Random Thoughts – Philippines, markets, share buybacks

  • The Philippines would be a bankrupt country if it weren’t for 2 factors 1) The 2-3 million overseas Philippino’s sending their money back home (OFW’s) to support their families – according to the Philippines Statistics Office*, Overseas Filipino Workers During Six Months Prior to the 2013 Survey by Area, transferred 163 billion pesos, that is ~USD 3.6 bn within 6 months, an amazing number, and strangely other studies that estimate some USD 25bn was remitted back to the Philippines in 2014**, this all translates into consumer spending, real estate purchases and so forth. 2) BPO’s – This industry makes ~USD 17 bn p.a. revenues, has been growing @ ~20% p.a. for the past 7 years, allows people a higher average salary than was previously available and is on track to overtaking India – again this leads to more consumer spending than previously existed 10 years. Now if weren’t for these 2 factors I would have serious doubts about ever investing there b/c 1) Their government has little control of anything (utilities, infrastructure, etc etc are all under the control of private entities) 2) As a physical location, to be a manufacturing hub is close to impossible, plus the fact it is made up of 7,000 islands makes doing any type of business rather difficult. 3) ~80% of the market capitalisation is dominated by ~6-7 families. However despite all of these negatives, just like anywhere in the world, you can find some wonderful ideas to invest in over there, and there are some amazingly well run enterprises, just look at URC and BDO as simple large cap examples.
  • Volatility has returned, well if you had closed your eyes for the past 1.5 weeks, then nothing much has really changed other than energy bouncing back a little bit, going forward what can we expect? More volatility? A year end rally? A potential fed rate increase? Fun times ahead.
  • CPF announced a huge buyback – because it’s holding in CPALL is equal to its existing market cap, PTTGC has announced a huge buyback, analysts are now writing that QH is trading at its holding’s value thus you’re getting its business for free, which other companies could do the same? I’d start looking at which companies begun buying back shares in 2009 and see if those names are trading at levels that would entice management/boards/majority shareholders to propose the same

Source: * PSA, ** HKDC

Baht hits 6-year low as BoT eases foreign-investing rules

  • The Bank of Thailand will permit to qualified investors with more than 100 million baht of liquidity to directly invest in foreign equities, bonds, mutual funds and other financial assets, deputy governor Pongpen Ruengvirayudh told reporters Friday. Overseas investments will be limited to US$5 million per year, she said.
  • In 2017, the BoT will relax the regulations further by allowing general retail investors to buy all types of securities.
  • “The central bank is probably more comfortable letting funds flow out through residents rather than making it easier for foreign investors to move cash in and out,” said Shigehisa Shiroki, assistant general manager at Mizuho Bank Ltd’s treasury department in Bangkok. Orderly declines in the baht look acceptable to the central bank, he said, adding that the currency could weaken to 36 a dollar over the next few months.

Source: Bangkok Post

A quick few thoughts on this:

  • Why does the BoT only allow a certain class of individuals the right to transfer funds offshore? Sounds rather unfair doesn’t it? “If you’re rich please feel free to move your money out of the country before it devalues further and before the rest of the population”
  • Over time this is a positive policy by the BoT that allows freer movement of capital in/out of the country – I can’t even begin to describe the number of issues I used to have transferring funds outside of Thailand. It removes question marks on the minds of investors (FDI, property etc etc) on whether or not they can easily recover their investments and gains and theoretically should encourage more investment into the country

Co Visit: Project Planning Service Plc (PPS)

Added value and ethical practices  underpin Project Planning Service

Project Planning Service Plc (PPS), which has been listed on the Market for Alternative Investment since September 2012, is a major engineering professional services firm. Phongthon Tharachai, deputy managing director, discusses the company’s strategy and outlook.

What is PPS’s business model?

We offer a comprehensive range of project consultancy services that includes management and construction supervision of construction work such as buildings and infrastructure, structural and architectural work, civil work, utility systems, landscape, interior decoration and others. We have executed more than 200 domestic and cross-border projects for both public and private-sector clients. The former include the Bank of Thailand and Suvarnabhumi airport (phase one), and the latter include the Grand Hyatt Erawan Bangkok, CentralWorld and Central Embassy, Makro and Tesco Lotus stores.

pps

Mr Phongthon says the weak economy and lack of transparency remain risks.

Who are PPS’s target customers?

 We are able to service a wide variety of customers and projects in the retail, residential, healthcare, education, hospitality, industrial, office and public infrastructure fields. Because PPS has been in this business for 28 years we have been able to gain the trust of our customers, which is why we have very high repeat business from these groups.

What is PPS’s value proposition to its clients?

Our role as a project manager is to ensure that the budget, quality and timing are within the customers’ expectations. The knowledge that we provide to our clients is intangible and difficult to prove until after a project is completed and then clients realise the value that we provide. Also, given that our services typically represent only 1-2% of project value, it is a very small price for project owners to pay in order to alleviate the stress and complexities that come with managing a project.

We have also grown beyond merely offering engineering advice and construction management, and through our subsidiaries and investments in other businesses we can offer other services. For example, PPS Design Co Ltd offers services in structural design and system building work. Swan & Maclaren (Thailand), specialising in architectural and interior design, is a joint venture with Swan & Maclaren LLP, one of the oldest architectural design firms in Singapore. PPS Information Consultant Co Ltd offers services in information technology, in particular media and advertising, and has created its own programme to facilitate construction supervision.

Continue reading Co Visit: Project Planning Service Plc (PPS)

The 10 most important events this week

  1. Oil plunge takes bite out of tax revenue – The Revenue Department is predicting a wider tax revenue shortfall of 220 billion baht for this fiscal year after a prolonged drop in oil prices. The Revenue Department, the major tax contributor to government coffers at 80%, earlier estimated that revenue would miss the target by up to 160 billion baht in fiscal 2015, which ends Sept 30. (Bangkok Post, 24/8/15)
  2. Industry sentiment falls again in July for seventh month in a row – The Thai Industries Sentiment Index (TISI) fell for the seventh straight month in July amid the economic slowdown, according to the Federation of Thai Industries (FTI). The index in July dropped to 83.0 from 84.0 a month earlier, both well below the 100-point baseline. The risks to the confidence index remained the economic slowdown, domestic consumption weakening and export shrinkage. (The Nation, 26/8/15)
  3. Bank of Thailand reported the volume of foreign exchange in 2Q15 with turnover of US$344bn, an increase of 16.7% from US$295bn in 1Q15. (Post Today, 27/8/15)
  4. Electricity tariffs lower next month – The fuel adjustment (Ft) electricity tariff will be cut by Bt0.03 per kilowatt-hour (unit) from the beginning of next month, the Energy Regulatory Commission said yesterday. The Ft tariff for the September-to-December period will be reduced to 46.38 satang per unit, reducing the total electricity tariff (average for all types of users) to Bt3.73 per unit. (The Nation, 27/8/15)
  5. Arkhom to kick-start 17 megaprojects – Newly-appointed Transport Minister Arkhom Termpittayapaisith has vowed to kick-start the construction of 17 megaprojects valued at 1.6 trillion baht before the end of next year as part of a plan to stimulate the economy. (Bangkok Post, 27/8/15)
  6. German Markit’s flash composite Purchasing Managers’ Index (PMI) inched up to 54.0 from 53.7 in July. This was comfortably above the 50 mark that separates growth from contraction and marked the 28th consecutive month of economic expansion. “Germany’s private sector economy shifted into a higher gear in August with output and new orders both increasing at the sharpest rate in four months,” Markit economist Oliver Kolodseike said. (Reuters, 21/8/15)
  7. Japan Prime Minister Shinzo Abe: Acceptable for Bank Of Japan to miss price goal – Prime Minister Shinzo Abe said it was acceptable for the Bank of Japan to miss its self-imposed deadline to meet its inflation target, suggesting that the government was in no mood now to pressure the central bank to expand monetary stimulus. (Economic Times, 24/8/15)
  8. U.S. economy grows above anticipation in Q2 – The U.S. Commerce Department on Thursday revised up its estimate for the real gross domestic product (GDP) in the second quarter to a growth of 3.7 percent, beating market expectations that growth should have bounced back only mildly from a meager growth in the chilly spring. The second estimate for the GDP growth in the second quarter was much higher than an advance estimate of 2.3 percent. In the first quarter, the growth rate was 0.6 percent as the wintry weather sapped activities. (Xinhua, 28/8/15)
  9. The People’s Bank of China, the central bank, pumped 140 billion yuan into the banking system via 6-day short-term liquidity operations (SLO) on Wednesday, in its latest bid to shore up growth. (Xinhua, 27/8/15)
  10. US Home price growth edges up in June: S&P/Case-Shiller – The S&P/Case Shiller composite index of 20 metropolitan areas in June gained 5.0% year over year, a bit quicker than the 4.9% rate in May. Economists polled by Reuters had projected a 5.1 percent gain. (Reuters, 25/8/15)