Loxley - OSK

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RHB Research 06 Mar 2013 FAVOURABLE OUTLOOK FOR TRADING BUSINESS Construction materials trading division to benefit from construction boom. Currently, the backlog for its construction materials trading division stands at THB2.74bn, most of which comes from mass transit-related projects. As a leading construction materials trading company in Thailand, Loxley is expected to reap benefits from a booming construction sector in Thailand as well as the expansion of the mass transit routes in the Greater Bangkok region. Apart from the domestic construction materials market, it has also cast its sights on the opportunities in supplying construction materials to tap into the construction boom in Myanmar. Bringing Thai brands to China. Loxley’s China office has been helping Thailand’s small and medium enterprises (SMEs) to introduce their products to the Chinese market. As it is not very cost-effective for Thai SMEs to self-market their products overseas, Loxley provides the distribution channels by leveraging on its existing network in China. To further tap into the vast Chinese market, it plans to set up booths marketing Thai products in petrol stations in China by this year. As such, Loxley is expected to sign a co-operative agreement with Sinopec to create a “Thai corner” in the latter’s petrol stations in China. The booths will sell products from both Loxley and Thai SMEs. As Sinopec has over 10,000 petrol stations located across four provinces and two cities in China, we think the co-operation with Sinopec will widen Loxley’s distribution network in China. Figure 12: Sinopec’s petrol stations network in China Source: Loxley UNLOCKING VALUE VIA LISTING ITS SUBSIDIARY Over the next five years, Loxley is likely to list some of its subsidiaries if they show attractive enough profits. This is an incentive for the company to improve its cost-saving measures, or it may have to raise more working capital to adequately partake in the array of opportunities available. We do not rule out the possibility that the listing process might begin by end-FY13. Two of Loxley’s subsidiaries, Loxley Wire Company (LWC) and LOXBIT, are the prime candidates for listing on the SET. Loxley Wireless Company Loxley Wireless is a 99%-held subsidiary. We believe that this company is a prime candidate for listing on the SET. Loxley actually has several potential candidates to be floating on the stock market, and is likely to follow the same path as Samart in listing its business units are that deemed practical in unlocking value for providing an additional catalyst for its share price. LWC’s business is divided into three main areas: i) Distribution of carrier-grade equipment by Huawei and Alcatel-Lucent as well as Aastra’s enterprise product, e.g. PABX including installation and after-service. 2) Distribution of wireless transmission and networking hardware such as radio frequency repeaters RHB Research | See important disclosures at the end of this report A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com 10 Powered by Enhanced Datasystems’ EFA Platform
RHB Research 06 Mar 2013 and dead signal area antennas. 3) High speed data communications for the corporate world. This was a business that LOXLEY retained when it sold off its holdings in what is now CS Loxinfo to Thaicom (THCOM). They also install CCTVs and Virtual Private Networks (VPN). LWC’s business is similar to Advanced Info Technology (AIT)’s except that AIT focuses on one supplier, CISCO. AIT provides inroads into strong relationships with the public sector in exchange for being the key partner for CISCO products in Thailand. Both companies focus primarily on government-related customers such as the Communications Authority of Thailand (CAT) and the Telephone Organisation of Thailand (TOT). LWC works, rather than competes, with AIT. A key on-going project at this time is CAT’s submarine cable system to handle telecommunications between land and oil rigs in the Gulf of Thailand, stretching 1,340 km and extending to Songkla in the south of Thailand. The 3G project belonging to the ToT also falls under LWC’s purview. LOXBIT – IT Specialist LOXBIT is another prime candidate for a SET listing over the next 18months. The company is a systems integrator dealing with consumer IT developments and machines for automated processes such as electronic payments, ATM’s, cheque clearing and achieving systems (ICAS) and for risk management for the Bank of Thailand. The company provides procurement, installation and longterm maintenance services as part of its contract. Not surprisingly, it has the largest percentage to sales for recurring revenues. It also authorizes the manufacturing of products. Competition for LOXBIT is intense due to the rapid changes in technology and customer requirements, including new and international standards. However, a positive is that progressive regulatory rules mean new contracts for modification, for LOXBIT. One competitive advantage for this company is that it can share the expertise of its pool of highly-experienced engineers and IT consultants which a smaller company or pure distributor may not have. RHB Research | See important disclosures at the end of this report A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com 11 Powered by Enhanced Datasystems’ EFA Platform
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Loxley - OSK

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