Random Thoughts: Discussion w/ the Smartest Men in Thailand
As a hat tip to Byron Wien’s annual opinion piece on his discussion with the Smartest Man in Europe, here’s my amateurish attempt. Every week I try to meet people either in the industry or outside the industry to just share thoughts on the developments in Thailand, the region, the world and w/o naming any names for obvious reasons here are some insights that I can share.
- Why do people love property more over stocks? Is it because its tangible? Perhaps it helps that your condo or house doesn’t have its value shown on a screen with second. So why not look at stocks in the same way as property? i.e. Find a good location/business, understand the key drivers for that location/business, buy at an undervalued price relative to these elements, close your eyes and open them again in 5-10 years? Ah because as humans we inherently want to know what the value of something is immediately, plus the leverage we can get in Thailand is incredible, 10% down, first 3 years are close to 0% interest payment, and they say the stock market is a gamble…
- It’s the economy stupid – has Thailand reached its peak in terms of economy growth potential? Some say yes others say no, high household debt, an aging population work against the long term story, but the potential of the growing economies in Vietnam, Laos, Cambodia, and Myanmar are still a positive for Thai co’s to expand.
- NPL’s – Is there something negative simmering on the balance sheets of the banks? If only KBANK has stated that NPL’s may hit ~2.8% of them by the end of this year, can we really believe that KTB’s NPL’s are only 2%? Or SCB’s for that matter? Or perhaps they have been clever in provisioning for these potential risks.
- Speaking of NPL’s – SSI & TISCO – SSI engaged in one rather adventurous M&A deal years ago, but still can’t make $ and has had a negative EBITDA ever since, Tisco has given them a loan for this, close to 25% of it’s own equity value, when will the proverbial shit hit the fan? Or is the BoT going to allow them to categorise the loans to SSI as however they please when infact it should be an NPL?
- Telco’s – 4G has been announced to occur by the 11th November, rumours have it that the government is pushing for a 4th telco operator to join, now who could do this? loxely, jas, samart, are names mentioned, but why would anyone want to?
- Digital Economy – The next solar craze? Government seems adament to be pushing these projects through, who will the winners be who will the losers be? Still many questions but something to look at in the near future
- Tonnes of Chinese Visitors – who really benefits? Tour operators, bus owners? But which listed co other than AOT and AAV?
- Bangkok is sinking – nothing new, we’ve known that for years, shouldn’t the government shift all civil servants to Saraburi? Or further up North/South? Maybe the Bangkok governor was correct in saying that we should all move to the mountains, have khao yai property prices reflected this yet? Or will Chiang Mai become the burgeoning growth center for the country over the coming decades?
- Investor Relations quality in Thailand – How does the quality of IR in Thailand compare to that of the rest of the region? Quite highly actually, even compared to the rest of the world, the quality of the presentations you find in Thailand are top notch, the only thing generally lacking is that the majority of Thai Co’s still don’t see the value in Investor Relation’s personnel. Regionally I think the Philippines is the leader for IR.
- The Government – Likely that they’ll stick to their timeline of 3Q16 as they’ve come to the realisation that running a country is their best forte, thus does this mean we’ll see all the infrastructure budgets approved by then? Other than the silly submarine, there is a lot of $ a stake here, I wouldn’t be surprised to see it all go through for reasons that I shouldn’t write.
Don McMahon
Your observations about stocks versus property are interesting. One other thing is life style choice. We are turning 70″ sold off a bungalow we bought in 1998 last year, even though it was worry free and returning 5% pa. Our reasoning was (i) to avoid unexpected vacancy or repair costs (= stress) and
(ii ) the funds are in the Thai equity market, and, altho’ this require more brain power, we have the cash, if we have a major a medical emergency, costing in excess of our insurance limit (400k). Thanks for sharing, yours is a must- read, esp. the side-comments. I can’t believe how Tisco is being promoted as a safe dividend stock.
Jay
I also let out properties both in the UK and here in Thailand. I agree that it is quite a stressful investment. I have noticed that my average annual return in the UK is 10-11%, whereas here in Thailand I only manage around 6-7% with significantly more headache. It doesn’t help that Thai Law is extremely forgiving towards tenants and unsurprisingly complicated for landlords.
TISCO has growth potential and high beta, leading to significant volatility. Considering its relatively small book value, I’d be very interested to learn who is promoting it as a safe dividend stock!
Pon
every broker out there.
Jay
Madness
don
Agree!
‘Where Are the Customers’ Yachts?’
Pon
Thanks.
To TISCO’s credit they have done well considering their size as a smaller financial institution and if you were to take away their recent provision of SSI’s loans then their numbers were ok.
Don McMahon
Thanks, like most opinions, I just don’t have any confidence in the lending industry’ ability to grow. Doesn’t matter whether its commercial or consumer lending, I sense that the economy is going to stay really,really illiquid. QE anyone? Slightly off-topic, do you know of any Thai research analysts who publish PEG ratios?
TONY
I to own real estate (apartment rentals) here in Thailand and use it as part of my investment portfolio in order to spread out my investment risks. It is starting to become a hassle dealing with an investment after all cost are calculated and my pa return is 6- 7%. I am on the verge of selling my real estate and moving into REITS/property funds, as I believe I can get nearly the same returns without the problems. Any thought from anyone regarding this idea? Am I missing anything?
Don McMahon
More on rentals versus equities/REITS: Apologies from a CA if this is an overly complex answer. First a question; are you calculating your return on your cost or on market value? If you are earning 6-7% on market values, you are doing very very well.
Next, you write that your pa return is “after all costs”. Is that after personal income taxes?
You need an after tax rental income to compare with.
Third, before making your decision to re-invest, figure out what are you going to receve in net proceeds, in addition to agents fees.? Use a reputable tax accountant to figure out your other costs of selling, i.e. transfer tax, income tax, legal costs.
You’ve probably done this work already.
I don’t know a lot about REITS here in Thailand. Is that where you are considering investing?
i have read about how popular it is for all sorts of Thai enterprises to “roll” their real estate into a REIT. A lack of transparency and financial reporting standards well below international standards also bother me, esp. about Thai REITS.
My plan was to invest my 2014 house sale proceeds in to dividend paying equities. However, the negative is that 15% tax is withheld. You can get that back at year end, but only under certain circumstances, involving a calculation which grosses up the amount taken in to taxable income and an offset of a tax credit ( assuming the dividend was paid out of taxed income). This means I had to keep track of my projected dividend income, annually. Consequently, I simplified matters. Since Capital gains are not taxed, I hold a stock until it rises in anticipation of the dividend. Then I sell it, cum-dividend. Capital gain, ergo no tax. Incidentally, age is a huge factor, in my view. If you’re late 60’s like me, your priority is protection of capital, above all else. The other factor is, exposure to FX, if you are contemplating investing in, for example a North American REIT. Ignore the tax issues, those would be a far superior quality investment
Don McMahon
Very keen to know if any readers follow BJCHI.SET .? This is a medium sized service company, exports high quality product in oil & gas industry fabrication, strong growing backlog, majority of shares held by the Korean founders family ( well qualified, engineers).
Fiscal 2015 projected to pay a 6% dividend. However, Q1 2015 showed great growth (100% exports) but shocked the market by booking a charge equal to 40% of their net income to an unrealized FX loss.
Also company shocked with Q4 2014 earnings coming in well below consensus.
Company CEO (and several brokers) project 2015 to show 10% growth.
I don’t like shocks, obviously, but I do like the company to continue to grow, regardless of the Thai economic slump.
Would welcome any guidance, should I ride out the risks, of more swaiting for the stock to appreciate ahead of the dividend
Xavi
As a shareholder, one concern is how all these capital cutbacks in the energy field will weigh on BJCHI in the coming quarters when they start to take effect…
Probably more likely to be felt in 2016 than this year…but the company has all the hallmarks of a solid investment, quality management team, not crazily overvalued etc…
Don McMahon
Quote: Xavi
on July 19, 2015
As a shareholder, one concern is how all these capital cutbacks in the energy field will weigh on BJCHI in the coming quarters when they start to take effect…
Probably more likely to be felt in 2016 than this year…but the company has all the hallmarks of a solid investment, quality management team, not crazily overvalued etc…end quote:
Thanks for comments. My understanding, from 2 current analysts’ reports, (APS/KimEng) is that Q2 2015 will report sales 720-750. I am forecasting the net income to be 100+/- ; ignoring any movement in FX loss reserves.
Pon
And they have a tonne of cash from the ipo sitting on their balance sheet.
Biggest problem that BJCHI has vs STPI is that their land isn’t as well located to the port.
Otherwise great co, I’m not overly concerned about the capital cutbacks impacting BJCHI b/c it is only a THB 4 bn revenue p.a. co, operating in an industry where projects go into the multi, multi, multi billions.
Don McMahon
My mistake – those KimEng numbers for Q2 disappeared. The whole Thai language report is not accessible. Also, there was an announcement at ASTV that Q2 would show a earnings improvement over Q1 . I will paste it here later ((if allowed by forum moderator?) All I have now is the consensus forecast of 2015 fiscal EPS. Range is .67 to .74 My estimate, based on the ASTV interview with (I assume) the company’s CFO is .68. With a dividend of .30 implying a yield of slightly over 4%. The historic dividend policy was reported by SCBS at approx. 50%payout ratio. But that decreased to 33% cash div + stock div for 2014.
Xavi
The funny thing about analysts here is they tend to grossly overestimate earnings and then adjust downwards while in the US they tend to underestimate and then watch shares pop when they beat earnings…
Bit of psychology at play…
Pon
Some clever research folk have put together a paper showing that earnings estimates in Thailand are always highest at the beginning of every calendar year and then are subsequently downgraded during the day. I believe this has been the case for the past 3-4 years.
Xavi
Very interesting Pon, is that paper in English? Would make an interesting read.
Cheers
Xavi
Don McMahon
BJCHI again. APS has reposted it’s Analyst’s report today. Sales for Q2 2015 are down 52% Q/Q. I mention this, only because it is wildly different than what the company is saying in interview with the business media. what are these people on?
Pon
Feel free to post whatever you wish, of course if its derogatory then i shall remove it (I don’t consider poor research to be derogatory…or should I?)
TONY
Thanks Don for your comments and sorry to respond late, but I have been away in Vietnam trying to settle a new 50-year lease on a house there. I have been busy, because their real estate extension law (up to 50-years) has just come into effect and it is not easy to navigate.
I am not American so, the tax advice doesn’t apply to me and I don’t have any investments there, and now only prefer to invest in Asia. I am in the process of investing in REITS and property funds in Singapore and Thailand. Since REITS are new to Thailand, I was hoping I could get some feedback from people who have already invested in Thai REITS.
Cheers Mate