Building boom spurs top sector

Furniture maker VNG the standout

The building and furnishing industry came in as the best play for the year, outperforming all other sectors, booking a 108.8% return to take the top spot in the one-year TSR category and a SET-leading 34.6% five-year yield.

The industry's performance was spurred by the dramatic rebound in the property sector last year, yielding positive shareholder returns of all of its listed companies.

The average for the sector, capitalised at 219.7 billion baht, was a healthy total shareholder return (TSR) of 108.8% for the past year, compared with 12.6% on a three-year basis, 34.6% over five years and 2.3% in 10-year yields.

Analysts attribute the gains in the building and furnishing industry to the government's economic stimulus package, which included tax benefits to the property sector. Factors that will hinder the industry this year are higher transport costs as well as the external risks from a possible US-led war against Iraq, they said.

Vanachai Group Plc (VNG), Asia's largest producer of both panel and particle board, proved the best play for investors for every TSR period in the past five years.

With a market capitalisation of 1.2 billion baht, VNG generated a staggering 822.4% in one-year TSR, 198.3% in three-year yields and a 104.9% return for the past five years.

Wanthana Jaroennawarat, VNG's deputy managing director, said the company's ability to convert a crisis into an opportunity in the past few flat years had fuelled its success.

Following the financial crisis that hit the region hard in 1997-98, Vanachai's debt burden doubled to more than six billion baht after the baht was floated.

``Despite [the] higher debt burden, the weakening of the baht helped enhance the firm's competitiveness in terms of pricing for exports. As a result, the company switched its focus to export instead,'' said Mr Wanthana.

Exports now account for 80% of the company's output. Prior to the crisis, only 20% of VNG's products were exported, while 80% were sold locally.

The company's gross profit margin last year was about 44%, while the net margin stood at 28%.

Mr Wanthana said the Vanachai Group's production facility in Surat Thani was now operating at full capacity. The company is undergoing expansion to produce an annual 750,000 cubic metres of particle board, up from 300,000, to meet demand from makers of furniture and home decorations. Sales volumes are not expected to grow significantly until next year when the expanded line has been completed.

``Luckily, our goods are able to be sold at competitive prices as they are fully made of local materials, resulting in low production cost and high added value,'' he said.

``We are an industrialist, not a financial investor. So what is happening in our stock would reflect our industrial business performance.''

Union Mosaic Industries (UMI) earned second place with a one-year TSR of 369.8%, followed by Dynasty Ceramic (DCC) at 356.8%. DCC took second place in three- and five-year returns, with 109.1% and 83.6% on a market capitalisation of 371 million baht.

Siam Cement Plc (SCC), the and 9.3% in five- and 10-year returns.

The company also attributes its improved operational efficiency to corporate restructuring efforts in the past five years.

However, SCC still has debts of 120 billion baht on its books, which it plans on reducing to 100 billion baht by year-end. As a result, there will be no major investment this year, according to SCC chief Chumpol NaLamlieng.

He said the cement unit continued to underperform. ``Despite almost two billion baht profit in [the] cement business last year, it could not compare with the investment cost worth up to 100 billion baht.''

The Siam Cement chief said that the country's property sector, while recovering satisfactorily, was still far from its pre-crisis levels, with substantial oversupply in some segments of the market.

As domestic demand remains on an upswing, he said Siam Cement might turn to the local cement market this year, given the higher returns than from export markets.

The price of exported cement is about US$20 (880 baht) a tonne, excluding transport costs, compared with about 1,600-1,700 baht a tonne for cement sold locally.

For the year ahead, SCC expects domestic sales of cement and construction materials to expand 10-15%, driven by strong demand in the residential housing sector. Last year, cement demand soared 23% to 22.4 million tonnes while SCC's domestic sales rose 23% to nine million tonnes, representing a 40% market share.

The worst performers in terms of one-year TSR were American Standard Sanitaryware (Thailand) Plc (ASTL) and TPI Polene (TPIPL), registering 4.7% and 8.6% respectively, better than previously. In the three-year period, both also trailed the sector, with ASTL at -17.6% and TPIPL at -9.3%.

Analysts say that American Standard has been facing fierce competition, despite the property rebound, from rivals such as the sanitaryware business of Siam Cement and the voluntarily delisted Karat Sanitaryware Plc, renamed Kohler (Thailand) Plc, following its takeover by US-based Kohler Co last year.

But with the pace of property development set to intensify, building and furnishing shares are considered a good bet for investors in the short to long term. _ Soonruth Bunyamanee

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