Two Winners - TUF and PR
(Below: From Subscribers' Version)
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TUF is probably the biggest canned tuna producer in the world. It has board of investment promotional privileges, including a 6 year income tax, import tax and trade tariff exemptions.
TUF has huge cold storage capacity and aggressive expansion plans into 1997, namely: a large capacity increase by building new facilities in Petchaburi Province. This facility will enjoy 8 years of 100% tax exemption. TUF, in early 1996 acquired a 20% stake in Songkla Canning (SC). Among other holding it established Thai Union International Inc. USA. This company has entered a 50% joint venture with the world’s largest fish supplier, Tri-Marine International so to operate a tuna cannery in Long Beach California. A US presence has many benefits.
TUF produced and exported 2,100 tones of frozen shrimp in 1996 and expects the figure to increase to 2,500 tones this year. When combined with 1,200 tones from Thai Union Seafood, the TUF group will export about 3,700 tones of shrimp in 1997, about 37 per cent of total exports of 10,000 tones.
TUF will not be affected by a loss of GSP privileges in the European Union market since the company exports less than 3 per cent of its frozen shrimp products there.
Canned Tuna and Frozen Shrimp make up 67% of total revenues. Pet-food (16%), Tuna loin (12%). TUF exports nearly 97% of all its products and so is an almost exclusively non-Baht revenue company. Revenue structure is: 30% from Japan, 33% from USA, 6% from Asia (non-Japan), 13% from Europe, from the Middle East, 4% from Australia and 5% from Canada. The rest is under "other" category.
Consider:
| Thailand is a major global sea food exporter:22% of all Japan’s see food comes form Thailand. 19 % of all USA’s see food comes from Thailand. Thailand is Japan’s number 2 importer of Seafood,behind Indonesia. Thailand is USA’s number 4 importer of Seafood. Seafood exports out of Thailand are growing an average of 7% per year. Some 60% of these are Shrimps,whose consumption has shown to be non-cyclical.(Goldman Sachs Asia, 1994) |
| Source: The Thai Financial Newspaper, Nov. 13, 1996. |
TUF is well managed and has an excellent record of paying out high dividends; those amounted to 20% of then current stock price, in 1995. But expansion preparations in 1996 and the slowing of shrimp exports that year reduced net earnings in 1996. ('95 E.P.S. was 9.03).
50 Mill. shares outstanding. Market capitalization is 42 million. US $It trades sporadic with occasional good volume. PR, President Rice, June 03, 1997, at the then market price of 24 Baht per share. Currently PR is up 28 % in value. We find this company very attractive and would continue accumulating these shares. PR will go XD on October 7th for, 1.25 Baht per share. The company earlier paid a dividend of 1.75, so the total over past 12 months is 3.00 per share. We expect this dividend to increase over the next 12 months.
President Rice(PR, 24) produces instant rice noodles and other food products, like "Farmhouse" breads and pastry products for Thailand and the World. PR, exports prominently around Asia and sells in many Oriental stores of in the US.
Some 40% of PR sales are exported with Malaysia and Hong Kong their largest market. In Malaysia we have tried the competitions product "Maggi" and were not impressed. Demand seem to exceeds supply from our discussion with management. PR’s revenues are very high U.S dollar equivalent; as such, any currency weakening of Baht vs. U.S Dollar would be highly beneficiary to PR. earnings.
The first quarter of '97's balance sheet shows very healthy expansion of production facilities, machines etc. The first quarter earnings number include 0.38 Baht, of extraordinary gain due to the sale of some Land. The company has over 1,000 employees with it's factories on the outside of Bangkok’s, congestion.
This company is trading currently at a p/e of 3, based on trailing last 4 quarters earnings. It is a clear beneficiary of the current economic slow down and more even due to Thailand’s modernization over the past 10 years. People have less time to cook elaborate meals and yet are suddenly less eager to spend on expensive meals.President Bakery is a very successful subsidiary. It’s current annual earnings growth rate is near 30 %. These bakery products, like all others, are distributed most efficiently, nationwide. We asked a few people from far outside Bangkok and all knew "Farmhouse" bakery products.
Distribution is key in developing countries and PR has the edge here. PR is part owned by a group from the Saha Pathanibul group of companies, by far the best consumer product distributor in Thailand.
"Farmhouse" products are produced at Ladkrabang Industrial Estate and equipped with hi-tech automatic systems and modern computer aided productions lines. Sales of this subsidiary have grown from 100 million Baht in 1991 to 450 million last year. As indicated by management just last week, net profits here will increase from 30 to over 40 million Baht in 1997.
From this same Management source, expected total net profits to consolidated President Rice in 1997 are forecasted at 125 million Baht or up from 78 million, in calendar 1996. Based on this and the first quarter, I believe PR can earn 10.20 Baht per share in 1997. Total consolidated revenues were 2,559,766,645 Baht or U.S. $102 million, for 1996. We expect this to increase to near 2,900 million Baht in 1997.
It has been indicated that PR will pay out at least 50% of it’s ‘97 earnings in dividends. At the current price of 24 this could/should result in an over 20% yield over the next 4 calendar quarters. Some part of these dividends should be tax free.Furthermore, if this lowest p/e stays just at the same multiple of 3, the stock price should increase by 25 % in value. Unless you can you make the case the p/e will go to 2 next year, this is what is going to happen.
With a total return expected at near 50% over the next 12 months, assuming no p/e expansion, and assuming the risk level of this very basic product company…you draw your own conclusion.
For an annual report you can try by faxing below, but I cannot promise they will mail this out air mail:MR. Boonpiam EamroongrojManaging Director, President Rice Products Co. Ltd. FAX BANGKOK 02 374 7956(if outside Thailand +66-2 374 7956)
President Rice Products Plc (PR) reported on reviewed quarterly consolidated financial statements as follows:
| PR and subsidiaries | 1997 | 1996 |
| Net profit (loss) | 30,168 | 2,253 |
| EPS (Baht) | 2.51 | 1.02 |
Ended December 31
| Q4 | For 12 months | |||
| 1996 | 1995 | 1996 | 1995 | |
| Net profit | 34,024 | 9,699 | 78,870 | 38,266 |
| Earnings per share(Bt) | 2.84 | 0.81 | 6.57 | 3.19 |
Ended December 31 PR & its subsidiaries
| Q4 | For 12 months | |||
| 1996 | 1995 | 1996 | 1995 | |
| Net profit | 34,053 | 9,627 | 78,945 | 38,206 |
| Earning per share(Bt) | 2.84 | 0.87 | 6.58 | 3.18 |
The Q4 performance showed a jump of 250% over the same quarter last year, and the year's net profit rose by 106%. The company explained the increase, giving the following reasons:
- Sales in 1996 was boosted 15% above 1995
- Raw materials, crops of which the prices have soared high in 1995, became cheaper. (Broken Rice is the raw material).
- Production and administration expenses increased, but at the lower ratio than sales'.
- Subsidiaries' performance was on good trend. Revenues from these subsidiaries incerased by Bt18.63 million or 98.45% over 1995.
President Rice Products Plc. (PR) reported it had utilized funds valued Bt2.4 million so as to increase capacity between July - December, 1996, so that proceeds from capital increase was absolutely spent for planned projects as well. On November 18, 1993 PR had increase capital for second time at the amount of Bt120 million to invest in President Bakery Co., Ltd. The fund worth Bt118 million later had been spent on that objective and raising capacity, on which there was Bt2 million left to be spent.
Paul A. Renaud.
ww.thaistocks.com
