Ticon visit
" I note how the US dollar is dropping fast now....the Dow Jones is no higher today than 3 years ago, while during this same time the Thai SET index doubled in value during the same period. You can today see what I told you and many others 2-3 years ago: a transfer of wealth out of the US is in the making. A dropping US dollar is also bad for US Real estate by the way..; odd how MBA's and MA's people live in Glass houses and how the most educated country of all, seems the last to see the global reality! This says a lot about much."
Paul A. Renaud Dec 1 '04
We had a solid meeting with Ticon last week and I come away as excited as ever.
I think Ticon in time will show us all, yet again, that on the SET one can find great values, high dividend yields and solid long term growth situations, all at bargain low valuations. The SET's very pervasive trading obsession gives rise to tremendous market inefficiencies and we love it.
For 7 years already I here have shown again and again that exploring these market inefficiencies, in a low interest rate environment, produces regularly 20 to 40% average annual returns. While this year the returns where outright negative they certainly exceeded by far the long term averages in the year before. And what many newer ts.com members might not see as not fully appreciate is that from 1997 to year 2002 and beyond, our documented returns regularly exceeded this long term average. As I was told "Fund managers the world over would give their right arm for such returns". How much longer will it take, if ever, for more to catch on that in Thailand it much pays to invest in select shares and avoid all the other noises and distractions.
Ticon's stock price has risen about 15% in value since I first pounded the table a month ago, last October 27 '04. During this same time the SET index rose less then 4% and the property index about 7%. More importantly the company voted at its board meeting, since then, to establish this new property fund, the news I anticipated fully materialized. (Raimon a stock often heavily touted around many high circles here remained unchanged during this same time period and seems to me like a real sleeper in comparison to Ticon. And Raimon's indicated dividend of 0.10, keeps being bumped down a few setangs, every month)
Besides the three member articles since the first one, I made many various Ticon comments in our member lounge and explain more on the significance of this fund….and why its outright wrong to call it a "zero sum" game. Or why its just not true to assume that next years large leap in earnings are but a one time event. I will not address this issue here again as it was amply so explained in our member lounge and the other articles. Please take a look there.
I am convinced Ticon's management and large shareholders are very cash dividend oriented. I think the firm will continue to pay out some 50 to 60% of net earnings in yearly dividends. This is why its not unreasonable to expect next year's dividend to double from the current rate of 0.40 per share. If this happens as I expect, the current yield on the now 7 Baht stock price will be 12% and possibly more. This would be close to 2.5x the 5% average dividend yield of the property sector and close to quadruple the average current dividend yield of the SET.
Since Ticon (at now 7 Baht per share), is trading at around 11 times this years earnings -it rates about the same of its sector and the SET's, overall average. Since the earnings are bound to leap next year with the sale of 50 factories to the fund, this stock is trading at a P/E of about 4.6 on expected full year 2005 earnings. I fully expect a 1/2 Billion Baht gain on these factory sales. A p/e of 4-5 is less than half its sectors and half the SET expected average p/e, for next year. As stated above, the dividend yield should bounce to double digit or well over double the current expected yield of its sector and even more so, when compared the SET's averages. So much for those whom claim "Ticon is not a cheap stock".
Some experienced investor told me recently that they "look for value & yield situations, not growth". Perhaps they would argue, "growth is forever elusive"? Not so, I say. Emerging markets are all about faster than global average growth rates! Select growth stocks on the SET pay very high current dividend yields and trade at low p/e's, so there is hardly any compromise. Growth is the "holy grail" as it cushions down cycles and demands higher valuations, at some point, even in market inefficient stock exchanges like the SET. To compromise on growth is ill advised.
Companies who do not show/promise/indicate growth prospects are often lame ducks….wall flowers, bargains which stay bargains, stale and not shareholder value interested. I have long stopped visiting such lethargic situations. They are a waste of time for the most part. A current dividend yield of 5% with a reasonable expected future growth rate of say 12-15% is far more valuable and interesting then a stale alternative with a yield of 6-7% yield (if you find one) but with a sunset twist. Any finance student can demonstrate this in a minute!
An investment in Ticon shares is an investment in 150 diverse factories in 11 different industrial zones, which are rented out and yielding high current income. Its an indirect way to own valuable real estate in Thailand, with a high current yield and a reasonable certain high future growth rate. 
Ticon's factories are rented out as fast as they can build them, as the global manufacturers are less and less willing to buy land and factories; especially when in Thailand foreigners cannot easily own land and when these firms' core business is yielding far higher returns, then scarce capital is invested & tied up in factories in foreign lands. This is passé.
The investment banker for Ticon which will help them establish their new real estate fund (expected to be completed in the 2Q of next year), is an affiliate of Bangkok Bank. Hence this high yielding R/E fund is expected to be offered throughout all BBL branches in Thailand. Let there be no doubt there is huge local and international appetite for high yielding more prudent and less volatile real estate funds, listed on the SET. I think in the near future we will all hear allot more about R/E funds!
The latest "Thailand Company Handbook", just published 2 weeks ago and by far the most comprehensive quarterly guide to Thailand's listed companies, show the managing director of Ticon to own some 6.5% of Ticons' outstanding shares. Wrong, or I should say its already outdated, as he increased his ownership to about 13% just since then. Not an insignificant rise in insider ownership!
One reason why Ticon shares have traded with heavy volume and met its stock rise with good supply, is because many foreign institutions are still being indiscriminately told to underweight the property sector. Ticon is not by any means a typical property stock and yet its guilty by association -hence we know for a fact they many are just selling out these positions without regard nor understanding to Ticon's specifics.
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I will shortly update some more thoughts on various other Thai stocks I follow which I have some new added value comments to share with you all. I did try to visit in person CFRESH and HFT recently again, but to no avail, they are either "traveling" or just "not available". CFRESH remains an exiting speculative pick of mine in the Agri sector, as I think the worse is over.
HFT was in hindsight a bad selection which I duly warned "not to double-up on". To single out HFT is not fair as I mentioned many other ideas far more frequently -and in any event one has to balance out all our ideas and not just critique the one that did not work, so far. In any portfolio of stocks there are always some laggards. It’s the sum of all which give an average return. To just take the winners for granted and then complain about the occasional loser is, well a loser and unbalanced argument.
Best Regards,
Paul Renaud.
