Refusing to get sidetracked.
My investment strategy/view remains to hold allot of Ticon shares despite the stock nearly doubling in value since last October 27 ’04.
Today, members and visitors alike increasingly know why I was (and still am) so adamant about this choice and why I rated it a “strong buy” until the price soared above 10 and I still would rate Ticon a firm “buy”.
I refused to date to get much sidetracked with other selections or new ideas. Ticon remains the sole selection in my latest core model portfolio (initiated late last year). Did members notice that this selection was the only stock I ever reviewed here without the caveat ending “always diversify you stock holdings”. I knew then this was a bold call, I also knew time would show me right!
As I see it, investing in this company is more then just “owning one stock”. It is an indirect ownership in over 150 factories in 11 different industrial zones, all around Bangkok. Short of a huge broad market sell off, it is difficult to see what exactly the realistic risks are at this time with this key choice. Even if there is a further SET correction, the stock has shown so far to hold up better then the SET averages. Indeed, despite Ticon doubling in value in recent months, it is holding up well as compared to most other SET stocks.
The company has consistently stated for months that it plans to create a new property fund every year from here one, for some years, so to divest some 50 select factories, annually. Since Ticon plans building 50 to 70 new factories every year, this is hardly a “strategy to sell out all its assets”, as some have claimed. Yet, most broker reports I have seen still don’t get it.... First, by just ignoring the substantial capital gain Ticon will realize this year on its first created fund, then rating the stock “a hold”, hinting that future newly created property funds are not sustainable? Why, I have asked for some time.
At least one research report stated firmly that it will not include in projections any factory sales capital gains next year and beyond, as this would require “shareholder approval” from its first property fund. So, evidently totally ignoring what the company explained consistently: namely, that it plans creating a new property fund every year. Where are the listeners?
One prominent institutional broker analyst (a most widely quoted one) wrote to me just recently that they did not advocate Ticon shares due to “low average trading volume”. Ah, -and there we go again with this proverbial excuse….,all even while Ticon trades several million shares per day (and this for months already), this is still not enough? Is trading size forever the excuse “par excellence” to bring-up when missing out on a proven dandy? Trading volume is often a pervasive argument because it is such a relative concept. Trading volume, far more then value, high dividends or future high earnings prospect is what “dominates the day”. I wonder what would of happened to us here, the many individual investors and select institutions, had we listened to this redundant liquidity argument over the years.
Ticon shares recently went X-dividend of 0.30 Baht per share, yet on the day this happened the stock actually rose in market price by about 5%. Since then, the SET benchmark lost about 7%, yet despite Ticon’s incredible rise in price, it held-up far better then Mr. Market. This shows that this investment selection remains strong and the upward momentum seems in tact…and indeed, I still so rate it a buy and still refuse to get sidetracked by trying to hard to look for others.
I much believe when Ticon’s first property fund starts trading there will be strong institutional and retail interest -and that this interest by yield seeking investors will so support the “mother” shares. I still expect that the Thai SEC will give the final go ahead shortly -and that well before mid year, Ticon’s first property fund will start trading on the SET. (Keep posted).
A SET property fund has important tax benefits. If this fund (REIT) distributes at least 90% of its income to its fundholders, the fund does not pay any corporate income tax. This makes a big difference compared to other listed firms, as a listed company on the SET usually pays 25% (soon to be increased to 30%) on its net earnings in corporate income taxes, before distributing profits as dividends.
Duly note, Ticon’s property fund will be the largest, most diverse and so most interesting of any such property funds to date and probably for some time to come. Broad diversification of properties in the fund is a key element in any such REIT. (Real estate investment trusts). For example a property fund which includes only say one or two apartment buildings or condominium buildings (or say 6-9 Hotels) would hardly match Ticon as it does not have a broad diversification among different industries as well as property tenants, besides locations.
If some other listed companies plan a similar strategy (we hear a prominent listed Hotel chain is thinking of doing the same), I would view this as positive as it would increase understanding of property funds, besides increase the selection to high yield more conservative investors which represent a huge investor base.
Speaking about yield, I expect the annual income on Ticon’s first property fund to be close to 8% and rationally so (can we count on this?), should get broad investor attention both in Thailand and around the region, besides institutional interest from developed countries. There is tremendous investor appetite for high yielding lower risk income shares. Ticon’s property fund should be viewed even more conservatively then say a utility stock, to any rational investor.
The biggest risk to the property fund shareholders (and to Ticon’s common shares) would be a very rapid sharp rise of interest rates, both in Thailand and around the globe. The level of domestic interest rates would have to double from the current level. And while in years to come this may well happen, for now, this is highly unlikely. I remain a fan!
Ticon's Annual Meeting will be held on March 30 at 2:30pm at Grand Hall,
the Bangkok Club, 28th floor, Sathorn City Tower, 175 South Sathorn Road.
Bangkok, Thailand.
Best Regards,
Paul A. Renaud.
www.thaistocks.com
