Deryng Stays With Value Stocks in Thailand, Asia's Worst Mar

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Deryng Stays With Value Stocks in Thailand, Asia's Worst Market
By Dominic G. Diongson

May 17 (Bloomberg) -- Petri Deryng arrived in Thailand from his native Finland in 1998, less than a year after a 45 percent plunge in the Thai baht triggered a regional financial crisis and the worst recession in 30 years. He started buying stocks.

He set up PYN Fund Management Ltd. with about 200,000 euros ($272,000) in capital and focused on companies with relatively low share prices or relatively high dividends. Last year his Elite Fund returned 21 percent, compared with a 0.3 percent decline for the benchmark SET Index.

``That very moment when a country is in a crisis, no one sees the light at the end of the tunnel,'' said Deryng, 45, who manages a total of about $150 million, in an interview in Bangkok. ``If you see that it's at a bottom and if you have some kind of facts, numbers to rely on, then yes, it's time to buy.''

This year, with performance lagging behind his benchmark, he's sticking to his strategy. The 76 million euro Helsinki- based Elite Fund has returned 5.8 percent in 2007. It is sixth among 29 funds with more than $100 million in assets that invest in Thailand, according to data compiled by Bloomberg. The SET index has a total return, including reinvested dividends, of 7.8 percent this year.

Elite has beaten the SET in five of the seven years to the end of 2006, helped by rallies in the shares of Bank of Ayudhya Pcl, Pranda Jewelry Pcl and Regional Container Lines Pcl. Deryng employs a so-called value strategy, which involves picking companies deemed cheap because they have price-to-earnings ratios of 10 or less and dividend yields that exceed those of his benchmark.

Value Investing

Deryng's investments aren't concentrated in one particular group but sweep across a spectrum of industries. If he likes a company, he takes a stake of as much as 10 percent.

Investments among the fund's top 10 in Thailand range from financial-services provider Thanachart Capital Pcl, valued at 18 billion baht ($520 million), to Tongkah Harbour Pcl, a gold miner valued at 2 billion baht.

``That's the advantage that he has over some other fund managers: He doesn't really need to make a quick profit,'' said Tom Paiboon, head of equities at Bangkok-based Tisco Securities Co., who knows Deryng because he subscribes to the broker's research. ``He's done well in the past three to five years because that's how he's taken his investment approach.''

Deryng said he won't make major changes in his portfolio in the next two years, confident that a national election, lower interest rates and the cheapest valuations in Asia will attract investment and push share prices higher.

The SET is valued at 10.5 times projected 2008 earnings, the least among 14 markets in the Asia-Pacific region, according to Bloomberg data. It's also Asia's worst-performing index over the past 12 months, with a loss of 5.3 percent.

Right Time

Deryng dropped out of a master's degree program at the Helsinki School of Economics just shy of graduation after he helped set up a radio station in the capital in 1984. He sold his 10 percent stake in the station in 1994 and later used some of the proceeds to launch PYN, the acronym for his birth name, Petri Ylermi Niemi.

He divides his time between Thailand and Finland, sailing his boat on the Baltic Sea when in his native country and riding a Harley-Davidson motorcycle around Bangkok.

Thai markets began improving shortly after he entered the fund business. The low baht helped boost the value of companies' exports, while tax cuts on home purchases helped spur consumer spending, leading to economic growth. The SET almost tripled from the end of 2000 to the end of 2003.

Penalties

In the past three years the trend has been less favorable. The SET has dropped 12 percent and the economy has grown at an average rate of 5.3 percent. The country recently has faced rising interest rates, escalating violence in southern provinces and a September coup ousting Premier Thaksin Shinawatra, followed by capital controls on foreign investors in December.

The central bank slapped penalties on foreign investors to stem a 16 percent increase in the baht against the dollar in 2006 and to protect exporters. The move triggered Thailand's biggest stock-market rout in 16 years. Most of the measures have since been rolled back.

The nation hasn't had an elected parliament since February 2006, following its dissolution by Thaksin. Prime Minister Surayud Chulanont, appointed by the junta seven months ago, pledged to have a referendum on a new constitution before the end of September and to hold a general election in December.

Investor Ian Beattie is putting money into other Asian countries, such as Malaysia and Vietnam, until Thailand's political landscape settles down.

Ratios

``Why do we want to take the risk on Thailand when we have this policy and political risk?'' said Beattie, who oversees more than $1.25 billion in Asia-excluding-Japan equities at New Star Asset Management Ltd. in London.

Since Elite was launched in 1999, returns have increased sevenfold, compared with almost threefold for the SET.

Deryng, who is learning to speak Thai, looks for companies that are trading below their intrinsic value. He scrutinizes their price-to-earnings, price-to-sales and sales to market value ratios, said Tisco's Paiboon.

One of Deryng's biggest holdings was Bank of Ayudhya, in which a unit of General Electric Co. bought a 29 percent stake in January. Deryng sold out of the Bangkok bank in 2006 after doubling his investment in two years, based on Bloomberg calculations.

Regional Container, Thailand's biggest container-shipping company, was one of PYN's first investments. Deryng sold the shares of the Bangkok company in 2004 for a more than 10-fold gain in five years.

Dividend Yield

The best performers among PYN's top 10 holdings this year include Pranda, a maker of gold and silver rings and bracelets, and Indorama Polymers Pcl of Bangkok, a company that produces pellets used to make plastic containers.

Deryng said he holds Bangkok-based Pranda, up 23 percent in the past year to a 12-year high, because its dividend yield is 7.9 percent, double that of the SET.

Indorama's shares have gained 10 percent in the past 12 months. Its stock trades at 7.4 times this year's estimated earnings.

Investors in Deryng's Elite and Populus funds are wealthy investors in Finland, he said. Kimmo Myllymaki, a director at Helsinki-based Nokia Corp., sits on PYN's board, according to the Populus Fund prospectus.

Now, Deryng is aiming to replicate the type of returns he's had in Thailand with the Populus Fund, set up last year for Asia investments in such countries as Singapore and the Philippines.

Thailand's stock market has been lagging behind others in Asia. Indexes in South Korea, Australia and China have reached record highs, while the SET hasn't fully recovered from the December debacle. Still, Deryng is not giving up.

``We've had three frustrating years in Thailand,'' he said. ``It's very clear that we're going to make quite good gains in Thailand with our current portfolio.''

To contact the reporter on this story: Dominic G. Diongson in Bangkok at [email protected]