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ASEAN STOCK WATCH Asean Affairs   25  February 2011

ASEAN Markets to Rebound

Shayne Heffernan

In Singapore, the Straits Times Index finished below the psychologically important 3,000-point mark for the first time in more than five months.

Best buys today are Singapore Airlines down 22 cents to S$13.66, Neptune Orient Lines down 10 cents to S$1.97.

Banks are also great buying United Overseas Bank down 32 cents to S$18.00, DBS down 6 cents to S$14.20 and OCBC 7 cents to S$9.18.

Dealers said the market was weighed down by worries over regional inflation, rising oil prices and unrest in the Middle East.

The STI fell 28.77 points, or 1.0 percent, to end at 2,973.08 – the first time it closed below 3,000 since September 2 last year.

Volume totaled 1.44 billion shares valued at S$1.69 billion. Declining issues led gainers by 414 to 115.

The Transport sector was hit by the surge in oil prices as a result of the increasing political unrests in the Middle East.

In Jakarta the KLCI index lost 21.24 points, 1.41% on Thursday.

The market traded within a range of 21.52 points between an intra-day high of 1511.39 and a low of 1489.87 during the session.

Actively traded stocks include TEJARI-WA, TANCO, KNM, HWGB, HWGB-WB, TEJARI, KBUNAI,TRANMIL, EURO and PCHEM. Trading volume increased to 2003.23 mil shares worth RM2623.48 mil as compared to Wednesday’s 1695.42 mil shares worth RM2046.29 mil.

The winners were PBBANK (+24 sen to RM13.00), GENTING (+30 sen to RM10.08), MISC (+45 sen to RM7.45), CIMB (+12 sen to RM8.07) and AXIATA (+10 sen to RM4.85).

The Losers were HLBANK (-8 sen to RM9.37), PETGAS (-2 sen to RM11.28) and BAT (-10 sen to RM46.80). Market breadth was negative with 116 gainers as compared to 863 losers.

The Finance Index fell 1.07 percent to 13553.45 points, the Properties Index dropped 3.33 percent to 1055.02 points and the Plantation Index down 1.84 percent to 7593 points.

In Jakarta the JCI fell 34.99 points, 1 percent, to close at 3,439.13. About 4.5 billion shares worth Rp 4.4 trillion ($497 million) changed hands.

Astra Agro Lestari was oversold in trading yesterday and should rally today, the nation’s largest listed plantation company, fell 2.3 percent to Rp 21,700.

Palm oil for May delivery lost 3.3 percent to 3,397 ringgit ($1,108) per ton on the Malaysia Derivatives Exchange but may also recover today.

Indo Tambangraya Megah, a local unit of Thai coal producer Banpu, lost 5.1 percent to Rp 46,100. It reported its net income fell 39 percent to $204.2 million in 2010 in a statement on the Indonesia Stock Exchange Web site. Look for a rally in Indo Tambangraya Megah today.

Shayne Heffernan’s strong buy Bank Mandiri, the nation’s largest lender by assets, fell 2.6 percent to Rp 5,950. Analysts said inflation is threatening the banking sector as it may force Bank Indonesia to raise interest rates.

The rupiah weakened to trade at 8,873 to the US dollar, from 8,843 on the previous day.

Yesterday in Bangkok, the Stock Exchange of Thailand (SET) composite index went down 13.69 points or 1.38 percent to close at 977.22 points at the end of trading session on Thursday Afternoon. The trade value was 32.80 billion baht.

Top five most active values were as follows;

IRPC closed at 5.50 baht down 0.10 baht (1.79%)

PTT closed at 340.00 baht, up 1.00 baht (0.29%)

PTTEP closed at 184.00 baht, up 4.00 baht (2.22%)

PTTCH closed at 145.50 baht, down 4.50 baht (3.00%)

TOP closed at 72.25 baht, down 2.25 baht (3.02%)

Thoresen Thai Agencies

Shayne Heffernan has released a strong buy on Thoresen Thai Agencies, one of Thailand’s biggest shipping companies. Today the stock fell after the shipping rate for commodity transportation dropped but recovered in late day trading.

Shayne Heffernan has put a 43 Baht price target on Thoresen for 2011.

Thoresen Thai Agencies Public Co. Ltd. is a Thailand-based holding company. Its business falls into three areas: dry bulk shipping, in which it provides both liner and tramp services; offshore services, where it provides sub-sea engineering, and contract drilling services, and shipping services, in which it provides ship agencyservices, ship stevedoring, ship brokerage, port operations and transportation. It has investments in more than 40 transportation and energy subsidiaries.

Thoresen Thai Agencies is to spend some 346.38m baht ($12m) to buy a strategic stake in Vietnam’s Baria Serece, which controls Phu My port, it has confirmed.

This will give TTA a 20% share of Vietnam’s largest dry cargo deepwater port, which is capable of receiving up to 6m tonnes of agricultural products, coal and fertilizer per annum.

The move is part of a pattern of increasing investment from private and foreign investors in Vietnam’s dry bulk ports, said an official with the Vietnam Ports Association.

“Volumes are not steady,” said the official who added that investment pay-offs were “rather risky in some areas” as the ports viability was dependent on local production and demand. He did not elaborate.

TTA will purchase and hold its stake via Soleadao Holdings, its wholly-owned investment company for projects and assets outside Thailand.

Sri Trang

Sri Trang Group listed in Singapore in January and already trades on The Stock Exchange of Thailand, Shayne Heffernan has placed a strong buy on the stock, here is a summary of the company outlook from Kitichai Sincharoenkul, executive director of Sri Trang Agro-Industry Plc.

“Among a handful of rubber exporters of Thailand, Sri Trang Group is confident it has a competitive edge over its rivals as it has an operation right where the supply is, in Indonesia. In the near future, Indonesia could become the world’s largest production hub for block rubber, a product with an upward price trend that could influence the global market”, says Kitichai Sincharoenkul, executive director of Sri Trang Agro-Industry Plc (STA), a member of Sri Trang Group

To capitalise on the trend and the bright outlook of the rubber industry, the group plans to increase by 60 percent the capacity of rubber block at its operation in South Sumatra, PT Sri Trang Linga Indonesia Co, to 80,000 tonnes a year, from 50,000 tonnes currently.

”We will also conduct a survey for a possible new site, somewhere in Kalimantan,with an investment cost of about 400 million baht,” Mr Kitichai said.

Sri Trang first took the plunge to invest in Indonesia four years ago by forming a venture to produce block rubber, a more constant-viscosity product that is largely used in many industries including vehicle tyres, replacing ribbed smoked rubber sheets (RSS).

Sri Trang is the fourth largest Thai investor in the country after the agro-industry conglomerate CP Group, the coal miner Banpu, and the cement, paper and petrochemical giant SCG Group.

”We have employed about 500 local workers and they get along well with our 10 Thai-Muslim staff from our companies in the Muslim southern provinces of Thailand,” said Mr Kitichai.

The Indonesian government has a clear policy to promote the country as the top producer and exporter of rubber and palm oil over the next few years, he says.

The country is now the world’s second largest rubber producer, with 2.5 million tonnes last year, lagging only Thailand which produces about three million to 3.2 million tonnes rubber per year.

Earlier this year, the Indonesia Rubber Association announced a plan to overtake Thailand by 2015, when production is forecast to reach 3.8 million tonnes. The ambitious goal is supported by new plantations, higher productivity and the assistance provided by the government to boost the country’s status in the field.

Though Sri Trang has no rubber plantation in Indonesia, it can easily acquire the raw material from local producers to make block rubber for export. The operation in South Sumatra helped push total sales volume of STA to 700,000 tonnes last year, and it expects 15 percent growth this year.

The growth reflects persistently strong global demand, especially from China, which imports about 1.5 million tonnes of rubber products a year.

Getting close to the raw material source is among the three criteria for any company seeking to stay ahead of the competition. Apart from that, effective marketing and distribution networks and good products are also important, he said.

To achieve these goals, STA has set up a marketing company in Singapore to cover the rubber trade in the region, the hub of the world’s major rubber producers and exporters which also include Malaysia.

Singapore is the trade centre of many commodities and the Singapore Commodity Exchange handles more than half of the world’s rubber trade today, which stands at about 8.5 million to nine million tonnes. Of the total trade volume, three million tonnes are from Thailand, the largest exporter.

The office in Singapore allows STA to cover markets of all products _ rubber sheets,latex, and block rubber _ boosting its trade volume to surpass its own production.

”Having operations in both Thailand and Indonesia is a significant advantage for us,” he notes.

STA, based in Trang in southern Thailand, is now among Thailand’s top five rubber exporters, alongside Southland, Von Bundit, Thaitech, and Thai Hua Rubber.

According to Mr Kitichai, rubber production requires not only hard work and patience but also professionals. For instance, tapping latex can be done only before sunrise,while price volatility and market changes affect manufacturers.

The shift in demand to block rubber, or technically specified rubber (TSR), has forced many rubber-sheet manufacturers out of business in recent years, especially small and medium-scale companies. It calls for higher investment and more complex production processes that only large-scaled manufacturers can afford.

RSS3 (ribbed smoked sheet No. 3) is still being produced, but only for niche markets such as tires for bulldozers and aircraft, which require higher proportions of natural rubber than synthetic product.

In Thailand, Sri Trang Group runs 20 rubber plants to supply a variety of products to the market. It also plans to invest about 400 million baht in a new plant in Nong Khai to capitalise on the government’s policy to promote the rubber industry in the Northeast, in addition to the South, where plantation areas become limited due to the aggressive expansion of oil palm, an energy crop.

The company is not very keen about the upstream industry. Although it has its own plantations, it has secured a number of reliable raw material suppliers.

”We have only around 1,000 rai in Trang and Songkhla, which are considered a very small when compared with more than a million rai of other rubber companies,” said Mr. Kitichai.

STA’s sales revenue this year is expected to rise by 20% to 60 billion baht, 60 percent of which will be from block rubber, and 20% each from latex and rubber sheets.

Sri Trang Group also generates about 7-8 billion baht in revenue from about 9 billion rubber gloves, making it the country’s biggest producer.


Chutinush Taksinapinunt Interviews Joint Vice President of Indorama Ventures Public Company Limited, Ashok Jain.

LTN: How is the integration of SK Eurochem Sp , Grupo Arteva S. de R.L. de C.V. and Guangdong Shinda UHMWPE Co. Ltd. Proceeding, how much will those acquisitions impact the 2011 earnings.

Ashok Jain: The integration of SK Eurochem Sp, Grupo Arteva S. de R.L. de C.V. and Guangdong Shinda UHMWPE Co. Ltd. is in progress, has not been completed. It will complete in Q1 and will impact earning from Q2. We also plan to grow in the business, at the moment in 2010 the capacity is 3.2 MMt but we expected to 5.3 MMtby Q1’11 and 5.8 MMt by end of 2011. And further expand to at least 10 MMt by 2014.

LTN: How much of the $3.8B US expansion budget will be spent in 2011.

Ashok Jain: Out of $3.8B US,

• $0.9B for transactions signed in 2H’10 and closing by 1Q’11 (either spent already or financing committed)

• Balance of $2.9B will be spent 2011 to 2014 (financed through rights issue proceeds, debt and internally generated cashflow)

• No plan for additional equity issuance

• Maintain net debt-to-equity ratio of c 1.0x (some quarter after acquisition may temporarily exceed this)

• Intend to maintain 30 percent dividend payout policy

LTN: What do you expect revenue to grow by in 2011.

Ashok Jain: In the current year, it should be 70 p with the increasing capacity from 3.2 MMt to 5.8 MMt

LTN: Where are you focused in terms of acquisition targets, industry, and country? Are the Middle East and India still high on your list?

Ashok Jain: We will expand and grow our business in PET, 2011-2014 we have one project Greenfield in India both PET and PTA and one project Greenfield in Middle East for PET and PTA together. We will acquire some PET industry in Africa and we try to expand PET to Mexico. For PTA we will acquire some industry in Asia.

And for Fibre, we have plan to expand in Indonesia, one acquisition in Asia and one acquisition in Europe which will be announce in Q1.

LTN: With Cotton Prices increasing around the world are you raising 2011 earnings estimates?

Ashok Jain: The share of Polyester fibre demand continues to replace cotton and other fibres. The focus of 2014, the polyester fibre demand will be 59 percent, cotton 29 percent and other fibre 12 percent so the increasing in polyester fibre demand in 4-5 percent p.a. and that demand is taken by polyester fibre. Polyester is profiting right now because of the cotton shortage and weather condition, cotton price is increased 162 percent for the last 6 months and polyester price was increased also by 52 percent. At the moment, the polyester price by the demand is very strong and the margin has also increase from $300 to$400 per ton. Another factor which has positively impact price, raw material for fibre is increased from $150 to $300 per ton.

LTN: How do you rate Thailand as a location to manage a Global Business?

Ashok Jain: We have everything in Thailand, manufacture, labour, raw material. We create from here and expand worldwide. Thailand is the best location.

LTN: Are you on track to dominate the industry by 2014?

Ashok Jain: We are the global polyester chain industry leader.

LTN: Do you have a revenue target for 2014?

Ashok Jain: Our goal is to grow to 10 MMt while maintain our EBITDA per tonne,

improving ROCE with only modestly higher leverage.

Our current production capacity is 3.2 MMt and 2014 goal is 10 MMt

Our current EBITDA is $0.4B and 2014 goal is $1.1B

Our current ROCE is 16 percent and 2014 goal is 20 percent

Our current Net Debt to Equity ratio is 1.2x and 2014 goal is 1.0x

Additional Information

Mr. Aloke Lohia has stated that he has no intention to sell any more shares in IVL and will subscribe fully to the allocated portion of rights issue to Indorama Resources. The big lot trade was launched with 120 million shares and upsize of up to 30 million shares but there was a strong demand from international investors of around 480 million shares and another 100 million shares from domestic institutions.

On recommendation of the placement banks, the final deal size was raised to 270 million shares. The placement of big lot was 240 million shares to international institutions and 30 million shares to domestic institutions. We have received updates of follow-on buying by international investors from the secondary markets.

International investors are positive on IVL in view of them being fully aware of the cotton situation and its positive impact on the Polyester Value Chain.

Further, on the business front has informed a positive outlook for year 2011 and business fundamentals remain strong in view of following:

- Demand remains strong for all products

- Cotton shortage has led to price surge for cotton, almost doubled in last 6 months, has increased demand for polyester fibers and yarns. Polyester is a substitute for Cotton. Polyester fibers and yarns demand has increased and also the spreads from US$ 300 per ton to US$ 400 per ton

- PTA demand has increased and also the spreads from US$ 250 per ton to US$ 350 per ton. Reasons, being strong demand for PTA which is key raw material for Polyester fibers and yarns (consumes 2/3rd of PTA) and PET polymers (consumes 1/3 rd of PET)

- PET demand remains strong and spreads are stable around US$ 220 per ton level. Able to pass through increase in raw material prices.

- Announced acquisitions will be closed in Q1, 2011 in China, Indonesia, Mexico,Poland and USA. China acquisition to be closed this week. All acquisitions funded through sanctioned bank loans and internal cash flows.

- 2011 volume growth of around 70 percent from first full year of operations of AlphaPet, first full year impact of acquisition of plant in Italy and the acquisitions to be completed in Q1, 2011.

- IVL continues to work on acquisitions and Greenfield projects which will be announced during the year.

- Rights issue cash will be utilized for acquisitions and expansions to be announced.

Bua Luang has informed following for Bangkok Bank Group, the rumor of selling shares in IVL by Bangkok Bank is damaging and there is no such announcement by Bangkok Bank. Bangkok Bank Group has purchased additional shares through the domestic tranche(around 10 million shares) in IVL in the big lot placement and this has been confirmed by Bua Luang in the press conference yesterday.

In Manila the Philippine Stock Exchange index lost another 26.20 points or 0.7 percent to finish at 3,730.84 on thin trade as investors tempered risk-taking in the face of geopolitical risks in the Middle East.

The local stocks index, which has now declined by about 11 percent since the start of the year, found strong support near the 3,700 level.

The industrial and services sectors were the most battered counters for the day, falling by 1.25 percent and 1.75 percent, respectively.

Modest gains by the holding firms and mining/oil counters tempered overall index decline.

The losers were PLDT, Semirara Mining, EDC, AGI, Ayala Land, Cebu Air, Megaworld, Meralco, SM Investments, Ayala Corp., SM Prime, BPI, ICTSI and Jollibee.

The Winners were Aboitiz Equity, Aboitiz Power, Manila Mining, Metrobank, Manila Mining, Manila Mining “B” (open to foreign investors) and Lepanto Mining.


Shayne Heffernan brings more than 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over US$500m and 1 that reach a peak market cap of US$15billion. He has managed and overseen start-ups in Mining, Shipping, Technology and Financial Services.


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This year in Thailand-what next?

04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

The first issue that can’t be answered is the health of Thailand’s beloved King Bhumibol, who is now 83 years old. He is the world's longest reigning monarch, but elaborate birthday celebrations in December failed to mask concern over his health. More

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