Username
Password
Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,169.89 +9.17 +0.29%
Hang Seng 27,353.93 +86.80 +0.32%
Dow Jones 25,585.69 +95.22 +0.37%
Shanghai Composite 2,852.99 +0.48 +0.02%
High Rubber Prices Translate Into Hot Opportunities For Sri Trang
Initial Public Offering | 28 January 2011
Related stocks:
NC2
By: Jade Lee
Articles (97) Profile

With physical rubber prices around an all-time peak and futures of the commodity hitting a record high since the start of Jan-11, Sri Trang Agro-Industry Public Company (Sri Trang) believes now is the time to jump onto the SGX IPO bandwagon. Being Thailand’s largest publicly traded rubber maker, primarily making block rubber used for tyres, Sri Trang offered 280m new shares at $1.20 apiece and commenced trading on 31 Jan-11.

Based in Trang, Southern Thailand, Sri Trang owns 19 rubber processing facilities located in Thailand and 2 rubber processing facilities located in Indonesia, with an estimated total effective production capacity of approximately 860,259 tonnes annually.

Ready To Strike

The cash rubber price in Thailand, the world’s biggest grower, has reached a record of Baht 175.3 (US$5.72) per kilogram on 21 Jan-11 as supply shortages have lingered, while demand is increasing from the car industry, cited Rubber Research Institute of Thailand. Coupled with thin tyre stockpiles, global natural rubber demand could rise to 25.5m tonnes in 2011 from 23.9m tonnes a year ago, according to International Rubber Study Group.

However, Indonesia may overtake Thailand by 2015 as the world’s largest production hub for block rubber, given that the production is forecasted to reach 3.8m tonnes, on the back of new plantations, higher productivity and the assistance provided by the government to boost the country’s status in the field, according to Indonesia Rubber Association.

These developments bode well for Sri Trang, the second SGX-listed pure natural rubber play apart from GMG Global, which has its operation not just in Thailand. By having a well-established network of raw material procurement centres in Thailand and Indonesia (43 and 9 respectively as of 31 Dec-10), Sri Trang is able to easily acquire the raw materials from local producers to make block rubber for export.

Meanwhile, a widespread location of processing facilities in both Indonesia and Thailand also enables the firm to tap into peak harvest periods for about two-thirds of the year. Not to mention, the firm also achieved a diversified earnings base by investing with Semperit Technische (a subsidiary of Semperit AG Holding which produces and sells rubber and plastic products) to produce high margin downstream products, namely technically specified rubber (TSR).

Concrete Post Listing Plans

Throughout these years, Sri Trang has been experiencing healthy growth in its bottomline. From FY07 to FY09, the company’s earnings increased at a compounded annual growth rate of 218.7%. Notably, Sri Trang posted a 2.4-fold jump in its 9M10 earnings to Baht 3.2b, on the back of improved TSR sales. Currently, the firm has 223,159 tonnes of natural rubber products that are expected to be delivered by Jan-12.

In a bid to fortify its industry position, Sri Trang plans to channel $277.6m of the expected net proceeds to expand its rubber processing facilities to take production capacity up to 1.5m tonnes annually by 2012. Another $85.4m will be used to purchase up to 8k hectares of additional land or rubber plantations over the next 4 years.

While the rubber producer’s stock looks optimistic on the back of elevated rubber prices, investors should take note that prices of natural rubber are tied to crude oil, which is used to produce synthetic rubber alternatives. Another twist to the tale could be the weather-related supply problems that may cause a reduction in Sri Trang’s yields in the coming few years.

As of 24 Jan-11, Sri Trang was trading at Baht 36.75 on the Thailand Stock Exchange or a price-earnings ratio of 16.3 times based on its FY09 net earnings.

Jade manages and oversees a portfolio of stocks which are mainly focused on the mining and property sectors at Shares Investment.

Please click here for more information about this author.

Sri Trang Agro-Industry Public Co  0.490 +0.010 +2.08%   
Business: An integrated natural rubber biz involved in the entire natural rubber supply chain.

Insight: May-18, 1Q18 revenue slumped 38% to THB17.7b due t... Read More


Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.