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ASEAN STOCK WATCH Asean Affairs   7  February 2011

Record Breaking Week in ASEAN

Shayne Heffernan

In Kuala Lumpur the Bursa Malaysia is set to hit 1,550 level this week spurred on by high palm oil prices and more positive investor sentiment. Shayne Heffernan best buys this week are Genting, Yee Lee, DiGi, Maybank.

Monday may not see the big rally as investors are finishing a long Chinese New Year’s holiday.

Bursa Malaysia ended on a bullish note last Wednesday and will move higher this week after positive news from the United States (US) and China markets.

Trading on the equities market closed from 12:30pm on Wednesday for Chinese New Year celebrations and resumes on Monday, February 7.

The market was also closed on Tuesday for Federal Territory Day.

The news this week will feature Industrial Production Index for December last year and sector update for January statistics, both to be released on next Thursday, and earnings scorecards from the likes of Maybank (next Friday).

On Wednesday, International Trade and Industry Minister Datuk Seri Mustapa Mohamed said Malaysia's total trade in 2010 surpassed the RM1 trillion mark to register RM1.169 trillion, attributed to an impressive growth last year.

In 2011, a total of 113 trade promotion activities, comprising trade fairs, specialised marketing missions, joint promotion activities and others will be undertaken to further boost trade.

The FBM Emas Index surged 82.76 points to 10,570.32, the FBM70 Index jumped 102.81 points to 11,354.96 and the FBM Ace Index rose 161.49 points to 4,414.29.

The Finance Index increased 36.49 points to 13,971.14, the Industrial Index rose 12.8 points to 2,880.3 and the Plantation Index surged 69.74 points to 7,957.5.

The total weekly volume declined to 2.95 billion shares valued at RM3.78 billion from last week's 7.961 billion shares valued at RM11.443 billion.

The Main Market turnover edged down to 2.60 billion units worth RM3.72 billion from 6.69 billion shares valued at RM11.22 billion.

Thailand will be under some pressure this week, border clashes with Cambodia and the preliminary talk of an election date in April 2012.

Amid yet more false rumors of a looming coup d'etat, the prime minister insisted he wanted Thais to chart the country's political future through elections.

It has been speculated the premier will dissolve the House in April after parliament passes important legislation.

He said parties aspiring to form the next government must declare their policies to the people. If they do not want to continue his government's policies, they should say so now.

"If they don't want the welfare system or to run people-centred policies, they must tell the people what they will do [instead]," said Mr Abhisit.

It was only fair that voters were given the chance to study those who hope to run in the next polls, he said.

The premier indicated this year would be eventful with the general elections to be held and renewed political unrest to overcome.

He added there was a pressing need for the government to sustain the rule of law and maintain political stability to keep the country from becoming a "failed state".

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 agency services, 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 of 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 9 million tonnes. Of the total trade volume, 3 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 forus,” 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 tyres 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 percent to 60 billion baht, 60 percent of which will be from block rubber, and 20 percent each from latex and rubber sheets.

Sri Trang Group also generates about 7-8 billion baht in revenue from about nine 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 MMt by 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 USD 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% 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 six 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 ontrack 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% and 2014 goal is 20%

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.

Singapore will start to rebound after a not so stunning January. While Singapore was closed in celebration of Chinese New Year there were a number of important developments.

Most notably food prices around the world hit multiyear highs. Palm Oil, sugar and soybeans have surged during the last few days and Singapore will see a rally in that sector.

Olam International Ltd, Wilmar International Ltd and Noble Group Ltd are most likely to lead the charge as the benefit from home grown markets in ASEAN, China and India, where the world's largest populations are consuming more and more of the world’s food supply.

Cash Flow is on the rise at Noble and Olam, both have successfully made the switch into production from trading, have been expanding ever since.

Olam is the world's largest supplier of cashews and sesame seeds, and is among the biggest sources of cocoa, rice, peanuts and cotton. It operates in 64 countries.

Noble is Asia's biggest supplier of raw materials. Only 22 percent of its revenue comes from agriculture, with the remainder coming from materials such as iron ore.

It has invested heavily in mines and processing.

Wilmar is Asia's leading agribusiness group and the world's largest integrated palm oil company.

Golden Agri-Resources Ltd is the world's second largest palm oil plantation with a total planted area of 435,000 hectares (including small holders) as at 30 September 2010, located in Indonesia. It has integrated operations focused on the production of palm-based edible oil and fat products.

Demand is expected to grow because of demand for biofuels, which is part of thereason the company bought the sugar and renewable energy businesses from Australia's CSR.


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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