Interview with Pon Van Compernolle
Estimated reading time: 12 minutes
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Table of contents
1. Background & current focus
2. Lessons from investing in the region
3. The book "360° Thailand"
4. The Thai stock market
5. Adi Sarana Armada
6. Prabowo Subianto
7. The offshore oil & gas sector
8. Singapore Post
9. Contact details1. Hi Pon! Thanks for participating. Can you tell us briefly about your background and what you’re focused on now?
Firstly, Michael, I love what you’re doing. Keep up the great work.
I’m an expat kid by background, born to a Belgian father and a Thai mother in Singapore. I’ve lived on 4 continents growing up, and as a function of this, I’ve learnt that every culture/country is different and unique. This makes the world both a wonderful place and, at times, rather silly.
Professionally, my career has been wide-ranging, predominantly involved in the buy-side focused on Thailand equities from 2004-2014 and then focusing on ASEAN equities from 2015 onwards. In addition, I’ve run start-ups on the side, run a factory, done advisory work and sat on the board of three companies — a private software company in Belgium and two public companies: a cement engineering company and a software company in Thailand. I also published a book, 360° Thailand, which contains interviews with the CEOs and owners of public companies I’ve met from 2007 to 2019.
2. What have you learnt from your long experience investing in Thailand and other countries in Southeast Asia?
That every country is different in its politics, governance, industry and business practises. What we are taught about “investing” does not always apply across the board for all countries in the region.
Also, as cliché as it sounds, cycles matter. These may include FDI flows, governance, credit cycle, etc. For example, Thailand had its 1,000th coup in 2014, which led to the cancellation of the EU-FTA discussions, whilst at the same time Vietnam had just signed the trade deal with Europe and the usual FDI that would’ve flown into Thailand was directed to Vietnam thereby resulting in the beautiful growth seen there and the tepid growth in Thailand. In Indonesia, there was a massive change under Jokowi’s leadership, after decades of rubbish infrastructure and despite being the periodic table of the world — as virtually every commodity required by mankind to exist and thrive is in Indonesia — they made zero on their commodity exports, but have now moved up the value chain. Today, its trade deficits have narrowed massively, so their currency is no longer the basket case it once was. Finally, Malaysia, when a business-focused Sultan was appointed — boom — the country finally woke up from its 1MDB slumber.
When it comes to stocks and investments, I’ve learnt that liquidity and size matter. I’ve also learnt that when a stock market is expanding and growing in terms of activity, companies tend to achieve “fair value” more easily. Finally, I’ve learnt that an active retail investor base is fantastic for small and mid-caps. Without these ingredients in a market, investing in the region can be frustrating.
Looking at history, you can see when Singapore, Malaysia, and Thailand did very well, when they grew their economies and when stock market liquidity improved. From 2002 to 2013, Thailand became the most liquid market in the region, surpassing Singapore in 2012 and peaking at USD 3 billion in trading value. For Vietnam, liquidity in the market went from USD 100 million per day to USD 1 billion from 2016 to 2021.
For the Philippines, it was trading USD 100 million per day in 2015, and now it averages USD 70 million. Taking the liquidity angle further, when China Equities were added to the MSCI Asia ex-Japan indices, the weighting assigned to Southeast Asia decreased by half over 5 years.
Flows matter, and without them, it’s best to focus on either companies that are on the cusp of turning around from a ridiculously cheap valuation, i.e., 1- 2x PE or that are paying shareholders generously in dividends and buybacks. Otherwise, one ends up being the investor who goes, “But this company is great, the valuation is compelling, why doesn’t anyone else see it too?” Well, because there’s no liquidity looking there, dummy…
3. Tell us about your book 360° Thailand? What is it about, and what can readers learn from it?
First, I’m eternally grateful to the departed Howard Woon, a good friend who passed away too soon. He invited me to interview CEOs and business owners in Thailand in 2007. I’m also grateful to Supat Chuasuwan, who allowed me to continue this endeavour. In 2007, Howard said over a beer, “Pon, you’re an analyst, can you help to interview these CEO’s, you’d ask better questions that are more relevant to the market.”
For 12 years, two times a month, I visited their customers and had 1-3 hour conversations with each CEO/owner about their business history, outlook, and so forth. The interviews were then published on their website, the Bangkok Post, and via newswires through Bloomberg and Reuters.
During COVID, when I was sitting in an empty office building staring at a Bloomberg Terminal for hours on end, my mind began to wander and think of new ideas. I enjoy reading history, but finding history on companies, or the country of Thailand, for that matter, is challenging. So my idea was: why not compile my interviews, provide context through their financial results and share price performance and publish it as a book. Thankfully, we found ~120 interviews and voila, we managed to publish them as a book, available in local book stores and on Amazon Kindle.
4. Here’s a question I’m grappling with: Why has the Thai stock market been so weak in the past two years? What’s stopping credit growth from accelerating and stimulating the economy?
Where do we start…
Once upon a time, Thailand had a “functioning democracy”, but from 2014 onwards it’s devolved further and further into a moshpit of crony capitalism that has stifled the growth and development of the country, where the major groups (whoever they are) have focused on market share as opposed to growing the overall pie.
As a market, Thailand has arguably been “expensive” on most valuation metrics from 2014 to 2021 (if you ignore the 2020 blip).
The 2020-2022 period was an extinction event for many small- and medium-sized enterprises in Thailand. Unlike in North America, Europe, Australia, New Zealand and Singapore, there was practically no support for individuals and businesses. For an economy that is by all measures 20-30% tourism-related, this was a death blow. Any business that wasn’t of a public company size went under due to cash flow drying up. Any single or 2-asset hotelier owner with a little bit of debt ended up dying. Thai banks are not lending because they can’t. Customers only pay interest, not principal, to avoid becoming an NPL. Minimum wage, salaries, and domestic-focused businesses haven’t expanded revenues and profits due to a stagnant economy; thus, there’s no new deposit growth. It is now 2.5 years of negative credit growth.
One hopes that the financial institutions and the Bank of Thailand would admit to the real non-performing loan rate being 15%, force a few bankruptcies, invite new capital, international institutions with proper governance and competition and then the economy could pick up again. But pigs don’t fly.
5. You were recently on the FatAlpha podcast with Sophocles Sophocleous discussing Adi Sarana Armada (ASSA IJ). The stock has rebounded nicely since that show. Can you provide the gist of your thesis and whether you're still constructive on the name?
It’s a simple operational turnaround story. ASSA’s core business is in corporate car rentals. As the largest in the country, it provides a certain amount of cash flow and stability. Then, they have two additional business lines, logistics, which they expanded into and did very well during 2020-2022, before suffering due to the reopening. Since then, they have focused on cost-cutting and streamlining operations during 2023 and 2024. The third business is used car sales, an incredibly nascent industry that is just picking up, and they are the market leader as well, granted, it is starting from a small base.
Back in 2024, I believed that the probability of a successful turnaround was higher given how the company was performing in 1H24. If the company were to simply return to a “normal” operating performance, it would be trading at 1x 2027 earnings. Thankfully, this was confirmed in 3Q24 when the company reported fantastic earnings, which continued higher in 4Q24, with the company reporting all-time highs.
Then throw in the valuation overlay, whether it be multiples, cash flows, sum of the parts etc. When it was IDR500/share you could potentially see a “fair value” between IDR 1,100-2,000/share, and that provides the margin of safety. Now going forward, the question is whether they’ll be able to grow the business. Time will tell. The management team appears to be competent with decent depth across the board, and let’s see how they perform.
6. Indonesian stocks have also taken a beating. Are the fears about Prabowo Subianto warranted in your view? Is Indonesia still open for business?
Apa ini ya. Indonesia terbang ke bulan.
Indonesia, much like every other country in the region, marches to its own beat. However, the sell-off seen from October 2024 to earlier this year, over the food programme was hilarious to observe, as I like to say, “Imagine being the analyst that dumps Indonesian equities because of free food?” Indonesian stocks have recovered decently from their lows to be flat for the year, which is the exact opposite of what one reads in the news about the country.
When there are changes in the Presidency and team there are natural question marks, not dissimilar to what Jokowi faced a decade ago. Then the market and currency crashed 30% more than what was observed with Prabowo.
There are two extremes to view Prabowo, one that he’s a military dictator and is going to be draconian in his management and measures or that he’s a fourth generation “elite” family, fluent in multiple languages and views this as his moment to be the statesman that Indonesia deserves on the international stage, delivering policies that allow the country and its people to achieve first-world status.
What the reality is, we shall see, but there appear to be too many chefs in the kitchen with the expanded cabinet, and this is never a positive.
7. Can you talk about your views on the offshore oil & gas sector? What stocks could benefit from higher rig rates and greater activity when it comes to drilling?
It’s a simple demand & supply story. The amount of rigs, manpower etc that is required for O&G offshore services has decreased tremendously over the past 2 decades, and if there is a minor shift in demand like was observed two-three years ago, this simply led to the day rates of jack-up rigs, for example, doubling within the space of 6 months, and this development was eventually realised in the share prices of companies in such the space. I believe that the supply side story is well-known today as the number of players in the industry has dropped by 2/3’s since the last peak in the 2000s.
In 2024, when the Saudis and Malaysia pulled back on capex, the rate of change of demand flattened, and the imbalance between demand & supply dissipated. Going forward, let’s see what the situation is regarding demand. Within the region, you have several companies that benefit from potentially expanding capex in oil & gas sector, including:
PetroVietnam Drilling (PVD VN), PetroVietnam Technical Services (PVS VN) in Vietnam
Wintermar Offshore Marine (WINS IJ) in Indonesia
Velesto Energy (VEB MK), Uzma (UZMA MK) and Bumi Armada (BAB MK) in Malaysia
And CSE Global (CSE SP), Beng Kuang Marine (BKM SP), Seatrium (STM SP), and Marco Polo Marine (MPM SP) in Singapore
8. In an update, you mentioned that you think that Singapore Post (SPOST SP) could potentially return its entire market cap in cash over the next two years. The stock has started to move. What’s your current outlook?
If you did a screening of all the listed companies in the SGX with Temasek as a shareholder in 2023, it appears that the Boards and Management of these companies received a proper kick up the backside to get to work. I observed these companies begin focusing on realising value in their non-core assets, cutting costs, and returning more capital to shareholders.
Singapore Post (SPOST SP) is one such example. Last year, the thinking was that:
It’s an SGD 1 bn market capitalisation, a perfect size for both institutional and retail investors to potentially invest in
They began hinting that they would sell their assets overseas and domestically which are not related to the core business and a simple back-of-the-envelope calculation implies that it could potentially pay out its market capitalisation in dividends over two years.
Since then, there have been potential and actual transaction announcements regarding their holdings in 1) Famous Holdings & its Australian business – where SPOST receives net SGD 360 mn; 2) The SingPost Centre & post offices – where SPOST could achieve SGD 1 bn; and 3) recently with the 10 HDB shop house sale & leaseback, with a transaction value of SGD 50 million.
Again, let’s see how this goes.
9. How can people get in touch with you or follow your work?
Twitter/X is best — my handle is @gvancomp.
And feel free to look at the Kindle version of 360° Thailand here: Amazon.com: 360: Thailand eBook : Van Compernolle, Pon: Kindle Store.
