August

27, 2010 By Thanapoom Boonipat Interesting Possibilities in HTC On August 4, 2009, two large Pepsi bottlers were purchased by Pepsi Co. Pepsi Co reason that to achieve higher flexibility and faster product testing and distribution, it should have control over the bottler. Coca-Cola, a company with long-standing strategy of separating its bottler from its concentrate business, quickly follow suit with its purchase of Coca-cola enterprise on 24 February, 2010. On June 6, 2010, Pepsi Co gained control of Serm Suk PLC (SSC), the largest bottler in Thailand. The offer valued the entire company at 7 billion, a slight premium to stated book value of around 6 billion. The price before the offer valued the company between 2 billion to 5 billion, always less than book value. Is there a possibility that a listed Coca-cola bottler in Thailand will not follow suit? This company is of course HTC, selling at 69% of book value (consisting largely of equipment and land that has not been revalued for a long time). Doing roughly 2-3 billion in business, book value of 1 billion, the company at 5 baht per share is valued at 830 million. This record valuation is due mostly to greatly improved profit in the 1st half of 2010. From 1999, sales have increased steadily (in no year did sales decrease), increasing from 1.2 billion to 3 billion, or a compounded rate of 9%. From 2006 to 2009, sales compounded at 6%. Over ten years from 1999 to 2009, equity increased from 434.7million to 1002.87 million, with no stock issuance, or a compounded rate of more than 8% per year. Although future growth is unlikely to match pass growth, the inherited stability of the business, with stable population in the Southern part of Thailand that HTC served, will assure the stability and position of the company. Therefore, although a commitment at 5 might seem high compared to 5 years average earnings, when compared to book value and accounting for the very real possibility of a takeover by Coca-Cola of Atlanta, HTC presents an interesting and reasonably safe investment possibility.