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ASEAN STOCK WATCH Asean Affairs   30  March 2011

Asean agricultural companies to rally

Shayne Heffernan

Strong demand from Asia is placing a strain on the world's food economy.

Prosperity from the growing economy across Asia has seen a shift in local appetite from staple grains toward more diversity.

As this situation develops North America is shifting more of its harvest towards Biofuel. Government mandates and incentives for more renewable fuel have ethanol crops on the rise. Corn has been the first victim, prices has started to move higher.

The Perfect Storm of Agriculture is now playing out as Asia's Food and USA's Biofuels are driving up the competition for virtually all things agriculture and chasing prices to record highs monthly.

Across the board agricultural commodity prices are up an average of 25 percent over a year ago. Corn is up 50 percent. Wheat is 80 percent higher.

China food inflation was over 10 percent in January.

It is becoming clear that prices for farm products will stay high. That marks the coming end of agricultural food surpluses, food is the next big thing.

The Perfect Storm continues as environmental factors are impacting the food equation. China has its worst drought in six decades. Bush fires in Russia last summer prompted that country to cut off exports.

In the Middle East and North Africa, civil unrest has exacerbated the rise in oil prices, which are also being driven up by demand in emerging Asian markets. Japan's earthquake and post-earthquake crisis has pushed prices alternatively down and up. Oil now tops US$100 a barrel as we predicted and will trade in the $100 to $150 for 2011-2012. Oil prices are a contributing factor in farm production costs.

On a simple demand-supply equation, food prices are going to stay high.

While consumers around the world and in America reach deeper into their pockets to pay for food, the rise in prices is a bonus for farmers.

Today, you can see the impact of Asia's new wealth in the farm equipment rolling off the dealer lots in central Kansas, proof of how increased demand for grain lets farmers invest in new machinery.

Even the new appetite for livestock for the chicken and beef raised on U.S. soil and overseas, but it all increases the demand for grain, in fact demand for meat consumes more grain than other crops.

In February, U.S. food costs rose 0.6 percent, the most since September 2008. Wholesale food prices jumped 3.9 percent, the most since November 1974.

In poorer countries, where diets still consist of basic commodities, the change is more dramatic.

While higher grain prices stir fears in the United States about the cost of feeding livestock, in the poorest parts of the world it signals doubts about the ability to feed people.

Demand for grains, especially corn, has pushed up the cost of raising cattle. The meat industry estimates that feed costs make up 70 percent of the cost of raising an animal, chiefly corn that the pork, beef and poultry industries now must compete for with ethanol makers.

This year as much as two of every five bushels of American corn will head to an ethanol plant. Critics say that has begun to set a cycle where higher oil costs beget more ethanol, and more ethanol begets higher grain prices, which are climbing partly because of rising energy costs.

The flip side for those who raise and slaughter cattle, pigs and poultry is that demand for their products has never been higher. U.S. meat consumption has been no better than flat over the past decade. But every year tens of millions more people in places like India, China, Brazil and South Korea move up in the world, making wages that give them the luxury of ordering meat, buying cars and stocking up on leather goods.

The real money, however, remains in the meat. And that's where the demand works to a particular longstanding American advantage, the ability to efficiently raise grain and the livestock that feed on it.

For the past 40 years, 65 percent of economic production was squarely in the planet's seven leading industrial countries. The figure never varied by more than 3 percent. That began to change at the start of this young century, and the center of gravity is shifting toward Asia.

Not counting Japan, the continent accounted for 10 percent of the world's gross domestic product in 2000. By the end of this decade, estimates are that part of the world will be responsible for 40 percent of GDP. China's retail sales have been climbing by 20 percent a year. Ten years ago, it bought just 1 percent of the world's cars. Now it buys 13 percent.

Its middle class now numbers 157 million people, more than every country except the United States.

Jakarta should avoid a fourth day of losses today but there is little chance of a strong rally despite an upbeat session in New York overnight.

Shayne Heffernan Best Buys are

Borneo Lumbung Energi lost 2.4 percent to Rp 1,640 yesterday but should rally back over 1800 in the coming weeks.

PT Borneo Lumbung Energi & Metal Tbk. is an Indonesia-based company engaged in coal mining activity. The Company’s subsidiaries are PT Asmin Koalindo Tuhup (AKT), which is engaged in coal mining business, and PT Borneo Mining Services, which is engaged in the rental business of coal mining-related heavy equipment. The Company through its subsidiary, AKT, is involved in hard coking coal mining in Central Kalimantan, Indonesia, and markets the product in China, India, Japan, Taiwan, Turkey and South Korea.

Malindo Feedmill is another good buy PT Malindo Feedmill Tbk is an Indonesia-based company engaged in the agribusiness sector, including the production and sale of animal feed and breeding and distribution of day-old-chicks. Its subsidiaries are PT Bibit Indonesia, PT Prima Fajar and PT Leong Ayamsatu Primadona. The Company’s farms are located in Purwakarta, Wonosari, Probolinggo, Pasuruan and Lumajang.


Valuation Ratios

Company Industry Sector S&P 500
P/E Ratio (TTM) 11.22 9.53 16.66 17.76
P/E High – Last 5 Yrs. 19.58 71.82 1,675.37 89.76
P/E Low – Last 5 Yrs. 4.02 15.13 14.65 12.28
Beta -0.18 0.88 0.57 1.32
Price to Sales (TTM) 0.77 1.43 1.82 2.21
Price to Book (MRQ) 6.89 1.24 2.54 2.99
Price to Tangible Book (MRQ) 6.89 1.60 10.57 5.39
Price to Cash Flow (TTM) 9.06 4.64 10.47 68.54
Price to Free Cash Flow (TTM) 59.90 4.42 9.50 20.80
% Owned Institutions - - - -



Company Industry Sector S&P 500
Dividend Yield 1.93 1.61 1.84 1.59
Dividend Yield – 5 Year Avg. 1.24 1.25 2.48
Dividend 5 Year Growth Rate 1.67 8.98 -5.22
Payout Ratio(TTM) 14.44 14.40 8,539.41 42.56


Growth Rates

Company Industry Sector S&P 500
Sales (MRQ) vs Qtr. 1 Yr. Ago 11.16 10.48 6.79 10.18
Sales (TTM) vs TTM 1 Yr. Ago 0.82 7.66 6.76 10.28
Sales – 5 Yr. Growth Rate 33.69 15.53 11.52 7.34
EPS (MRQ) vs Qtr. 1 Yr. Ago 99.30 54.73 18.05 77.87
EPS (TTM) vs TTM 1 Yr. Ago 224.80 - - -
EPS – 5 Yr. Growth Rate 73.30 9.07 7.78 4.53
Capital Spending – 5 Yr. Growth Rate 34.01 38.32 8.40 3.43


In Jakarta yesterday the JCI fell 11.34 points, or 0.3 percent, to close at 3,591.52. About 3.6 billion shares valued at Rp 4.3 trillion ($495 million) changed hands. Gainers topped decliners 106 to 92. JCI fell 11.34 points, or 0.3 percent, to close at 3,591.52. About 3.6 billion shares valued at Rp 4.3 trillion ($495 million) changed hands. Gainers topped decliners 106 to 92.

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?

AseanAffairs   04 January 2011
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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.

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