal cash flow. (Depreciation expense of their many machines are large every year bur are a non-cash payment expense).  The company has no long term debt and very low current ratio, and yields some 6% in dividends based on the just past dividend and current market price of 4.48.

The management and insiders own more then 50% of the stock and so the free float is small and trading volumes can be thin, all depending how big of an investor you are. To me SPPT represents yet another example of diamond in the ruff which is growing several times the SET averages, yet trades at half its multiple. A distortion I will not accept -as liquidity is never endlessly priced.

Today I am removing RPC (7.75) from the model portfolio and instead double the weighing on SPPT, as I have noted in the updated micro cap model portfolio. I don’t think RPC will move lower, its just that I think SPPT has better and growth.

Hard disk drives have a huge future assured. Besides being used in an ever broader products range, there is huge consumer appetite to enlarge and upgrade ever more data into ever smaller HDD’.s Exploding pictures, music and ever more data to be stored they are the growing core of the new IT.

From SPPT's web site:

ISO 9000 Certification implies that the company is able to compete equally in overseas markets for customers of high - technology products and is fully committed to develop its range of products, in accordance with the progress to technology, to meet the advanced technological demands of the future.