ข่าวแจ้งตลาดหลักทรัพย์

the Land Department will be Baht 4,444,000. To sum up, the value of asset group 1 and group 2 based on the appraisal prices of the Land Department will total Baht 613,597,559. 4.1.3 Book value approach The value of land, building and equipment for calculation is at the cost value after deduction of accumulated depreciation. We use the data from the internal accounts not yet reviewed by the auditor of CK Office as of 30 June 2007. Details are as below: Land, building and equipment Baht 941.35 million Less Accumulated depreciation Baht (332.93) million Less Allowance for devaluation Baht (254.31) million Book value of land, building and equipment Baht 354.11 million After the valuation of the assets with the determination of the allowance for devaluation of land,building and equipment as shown above, it has been found that, from the financial statements audited by the auditor of CK Office for the year 1999, Baht 254.31 million was booked as devaluation of land, building and equipment to correspond with the asset valuation report of an appraiser at the moment and to reflect the market price, with the value by the cost approach being Baht 557.84 million (excluding valuation of parking building) compared with the then book value of Baht 812.15 million (only for the assets newly valuated). The reason why allowance for asset devaluation was recorded in 1999 was that in that year the Association of Accountants and Auditors of Thailand at that time announced the enforcement of the Accounting Standard No. 36 regarding devaluation of assets,thus the auditors gave special priority to this issue in their auditing task. Such recording of devaluation in the assets was taken into consideration in the above report of the independent appraiser (dated 13 October 1999) which was engaged by the Company to make valuation for the purpose of applying for financial institution loans and register ownership of condominium (Or.Chor.2). From 1999 until 30 June 2007, no adjustment was made to such allowance of Baht 254.31 million. From Year Appraisal's report dated 10 August 2007, the market price of land, building and equipment was valuated higher than the current book value. Therefore, to reflect the updated price of the assets and the benefits expected from the use of the assets, including the projected cash flow until the end of the asset utilization life, we consider it proper to adjust and update the value of land,building and equipment. In view of this, the adjusted book value of the assets would come out as below: Land, building and equipment Baht 941.35 million Less Accumulated depreciation Baht (332.93) million Less Allowance for devaluation Baht (254.31) million Book value of land, building and equipment Baht 354.11 million Adjustment items Write-back Allowance for devaluation Baht 254.31 million Adjusted book value of land, building and equipment Baht 608.42 million 4.1.4 Discounted cash flow approach As the land, building and equipment to be acquired this time can generate income from the lease of the office building and the parking building, the Financial Advisor has used the information on past financial statements of CK Office and other relevant information obtained from the Company to support the determination of the assumptions regarding the rental space of the office building and that of the parking building. Income structure CK Office's income structure is mainly composed of the lease of office building space, details of which are as below: (Unit :Baht million) Income 2004 2005 2006 30 Jun. 07 Income from rent and services 55.45 59.84 61.95 31.51 Interest income 8.37 11.36 14.97 3.95 Dividend income - 17.50 26.25 - Gains from divestment of investment 9.00 483.67 - - Other income 1.52 1.12 1.62 0.74 Total 74.34 573.49 104.79 36.20 Expense structure CK Office's expense structure is mainly composed of cost of rent and service and interest expense as follows: (Unit :Baht million) Expenses 2004 2005 2006 30 Jun. 07 Cost of rent and services 51.79 49.34 49.30 27.94 Administrative expenses 13.46 10.69 9.04 - Interest expense 70.44 78.39 70.65 31.38 Total expenses 135.69 138.42 128.99 59.32 Past record of office building rent Details 2004 2005 2006 30 Jun. 07 Rent space - net (sq.m.) 15,146.72 15,146.72 15,146.72 15,146.72 Average occupancy rate 89.56% 87.98% 87.98% 89.63% Average rental rate (Baht/month) 330.00 342.50 342.50 392.50 Key assumptions for financial projections The net present value of cash inflow and outflow from the lease of office building and parking building used by the Financial Advisor in the calculation is based on the following principles: 1) Projected cash inflow and outflow during 1 July 2007 - 31 December 2039. 2) No calculation of terminal value of the project as well as the land value on the last date of the financial projection. Key assumptions comprising: 1. The office building and parking building rent business continues on a going concern basis, and the changes in the external factors have no material impacts on the core business operations. 2. Projected cash inflow and outflow from the rent of office and parking buildings starts from 1 July 2007 until 31 December 2039, altogether about 33 years. 3. Office building space for rent is 15,740.38 sq.m. 4. Parking capacity of the car park building is 350 vehicles. 5. Rental rate of office space in 2007 is Baht 300 - 350 per sq.m. per month, or an average of Baht 328 per sq.m. per month. Rental is adjustable every three years at 10% or an average increase of 3.33% per year. 6. Income from services, comprising utilities, banquet and seminar and hourly parking charges (car park income is in a small proportion, arising mainly from walk-in customers and visitors of the tenants, chargeable on an hourly basis), etc., representing about 19.56% of office rental income (such rate being an average for the previous three years : 2004-2006) with adjustment every three years at 10% or an average increase of 3.33% per year, which is the same criteria as office rental income. 7. Projected occupancy rate of the office building is at least 83.33% of all the office space for rent, while projected parking rate not lower than 70% throughout the projection period. This is based on comparison with the past record of office space rent to date, together with the data released by the Bangkok Metropolitan Administration ("BMA") regarding the average occupancy rate during 2005-2006 (particularly in the areas of Ratchadaphisek/Din Daeng) as detailed in the table below: 2005 2006 Location Avg.rental Average Avg.rental Average (Baht / sq.m.) occupancy rate (Baht / sq.m.) occupancy rate (%) (%) Ploenchit/Chidlom 556 89 644 91 Silom/Sathorn 471 87 541 88 Sukhumvit 380 87 513 90 Praram 3 295 75 384 75 Phayathai 360 90 471 91 Ratchadaphisek/DinDaeng 312 86 399 91 Phahonyothin 393 95 467 97 Bangna 302 83 345 88 Chaengwatthana/Nonthaburi 416 95 439 95 Thonburi 278 82 370 90 Source : Year Appraisal's asset valuation report dated 10 August 2007 8. Total expenses account for around 56.63% of total revenues in 2007 are projected based on the actual expenses incurred in the 6-month period ended 30 June 2007 with assumption that the total expenses in the following years increase in line with the inflation growth, being constant at 3% per year, from 2008 until the end of the asset utilization. The projection is on a conservative basis (Actual total expenses for the past three years : 2004-2006 were rather high due to depreciation of fixed assets. If such depreciation is calculated using the new cost, the total expenses would decrease significantly, thus setting the expenses as per the assumption from 2007 onward.) Total expenses comprise: - Handling and managing expenses comprise personnel expense (5.16% of totalrevenues), e.g. salary, overtime fee, social security and pension fund contribution, as well as provident fund contribution, etc., together with other office expenses (0.97%of total revenues). - Building management cost is composed of utilities (13.37% of total revenues), repair and maintenance (1.70% of total revenues), cleaning (2.05% of total revenues),security (3.37% of total revenues), insurance premium around Baht 200,000, and miscellaneous expenses (0.11% of total revenues). - Depreciation charges are calculated based on the new asset cost, e.g. office building, car park building, machinery and equipment, office fixture, and systems related to the buildings, etc., by the straight-line method, under which expenses are recognized with depreciation amortized in equal amounts throughout the asset utilization life (being 25% of total revenues for 2007). - Municipality tax at the BMA rate is 12.50% on the 40% of the office rental income(hence 4.54% of total revenues). Normally, office rental income is reported as comprising rental income 40% and central utility service income 60%. 9. Charges and taxes in the transfer of ownership of land and condominium are projected atabout 5.00% of the land and condominium acquisition price. Discount rate The Financial Advisor has applied the Capital Asset Pricing Model (CAPM) in determining the discount rate to figure out future free cash flow. This is a widely used method of working out the risk adjusted rate of return or the cost of equity (Ke). The discount rate calculated by the CAPM is as below: Ke = Rf + (Rm - Rf) Rf : Risk free rate of investment based on the 18-year government bond yields as of 4 September 2007, which is around 5.08% (data from Thai Bond Dealing Center). Rm : Rate of return of the Thai stock exchange ("SET"), which is 13.65% (data from Bloomberg as of 5 September 2007). : Factor used to measure systematic risk, which is the variance between the return of the SET and the share price of the Company, which is 1.3940. From the above variables, we have worked out the cost of equity as shown here: Ke: 5.08 + 1.3940 x (13.65 - 5.08) = 17.03% According to the Company's consolidated financial statements ended 30 June 2007, its debt to equity ratio was 4.03. Thus, the Company's weighted average cost of capital (WACC) can be derived as follows: WACC = D / V (Kd) + E / V (Ke) D / V = Total debt to cost E / V = Total equity to cost Ke = Cost of equity by the CAPM = 17.03% Kd = The Company's weighted average interest rate x (1-tax rate) = 5.72 Thus, WACC = 8.26% However, the cost of equity (Ke) may also be derived by the Gordon Model using the following formula: Ke = g + [ D0 x (1+g) / P ] Whereas g = Average previous growth of dividend D0 = Dividend per share for the past year P = Present share value of the Company Considering the Company's past record of dividend payment as shown in the table below, its dividend payment has been inconsistent all along. No dividend payment was made at all during 1997-2003 and in 2007. This has hindered the use of this record for calculating its dividend growth. In view of this, the Financial Advisor has not employed the Ke from the Gordon Model to work out the Company's WACC for the calculation of net present value. Past record of dividend payment Year Dividend per share Year Dividend per share (Baht) (Baht) 1995 2.50 1996 2.00 1997 - 1998 - 1999 - 2000 - 2001 - 2002 - 2003 - 2004 0.10 2005 0.35 2006 - Note : Par value of Baht 10 per share in 1995 and 1996. From the above calculation, WACC would be derived by the CAPM at 8.26% to be used as the discount rate in the calculation of net present value. Net present value (NPV) calculation We have found that the net present value as of 2007 of the projected cash flow generated from office rent and related services under the said assumption is Baht 32.79 million and internal rate of return 8.74%. For conservative projection, we have worked out the net present value in case that the Company opts for relying wholly on loan borrowing to pay for the assets, the net present value will drop 3.75% to Baht 31.56 million. However, the average office rental and service rate of Baht 328 per sq.m. per month pursuant to the contracts in force at present, which is used as the starting point of financial projection, is rather low compared with the average rental rates of the nearby buildings.Therefore, during 5-6 September 2007, we surveyed rental and service rates of office buildings in the vicinity that still have space available for rent. Data are shown here for comparison: Building Location Rental rate Parking rental (Baht / sq.m.) (Baht / sq.m.) 1. Chang building Phaholyothin Road 400 1,500 2. Rasa Building Phaholyothin Road 600 - 65 1,500 - 3,000 3. Lao Peng Nguan (LPN) Blg Vibhavadi Rangsit Road 450 1,500 4. Central Latphrao Building Lat Phrao Road 440 2,000 - 2,600 Based on the above information, we have tried adjusting the projected financial statements for comparison purpose to support the shareholders' consideration, with average office rental and service rate in 2007 at Baht 400 per sq.m. per month (equal to average rental rate in 2006 in the areas of Ratchadaphisek/Dindaeng and that of Chang building at present which is the lowest rate found from the survey during such period). The rental rate is adjustable every three years at the constant same rate of 10%. The net present value will then come out at Baht 306.66 million and internal rate of return of 12.44%, which are higher than the net present value and internal rate of return from the actual rental and service income obtained from Viriyathavorn Building at present to some extent. However, we do not use the net present value newly derived for the consideration of the appropriateness of this asset acquisition transaction. Summarized table of asset value by various approaches Cross-checking and reference (Unit : Baht million) Ref. to Valuation or calculation Price Acquisition Higher/(Lower) Clause approach derived price of assets than the acquisition price 4.1.1 Valuation by independent appraiser 674.58 625.00 49.58 4.1.2 Valuation by Land Department 613.60 625.00 (11.40) 4.1.3 Book value of asset 608.42 625.00 (16.58) Approach adopted by the Financial Advisor to determine a proper price (Unit : Baht million) Ref. to Valuation or Present value Initial Net present value Clause calculation of net investment 2/ approach cash inflow 4.1.4 Net present value approach 1/ 528.34 495.55 32.79 Notes : 1/ Net present value means the result of the present value of the net cash inflow throughout the projected period deducted by the initial investment. 2/ Initial investment does not cover land value at the beginning date and the final date of the financial projection worth Baht 129.45 million (total areas of 1,618.1 sq.wah each of Baht 80,000 comprising the land of 1,517.10 sq.wah on which the office and car park buildings are sited and empty land of 101 sq.wah). The net present value approach has been widely used in the analysis of the economic viability of projects or assessment of projects that are worthwhile for investment. In principle, there must be cash flow projection throughout the project life. Future cash flows are required to be converted into those at the present value before summing up the present value of the future cash flows. Then the present value of future cash flows is offset with the initial investment. In theory, any project with net present value over or equal to zero is considered viable and worth investment. Based on the above principle, we are of the opinion that the discounted cash flow approach reflects the optimum utilization of the assets and is widely used and accepted at present. It is the most appropriate method for the valuation of the assets to be acquired. In this regard, the present value of future cash flow would come out Baht 657.79 million (including present land value), which is higher than the acquisition price of Baht 625 million. The acquisition price is also lower than the valuated price worked out by the independent appraiser at Baht 674.58 million by Baht 49.58 million or 7.35%. The acquisition price is only about Baht 16.58 million or 2.73% higher than the book value. Meanwhile, the prices adopted by the Land Department are apparently lower than the actual selling and purchasing prices. They are usually used as reference in the payment for transfer taxes and charges. 6. Conclusion of the Financial Advisor's Opinions We consider this transaction reasonable and appropriate as CK will benefit from the ownership of the assets that are the site for the Company's and its subsidiaries' operations. It will be able to record income generated from office and car park rent and services. Also, a rate of return of 8.74% can be obtained being higher than the weighted average cost of capital of 8.26%. Moreover, if assessment is made in term of project feasibility, the future free cash flow using the net present value as of 2007 at Baht 32.79 million, the project is considered viable, being worth investment. This asset acquisition will also help mitigate risks associated with new project investment and access to new location to accommodate the new office, in case of no extension of the existing lease contracts for the Company and its group members. The Company and its subsidiaries also earlier planned for acquiring additional office space to serve their future business expansion. However, while planning for payment for the assets in one cash lump sum using the funds from borrowings and cash flow from operations in a 50:50 proportion, the Company recorded high current liabilities in its books. With such borrowings, the Company's debt to equity ratio would increase from 4.03 to 4.08. Its funding cost would get higher with high interest burden and hence impact on net profit. Therefore, we consider it proper to recommend that the Company take into account its liquidity and capital adequacy when it plans on the sources of funds for payment for the assets. For all the above reasons, it is thus recommended that the shareholders vote for the making of the asset acquisition transaction at the Extraordinary Meeting of Shareholders No. 1/2007 on 12 October 2007. As the Independent Financial Advisor, we hereby certify that we have provided our opinion prudently based on professional practices and standards and in the interest of the minor shareholders. Yours sincerely, Far East Securities Company Limited Chaipant Pongtanakorn Pornpin Chaivikrai (Dr. Chaipant Pongtanakorn) (Miss Pornpin Chaivikrai) Chief Executive Officer Senior Executive Vice President