Threadbare years still have impact

Clothing and shoe makers cut costs

Listed companies in the textiles, clothing and footwear sector have not been among investors' favourites in recent years as few of the firms have been able to show signs of a sustainable recovery from the economic crisis of 1997-98.

The sector also has low liquidity, even among the well-performing companies, as most shares are held by major shareholders. As a result, only a small volume of shares is available for trading.

An analyst at ABN Amro Asia Securities said that most of the companies in the sector relied heavily on the export market, so they faced uncertain prospects when the exchange rate of the baht was volatile.

As well, many listed firms in the sector shoulder high accumulated losses which make the shares unattractive as investors will not gain through dividends.

Of the 24 listed firms, only 10 contributed higher stock investment returns than the average return for the overall sector.

People's Garment Plc, part of the Saha Group, contributed the highest return on stock investment. Its shareholder return over the year to june was 157%, over five years 61% and over 10 years 17%. The firm's first-half net profit was 39.8 million baht (5.54 baht a share), compared with 28.58 million baht (3.97 baht) in the same period last year.

Boonkiet Chokwatana, director of People's Garment, said the company outperformed the sector average because the group had a policy to focus on making high dividend payments after the lean years of the recession.

``The policy will make the shareholders feel secure about investing in our company. Therefore, we can genuine long-term investors,'' Mr Boonkiet said.

All Saha Group's affiliates have made managing costs a key tool in lifting profit margins. The group also focused on making innovative products that could compete in the local and international markets, he said.

A source at Bata (Thailand) Plc said that competition in the footwear market was fierce, forcing the company to step up marketing. It had reduced prices, with canvas shoes, for example, now 20% cheaper than before.

It has also tried to expand the market by making fashion and baby shoes to offset a drop in export receipts.

Bata (Thailand) posted a first-half net loss of 24.89 million baht (-1.11 baht a share), compared with a net loss of 18.16 million baht (-1.45 baht) in the same period last year. The return on investment over the year to June was -9%, and -20% over five years.

At the bottom of the table was Bangkok Rubber, with Castle Peak and Union Textile also propping the table.

Bangkok Rubber's first-half net loss was 962.9 million baht (-9.88 baht a share), compared with a net profit of 371.9 million baht (3.81 baht) in the same period last year. The return on investment over the year to June was -37% but a positive 9% over five years.

Castle Peak's first-half net loss was 4.07 million baht (-0.10 baht a share), compared with a net profit of 114.9 million baht (2.87 baht) in the same period last year. The return on investment was -14% in the year to June and -48% over five years.

Union Textile's first-half net loss was 14.9 million baht (-0.56 baht a share), compared with a net profit of 8.3 million baht (0.05 baht) in the same period last year. The return on investment was -12% over the year to June but a positive 24% over five years.

An executive of Bangkok Rubber, another subsidiary of Saha Group, said the company started to show a positive performance last year. But its return on stock investment was below average because it had accumulated losses during the recession.

Pongpan Apinyakul, a research analyst at Kim Eng Securities (Thailand), said the footwear business was expected to improve as Thailand had become a key production hub in the region.

Sport shoe brands such as Nike have shifted production bases to Thailand from Indonesia. By the end of this year, Thai-made Nike shoes will represent 18% of Nike's overall shoe production, up from 10% last year, helping other Nike sub-contractors including Saha Union and Pan Group.

Mr Pongpan was confident that textiles would also recover on the back of world economic trends. _Sukanya Jitpleecheep and Nondhanada Intarakomalyasut

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