Advance Agro will spend Bt12 billion to construct a third paper-making plant with an annual capacity of 420,000 tonnes, increasing the company's production to one million tonnes per year - enough to respond to growing demand in both the local and international markets.

The new plant will be run by the company's 99-per cent-owned subsidiary, Double A Paper. The secretary of Advance Agro's board of directors, Kampon Chayasunthorn, yesterday said the investment had been approved on Wednesday.

The plant will be built on 16.16 hectares of land near the company's existing plant at Prachin

Buri.

"Double A Paper expects to start the project later this year. Building and equipping the plant will take about two years and we expect to begin production in 2009," he said in a statement to the Stock Exchange of Thailand.

The company has three possible suppliers of the main machinery for the plant: Mitsubishi (Japan), Voith (Germany) and Metso (Finland).

"Double A Paper is in the process of price comparison and negotiation with foreign manufacturers, in order to obtain a fair price in the best interests of shareholders," Kampon said.

Advance Agro said Double A Paper's production capacity would grow from 600,000 tonnes per year to one million tonnes to support continuously growing demand from domestic and international markets.

Of the investment, Bt6 billion will come from working capital and the rest from capital funds and loans.

"The board of directors believes this third paper mill will have a good return ratio and will help the company to maintain sufficient supplies to customers. It will also help to maintain our market share and will achieve sustainable growth," Kampon said.

After reviewing the feasibility of the project, an independent consultant, Jaakko Poyry, said it would have the advantage of low production costs because of its size, location and the fact that it will use the highest technology. Production costs will be an important factor for long-term competition, the consultant said.

Moreover, with a high return ratio and a good debt-to-equity ratio, it will be interesting to financiers.

Last year, Advance Agro recorded revenues of Bt23.4 billion, compared to Bt21 billion in 2005.

Its net profit was Bt1.97 billion, up from Bt1.91 billion the previous year.