Thai IPOs: the jumbos are coming

A trio of record breaking IPOs are heading to the Stock Exchange of Thailand. Will foreign investors return to support them?

One of Asia's most overlooked IPO markets may move back to the forefront of foreign investors' minds after the summer break, as the Stock Exchange of Thailand (SET) prepares to welcome two of its largest ever-listings, with the biggest of all time being prepped for 2019.

Thailand has built up a particularly strong IPO pipeline thanks to a trio of jumbo deals, which are being lined up from three of its strongest sectors: consumer, energy and infrastructure. 

First off the blocks should be energy drinks manufacturer Osotspa, since it has already submitted its filing via lead managers Bualuang, Phatra, Bank of America Merrill Lynch and JP Morgan.

Bankers say the deal is likely to come in early October, raising a similar amount to 2017's largest IPO: the Bt23.99 billion ($744 million) flotation of Gulf Energy Development. It will have a freefloat of 20.1%.

Very close behind should be Thai Future Fund (TFF), the government-owned road infrastructure fund whose flotation was delayed for over a year because of a union dispute. Bankers say a filing is imminent under the lead management of Finansa, Phatra, Bank of America Merrill Lynch and JP Morgan. 

TFF is also hoping to come in October or November. Officials from the State Enterprises Policy Office (SEPO) have previously trumpeted proceeds of Bt45 billion ($1.39 billion) and specialists say this is still the right ballpark figure.

If they achieve these valuations, both companies will be propelled into the rankings of Thailand’s 10 largest-ever IPOs, respectively jumping into the ninth and fourth slots.

THAILAND’S MAMMOTH

But they will almost certainly be eclipsed soon after by the seventh PTT group listing, which is scheduled to come in 2019: the IPO of PTT Oil and Retail (PTTOR). 

It is perhaps apt that Thailand's most well-known company and arguably Asia’s most financially savvy energy group, will end up achieving the country’s largest IPO.

For no Asian energy group has done more than PTT to break down its operations into their component parts and then extract value by listing each one separately – PTT, PTT E&P (exploration), PTT Global Chemical (chemicals), Thai Oil (refining), IRPC (petrochemicals) and Global Power Systems (alternative energy).

S&P Capital IQ data shows that an agreement to transfer the oil retail business to PTTOR was fixed in March 2017 for Bt121.95 billion ($3.79 billion). Assets include petrol stations across Thailand and Indochina, plus oil pipelines and jet fuel services among others.  

Financial analysts believe that PTTOR deserves a 30% valuation premium to its parent, which is currently trading on a trailing EV/Ebitda multiple of 5.7 times.

If it is able to hit a multiple around eight times forecast 2020 EV/Ebitda and issues its proposed 40% to 50% of equity capital, then it will easily sweep past BTS GIF, which currently holds the Thai IPO record after raising Bt62.5 billion ($1.94 billion) in April 2013.

And its syndicate are also going to be very busy since the same troika of Phatra, Bank of America Merrill Lynch and JP Morgan have been appointed to lead manage PTTOR’s IPO as well as Osotspa and TFF. Joining them will be Kasikorn and TISCO.

Bankers expect all three deals to be well received subject to reasonable valuation multiples.

Osotspa not only sells some of Thailand’s most well known brands (M-100 and Lipovitan), but the Osathanugrah family behind it is also one of the country’s oldest and most famous. This year the company is celebrating its 127-year anniversary.

About 80% of its products are sold domestically, but Osotspa is expanding fast into Indochina. Smartkarma analyst, Athaporn Arayasantiparb, also points out that while revenues declined in 2017, net profits were up because margins improved after Osotspa lost the contract to sell Unicharm diapers.

However, while Osotspa and TFF may well come in the same month they will appeal to different investor types since one is growth story and other is a classic Thai yield play.

Unlike the rest of Asia, Thailand has not begun raising interest rates and economists do not expect it to any time soon in order to support its export-led recovery. As a result TFF’s purported 7% to 8% yield will sit well with retail investors who have become well versed in the mechanics of reit and infrastructure fund investments.

HERD INSTINCT

Will foreign fund managers join them? For the past five out of six years, international investors have disconnected themselves from Thailand despite the fact that its IPOs tend to perform well and the underlying market is supported by ample domestic liquidity.

Investment bankers do not expect this liquidity to taper off anytime soon even though retail investors may fall below 40% of trading volumes for the first time in Thai history this year. Instead, many are investing in mutual funds.

“Macro factors are driving liquidity,” said one banker. “Thailand’s current account surplus will hit 10% to 11% of GDP this year, one of the highest ratios in the region. So liquidity will continue building up, underpinned by a more stable political scene than a few years ago.”

However, this message does not yet appear to have reached foreign portfolio managers. Net outflows reached $4.143 billion at the end of May, on a par with the strong outflows recorded during 2013, which ended up reaching $6.2 billion by the end of that year.

Since 2013, there has only been one positive year for inflows (2016), a far more consistently negative record than most of the rest of Asean.

Individual IPOs may appeal, but clearly the market’s wider fundamentals do not.

Thailand is also experiencing a double whammy of high valuations coupled with low growth prospects.

Consequently, the SET Index is still trading above its five-year averages despite falling 2.5% year-to-date. This makes it Asia’s third worst performer this year after the Philippines and Indonesia. 

Analysts also predict some of Asia’s lowest EPS growth multiples for 2018 and 2019 – mid single digits compared to mid-double digits for many of its neighbours.

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