Materials benefit from building upturn

Returns on investment show remarkable growth in the past year to June

Busrin Treerapongpichit

The prospects of the building and furnishing materials sector look promising over the next six to 12 months, on the back of the continuing recovery of the property business since late last year, industry executives say.

The sector produced impressive average returns of 106.9% to investors over the past one year, against 16.2% over five years but only 1.5% over 10 years.

Siam Cement Plc, accounting for 54% of the sector's capitalisation, outperformed the sector over five years with a TSR of 20%, and has delivered an annualised 7% over 10 years. Its one-year return to June 30 was 126%.

Karat Sanitary Ware Plc topped the one-year table at 529%, followed by Dynasty Ceramic Plc (364%) and Thai-German Ceramic Plc (353%). Dynasty is the top performer over five years with a 122.1% return.

Building materials, particularly those used in single detached houses, had enjoyed impressive growth since demand for houses had risen considerably, said Wanthana Jaroennawarat, deputy managing director of Vanachai Group Plc, one of the top performers in the sector with a 321% one-year return, 83% over three years and 29% over five years.

That's good news for companies in a sector that had been struggling since the property business started to slow down in 1996 and came to a virtual standstill a year later.

Ms Wanthana said Vanachai Group, one of the country's largest producers of particle board and medium density fibre (MDF) board, had a policy to provide investors with long-term returns.

Company policy calls for an annual dividend to be paid at the end of the year, at a rate of 40% of net profit. However, the company paid the dividend for the first half of this year because of greatly improved performance. Its first-half net profit was 552.2 million baht (5.64 baht a share), compared with 326.8 million baht (3.33 baht a share) in the same period last year.

Even during the economic slowdown, the MDF board industry continued to grow since Thailand is a major source of raw materials for production worldwide. Export demand has been consistently good, while domestic demand has risen dramatically in the past year, resulting in the firm enjoying an outstanding performance. However, Ms Wanthana acknowledged that whether the company would be able to consistently deliver long-term returns to investors depended on overall demand and economic conditions as well.

Wit Viriyaprapaikit, executive vice-president of Sahaviriya Steel Industries Plc (SSI), said the outlook for the sector remained promising since the construction of housing in particular had improved since late last year.

He forecast an upturn in office buildings within another year or two, once the current oversupply was taken up.

SSI showed impressive returns of 133% for a one-year investment period although it was -12% over five years, reflecting the struggles of the company and the steel industry in general during the economic crisis.

While the steady recovery of the construction industry bodes well, Mr Wit said the performance and returns of individual companies would depend on what types of materials they produced.

He said steel products were categorised as heavy industry requiring huge capital investments. Thailand's steel companies have been struggling since the 1997 crisis, while a worldwide product glut has further exacerbated conditions.

However, local and overseas demand for steel has begun to improve along with the country's economy since early this year. As a result, SSI's revenues have stabilised and it has returned to the black. The company's recorded a first-half net profit of one billion baht (1.17 baht a share), compared with a loss of 261.6 million baht (0.31 baht a share) in the same period last year.

With a cautious attitude toward future investment and conservative management style, Mr Wit said SSI should be able to give investors improved returns in the long run.

An analyst at Kim Eng Securities agreed the building and furnishing materials sector had a promising outlook.

Siam Cement Group was expected to benefit most because it had integrated businesses linked to the markets and its debt restructuring and corporate reorganisation programmes had been completed, the analyst said. _Busrin Treerapongpichit

Back to index page