Management Online Q&A (5th September 2008)

Business

Question : 1. Please explain Ticon’s business model Ticon develops industrial properties and leases them out mainly to foreign manufacturers by providing one-stop services such as assisting them with work permits, getting factory licenses and utilities. We have standard factories and warehouses which we sell to the TFUND to raise funding for our continued expansion. Before we had TFUND we used to raise capital regularly but investors did not like this and our stock prices dropped after the capital increases. Thus we created TFUND for additional fund raising purposes. We used the first tranche from the TFUND to purchase the land at Bangna for the logistics park. Now we do custom-built factories and warehouses as well. What we lease we will sell to the property fund just enough for the next 12 months expansion, but we will also maintain growth of our leased factories and warehouses in TICON.

Question : 2. In the past 12 months Ticon’s business model shifted from pure factory rentals to logistic parks, how is this progressing? We have leased out 56,500 sq m of warehouse space in our logistic parks. Since we launched the logistic park project we have had to develop the infrastructure before constructing the warehouse space. Now these buildings are coming online and the logistic warehouses at Bang Na and Wangnoi are doing well.

Question: 3. What effect has the current political situation had on Ticon’s business? So far this year we are doing well. Yes, the political situation will hurt domestic consumption, but we are still getting orders for new large custom-built warehouses and we are still receiving orders for our standard factories. A little bit of risk and uncertainty is always a positive for Ticon because, during these times, new manufacturing companies generally prefer to lease/rent a factory versus parting with their cash to build one themselves.

Question: 4. What effect does the current global slow-down have on Ticon’s business? Well in the US you may see factories closing and moving out to Asia and today with China having many issues, despite the rent being cheap there the quality is still poor, and building a factory in China is still quite an adventure.

Question: 5. Is the next tranche of factory sales to TFUND on track? When is it likely to be completed and what will the price and realised profit be from the sale? Yes, in November ’08. The size of this tranche is likely to be Bt. 2.5 – 2.6 billion.

Question: 6. What is the current breakdown of industries that uses Ticon’s services? Has there been a noticeable shift in clientele type? Last year customers in the automotive sector represented 18% and today 21% while customers in the electronics sector represented 51% and today 49%, so there is not a noticeable shift.

Question: 7. How is the current market for factories? Are rents increasing? How have the new logistic warehouses been leasing out? For the logistic warehouses, our customer base is a mixture of third party logistic companies and multinational corporations. In Bangna, we have 250,000 sq m of designated space and have developed 70,000 sq m of it. Currently we are building another 50,000 sq m and demand is good. By the end of August we had leased out net 20% more factory space than last year. Our target remains to lease out 1 new factory a week. Going forward we will have to increase rents to make up for the additional costs. Today rents are still less than 10 years ago. Now we go for 20% yield and go for volume, 10 years ago it was 26-27% yield but that was because interest rates costs were very high before, but with them being around 5-6% now, our yield requirement is of course lower.

Industry

Question: 1. How does Ticon differentiate itself from its competition? We started a long time ago, thus we had first mover advantage. Our first group of customers were Japanese companies and through them the majority of our new customers were referral based. We offer more choice to clients and are more neutral in that we have factories on 13 different industrial estates for customers to choose from. Furthermore we are very service oriented as we will offer to our customers help with visa issues, BOI applications and so forth.

Question: 2. Vietnam has offered extremely enticing rates to companies to shift to industrial estates in Vietnam, how will this affect Ticon? Does Ticon have plans to develop outside Thailand? Currently the cost of land in Vietnam is quite expensive, for example in Rojana’s estates in Thailand you can purchase land more cheaply than you can in Vietnam. Also the cost of funding is definitely higher in Vietnam versus Thailand. What is more important is to look at who our customers are, a lot of manufacturing companies in Vietnam are independent and not part of any specific industry supply-chain like the manufacturers here in Thailand.

Financial Performance

Question: 1. Over the past three years, Ticon’s revenues have increased 50% and earnings have doubled, can Ticon sustain this growth going forward? If so, how? Over the next two to three years yes. This year our rental space should grow about 30% and next year we are targeting 20%. With new custom-built factories, they are much larger than our previous standard factories albeit with smaller margins. The positive points with the larger custom-built factories are that they are less risky as we can lease longer, normally 15 years, and the covenants are better. Going forward our growth will continue to be financed with sales to TFUND.

Miscellaneous

Question: 1. With Ticon’s share price more than 40% off its high, would Ticon consider a share buy-back as other listed companies have recently announced? Our debt to equity ratio is 1.6x, thus it may be a possibility for us to do a share buy-back but first we would prefer to continue to build our business as this would add long term value to our shareholders.

Question: 2. Has there been any progress for Ticon to allow the TFUND to leverage? A few months ago the SEC has allowed property funds to leverage 10%, but there are still a lot of restrictions, so this is still an issue that we feel has yet to be resolved.

Question: 3. What do you feel are the biggest risks facing your business today? People perceive our risk to be the continuation of sales to TFUND, but Ticon has successfully been able to continue to sell to the TFUND and demand for it continues to grow. Thailand as a country has 6-8 eco car assemblers planning to go into production, so there is a lot of volume and more business for Ticon.

Question: 4. Where do you see Ticon in five years from now? In five years from now we see our property management business growing, we will branch out into more custom work, with continued movement of assets into our property fund, continuing our business and focusing more on the fund as it grows larger and requires more management.