Post Thai Flood Investing.
Thailand: Bargain Hunting on still Good Fundementals,
By Paul A. Renaud on Nov 13, 2011
Bangkok is suffering major floods with millions displaced from their homes, and the waters apparently not peaked yet. If you understood Thai companies, as we do here, you would be nibbling on select oversold bargains whose earnings fundamentals have hardly changed, post this flooding tragedy.
The Floods and European economic problems have turned into “a perfect storm” here in Thailand where the news only got worse. Buit this will likely hit its peak soon, if it has not already. Sadly so its a “perfect storm" just now where on top of the EU’s fiscal horror we have serious floods not just in the Agricultural sector but in the industrial sector as well where over a thousand of factories remain flooded. Many industrial zones have been shut down until the water clears.
Realize that most of these factories are owned by non-Thai listed and unlisted companies (mostly Japanese.) One now may believe that many Thai factories around Bangkok will never come back as they are either a total loss or no more confidence to rebuild. I think this is too grim of a view as Thai government and Japan have pledged huge amount of money to rebuild. Thailand has over 187 Billion US $ in foreign reserves or 5 times more as 10 years ago. In fact, many listed companies here will experience little earnings effect.
Surely some will be effected, but likely only for a quarter or two. It may be difficult to replace certain specialized machines even if there is insurance money on hand. There now will be a macro/mega effort to restore and there will likely be an enormous amount of infrastructure spending along with rebuilding. Here the key will be for Thailand to convince the world the flooding problem has been solved. The country is now galvanizing in solving this problem which hurt the rich as it did the poor.
Thailand has substantial fiscal (besides monetary) cash reserves on hand to address this natural disaster -and they will and are! Thailand has now learned valuable lessons to future flood prevention.
The Thai government has stated it will offer a new credit lines with a special interest rates, tax incentives and various other investment privileges to industrial operators whose factories have been flooded. The business rehabilitation packages will be proposed for cabinet approval this Tuesday, and are aimed at restoring investor confidence. Public investment worth more than 420 billion baht (13 billion US$) are being tentatively planned to help guard against a repeat of this year's disastrous floods. They seem to be moving fast and in contrast to so many developed countries Thailand is not indebted!
However, if the floods penetrate to the heart of Bangkok, economic growth this year could fall to only 1-2%. This is now however very unlikely and the Airport is and remains open 24/7. Hotels in the centre of Bangkok are also operating as usual. The Thai people can get into high gear when a crisis hits, like few other cultures, do/can.. After some hesitation and mismanagement, there seems to be a master flood plan now in the works with grand ambition.
Listed companies here have full insurance along with work stop clauses; and have stated so in public stock exchange announcements. Still the stock market sentiment remains poor at this moment -and will be so until the floods start receding. Of late the SET index has been recovering even while EU troubles continue. The bottom of the Thai SET will be at the height of this flooding crisis when the water levels are at its peak. This has now happened. Our sense at Thaistocks.com is that many stocks have more than discounted this disaster.
Again, as the water here retreats in weeks Thailand will rebuild. This as compared with many bond holders in the EU where their overall huge ineptness and indebtedness will ravage on there for years. It’s their entitlement overstretch and self inflicted hangover which will not just recede, like water always does.
Some Observations for the Post Flood Situation:
The silver lining in this tragedy is that in the future there will likely be better discipline in following planning rules.
We now can see some stocks coming back -being alive. This week both Yuasa (YUASA) - a battery manufacturer) and Phol Dhanya (PHOL_ a a personal protective and technical safety equipment distributor along with water purification systems) are bouncing back . Another interesting company which is not experiencing flood problems is DEMCO. This SET listed firm has started already in building SE Asia's largest Wind energy Farm. All Thai companies must report 3 Q. earning reports by Nov 15th. This will further instill confidence that for many companies the floods are not a business tragedy, only an interruption. (When a company reports an extraordinary gain, say on the selling of land/building or another business, this hardly gets recognized in a higher share price because its rightfully called a "one extraordinary time gain". Similarly so, damage from the floods are hopefully a "one time" bad event and so stock prices should as well not be over grimed on that, as they have been here.) This is one key reason why the Thai SET index has been resilient of late, despite the water levels still being high.
["The floods may well be a blessing in disguise for the goverment to wake up and do the things it needs to do, to improve this country.." Energy minister Pichai Nariphaphan who has just proposed a 26 US$ Billion recovery effort.]
What is surprising is that not more Thai investors take this set back as an opportune time to invest in share depressed but still very much so viable companies! The reason must likely be because too few local investors are rational value investors here -and there is a dearth of in-depth information in the investment community made available to explain to investors companies' broad fundamentals. If this was more readily available, individual Thai investors surely would sell some gold or bring down their high bank savings accounts, (estimated in the trillions of BAht), so to invest some in what will turn out to be bargains that went begging.
Here at Thaistocks.com we continue with the unbiased and experienced viewpoints on all aspects to Thai stock market investing; not least understanding and knowing the companies we view have investment merit.
Paul A. Renaud.