Second-best SET performer over the past decade

People always need paper _ and abundant local resources provide solid basis for this essential industry

The pulp and paper sector ranks second only to communications in providing the best returns over 10 years to investors on the Stock Exchange of Thailand, at 15.7%.

The locomotives driving the four-company sector are Siam Pulp and Paper Plc, a flagship of the Siam Cement Group, and Phoenix Pulp and Paper, a recently acquired affiliate.

Siam Pulp has generated the highest 10-year returns, combining dividends and capital gains, averaging 17%, higher than the sector's average.

Over a five-year investment period, Phoenix led the way at 64% while Siam Pulp provided a 45% return. Phoenix also led the one-year table at 89%, followed by Siam Pulp at 72%.

Siam Pulp and Paper early this year acquired a majority stake of 61% or 73.2 million shares in Phoenix, and intends to buy all of the remaining shares from minority shareholders. The two companies have a combined market capitalisation of 40.54 billion baht or 79% of the total market capitalisation of the sector. However, the free float of listed pulp and paper companies is currently only 3% of their total number of shares. The other two companies in the sector, Advance Agro and Thai Cane Paper, continue to face debt problems.

Somboon Chuchawal, president of Siam Pulp and Paper, attributed the promising returns on investment in the sector over the decade to several factors. The industry's growth was linked to the prospects of three main customer sectors _ knowledge and education, logistics, and communication _ all of which had good growth potential.

In addition, the pulp and paper industry faces low risk in terms of raw material supply because most materials are abundant locally, particularly eucalyptus for which the country has potential to develop more plantation areas.

And when it came to adding value to products, he said, pulp and paper was among the top sectors, higher than frozen food for example. Only machinery and some chemical substances are required to be imported.

Pulp and paper is a notoriously cyclical industry, though world prices have been improving. Mr Somboon said Siam Pulp and Paper was able to weather industry downturns because of its efficient management of the value chain, focusing on staff improvement, and avoiding speculation on raw material prices.

While the commodity price of pulp and paper had picked up, it was still below its economic value, he said. As well, a capacity surplus is expected to persist for the next decades.

Currently, total capacity of pulp and paper production in Thailand is 3.7 million tonnes a year, much higher than domestic consumption of 2.2 million.

Mr Somboon said the industry was still at risk of dumping of imported products. ``However, as a maker of consumable products, the pulp and paper industry is expected to gradually grow in line with the knowledge, logistics and communication sectors.''

To generate higher returns per unit than they receive from commodity products, local companies in the sector needed to expand more into upstream products, he said.

An analyst at Kim Eng Securities said the pulp and paper industry in the next six to 12 months showed promising signs. Sales were expected to increase gradually in line with economic recovery and growth of consumption both locally and overseas, particularly in China. Domestic consumption is forecast to grow by 5% this year. _Soonruth Bunyamanee

Back to index page