Got a Job and Cash to Spend - Andrew Stotz, CFA Report Maybank Kim Eng November 2012

Corporate Thailand: 3Q12 profit up strongly. The best 3Q12 earnings surprise in our portfolio was DELTA. Thailand's 3Q12 GDP shows a rip roaring consumer.

Thailand has the lowest unemployment rate in the world. Everybody who wants a job, has a job. You want to know why? Well my name is Andrew Stotz from MAYBANK KIM ENG and today I will tell you from the information I've got from my latest report called Got a job and cash to spend
My main point is that the Thai consumption story can stay strong for a long time to come
Let's kick off by considering the rebound in Thailand's third quarter profits, REMEMBER that second quarter was a DISASTER.
In third quarter, the profit of Thai companies was up a WHOOPING 33%. And this was not distorted by the DAMAGE from the floods that hit Thailand at the end of 2011. Definitely, part of this recovery in profits came from a rebound at PTT but, the rest of Thailand has also been doing quite well.
What I find interesting is that this happened without a major spike in oil price. Look at the two periods of very high profits on this chart. Now, look at the line, which is the oil price, you will see that in both of these periods oil price was rising and this rise benefited Thailand's largest company, PTT. NO WONDER WHY PROFITS WERE STRONG. But look at the line again and you'll see that oil price did not change from second to third quarter, yet profits were very strong. To me this is a good sign of the STRENGTH of Thai company profits.
Next let's consider the capex cycle and company debt. Remember that companies in Thailand have been de-leveraging for ten years. Well, that trend started to REVERSE in first-quarter 2011, meanwhile the rate of asset growth in Thailand has ACCELERATED since that time. This is the capex cycle in action and it should be a strong driver of Thailand's long term profit growth
Now let's talk about Thailand's moderate 3% GDP growth in third quarter. Recall that from the period of the 2006 military coup until the end of 2011 Thailand has been the slowest growing domestic economy in all of Asia. But that is starting to change with the recent recovery in consumption growth. In fact, in third quarter consumption growth, the blue line in this chart has touched levels not seen in years. So the question is...will this strong consumption growth last?
Well to answer that question and to understand why I feel so positive about the Thai domestic consumption story we need to look at this chart. Check out that dotted ...it has flattened out at about 0.5%. That's Thailand's unemployment rate, basically Thailand is at full employment. This reinforces what I have seen in Thailand and that is, that everybody who wants a job...has a job and Thailand has the lowest unemployment rate in the WORLD. The fact that everybody has a job...gives people confidence to spend.
But to me, what makes this consumption recovery really powerful is that the wages of workers are rising. The solid line shows a 15% jump in wages. This jump is coming from the governments increase in minimum wage, government stimulus measures and general wage pressure. So employees in Thailand have the confidence to spend AND the money to spend. To me this means that consumption in Thailand should be strong for years to come.

Now, remember when this government came to power? They took a lot of heat for their populist policies, HOWEVER, it might just be that these policies release consumer demand that has been pent up since the 2006 military coup.
And don't forget that the government implemented a corporate tax cut to more than offset the rising wage pressure, which means EPS growth in 2012 should be strong. So that explains why I am feel so positive about the Thai consumption growth story.
So let me wrap up by reviewing the performance of my Stotz Stocks portfolio, which is now up 36% since January vs 23% for the SET 100 Index, that's a 13% lead. The stocks that have driven this performance are JAS, STEC, BCP and TISCO. And the drags on my performance have been PTT and MBK.
So that wraps up this week's report..."Thank you for listening"

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