Ticon some updates/concerns.
In late 2005 I turned maximum bullish on Ticon (13.10), around the price of 6 and stated so at my front page in full vigor! Senior members here will clearly remember this. Ticons stock price more then tripled over the following 2-3 years, to 21 along with some nice dividends. I advocated to take profits along the way and finally viewed walking away completely when the North Atlantic originated financial crisis hit in early 2008. I suggested back then that TICON should buy back their own shares, instead of just keep expanding into one of the worst global economic downturn.
But Mr. Ian told me there are “no such buy back plans”. In early May ’11 I stated here in our member lounge that I am warming back-up with Ticon, whose 1 Q drop in earnings was only because they did not sell any factories in the 1st Quarter. But just recently changed again my mind to becoming more neutral here, due to the e-mail exchanges of below and not least other better ideas I have. I offered to meet up with Ticon on my last Bangkok visit but no answer was received back? I suspect Mr. Ian was on holidays then? Anyway, here I share with members my recent e-mail exchange. You can draw your own conclusion with my view on this stock being a “Hold”.
Tue, May 3, 2011 at 4:25 PM
To Ticon’s Mr. Ian Hamilton Head of Business Development of Ticon Industrial Connection Public Co. and K. Virapan, Ticon’s its Managing Director.
The key question I still have at this time is why your p/e ratio has dropped over the recent past years since we last met. And what this says about current management? And more importantly, what may turn this around? As its paramount to any shareholder...especially since during this same time period the P/E ratio of the SET has increased by more then just some.
After no answer to this mail by Mr. Ian Hamilton, I send another one asking if “no answer is their answer”? Note some of this was already posted in our member lounge.
On Tue, May 24, 2011 at 9:09 PM, Virapan Pulges <email@example.com> wrote:
I have been reading communication between you and Ian. I must said that your question on p/e is ver tough to answer? Normally p/e ratio is higher with higher growth company. Perhaps you may want to blame this on the current management, which you can certainly think any way you want. because of your presumption, I believe that Ian didn't know how to answer your question and hence he did not reply.
For a good reason, you did not like us developing more factories after Lehman went bankrupt in 2009 and wanted us to buy back the shares. There are certain rules on buying back the shares and at that time with our debt and cash levels we could not be qualified to buy treasury stocks. In addition, it was better to finish building the factories rather than leaving them half built, because we still believe in the fundamental strength of Thailand as a manufacturing location. We certainly slowed down the construction by reducing number of our workers down from 1,700 to 700. As a company I didn't think that we should lay off 100% of our workers. We increased inventories of factories to as high as 55 factories at the peak. It turned out that because we had more inventories, we have rent them out very quickly when things turned around. We now have only about 22 factories in our inventories which is a little bit lower than normal level. We are now speeding up construction for our new customers, mainly Japanese. We have to increase the workers to more than 1,000, which is very difficult to do at present. we have to even outsource some of the construction to meet the demand.
Coming back to your question on p/e, Even though our q1 2011 increase in rental space was a record number, 84,000 sq.m., many investors are still of the attitude to wait and see to be sure what will be the trend, especially after earthquake and tsunami in Japan. Other than this, I think that it is difficult for us to give you the reason why TICON is not valued higher than this. You have the right to think that it is because of management. Other people may have different reasons. I will certainly have to take the full responsibility as the Managing Director of the company. As a shareholder, I think that the company should be valued higher than now. As a management, we always try to mange the company on a long term basis to increase shareholders value. Different shareholders also have different opinions. For example, some shareholders do not want us to pay dividend because we keep growing and will need more capital to grow, while many shareholders invested in TICON because of dividend. Some shareholders want us to increase debt/equity ratio to 3:1 or more so that we can get higher return on equity while many wanted us to lower it to 0.5:1. Many foreign funds sold our shares because we paid dividend in 2009 instead of paying down debt because they believed that Thai banks would have run out of liquidity and would call on loan.
We certainly value your opinions and questions but we do not have answers to your every questions.
(Managing Director of Ticon,)
May 30, 2011
Further to your appreciated mail of a few days ago. BTW, at the time when I expressed my opinion that Ticon should in year 2008 accumulate-buy back its own shares, rather then just expand more, Ian did not state this was not possible or against the SET rules -or lack of d/e ratio etc.. He just explained that this was "not their view". (I can go back and look for this mail but bref, lets' move on.)
Today the SET is near a 15 year high and yet TICON is well off its old high, this along with a lasting p/e deterioration. All the mgt. explanations cannot take away this fact. Mr. Ian can brush me away, but that reality won't. Perhaps in hindsight it would have been better to reduce your number of shares outstanding, then "just keep on expanding". (Yet with hindsight, surely finishing building existing factories was a sensible choice).
Yet, 1) the global/western recovery is and remains in a dicey state, 2) the Thai workers inflation much on the increase (the politicians are promising up to a new 300 Baht a day minimum wage increase), 3) and Japan, your biggest client, remains depressed on many fronts. 4) US manufacturing is slowly coming back, surely productivity is, as China's costs (and to some extend Thailand's) are soaring due in part to worker shortages.
After years of decline, US manufacturing is a bit on a rebound it seems. China manufacturing is no longer 80% cheaper then the US, that rate has increased to 60% now. (Bloomberg Businessweek, May 9th). Chinese wages are increasing some 17% per year while the US is becoming every more productive. So incorporate the distance to the (now slow growing) market and an appreciating currency there, etc.. and the trend is now against just saying "manufacturing in Asia is a no-brainer". There is now a slow start in US renaissance of manufacturing. CAT, FORD, NCR and more -all have announced they are returning some manuf. to the US.
I am not suggesting a big scary shift, just that stock markets are always forward looking and they may see the winds changing, at margin...evenwhile Ticon keeps expanding full boat it seems.
You say, "As a management, we always try to mange the company on a long term basis to increase shareholders value", indeed this is you paramount responsibility. Perhaps the time has come (sorry if it took so long), to reevaluate this ingrained attitude here that Thailand remains on the path of lower costs, across the board, almost by definition.
A stronger Chinese currency, a lower dollar, rising & escalating costs in Thailand and labor shortage here and in the regions are all things which have changed dramatically so in the past short years. Western manufacturing retrenchment here may be the next theme? And your p/e is starting to discount this, that is as it sees Ticon behind the curve on that? These I think are the concerning questions to Ticon shareholders.
Thank you very much for your comments.
Your welcome Virapan.
Please do let me know if you have anything to add to this, as I plan to make an article about these viewpoints.
Members, I will keep you all posted if any other comments/mail is received by them.