FSMART at currently 10.20, looks like a strong buy!

PaulRen's picture
Company Articles

FSMART currently at 10.20 Baht looks like a strong buy to me and here is why.  To follow up my previous article on this solid, quality & growth stock a "Thai domestic play", with a decent dividend yield -and bright future.    Here is an important follow-up article to the one published in December '22 on FSMART.  See this link to my original article:  https://thaistocks.com/content/fsmart-1230-quality-thai-domestic-play-back-my-list

I know I have a good stock choice here but my original timing was off due to: 1) big sell off/deluge in US and so Thai markets in February and then of late on the bank failures news late last week.  2) Since FSMART reported a bit disappointing 4Q results since, but I think this is likely a short dip to an otherwise growth stock story, as you see from more comments below.   I am investor excited about/around FSMART (10.20) at the current price, where I dare to call it "maximum bullish" around the 10 Baht price.  I think there will very strong support at 10 Baht.

Here is more on why I am convinced its not fully appreciated in the current price and why I am sticking with my enthused strong-buy view on FSMART. Its trailing p/e at 25 may seem a bit high at first view (but dividend yield is a decent 3.4%), but if you understand this company better, you see why FSMART appears undervalued at the current low 10.20 price.  FSMART traded in the mid 20's on the retail investor over-enthuse that time a year ago, with their new TaoBin state of the art vending machine just taking off back then. Which in fact it did! 

First, realize FSMART last May 22, 2022, increased its ownership in Forth Vending, from 19.34% to 26.71%.  As was officially SET announced back then:  “The Company will acquire the new common shares of Forth Vending 16.70 million common shares at Bt10.00 per share totaling of Bt167.00mn, to increase the Company’s stake in Forth Vending from 19.34% to 26.71%.” Forth Vending is the already successful company producing and owning Tao Bin vending machines.  Which I call AI robotics "state of the art" new vending machine, a new strong new here trend for many reasons.  

Again, Forth Vending is the company which owns Tao Bin, these high end AI/Robotic Vending machines, which I described in a previous article (see picture here).  What is not well known is that Forth Vending plans to IPO later this year or in the first Q next year, so to export this successful state of the art vending machine, internationally.  This IPO will result in a large one-time gain to FSMART, but for accounting purposes will not be a realized as a gain on the books, as their accounting booking method is using “the equity income method”, so I don’t think there will be any realized accounting gain. But a big gain nevertheless, for FSMART.

The other underappreciated thing is the fast dropping of previous large depreciation expenses on their core some 130,000 Bonterm cash machines. Previous large deprecation expenses are coming to an end. So will drop considerably going forward. The incremental depreciation saving starting from this year is estimated at Baht 60 mill. Baht and next year (2024) it will be even a lot higher number. (One can track this from the number of kiosks expansion and depreciation which is full done, after 8 years.  I just don’t think the few analysts, which are too busy following big caps’ here, appreciate or understand this nor have it in their pro-forma numbers.  Hence earnings should increase some 10-20%, this year just on that alone as FSMART realized 301 mill. last year in net profit. I don’t think this is priced in the current stock price.

Few realize that TAO BIN posted a profit of almost 10 mill. US$ in its first full year of operation (2022) even while spending next-to-nothing on marketing. Tao Bin vending machines will likely double in numbers from close to 5000 last year to expected near 10,000 this year!  The company continuously with high IT analytics nationwide monitors these smart-vending machines, moves them if they disappoint on location and so know exactly what all is going on, in real time!  K. Thomas, a non-Thai, is CTO there, a programmer of the back-end ERP using in Tao Bin. He is very good at coding as he used to work at Microsoft HQ.  (see picture here of the new Tao Bin factory).   Also see here https://www.forth.co.th/smart-coffee-vending-machine

This is their new big factory to produce/ramp up TaoBin machines which they will start exporting by year end.  They are considering solar roof energy installations, as the ROE is most certainly close to 20% on saved electric energy.

FSMART also recently introduced the new GINKA  EV (Ginka Charge Point), a better more convenient and cheaper way to charge electric cars. They plan having 5000 installed this year.  Take a look here:  https://en.forth.co.th/ginka_ev_en/

Remember, Boonterm has some 130,000 machines all throughout the country.  Over 15% of the Thai population (uniquely) using these machines every day/week/month, lots more could be provided (and capturing) than now, on this vast & established franchise, their core “cash cow” biz.  They realize a small fee every time any money transaction is done, which numbers in the thousands everyday. Some also provide short term loans,, at far more favorable rates than many alternatives.  Top up-phones and more creative services now and in the making. A great franchise.  The other thing is the upcoming Thai elections in May, which promises by various factions here to increase the minimum wages by a considerably amount….Billions will be spend in Thailand on elections along with a considerable economic multiplier effect and so one should think their core biz. will benefit (Boonterm machines) as well. At least in the short term.

Thai banks in recent times have been aggressively cutting back on their branches, my estimate talking to some is for 20% reduction overall, nationwide. Already happened.  Its just too expensive to have bank branches in remote locations -all around Thailand. Hence these quasi mini-ATM Boonterm 24 hour machines serve a mighty important purpose for transferring cash, making payments, getting short term loans, ha even checking your weight and to be more.  They are linked-up with most all of the major Thai Banks.  All around rural and more up and down Thailand. There even is one with 150 meters from where I live, despite bank branches around.   "Providing pre-paid mobile phone top-up services and online payment services. via automatic payment machine (top-up kiosk) under the trademark "Boonterm"   ***

FSMART has 780,000,000 shares outstanding, but as pointed out the previous article owns 26,858,700 Treasury shares which they bought back in the open market at a very low price, of around 6.40 as I recall nearly 3 years ago.  I project they will opt to reduce shares outstanding with these treasury shares by mid-year 2022. That is the deadline. So there will be a 4% anti-dillutional affect.  FSMART’s balance sheet is rock solid.

K Pongchai, CHAIRMAN OF THE EXECUTIVE COMMITTEE, DIRECTOR, is the key man, graduated in Engineering from Ladkrabang University (#2 Engineering University in Thailand), he is an extremely smart/able/wise and forward looking visionary whom I am, convinced knowing this company for many years & talking to people whom would know, very high integrity person/company.  He owns 3.4% of FSMART shares and so is the 3rd largest shareholder.  Thailand should have more of these great people.  High integrity besides competence is a key component I always look for when considering a company I like for investment.  The other thing is, this is not a “going to do” company like some others (i.e.PPS, CHO, or PPM in the past), it is already well established, successful and it shares often trade in the millions everyday, at times over 10 mill., another positive!  The company, according to the SET, has some 14,000 different shareholders, a fairly well diversified shareholder base.  FSMART is listed on the MAI since October 2014.  In the past (07 Mar. 2023) FSMART gave an Opportunity Day Thai language presentations and I hope/expect they continue so regularly.   I plan to more closely follow this company which is now at the current price one of my favorite choices, of course I always advocate to diversify.
Paul A. Renaud.

PS.  FORTH (34) went XD on March 14th, and owns 50.7% of FSMART.  FORTH is interesting as well but its 41 p/e is a bit rich for me.  BTW,  Thai Thai NVDR i.e. foreigners own 36,442,775 shares of FSMART, as the second largest shareholder.