The annual reeviews on SET annual reports

A traditional mutual fund for example, cannot operate with less than 50 mill. US $. Any amount of investment capital less than this results the fund to shoot up in expense ratios. It then quickly so gets identified by all the various advertised tools available to evaluate these ever more prolific funds.

Even so called "smaller cap" funds cannot operate with too many numbers of different shares. Divide 12 companies into minimum of 50 mill. US$ and you can see (4.1 mill US$) is just too much money for our favorites. So there is huge cap. Now imagine this going on for some 10 years and you have a classic vacuum of immense values, which deserved carefully checking, and worthy of owning.

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2) Certain Government indicators point to Thai economic recovery.

The Business Economics Department of the Commerce Ministry on Friday April 9^th released economic indicators, suggesting the Thai economy appears bottomed out.

According to Khun Vithun Tulyanond, deputy director general of

the department, such conclusions were drawn from two important variable indexes: the ''coincident business cycle index'' and the ''leading business cycle index,'' both of which showed a recovering trend.

"The coincident business cycle index is weighted from nine key business factors: production capacity of commercial vehicles, motorcycles, cement and beer; total sales of 38 department stores in Bangkok; domestic car sales; business and value-added tax (VAT) collection; and total imports (in real terms) and import duty collection. The index rose by 1.02 per cent in January, this being the first time that a single month had moved into positive territory since September ’98. The index also showed a positive trend for six consecutive months, rising 4.9 per cent compared to August last year, when the index was at its lowest level since Thailand plunged into economic crisis in July 1997.

These positive signs result from production capacity increases in vehicles (27.6 per cent) and cement (13.8 per cent), although beer was down 24.3 per cent, and motorcycles 24.6 per cent lower. Department store sales were up 17.8 per cent, domestic car sales down 45.7 per cent, while business taxes and VAT collection rose 32.5 per cent, and total imports and import tax collection fell by 4.7 per cent. All of these figures are compared with December 1998. " The Nation, April 9^th ’99.

I think these indicators along with Electricity consumption in Thailand should be among the best indicators to date that the local economy is bottoming out.

3)  Over the next many weeks I will review many of the 40 just released ’98 annual reports on SET listed companies we are following.

On April 5^th and 7^th, Thaistocks.com send via EMS registered mail, a letter asking for this to be send to our Thai address.

METCO was the first company to send me theirs. I like this company.

METCO (52), Muramoto Electron (Thailand) Public Company Limited. (Actual introductory text from latest just released annual report).

"Demand for electrical and electronic appliance has increased dramatically in global markets over the past decade and has come not only to encompass household conveniences, entertainment equipment, communication, news and data tools, calculators and computers but major products like PCs, memory chips, data telecommunications, multimedia equipment and monitors.

A Dataquest report states that the volume of global demand for televisions and video players will still grow over the next decade while Japanese manufacturing associations have predicted Asia has a potential for such items. As the economic development of the region has led to lifestyle changes in society, this has spurred consumer demand in regional markets which are expected to double in the 21^st century.

Exhaustive research has been conducted to correspond with soaring consumer demand, meanwhile not only has quality risen but prices have dropped to an easily affordable level. In the midst of their evolution into the information age there has been heavy volume demanded in developing countries as opposed to the steady but unexceptional demand in industrialized countries for such products.

METCO manufactures parts to order for electrical and electronic appliances, like magnetrons for microwave ovens, parts for VTR, floppy disk drive, CRT parts including frames, IMS, electron guns. The company’s business is unequivocally to support the expansion of the electrical and electronic appliances industry into global markets via high-volume production and it is these markets that are an important factor regulating METCO’s direction and growth. Any surge in demand for television sets, for instance, requires a corresponding increase in the total production volume of television parts. Besides televisions, demand for computer parts has now intensified considerably, opening up a marketing window of opportunity for the company’s CRT parts.

Formerly, Japan cultivated its home production base, employing state of the art technology and the very latest production techniques coupled with extremely competitive marketing. It was hailed as the world leader in the electrical and electronic appliances industry. By 1980, however, Japan was on the horns of an economic dilemma as market demand for electrical appliances slowed while the Yen strengthened, causing production costs to soar. Japanese manufacturers adjusted their production strategy, transplanting production to countries in Asia with competitive labor costs, the most favored being Thailand, the Philippines, Malaysia and China.

This proved to be highly effective for the Japanese, not just because labor costs were more reasonable, but also because they received investment support from governments in a region that was endeavoring to establish an industrial export base. Moreover, Southeast Asia itself has begun to create its own demand for these goods. Japan increasingly became an importer of goods manufactured at its offshore production bases.

Such was the Japanese success that the region became a fountainhead of manufacturing, so much so that competitors like South Korea and the USA also began to migrate many of their production facilities here. It has been estimated that in the 20^th country, Southeast Asia alone has produced a third of all the world’s electrical and electronic appliances.

METCO seized the chance to construct a production facility in Thailand, which has an exceptional investment environment with state support through special commercial investment privileges. While the country has displayed startling growth with an annual rise in export volume, the company has proven successful, earning sales of more than 4,000 million Baht in 1994, which rose steadily over the years to peak at 5,000 million Baht in 1997.

The economic crisis in 1998 may have the effect of lowering company profits a little through increased production investment factors including labor costs and raw materials, but rising to the challenge, METCO has adjusted its production strategy to match the prevailing climate and maintain the value of its production congruent with market demand. Besides keeping abreast of the latest technology, the company has unceasingly pursued the development of its manufacturing strategy.

Labor costs have been reduced by devolving the production of VTR parts to Sima Technology Co., Ltd ., at Nakornratchasima while METCO’s focus has turned toward highly complex, high technology products like electron guns and automotive electronics. Electron guns production is a visionary step forward for METCO, which raises its standards to match other high-tech industries around the world, rather than depend just on lower labor costs. This factor ensures METCO of a clear and stable future.

There is a marked trend towards sustained expansion of the electrical and electronic appliances industry in Thailand. Computer parts have remained one of the top 10 export items for 4 consecutive years out of five. With earnings soaring from 94.6 billion baht (1994) to 220.3 billion Baht (1997), exports are expected to break the 300 billion Baht barrier in 1998 – a 300 percent surge in just over 5 years and over 136 percent since 1997 alone. Television and radio sets have also experienced mature export growth, from 34.6 billion Baht (1996) to 43.6 billion Baht (1997) and are predicted to reach 60 billion Baht in 1998.

While many of the world’s major manufacturers have policies to migrate their production to this region, coupled with the very high demand for electrical and electronic appliances here and the assumption that the Thai government will continue to support the industry and encourage its technological development into the next century, there is every reason to suppose the trend to further growth in Thailand will continue unabated.

METCO has proven its tremendous potential and technological readiness. Though economic conditions appear unfavorable, our wide marketing base in almost every region is expected to minimize any impact. Moreover, production strategy changes and the development of manufacturing mechanisms in tune with prevailing business conditions means that METCO will certainly be able to sail through economic storms.

METCO is extremely proud to have played a part in supporting Thai industry, its ability to bring in much-needed foreign currency and technology and to develop the skills of its labor force. In an age when people demand a continual stream of information and entertainment from electrical and electronic appliances, METCO has played a positive role in supporting this new way of life.

METCO became listed as a public company in 1994, and in 1995 established a subsidiary called Sima Technology Company Limited at Pakthongchai, Nakorn Ratchasima.

METCO has since moved to leading position due to its experience and expertise in the production of electrical and electronic appliance components and with the assistance of Muramoto Industry Company Limited, Japanese parent with more than 60 years of experience in this industry.

High Quality Products from METCO:

The many high-quality components produced by METCO can be divided into three types.

1. Video tape recorder (VTR) parts like VTR desks, front-loading mechanisms and chassis, etc.
2. Cathode ray tube (CTR) parts like frames, inner magnetic shields, shrink bands and electron guns, all are used for TV sets Computers Monitors
3. Parts for other electrical and electronic appliances, such as compact disks, magnetrons for microwave ovens, electronic components for motor vehicles, etc.

METCO can be considered one of very few manufacturers in the Asean region to produce such a wide range of electrical and electronic components. The company’s latest expansion into electronic components for the automobile industry is designed to keep pace with the burgeoning automotive production industry in the region including Japan.

Operational Results for 1998

The company’s performance in 1998 was most impressive, with good cash flow and excellent relations with banks. Two significant events explain the direction of the company’s finances in 1998. These were the approximately 30% reduction in its loan balance and the ratio of its long-term loans/BIBF loans changing to 70:30 percent (from 40:60 percent in the previous year). Both of these items had a great effect of the company’s strength and stability over the past year.

The company’s total revenue in 1998 was 6,683 million Baht, an increase of 1,875 million Baht, or 39 percent, over the 4,808 million Baht made in 1997. As we had exchange loss in 1998 though much smaller in loss, which enabled a net profit of 592 million Baht in 1998 and 1997 net loss (repeation net loss 223 million Baht).

Regarding our financial liquidity and debt-paying ability, the current ratio in 1998 was 1.49, which is excellent, compared with 1997 (0.94). Asset liquidity on the whole has been good, with the liquid asset ratio standing at 1.13.

Operational Policies

Plans to strengthen METCO focus on manufacturing; greater technological development and superior standard of quality control to keep pace with highly developed market requirements.

In 1998, METCO introduced new products designed to push the market beyond its previous two major business lines, VTR and CTR parts. The new third line, automotive related electronic components, has commenced with the production of remote controlled engine starters, car audio autochanger parts and electronic components for vehicle steering wheels, etc. Moreover, METCO has also begun to upgrade its technology to produce more sophisticated products like components for VTR.

In 1998 also, METCO became able to produce its own molds through the acquired skills of its highly trained personnel and in-house technology, which substantially increases the company’s competitiveness.

The company invested about 170 million Baht in 1998 from its own funds for machinery, equipment and tools in order to exploit new business, and re-engineered exiting machinery, equipment and tools to make it even more competitive in its field.

METCO has always been trying to be in higher global standard level of production technologies and quality controls to satisfy the requirements from our customers. METCO, thus, has aimed in 1998 to obtain ISO 9002 Standard, and was successfully granted the certification of ISO 9002 in December, 1998 by "Bureau Veritas Quality International (BVQI)". Our subsidiary, Sima Technology Co., Ltd. was granted same ISO 9002 certification in December, 1997.

1999 Forecast

It has become difficult to forecast precisely the global economic climate, or the likely exchange rate, in 1999. However both are likely to be important factors that will influence the company’s direction as METCO is primarily an exporter. The world economy and market, especially in the USA, and any appreciation of the Baht will have significant impacts of METCO to greater growth and stability. "

What a company to be had for a trailing p/e on operating earnings of less than 3. Book value is 84 Baht per share.