The brave new world to Thai stock value investing. 

The long reality has been -and remains ever more so:  SET stocks in the middle are getting ignored, and ever more as the past years numbers show.   MAI listed stocks, as the year 2007 record shows (see below) have much higher & successful capital raising ability. (As just one example dear to us, just compare MAI listed UMS stock to SNC).  MAI stocks are overall more buoyant, raise more capital and have performed much better for investors in recent times. Why is this?

MAI is for the Market for Alternative Investment, it’s a secondary exchange were smaller and as it turns out more innovative companies list. There is a corporate tax advantage but the advantages don’t end there.  Here is there web site:   http://www.mai.or.th/en/index.html

The analogy and why what is happening, is happening, its called a classic “value trap” and you must be acutely aware of it when investing here.  “A stock which is a bargain and remains a bargain, is no bargain”. Old Wall Street proverb.

While I am not much of a beer drinker compare this to what happened in that industry here in Thailand.  The methapor is as follows.  Singha Beer is the traditional Thai beer known around the world, but it got left behind in recent times. The reason is because those consumers whom have the money buy the more expensive brand names like Heineken.  Those consumers with lower purchasing power stick with the better value perceived brands like Chan and Leo brand name beers. Just like with mid cap’s, Singha beer in the middle and so gets stuck with a lower and lower consumption. Year after year.

The top market cap SET 50 stocks are in the flow due to institutional and trader interest and many of the MAI listed stocks are, due to value buyers like us and that exchange’s dynamic management.  But the reality is everything in the middle is increasingly being left behind.  While I don’t’ have the raw hard numbers on hand like some industry experts in Bangkok, its no mystery that some 140 SET listed mid and smaller-cap stocks have been increasingly so ignored and this for years already.  It’s the value trap in the middle.

Year 2007 was overall another successful one for us as many of our top early chosen picks are MAI listed counters.  UMS, UEC, DEMCO, TRC, LVT, even SALEE…where I favorably wrote on April 10 and July 8.  “Salee (3.60) an accumulate buy view on the now price correction”.  TRC has been by far the big hit here, as I in strongest way possible expressed my opinion.  TRC, DEMCO and now oversold UEC are still on my strong buy view list.  TIES and UKEM have been the dissapointers.

For performance of various segments as show by market cap, see this link.  Sorry this is no longer updated, as the company tabulating this is no longer is around.

http://www.thaistocks.com/artimages/06 07 23 - SMC Indices Calculation.pdf

Its like the Singha Beer story, people don't buy the mid brand any more...as those who have money buy the expensive beer and those who don't will buy the cheap brand. Its not what makes’ sense its the reality which counts. The reality is that last year MAI stocks performed almost twice as well as SET stocks -and mid cap’s are increasingly getting ignored.  Sorry about this, but it needed repeating, as this is a central core message of mine to members going into year 2008, post financial markets horrific drop off on January 21-22, 2008.

Here are some raw numbers to raise your eyebrows:

The MAI trading volume rose 168% in year 2007 as compared to 2006.The MAI index rose some 50% in year 2007, far superior then Thai SET index 26% rise and the market cap. on the MAI soared to 36 Billion Baht (yes that is over 1 Bill US$) -also just about double from a year ago. Most impressive is capital raising on the MAI:

As in year 2007, MAI listed companies raised around 2,249 million Baht, of which the fund-raising of the newly listed companies was around 770 million baht and capital increase of the listed companies around 1,479 million baht. And in 2008 funds raised is already just short of 1000 million so an impressive debut in tough market conditions. (see the MAI press released as referenced below.

More then a few smaller companies I visited in 2007 first told me their goal to move their listing to the SET main exchange, but then increasingly changed their mind.  Obviously only one reason is that on the MAI there is a corporate tax advantage of 5% for firms up to 300 million in paid-up capital. But the real reason is that MAI shares are simply on a roll and likely overall to stay so.

Today the MAI is a dynamic stock exchange, featuring the high-growth companies of new age businesses with many investors there enjoying winning returns....,yet as in the past it remains mostly off the radar screens of the ever mega thirsty volume fanatic, institutional investors.  This is changing as the ever performance oriented rational investors are seeking higher returns in a too often irrational world, post US subprime mortgage meltdown. 

The MAI has delivered such returns and one reason is due to its new visionary leader Mr. Chanitr Charnchainarong, CFA.You can see the MAI official web site at this link: http://www.mai.or.th/en/about/vision_mission.html

Best Regards,

Paul A. Renaud.

www.thaistocks.com

PS.The above is my new theme going forward as I am convinced MAI superior performance will continue and we members must be acutely aware of the value traps in between. This is why I am concerned with SNC and why I dared to cut loss and advocate moving into some larger cap more active stocks which seem more SET buoyant, like IDT and SEAFCO. The question is will SNC and others favorably identified in recent times like SMIT, AJ, SVI, CITY, TOG (just to name a few) rise that "new brave world"?   SAT has a potential similar delinquent faith but here the p/e is lower and the likely dividend rate is higher. SAT, and this is important, also has far more broker research coverage, a key element lacking with most of the 140 “fallen SET angels” in the middle.

“But you are right, there is no coverage in the middle”.  A Bangkok Investment Banker.And my answer back was is:  True enough, but the reality is that if SNC does not move over to the MAI it will likely be forgotten, like so many other great smaller/mid cap stocks on the SET,  like a slow death.

For the latest MAI presentation and some of the sources of the above see:

http://www.thaistocks.com/artimages/Summary_MAI_companies_07.doc