On Thai IPOs
On Thai IPO's. I like Thai IPO's, that is if you can get any. Here we share some thoughts and nuances on Thai IPO's and review a new one coming next week.
Some thoughts on IPO's, that is if you can get any.
The Initial Public Offerings market, meaning stocks of new companies being listed on the SET for the first time, are now in high demand even while individual investors are mostly missing out. Ask your broker now to be on any and every list of new IPO's, as they are likely to trade higher then IPO prices. The lucky few of you whom will get any will come to look at it as a gift from their brokers which is what they want it to look like.
During a bull market IPO's historically do very well, overall. So where are all these millions of shares going to when you realize that they are so hard to get? Probably to those large pools of funds which have missed the small cap massive re-valuation in Thailand and which are, while dominant besides overpaid, what give us individual investors real market distortions. Many of you have well benefited from these distortions over the past years; thank you for all the fan mail.
In time of course the IPO's will no doubt overheat and quality of newly listed firms will sink. Then individual investors will get more allocation and the parloir will be "you take the good with the bad". In time you will feel but now your' getting the bad with the good. By then you will have been burned a few times and understand the cycle. Anyway, that is another story some time off; one I hope to warn you about when we are there.
IPO's usually have good due diligence, meaning they got checked thoroughly and met a fairly rigorous criteria for SET listing. There is lots of data available and a full prospectus.
Here, is where the classic and habitual conflict of interest arises: the broker/investment bankers derive huge fees to list a company, especially if thereafter the price rises on the SET, as like now. In a time when all are IPO's are successful there often has been abuses in the past. This, by brokers then throwing "a few dogs" into the pack of winners. I say brokers because the investment banking units all belong to registered brokerage firms. A bullish environment in IPO's can last a long time and is not derailed by short corrections or minor set backs. There is much to catch-up and I predict the Thai bull on IPO's, is far from over.
Pricing and prospectus. The price and amount of new shares from an IPO offered you, should be told before you are asked to pay for any. The prospectus is in practice difficult to get and would probably be in Thai language, unless it was a very big new IPO.
The shares first trade on the SET or MAI, usually within a few weeks from when the IPO is fully subscribed. On the trading day the stock is likely to be very active and volatile. There can be a good buying opportunity if as one example the day the stock is "born", the market in general is selling off. Or not even, as in the case of AIT now at market price 38. AIT came public around 20 in early August and then just sat around 23, for many weeks.
In the next few months a number of IPO's are ready to be listed. Among the bigger ones are Thai Olefins (raising 4.5 bill Baht) and the 400 mill share offering by Thai Airways.
Top ranked by volume broker Kim Eng is also expected to go public this November with some 92 million shares. This broker currently opens 800 new accounts a day and has currently has some 30,000 individual investment accounts. Kim Eng does close to 11 -12%% of the volume on the SET.
Smaller ones include Tor Tor Bor 5 (to list 44 million shares), CP 7-Eleven (40 mill shares), SC Assets (64.5 mill shares). By mid next month Thai Mizuwa, a plastics company, will list on the MAI board with 7.9 million shares. MAI stands for market for alternative investments where smaller companies can list. I think they will as a group, perform better the SET benchmark.
If there is no major market set back I predict there will be over 50 IPO's for all of next year and that the SET index will reach 800, probably before June 2004.
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New IPO, TK priced at 11, is to be listed on the SET in early October. It is being watched by many. TK will be an interesting example and one you should all follow with an eye on a buying opportunity. The original pricing on TK was below 11 but this was raised, which I view as a good sign. The shares were all allocated last week and paid for this week, I believe. Market talk is that the TK issue is ten times oversubscribed.
I have no idea at what price it will open but if it sells off in October I would view it as an opportunity. All depending on mkt. price of course, I find it a good choice in the booming but legitimate sector of consumer finance and one I have not had any representation before. TK is in the transportation business for millions of Thai's going millions of different placed every day for business, pleasure and otherwise. I now invite you to read Nathan's report below on how he summarizes TK's business and why we both like this company as a new choice in Thailand's continued bullish environment.
Very Best Regards,
Paul Renaud.Thaistocks.com
Company: Thitikorn Plc.
Symbol: TK
Common Stock: IPO of 100 million shares
Sector: Finance
Thitikorn is a leasing company that focuses on the leasing of motorcycles and cars. The company is set to go public sometime next week with a pre-IPO price of 11 baht. Thitikorn is a market leader in the motorcycle hire-purchase industry. Its main geographic market is the Bangkok metropolitan area, where it was a 37% market share. TK has 32 different branches covering 17 provinces in Thailand. The company has relationships with 250 motorcycle dealers and 100 automobile dealers.
The company is over 30 years old and has grown through expansion and acquisition. Expected revenue in 2003 is expected to be in excess of 1.3 billion baht with a net profit of 455 million baht. It is important to note that this is an experienced company with a proven track record and a business model that yields very nice returns. With some other IPOs, the new companies are still inexperienced and don’t have a proven business model like TK has. TK’s dividend yield based on the IPO price (11 baht) is 5 percent.
Bualang Securities did a comprehensive research report that had some very informative information on the industry in which TK competes in. The motorcycle industry is expected to grow along with the Thai economy. The Thailand Motorcycle Hire Association is forecasting motorcycle sales and leases to increase 36% in 2003 to 1.8 million units per year. This will directly benefit TK because 65% of motorcycles are sold through leasing agreements, and TK is the market leader in this industry.
Bualang has valued TK based on the PE ratio of its peers in the retail finance industry (MIDA, AEONTS and KTC). Various brokers have given price targets for TK once it begins to trade, these targets are summarized below:
Bangkok First Investment and Trust – Bt13.50
Far East Securities – Bt13.31
DBS Vickers – Bt11.30
Kim Eng – Bt13.50
Asset Plus Securities – Bt13.75
Bualang – Bt14.05
None of these price projections are based on the fact that the IPO market is extremely hot right now. Market talk is that the TK issue is over 10 times oversubscribed. A recent article by Reuters discussed the fact that 20 Thai companies are having IPO’s in 2003 compared to only 6 in 2001. The following quote by Sopawadee Lertmanaschai, head of the stock exchange's Capital Market Opportunity Center best describes the Thai IPO market this year: "Any new listing is welcomed by investors. Basically, demand exceeds supply by two times,". The hot IPO market coupled with the fact that TK is an established company with proven profits and strong growth potential may lead to a very exciting IPO.
Remember to stay cautious and realistic and do not chase something that may just as easily come down the next day. Note the broker projections mentioned above, if the TK share price goes crazy and jumps to the mid to high teens in the first couple of days of trading then the brokers mentioned above and their clients may well sell some of their 11 baht stock. There is sure to be some sort of pullback or opportunity to buy if one did not get allocated any 11 baht stock.
TK could act the same way as the AIT IPO did (as mentioned by Paul), it could open at 14-16, and then it could sit there for a while as its shares get ‘recycled’. TK’s growth prospects are impressive enough that even if one does not get to buy it ‘cheap’ at 11 baht, it still may be worthwhile to pay a premium and not sell-out for a quick couple of baht.
Nathan Szabo
Thaistocks.com
*The following sources were used in this report: A September 1 research report by Bualang Secuiries on TK’s IPO and a Sept. 18th Reuters article by Khettiya Jittapong which reported on the Thai IPO market.
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