Thai economy stabilizing, Oil remains the wild card.
September 6 2005.
After the recent SET rally it pays to step back a bit and reflect.
Despite the brake out above 700 I am not convinced this is a meaningful advance, now, towards 800. I think overall Thai consumer spending is still going to remain a bit more fragile and so refuse to pick stocks in this sector. So be a bit careful and don't get over excited.
For sure the Thai economy has shown some bouncing back and it may well be that the current adjustment to a lower growth level has run its course. on the other hand global oil prices, and so Thai inflation, remain the wild card. If oil prices can stabilize so will the SET at levels comfortably above 700. The bad storm events in southern USA will/should dictate a brake on the US Fed to tighten US interest rates further. Hence my view remains that US and so Global future interest rates rises will be tamer then the general market perceives. The other catalyst which got the SET moving higher is the Chinese currency upward alignment recently. Global institutional funds are now seeing the potential of stronger Asian currencies, over the longer term. A long term bullish theme.
The bears got it clearly wrong. The SET index never dipped towards the 620-630 level as so many brokers here and abroad were predicting in mid July. Ticon and Rojana have been clear winners, yet again, and I would just hold these positions. More and more brokers are forced to up their earnings projections and yet few show any earnings growth for next year on Ticon. Yet I think Ticon can earn more per share next year as they will this year. This is significant as this year there was a 410 mill Baht earnings windfall in the 2 Q. from the sale of 39 factories to the TFUND. And yes, for more conservative income seeking investors I would be buying TFUND, especially on recent dips to 9.95 Baht.
Seafco and Se-Ed have disappointed so far but in Seafco"s case I remain convinced that by year-end investors will see that this company has made a successful transition to higher sales volume at lower net profit margins for year 2006-2008. Hence Seafco should be rated an accumulate buy, especially on dips below 4 Baht per share in my view.
The sharp rise of diesel prices has affected them but only to the extend that it created some short term margin uncertainty. The same is true with their core business, as in the future more and more business will come from infrastructure projects, rather the residential or Hotel. Infrastructure projects while lower in profit margin are much higher in Baht volume levels. The market might not have noticed this yet and the sentiment on the sector remains negative due to rising energy prices and lower overall economic growth.
Se-ed on the other hand remains an "earnings rebound now’story which the market has not yet discovered or paid attention to. The relative small cap of this leading bookstore retailer in Thailand might just make it sleep some longer? Here is yet another example of a leading company in its industry, yet too small for most investors to take it "seriously". But I do. Whenever I go to one of their stores it is full of people and while many are just browsing, others are queuing up at the cash register. There is tremendous growth potential in readership in Thailand.
PTL has also been a laggard to date. I think it is suffering from the perception that high oil prices will/must squeeze margins. Yet this company clearly told me this is just not so! Another possible concern is that one of their suppliers might be having problems with water shortages in the Eastern Seaboard? I think both of these negatives are more "perception then reality". on the other hand a longer term stronger Baht vs. Dollar currency would be a negative for PTL earnings as it is a major exporter.
TCB (18.4) remains a solid buy in my view, the stock corrected some after a nice surge last week -and so on this correction I would add to positions. TCB is also a company which seems to be on an earnings acceleration wave. I tried to visit this company last time but the key people where traveling. It is high on my list to visit on my next BKK visit. I expect to be in BKK before end of this month for some multiple company visits.
One interesting smaller cap right now I am looking at is LEE (3) this is a company in the unglamorous field of animal feed. It got avoided recently due to the chicken flu fiasco. Yet in fact it faired relatively well, earnings wise. It has low dept and also seems to be on an earnings recovery. I would rate it a "speculative buy".
If you have any suggestions on whom to visit, feel free to make a comment here and tell me why.
Best Regards,
Paul A. Renaud.
