ThaiBev rises, pennies back to earth

A surge in Thai Beverage (ThaiBev) and a correction in a number of penny stocks marked yesterday's trading, as the Straits Times Index rose 17.03 points to just about a two-year closing high of 3,327.83, up 0.5 per cent.

About 2.78 billion shares worth $1.17 billion in total changed hands. Losers outnumbered gainers 265 to 214.

ThaiBev added $0.035 to $0.965 on over 72 million shares traded. The closing price marked a high not seen in many months. Volumes were also significantly higher than normal.

DBS Group Research analyst Andy Sim, who sent out a note yesterday morning, told The Business Times that he was not aware of any reason for the surge.

His note had reiterated the house's positive view on the stock after a week-long "sold-out" non-deal roadshow in the US. It also summed up management's views on key questions.

For example, Thai energy drink maker Carabao Group is planning to compete with ThaiBev in its core spirits segment.

"While the company believes it is in a position of strength and is likely to be less impacted, it is not resting on its laurels and is monitoring the situation," Mr Sim said of ThaiBev.

Its beer market share remains at around 40 per cent, up from 30 per cent prior to Chang Beer's relaunch in August 2015.

"We maintain our 'buy' recommendation on ThaiBev and believe that uncertainties surrounding slower consumption in Thailand from the mourning period are temporary," Mr Sim said.

Meanwhile, sweet potato snack maker China Star Food Group attracted a query after heated activity in its shares caused it to double in the course of the month.

Other penny stocks fell back to earth. Sincap Group fell 35 per cent, or $0.017, to $0.031 on heavy volume.

Rowsley, the real estate and investment holding company controlled by Singapore billionaire Peter Lim, fell $0.018, or 10.7 per cent, to $0.151.

After dim expectations caused Rowsley to trade lower in recent years, it suddenly traded higher on July 14, with over 64 million shares changing hands, more than the previous five days put together.

After a trading halt on July 17, Rowsley revealed that Mr Lim would be injecting his 100 per cent stake in Thomson Medical Pte Ltd and 70.36 per cent stake in TMC Life Sciences into the firm in an all-share deal.

The acquisitions are valued at $1.9 billion, so Mr Lim will get up to 25.3 billion new shares at an implied $0.075 a share.

Taking out Mr Lim's stake in TMC of $320 million based on its market cap and assuming that there are no other businesses of significant value as part of the deal, Thomson Medical is valued at almost $1.6 billion.

Given that the firm's executive chairman, Mr Roy Quek, last told The Business Times that revenues for Thomson Medical Centre were around $150 million to $200 million and assuming generous net margins of 20 per cent, which it was able to hit before it got delisted years ago, Thomson Medical might net $40 million in profits a year.

This puts Mr Lim's valuation of Thomson Medical at about 40 times earnings - not quite close to IHH's 50-plus times, but a leap from Raffles Medical's 30-plus times.

Upon the trading halt's lift, Rowsley traders promptly marked up the firm even more.

In fevered trading over the next five days, more than 1.8 billion shares were traded, or two-fifths of all shares in existence.

The counter almost hit 20 cents before gravity exerted its pull, to about 15 cents now.

Rowsley is now double from what it used to be before the announcement.

In marking up the firm's value by more than $350 million, punters buying at 15 cents are expecting either the hospital assets to be worth more than $1.9 billion or for Rowsley's other assets to pick up some shine.

Until more light is shed on Thomson Medical's finances, more wild swings are likely for Rowsley.

This article appears in The Business Times today. For full listings of SGX prices, go to btd.sg/BTmkts