UEC, remains a top choice in a growth sector.
Despite the mkt. price rise and the chairman selling some shares lately, I maintain a solid buy view on UEC (2.94)
UEC is a prominent “core holding” choice in my smaller cap universe. It has been voted in the past by Forbes as “best Asian company under a billion”. Rightly so as it has a long record of success and well above average IR practices. I met UEC in the past and always viewed it as a solid long term investment. You can see their web site at www.unimit.com
The company has a long term track record averaging some 25% return on equity, low debt and continues profitability in a growing field. Last year, along with the global financial crisis, the company reported a 20% drop in earnings, but still managed to show 0.48 Baht per share. At a current p/e of 6-7 I view this stock as an undervalued yet very high quality company. I have here reviewed and visited UEC in the past.
The question has been raised why has the chairman been selling out some of his shares below 3 Baht recently, when UEC shares traded above 10 Baht not long ago? This is what I address here today. I contacted UEC last week and met-up with its Chairman, K.Phaibul, for 1 ½ hours yesterday, inviting him to the Marriott Hotel executive lounge here.
K. Phaibul is 73 years old. His family overall owns about 20% of the outstanding shares. He explains that he bought lots of UEC shares a couple of years ago. Today he needs to reposition some of his holdings and this is now almost done. (I think at most he will sell out another 1 to 1.2 mill. more shares). He clearly told me he is almost done with his selling. He is surprised at the general market strength like many of us and only wants to sell out some when UEC shares when “these trade with volume”, as they have recently. For estate planning purposes and because of his strong belief global oil prices are again on the increase, he dwelled its wise of him to divest just a bit into more energy related companies due to his conviction of higher oil prices in the near future.
K. Phaibul emphasized there is nothing wrong with UEC! The company for the first time is getting inquires from the Middle East…new power plants and the boom to come in alternative energy will all benefit UEC. The company is on a strong drive to expand with orders from overseas (outside Thailand, but not China) and by 2010 it believes some 30% of revenues can come from outside Thailand. This is impressive and consistent what I hear from other such companies, like TTCL, that here Thailand has a strong advantage with qualified engineers, at much lower wages.
He explained with some vigor that UEC is not affected by rising steel or changing FX markets, as they work on a “cost plus” basis and never allow the firm to speculate on FX -or global steel prices. He is so adamant about this, (as this gets asked all the time), that he even makes a point to mention it in their latest annual report, “letter of the chairman”.
Here is how it reads:
“It is worth mentioning, though, that in spite of massive fluctuation in steel prices, Unimit was able to maintain its gross margin of about 27%, a level almost in line with year 2007”.
MAI announcement on September 14 ’09:
The board appointed Mr. Paisan Sirichantaradilok and Mr. Young Tai (John) Lu as co-presidents, to be effective on September 30, 2009”
I also noted, unlike some other companies like LVT, UEC is determined to promote younger people to top positions within the company. To me this is rather uplifting at this point in the new cycle, as one problem with many smaller firms here is that they are just dam too conservative. This may be ok in a crisis, but the crisis for now is over. UEC just promoted younger Mr. Young “John” Tai Lu to co-President taking the position of Mr. Thailuck, which retired. I plan to meet with Mr. Lu on my next visit, as I remain of the view UEC as one, if not the, top quality MAI company.
On the way out, in the hallway, I suggested to K. Phaibul that UEC should consider issuing some warrants, but at above the curren mkt. price.
Best Regards,
Paul A. Renaud.
