Why is Thailand s price-earnings ratio relatively low?

Transcription

1 Why is Thailand s P/E ratio relatively low and what can we do about? By Sethaput Suthiwart-Narueput Senior Vice President Research & information Division The Stock Exchange of Thailand Presentation to Fund Managers at Food f or thought seminar organized by Cigroup 22 February 27 Outline Why is Thailand s price-earnings ratio relatively low? What can we do about? 1

2 Thailand stock exchange now has the lowest P/E ratio in the region Un: Times Thailand Korea Singapore Hong Kong Philippines Malaysia Indonesia Source: Bloomberg as of 21 February 27 Thai P/E ratio has been relatively low since 23 Un: Times P/E ratio of selected countries (23-January 27) 4 4 Thailand Malaysia Singapore Hong Kong 3 Philippines Indonesia 3 Taiwan Jan-3 Mar-3 May-3 Jul-3 Sep-3 Nov-3 Jan-4 Mar-4 May-4 Jul-4 Sep-4 Nov-4 Jan- Mar- May- Jul- Sep- Nov- Jan-6 Mar-6 May-6 Jul-6 Sep-6 Nov-6 Jan-7 Source: Bloomberg as of 3 January 27 2

3 46% of listed companies in SET has P/E ratio of - times 4% Thailand 22% 12% % 6% 2% 2% 1% 1% % 1% 2% 2% - ' - ' > 32% 2% Malaysia 3% 2% Singapore 13% 1% 6% 7% 3% 2% 2% 2% 1% 3% 1% 4% 9% 4% % 3% 2% 1% 1% 2% 1% 2% - ' - ' > - '- ' > Source: Bloomberg as of 3 January 27 Thailand s P/E ratios are lower than Singapore and Malaysia for almost all industry groups Un: Times Other Energy Communication Technology Finance Industrial Source: Bloomberg as of 31 May 26 3

4 and Thai lower P/E ratio is not a result of poor earnings of listed companies Point 1,2 1, Thailand: SET Index Price index Derived earning index P/E ratio (RHS) Times Jan-1 Nov-1 Sep-2 Jul-3 May-4 M ar- Jan-6 Nov-6 Source: Bloomberg as of 3 November 26 In Singapore and Malaysia, equy prices and earnings move in the same direction. Point Jan-1 Nov-1 Sep-2 Singapore: SESALL Index Price index Der ive d e arning index P/E ratio (RH S) Times 3 Jul-3 May-4 Mar- Jan-6 Nov Point Jan-1 Nov-1 Sep-2 Malaysia: KLCI Index Price index Der ive d e arning index P/E ratio (RH S) Times 2 Jul-3 May-4 Mar- Jan-6 Nov Source: Bloomberg as of 3 November 26 4

5 Controlling for company-specific factors, Thailand discount in P/E ratio is found according to an econometric approach Un: Times Count ry premium P/E ratio given the same company s fundamental Note: the controlling factors are 1) market capalization, 2) dividend payout ratio (dividend payout / earnings), 3) qualy of earnings (cash flow from operation / net income), and 4) turnover ratio (total turnover / market capalization) Source: SET analysis based on 2-2 dataset consisting of 2,64 observations The full paper can be downloaded from Thailand P/E ratio discounts by industry group are also observed from the econometric approach Un: Times Industrial Financial Communication Energy Note: The figures are Thailand discounts relative to Singapore Source: SET an alysis based on 2-2 d ataset

6 ..and at least three market-specific factors have caused the Thailand discoun t according to the extended model The panel data model: PE = α + βthai _ dum + β Malay _ dum + β DVD + β QEARN + β MCAP The extended model: + β TURN + β EPS _ gr + e PE =.78.36RF _ RATE.9RANK.12V _ RETURN (.21) (.169) (.12) (.23) +.6DVD (.4) +.77QEARN +.4MCAP +.1TURN (.7) (.2) (.2) Three market factors that generate Thailand discount are: 1. Risk-free interest rate P/E discount 2. Shareholder rights P/E discount 3. Volatily of the market return P/E discount..w here the variables are defined as follow s: PE DVD QEARN MCAP TURN EPS _ gr RF _ RATE RANK V _RETURN is price-earnings ratio of firm i at time t is dividend payout ratio = dividend payout / earnings of firm i at time t is qualy of earnings = cash flow from operation / net income of firm i at time t is market capalization of firm i at time t is turnover ratio = total turnover / market capalization of firm i at time t is earning per share growth of firm i at time t is risk-free interest rate (interest rate on 1-year government bond) is shareholder rights (rankings by IMD World competiveness yearbook) is the volatily in market return 6

7 and descrip tive stati stic of each variables are: Variables P/E ratio (times) Mkt Cap. (Mln. USD) Dividend payout ratio (%) Qualy of earning (times) Turnover ratio (%) EPS growth (%) Thailand (7 obs.) Mean Maximum Minimum Std. Dev. Malaysia (1,13 obs.) , Mean Maximum Minimum Std. Dev , Singapore (71 obs.) Mean Maximum Minimum Std. Dev , Source: SET an alysis based on 2-2 d ataset Thai market has been more volatile than other markets in the region % 9-day volatily of historical closing price (199-Jan 27) Thailand Malaysia Singapore Hong Kong Jan-9 Jul-9 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan- Jul- Jan-1 Jul-1 Jan-2 Jul-2 Jan-3 Jul-3 Jan-4 Jul-4 Jan- Jul- Jan-6 Jul-6 Jan-7 and what account for this high volatily? Source: Bloomberg as of 3 January 27 7

8 Supply side: Thailand stock exchange is relatively small Country Market cap (Billion USD) GDP (Billion USD) Market cap-to-gdp (Percent) Korea Taiwan Singapore Malaysia Thailand Source: W orld Federation of Exchanges; Bloomberg as of end-december 2 Supply side: Even the largest listed companies in Thailand stock exchange are still relatively small Un: Million USD Airline : market capalization Bank : market capalization 11,7 19,24 11,94 1,149 2,,634 Singapore Airline Malaysian Airline Thai Airways DBS Singapore Maybank Malaysia BBL Thailand Telecom : market capalization 24,26 8,472 6,831 Source: Bloomberg as of 31 May 26 SingTel Telekom Malaysia AIS 8

9 Supply side: Free-float percent of listed companies in SET is relatively low Un: Percent Simple averaged free float percent of listed companies in selected exchanges 88% 39% 49% 4% SET HKEX SGX NYSE Source: Stock exchange of Thailand and Bloomberg as of 31 October 26 Demand side: Transaction in the stock exchange is dominated by local retail investo rs Foreign investors Transactions by investor type Local instutions Local investors Un: Percent Source: SETSMART as of 31 January 27 Note: SET and MAI 9

10 Demand side: Investor ba se is small compared to other countrie s in the region As of the end 2 No. of investors No. of investors: population 4,, 4% 34% 3,, 3% 28% 3% 2,, 2% 2%,,.42% 8% % Thailand* Singapore Hong Kong Korea** Taiwan Japan % * whout double count ** from Source: AOSEF; The Population Reference Bureau Plus greater policy risks P/E Ratio End- November 26 End December 26 Indonesia Malaysia Philippines Hong Kong Singapore Korea Thailand Source: Bloomberg

11 Outline Why is Thailand s price-earnings ratio relatively low? What can we do about? Developing the second Thai capal market master plan (26-2) Areas of d evelopment ก ก 2 ก ก ก (Market P/E) ก ก ก ก ก ก ก ก ก ก 4 ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก 6 7 ก ก ก ก (Financial leracy ) ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก... ก ก ก ก ก ก 11

12 Implementing the second Thai capal market master plan (26-2) 2) ก 1 : ก ก 2 : ก 3 : ก 4 : ก 6: ก : ก ก ก ก ก กก (capal gain tax exemption) ก free float ( strategic shareholders) ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก ก Thank you 12