A visit to Thai Optical Group Plc.

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Company Visit

Thai Optical Group Public Company Limited (2.56). Rated with a "strong long term buy" view.

Thai Optical Group Public Company Limited and its Subsidiary manufacture and distribute optical lenses, it is the country’s leading and largest independent lens producers and has a high technological production. Their customers are typically big optical chain stores, semi finished lens manufacturers and wholesale distributors. In the future high quality lens offers far higher gross profit margins of roughly 30-35%, which is far better then the 10% gross profit margins for standard lenses.

TOG, (2.56) came pubic at the market price of 2.80 with 68 million shares, on May 8-9 2006, raising a net (after underwriting fees) of 184 million Baht from this IPO. Their web site is: http://www.thaiopticalgroup.com

TOG stated it used the funds for the following purpose:
"1. Repayment of short-term loan to a financial institution of Baht 95.00 million (Purchased of machines and equipments for the third production line of Hi-Impact Resistant lens and constructed a warehouse for).

"2. Repayment of short-term loan to a financial institution Baht 30.00 million (Purchased of machines and equipments for the expansion for hard coated and hard-multicoated production lines)

"3. Loan to the subsidiary company for working capital of Baht 31.00 Million.
The remaining fund from IPO proceeds as of June 30, 2006 is Baht 28.69 million."

I met in person with Dr. Sawang Pracharktam, the managing director and was most impressed. Dr. Sawang started this company before I was born in 1950 and has been growing ever since. Today it is a global leader in what it does. The Pracharktam family still owns 66.8% of TOG’s outstanding 400 mill. shares, post IPO.

The company has proprietary products, like the PPG Trivox lens where TOG can produce both finished and semi-finished lenses; there are only 3 manufacturers in the world which can do this. Trivox lenses are highly impact resistant, highly overall resistant and of very light weight. (Even a hammer can"t brake one and in the US children must get a parents signature if they don"t want such a superior lens). Sales growth of Trivox lens can increase some 50% after operations start on its new production line later this year.

Here is a list of some of their products:

1. Organic lens sub-divided into 4 categories;
1.1 Normal Lens (CR39?)
1.2 Photochromic Lens
1.3 Hi-Index Lens
1.4 High Impact Resistance Lens

2. Mineral Lens

3. Prescription Lens

4. Other products and services such as Glass Molds, lens hard coating and multi-coating Products of Thai Optical Group Public Company Limited and its subsidiary company are distributed under more than
70 brands on an "OEM" (Original Equipment Manufacturers) basis, and under the Company’s own brand "ExceliteTM".

All the details and breakdown by product type is clearly shown at TOG’s SET prospectus. Which is Prepared by Thai Optical Group Public Company Limited (TOG). See the SET link below.

Overall, and across boarders, about 10% of the people whom need glasses to see better, choose to wear contact lenses. In my observations and as confirmed by TOG, there are 3 powerful great forces which make corrective glasses and optical lenses now a growth business, worldwide. Consider:

1) Baby boomers, which are growing into their late 40, 50’s and early 60’s, and so coming into the prime years for wearing glasses. Some 10% will want contact lenses.
2) India and China, two huge markets, are growing-up and waking-up. Increasing amounts will spend increasing currency to correct vision besides wanting to "look good". China and India are huge markets commanding some 50% of the total global market. TOG is very well positioned to capitalize on this.

3) The computer/internet and IT age has resulted in more people needing to wear glasses then ever before. As focusing on a computer screen for hours tends to wear out certain eye muscles over the years and corrective vision is then needed.

While the company has a 30% market share in Thailand in what it does, it exports some 93% of its production. The Thai Baht currency strength is only a minor issue, as most of its sales, besides raw materials costs, are in US$ and EU currency anyway. Raw materials are components like chemicals, minerals.., most all imported. The lenses making molds are fabricated from mineral glass, which TOG makes itself. Variable costs make up some 35-40% of total costs. Energy prices has affected them in a small way this year.

The company has 3 factories: organic, minerals, laboratory.

Besides the Trivox lens, the company has a new superior products in the progressive lens and better bifocals.(?) and back side progressive lenses, which are far superior but expensive. TOG is already producing back side progressive lenses. Also Photo chronic lens (optical lens). Both these high quality lenses have higher growth and profit margins. Gross profit margins are set to increase to close to 25% this year and next from last years 18%.

Take a look at http://global.transitions.com/, a TOG client.

"Transitions® Lenses are the ideal choice for your everyday lenses. They are clear indoors and go to sunglass-dark outdoors. They provide convenient protection from UV radiation and glare, helping you to achieve healthy sight. Transitions Lenses are the #1-recommended photo chromic lenses in the world. To learn more, select your region from the map above."

At the below link you can and should review TOG’s, recent IPO s prospectus in English as it is what the company extensively released in information and understanding, and since TOG just went public, its all most recent and updated. When you see this link enter TOG under company profile, then scroll down to see the full detailed description.


My guided earnings forecast is as follows:

Net profit of 110 mill. Baht for this year, or 0.28 Baht per share, so the 2006 p/e is: 8.9
Net profit forecast to grow to 160 mill. next year, 2007, some 45%, or 0.40 Baht per share, so the 2007 p/e drops to 6.25. I expect the dividend to be some 0.11 this year, increasing to 0.16 next year. The surprise here is that this years" earnings are lower then my intial forecast but next year should be better then previously expected.

Best Regards,

Paul A. Renaud.