An update view & comment on Thai IPO’s
An updated view on Thai IPO's.
Looking for bargains on when they get knocked down after initially trading higher. KTECH around 6.35 has got my interest.
Early to mid last year I wrote about IPO's suggesting that while the SET is hot it pays to subscribe to all IPO's the broker offers you. If the broker does not offer you any, maybe its time to change brokers.
IPO stands for Initial Public Offerings. These are established Thai companies being listed for the first time. A PO is a company which is listed on the SET already, but is now issuing new shares. I made no similar comment about PO's, as these are far more tricky and risky.
I then warned that if the SET slowed down or corrected for more than just a few weeks it pays to become far more selective and cautious. Clearly, for most of this year the local stock exchange has been in a corrective phase and so IPO's have become a subject of confusion again. Still overall they have fared well. That is if you sold them out right away.
Recently most IPOs have been moving up in market price for a couple of days after being listed, only to then collapse to much lower levels. For example, recently an interesting construction company called KTECH was IPO'd at 7 Baht per share (we call it initially priced at 7) and rose to well above 9 Baht per share, on the first trading day. Yet, in fashion with current trends KTECH then quickly lost its punch and got pounded down to 6.25 Baht. On this price pounding, my eyes got rolling.
When new IPO's trade lower then their initial public offering price, it can become very interesting for investment. This is because it may be sold off for artificial reasons -and so becomes a bargain.
At the current price of around 6.35, I view KTECH as an interesting stock which is benefiting from the vast construction boom in Thailand. I dare to say that KTECH is now a solid "buy’stock, at current oversold prices. Another recently listed stock is EWC, but I have some reservations on EWC and would not touch it. As always this is just my own view.
Of course one must be careful and try to understand the business they are in and then why (after the initial sell off) it becomes a good investment. Surely this view is not true for all IPO's. Hence one always has to remain selective. One solid way to check is through the IPO's initial prospectus. An initial prospectus is a very important legal document as it must clearly state the activities of the firm, the risk levels and any other pertinent information or negatives. I wish every existing stock on the SET had a periodic prospectus issued, as much information would be at hand. Alas this document is only for IPO's.
While brokers are supposed to deliver the prospectus document to every IPO investor, in reality few if any ever do. Don’t' ask me why?
But this is not a critical problem or shortcoming as you can check new IPO fillings and prospectus on the Thai SEC web site. Of course they are only published in the Thai language and so it will have limited help to English reading investors. Larger IPO's will have prospectus in English language but its not realistic to think smaller firms will go through this expense.
It can be said that a firm will not have much of a chance in getting listed unless it is clean, established and with no major negative overhangs. As the Investment Banker has a key responsibility in doing a complete due diligence job. Yet, here too on the SET, it pays to be cautious.
TK, as just one example, was an IPO last year and it quickly moved to touch 20 Baht per share but today it lingers below 8. The prospectus did not warn that the Thai Banks were entering this business as well and so competition was coming. Hence an IPO's prospectus must not be viewed as the "holy grail". If something like this happens it is worth remembering who the leading underwriter was, as they could/should have done a better job.
TK was picked in my core model portfolio around 16 last year, but later I removed it at 13. When it dipped below 10 early this year, after being asked about it in our member lounge, I discouraged any bargain hunting on TK. Kim Eng was one of the co-underwriters of TK. Their report mentions nothing about new competition.
In general I take a more cautious view with IPO's and PO's brought to market by this broker. Since then we have nothing to say or add about TK -and glad we advocated getting out even at a small loss. When TK was trading as high as 20, more than a few brokers stated "it was going to 30".
With that cautions note in place, as of today and from what I know & see on KTECH (6.35), this is one stock which did catch my attention as it now seems oversold, post IPO listing.
I just asked Nathan to upload some recent research on KTECH at our "Download" link.
Always diversify your stock investments.
Best Regards,
Paul A.Renaud.
KTECH : Private sector contractor with strong earnings growth potential K-tech Construction (KTECH) is a medium-sized contractor, who specialises in private sector projects, both civil and system works. KTECH has a long list of repeat clients, who are big developers and have strong financial positions, such as Carrefour, Central Group, Golden Land, Quality House and Windmill Developments.
Asia Plus Securities was the lead underwritter for KTECH.
