Tank on Thailand

Alex Klein Tank, the adviser to the $100 million Thai-focused Elite Fund, talks to AsianInvestor about his outlook for a market that seeks to re-enter the spotlight after a period in the doldrums due to internal politics.
The Elite Fund is a $100 million Thai-focused fund with a hedge fund fee structure. Elite is up 596% since its establishment in 1999. It is managed alongside the $80 million Populus Fund by the Finnish-based PYN Fund Management, run by Helsinki-based Petri Deryng. In Thailand, the adviser to the fund is Alex Klein Tank, who used to work on the Bangkok equity sales desk of Deutsche Tisco Securities.

What is your outlook for Asian stock markets?

Not too positive, though more upbeat on Thailand on a relative basis. We have seen some evidence of smaller markets like Bangladesh and Pakistan doing quite well.

For the last three to four years, Thailand has underperformed the region by 30-40%, even with their energy-related stocks performing well. This was largely a result of the uncertainties caused by the military coup at the same time other countries hit all-time highs. Our target now for the SET (Stock Exchange of Thailand) index is 1,200 and that will be driven by earnings growth.

Can Thailand catch-up if the rest of the world trades sideways or down due to macro factors?

Yes, we think it can. The performance of the Thai market has historically been showing very low correlation to the rest of the world during the last five years. Thailand grew 4.8% last year and the government hardly did anything to help achieve that number, so there is potential now as the new government takes initiatives.

In what sectors are you concentrated?

We are most concentrated in Thai property developers at present, which is being driven by higher consumer demand in the low- and mid-range. WeÆre looking at small and mid-sized developers like Supalai Plc, a company which doubled sales in the first quarter of this year. Property underperformed in the 2003 market peak, but with the recent elimination of certain property taxes we think the timing is good for 2008 and I think for sure a number of them will double in price this year.

Another good example is Property Perfect, a stock into which we invested quite early. In 2007, this stock had Bt6 billion ($191 million) in revenues, profits of THB400 million ($13 million) and market capitalization of Bt3 billion ($96 million) and that looks very attractive for our standards. The stock was at Bt16 ($0.50) in 2003, and recently was at Bt4 ($0.13), though has moved up to Bt6 ($0.19).

This year, Property Perfect is projected to almost double its profits and post a 50% increase in sales. The stock now trades at a 5x P/E and a 10% dividend yield.

What is your maximum position size within the portfolio?

Our concentration limits are capped at a 10% stake in a companyÆs equity. For example, our largest position is a 7% stake in Shin Satellite, which accounts for 18% of EliteÆs portfolio. We think this is going to be Shin SatelliteÆs year as the IPStar satellite revenues come in.

Throughout the rest of Asia, people are talking about sky-rocketing Thai rice prices. What is the impact of that movement in Thailand?

It is slightly positive, but even though the people upcountry do get some benefit, the people who gain to the greatest extent are the middlemen.

How could you play that commodities sector in Thailand?

The oil and gas sector is quite well represented in the SET and on the metals side, there is Padaeng Industry, the Zinc producer and smelter. For soft commodities, there are some palm oil producers.

What is your outlook for the Thai currency?

Against the dollar I think eventually it will revert to the pre-crisis rate of Bt25 to $1. We have been hedging the Thai baht back into euros, as we report in euros, but we think the euro may weaken now against Asian currencies. With that in mind, we have recently removed that hedging.
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