Hub of operations
Hub of operations. Dropping in on thaistocks.com.
Hub of operations for Paul Renaud’s highly successful Thaistocks.com.
There is no welcome mat; you can never assume someone will be in or available to answer the door. Visitors are not encouraged to the unassuming shop-house opposite the entrance to Phuket Songkla University (PSU) on the road to Kathu in Phuket. But this is the hub of operations for Paul Renaud’s highly successful Thaistocks.com, a subscriber-only web site for private SET (Stock Exchange of Thailand) investors.
After leaving behind a successful career with the stockbroker Morgan Stanley Dean Witter in Chicago about ten years ago, Paul has forged a name for himself as a leading exponent in what he calls "smaller-cap (smaller capitalization) Thai value stocks."
He is earnest in his message that has been repeatedly reported in his numerous articles in the Bangkok post, The Nation, CNBC, TV (2 live appearances) news and other financial publications. It is a message for both ex-pat, global investor and Thai private investors to take heed of a gold mine -right under their noses.
The message starts with the line that some 95% of all investments in Thai stocks go into just 25-30 big capitalized companies, while the remaining 350 get just about ignored.
The reason for this is less than logical. The majority of Thai listed companies don’t have enough trading liquidity at hand for large institutional investors to justify taking them on.
Fund managers buying shares for institutions set a minimum amount they are allowed to hold for any stock. For smaller-cap companies this floor for the size of holding represents a very large slice of the available shares (free float). This makes smaller-cap stocks more risky for managers taking the punt because they could bid the share sky high just by purchasing the fund's minimum block.
Then there is the potential for smaller cap stocks to affect a fund’s quarterly valuation. For smaller Thai stocks may not trade at all for a day or more. If a stock is held in a fund portfolio the rule is the last day’s value is taken in a funds valuation. If there is no trade that day then a stocks value is taken to be zero -even though it clearly has a market value. Again a fund manager runs the risk of being seen to fail which would loose him his job before he can explain anything.
As a result most all investment managers view smaller-cap stocks as off limits.
Without the institutional investors the value of small-caps becomes a self-fulfilling prophecy. Therefore the vast majority of companies listed on the SET do not figure in any mutual funds to be found in or outside Thailand! Yet some of these companies can exhibit some remarkable investment statistics.
Whereas most stocks carry a price to earnings ratio (P/E) of 6-12 or more, smaller-cap companies can show P/Es of 3 - 5 with up to 12-15% in annual dividends. In other words the shares appear and often are extremely undervalued regardless what stock valuation method is used. This is true especially now with local and global bank interest rates so very low.
Most local larger stocks offer no, or smallest dividends, which are an old fashioned method of attracting share ownership. Investors nowadays get their returns when market speculation pushes up the shares based on arbitrary market forces. Forces that rarely have any direct ratio to intrinsic worth. But lately, with the world stock markets in turmoil, value investing along with high tax favored annual dividends has much come back in fashion.
It is the arbitrariness of the market forces, and the sheer speed that they can cause an effect, that steers most investors away from stocks, and, if anything, into mutual funds. What Thai smaller-cap stocks offer is a chance to invest in stocks with a share value close or much lower to their intrinsic worth.
"The biggest 30-45 are the ones that took on most of the foreign debt, non-performing loans and almost sank the Thai Baht. Not one of them is in agriculture, electronics, tourism, domestic consumption or exports, the four to five most profitable areas of business in Thailand." Paul adds. "Smaller-cap stocks are for the value investor looking for solid investments in proven businesses, rather than a momentum or "me too" investor."
The proof of the pudding as they say is always in the eating and Paul is open to external examination of his service. A recent survey by a Colorado Springs stock analyst measured recommendations from Thaistocks.com web site, which costs 225US $ per annum for subscribers. He concluded that Paul’s select "value 30" portfolio gave a 49.9% time weighted average return, including dividends for the period Jan. 2, 1999 to Jan 2, 2001; out performing the SET index which dropped 25.3% in the same period. On all other measures Thaistocks’ recommendations win the day.
But what about the risk of investing in the SET itself, the problems of moving money in and out of Thailand and tax and so on? Paul is dismissive. " Any money invested via a stockbroker in Thailand or in Hong Kong, who also trade on the SET, can be wired back to the home country on request. There is no red tape for stock investments. There are no capital gains taxes for individuals and only 10% tax on dividends. Commissions are minimal at about 0.25%, or less.
And the down side? " Smaller-caps do attract a larger spreads so small movements are not what makes the day. Hence, they cannot be traded as quickly as large cap stocks. They are more for the medium term investor rather than the-real-time trader,’says Paul. You have to know which one to pick of course, which is where Thaistocks.com comes in.
So what about the future? Paul is mildly so bullish about the general market; even the top stocks may be on the turn, especially mining, large consolidated food and electricity companies. He has a select choice in each of these sectors.
As for tips Mr Renaud recommends two companies. SE- ED (SE Education), this is about a 22-24 Baht per share stock giving an average 8% dividend. Besides free standing stores, SE-ED is linked with new superstores/centers to sell books, such as in Lotus and Big C most other super centers around Thailand. It is the exclusive publisher for Thai versions of Microsoft windows handbooks. Revenues are explosive, set to double to 2 Billion per year from year 2000 to year 2002. All the while net profit margins are expanding from 6 to 10%.
Another one is KWH who is an exclusive manufacturer of HDPE pipes made under license from a 75 year old Norwegian company. This piping has found recent popularity with the utilities as a cost effective waterproof alternative to concrete or steel ducting. For example the electricity board and telephone companies use it for laying cable underground rather than on poles that only fall over. Many other pipes of various sizes are used for irrigation and water transportation. This company is showing 13% dividends and earnings are growing. Both KWH and SE-ED are growth stocks, all despite high current dividend yields.
In his latest CNBC, TV interview held on March 23 '01 in Singapore, Paul mentioned SE-ED (22), PR (49) and KWH (30) as three examples of great "Thai value shares" he now favors. ***
Mr. Alex Williams is a freelance writer and business analyst. He is an honors graduate of Oxford University England, with separate post grad. masters degrees in business administration and technology. He has worked for fourteen years in Blue Chip companies within the High Tech. manufacturing and related service industries. Previously he was a regional manager, covering The Middle East and Europe, and was a board director of a LSE listed company during a NasDaq floatation. In his last job he managed a 600 Million US dollar roll out of a mobile network, for Nokia Communications Ltd, Singapore.
