UKEM, a visit with senior management.

As mentioned some 10 days ago, after my visit with UKEM around 2.24, I turned more cautious. January 29 "07 9:30 AM.

This mainly because the company expects to report a loss for the last quarter of "06 and I am not sure if Mr. Market is aware of this and so how the stock price will react? This company is re-building its warehouse and installing new equipment, it so thinks the 4 q. loss will be around 5-8 mill Baht.

Yet for full year 2007 UKEM should report a 50-60% earnings gain as compared to 2006. With the stock currently trading around 2.14 the year 2007 p/e would still be a fair 6.5-7 and so not that cheap. (Say 50 million Baht divided by 160 mill. shares = 0.312 Baht per share). The company does feel earnings will move further upwards in year 2008 and beyond.

UKEM (2.16), a 25 year old company, is getting more and more business directly from Exxon a huge global company which is increasingly more seeking agents in developing countries and so UKEM is benefiting from this trend. The tend is to give business to distributors.

More customers and less items, where the focus is on existing products, this is UKEM strategy moving forward. (For UKEM’s business description etc, please visit the SET web site under company profile and/UKEM web site at http://www.unionpetrochemical.com/eng/index.html

Nivea, Oriental, S & J and many other cosmetic companies are their customers. Nivea alone expects their sales to triple in Thailand from 3.3 Bill in 2006 to 10 Bill Baht in 2010.

UKEM imports less then 10% of its raw material The company sells among other things pure alcohol and glycol to the cosmetic industry. This is a very stable industry and UKEM is on the approved list of many/most major cosmetic manufacturers. Printing, painting, and other industrial uses for their products come from a diverse group of customers.

A small company serving a huge industry and where earnings are expected to growth very fast the next couple of years.

One possible issue to be aware is Union Intrago, which is UKEM’s subsidiary (99% owned). This subsidiary will generate most of the profits for UKEM going forward. The company has around 80 employees and no BOI privileges, hence UKEM is a trading company, not a manufacturer of these products. The D/E ratio is a low 1.1 and the company has a recent history of paying out good dividends.

Because UKEM is a pure trading company, which expects to report a loss on its next earnings reports (to be announced at the latest by April 15) and where most of the earnings will come from their subsidiary I am a bit cautious, evenwhile I enjoyed and had a good impression of the deputy managing director, whom is the son of the major owner, Khun Perajed Suwannapasri

My take/conclusion is await the bad quarterly earnings report and consider accumulating this growth stock on any price weakness which might materialize, in the meantime I stated already and at lower then current prices to consider DEMCO and UEC, two companies I like and will visit by mid February.

Best Regards,
Paul A. Renaud.
www.thaistocks.com