The multiplier effect on the Thai economy is in full gear.
Summary of some thoughts while reflecting into the New Year 2003 and my report to you on an in person visit to Tipco last week. The Thai Pineapple Public Company. Tipco (25.25).
The January 9th issue of the Far Eastern Economic Review has an article where they pretty much claim that the SE Asian domestic economic resurgence cannot last and can be no replacement for falling exports.
I disagree with this conclusion and want to here say so. No mention is made on how in the 1980's, the US economy then re-surged when Ronald Regan's plan was to deficit spend your way out of the recession. They did and while no doubt there are always other factors at hand my own take is the entrenched Asian recovery has further to go, probably much further. Hence I maintain the macro view that being bullish on the SET is now the right view for long term investors. The potential Gulf war is to a good extend reflected and so discounted on many of my favorite stocks. These selections are shown in the October 1 '2002, newly started "crash resistant" model portfolio. There I show a master table on current most preferred Thai stocks. Of course, I constantly seek and review others.
The "one shot only in the economic pan" pessimists argue the recovery inevitably is going to run out of steam. And while a pro longed war conflict in global affairs would be a continued deterrent to a SET rally, I duly note how the expected average dividend yield of my model portfolio pays us well for this potential awaiting. The second half of this year is further bullish, as more good earnings are in the pipeline, but these will be reflected in stock prices before then, I think.
Consider:
---Thai economic momentum has grass roots because it is primarily bottom-up driven. There are over 62 million people in Thailand making it as populous as a major European country. The stimulus injected by Mr. Taksin is broad and deep and effective. The pessimists are doubtful (or ignorant?) around the well established in economics, multiplier effect. The multiplier effect in economics is a well established doctrine which explains that once things get going economically, the going gets moving even more….indeed it multiplies itself. We are seeing this now.
---Inflation and interest rates are/remain at record low levels. Bank borrowing is starting to improve and the IMF early re-payment will be another confidence builder so critical in the early stages of a recovery. While exports remain a major source of economic activity, the numbers on that score keep coming in better then expected, quarter after quarter. Besides, the US economy is not as in bad shape as the consensus believes but their stock market, from an investor standpoint, is. This nouveau reality will only help in capital movements to Asia.
When the potential Iraqi/USA war ends the dollar will probably gain some back on a short lived victory parade. I do not really see a much stronger Baht, then current levels.
It is not in Thailand's interest and so the authorities will do all they can, to prevent much further currency strengthening. As for China, this is overall more of an economic opportunity then major threat as that vast country cannot keep up producing all what it needs.
---I think the newer emerged Taksin political stability here has not been factored into most Thai stocks. I remember in the 1990's, one of the primary objection on being more bullish, was a messy and continued political uncertainty.
---Thailand is in many ways re-inventing itself. The "One Product one Village" idea is a success. Expensive consumer imports seem to have lost some of their appeal in recent years. And let's face it, from an economic standpoint the new shopping centers like Lotus, Big C and Carefour have already had a not insubstantial benefit on overall productivity, a main driver of new wealth creation.
Thailand is becoming a major new global health center. People come from all over the world to have certain non-critical health/dental ailment taken care off here. Holistic healing centers, beauty enhancements, sex changes and more. "Thailand Retirement" is another big new long term growth industry; as retirement cost is far more expensive and the climate less appealing in Western and Japanese cultures. All fast growing newly emerged sectors the size one day perhaps as high as even tourism?
Above then are my examples giving reasons to believe that in Thailand at least, things are much better then in a long time. Without major global or domestic disruptions we are about to enter the next major bull market in Thai stocks. Note, that as far as Thai smaller cap stocks, we have been in an up-trend for some years already.
Below are some short comments on a few stocks recently mentioned. These are not individual recommendations only my own general thoughts here shared with all members.
AMATA, is probably neglected for now as it is not "a strict property’selection with a market price below 10 Baht, as these seem the current flavors of the season. Yet things can change any time and so I remain positive on AMATA whose Par value was just split. Similar thinking is on TICON, which leases factories and so is not building condo'.s Ticon may not get any BOI benefits which may have been a slight short term disappointment. Still, to me, the yield and valuation remain compelling on both.
AJ, I continue to rate this stock a strong buy. If oil prices keep soaring I might have to revise my earnings projections down a bit. Major capacity is in place for the second hafl of 2003, hence I see growth and high income. I estimate AJ will pay a 0.18 to 0.20 Baht quarterly dividend, starting in April of this year.
BANPU, I have never given up on this select big cap and would continue to rate Banpu a long term buy. Recently good news on their massive coal reserves and higher coal prices on world markets make it a good and only selection, in the Energy industry. As noted in our member lounge, BANPU is the second largest ATC shareholder and so benefiting form ATC's justified now soaring stock price.
TIPCO (25.25), You can view their web site at: www.tipco.net Tipco is a world premier leader in what it does. Incorporated in 1997 and listed on the SET in 1989. The firm employes some 200 administrative people and 2500 factory workers. Ten million gallons of fruit juice, 3 Million gallons of pineapple juice, all per year, make them know this business like few other global players.
I would rate Tipco as "accumulate buy". I expect fast sales growth over the next 3-5 years but with this a penalty on less then high present dividend yield. New product announcements for this year and soaring Green Tea sales make TIPCO among my top pick as far as patient and longer term oriented growth stock investors. The company projects total sales to grow from some 2 billion Baht this year, to some 5 Billion Baht in year 2007. This is an ambitious target to be achieved through major product expansions and deeper product penetration. The company is more then ever "customer driven" as compared to the past, when Tipco was only "product driven".
Tipco, like many others, has learned its lesson on too high debt levels. These have been vastly reduced and are now most only in Baht at interest rates around 5%. The company has an enviable record on paying down debt, indeed a big difference from the past.
Tipco has an energetic & highly professional Managing Director named Mr. Viwat Limsakdakul whom I just met on a Tipco company visit. The Supsakorn family owns some 19 million shares or 54% of Tipco shares outstanding. As stated, Tipco is a or even the leading global leader in producing top quality juice and beverage products. Their handsome building is on Rama VI road and I have never seen a parking lot more full. The elevator to the top floor is of grand class and our meeting was very organized. In the vast main floor lobby, I had to wait in line to buy a green tea beverage. Today I will buy a few cases of this product for myself.
Accordng to management their biggest current worry is pricing and availability of packaging. This firm exports in a fully diversified way some 75% of total sales to:
1/3 Europe, 1/3 USA and 1/3 Asia and Australia. While the Baht currency was firmer in year 2002, their full year earnings will be coming in as expected.
Tipco was the first firm worldwide to be awarded an ISO 9002 certification. Tipco competes successfully head on with global players like Dole and Del Monte.
I am always concerned with exporting food related firms in not having another major problem like we had with SSF and CFRESH. Here the industry got slammed last year on antibiotic byproducts, so tested and then rejected by the EU. I do not fear this is possible with Tipco products. Nitrate can be a undesirable by product if the fruit is harvested to early or stored in less then highest quality metal, in the canning process. Khun Viwat expressly told me this is extremely unlikely for them as every single fruit is checked for Nitrate and the metal used for canning, is of the highest top quality, all imported from Japan. Tipco products do not contain preservatives.
Thailand has 40% of the world market on pineapple production. Tipco is an absolute global specialist and leader in this. (By the way the Philippines and Indonesia are distant second, forget Hawaii or South America). Tipco has an admirable long record of 20% annual growth in the 100% juice market. These 100% juices are a bit expensive for the average Thai citizen -but not so for the developed world whom is awaking to a healthier diet in food and drink. To me, Tipco juices are by far the finest tasting, highest quality juices I ever tasted. Their Green Tea (Tipco cannot 
keep up with production on this 60% annual growth product) is an all time favorite of mine and I regularly keep a few cases around here. Daily apple juice or fruit has proven to reduce heart disease, the world number one killer.
Tipco owns 24% of Tasco Asphalt, Thailand's number one road builder and the frist asphalt emulsion producer in the world to receive ISO 9002 accreditation. Tasco stock which is seperately listed in the Building/Construction sector, gets regular "buy reports" issued by major brokers. Road building surely is a growth business in Thailand. There is no plan to change the percentage ownership of this profitable subsidiary owned due to historical reasons. I will not report on TASCO in this review as my focus here is on Tipco's core business. A few years ago Tipco was also producing milk products but current management has been adamant in getting rid of all and any marginal profitable or loosing subsidiary. I specifically asked the MD if there are any potential "skeletons in the closet" he understood the expression and assured me with a non vague, "no, absolute not".
I see three possible drawbacks:
- Tipco is not expected to pay much in dividends this year because the company is on a high growth track and needs all the capital it has for its planned expansion.
- It is not clear to me what the profitability growth rate is, for this year. Clearly some major new products will be introduced in 2003. While I think the company can easily earn 210 million Baht for year 2002,
I did not get a sense what this earning figure might be in 2003. Hence, I am comfortable with a 6 Baht per share estimate for calender 2002. When I asked about 2003, I must admit I got a confusing answer. Yet, I duly note that several broker reports project fast growth in earnings for year 2003 as well.
UOB broker in a November 25 '02, report shows earning growing to 8.71, for year 2003.(Their number was revised down from 9.20, as estimated from a report in October '02.)
KIM ENG broker in a July 30 '02 report projects them to earn 8.40, for year 2003.
SEAMICO broker in a June 19 '02 reports shows an earnings estimate of close to 8 Baht.
- Current daily average shares trading volume is rather low, even by my own standard. Another reason why I would rate Tipco as an accumulage buy.
The consensus earnings estimate for Tipco for year 2003 seems around 8 Baht per share, this would value Tipco company at a p/e of only 3.2 for year 2003! I wonder if this is too optimistic. Yet my own view is to rate Tipco an "accumulate buy", with the potential of substantial appreciation in the shares, once year 2004 gets discounted in its present stock valuation. I think the way I would own this stock is to buy a bit more every month as in a regular savings plan, and then to monitor its earnings and company progress. In the meantime enjoy some of their quality juices and watch for major new product announcements.
To me many shares prices on the SET now seem bumping along rock bottom levels. Incorporating a too high price discount around the "war scare" mood/concern with Iraq. Their is still an equal chance that the Gulf crissis difusses for various reasons -including the guy going into exile at the last moment. Always diversify your stock portfolio.
Very Best Regards to all Thaistocks.com Members,
Paul A. Renaud.
