Bangkok--6 Feb--SET
According to The Stock Exchange of Thailand (SET)’s Research and Information Division, the Thai market’s low price-earnings (P/E) ratio, compared to Malaysia’s and Singapore’s, is due to economic and capital market structure, not the operational performance of listed companies.
The latest SET research report-- SET Note No.2/2007 entitled: “Why Thai P/E is low”—showed that the P/E ratio of the Thai market is usually lower than Malaysia’s or Singapore’s. As of January 30, 2007, Thai market P/E stood at 9.08, while Malaysia and Singapore recorded 18.34 and 15.03 respectively. Because the P/E of nearly every sector of the Thai market is lower than those of Malaysia and Singapore, the figure is not due to the profitability of listed companies, SET Senior Vice President Dr. Sethaput Suthiwart-narueput stated.
The lower P/E does not reflect the performance of Thai listed companies, as they have been growing in line with their Malaysian and Singapore counterparts. However their share prices have not kept pace, resulting in comparatively lower P/E.
Econometric and business analysis reveals that the P/E of Thai companies with similar fundamentals to Malaysian and Singapore firms, e.g. capitalization, dividend payout ratio, quality of earnings and turnover ratio, will be about 2.5 - 3.5 times lower. This is the so-called “Thailand discount”.
According to the research, there are three important structural factors contributing to this ‘discount’: the level of a risk-free interest rate relative to returns from the stock market, treatment of shareholders’ rights and market volatility. International studies confirm that emerging markets place great importance on shareholders’ rights, legal issues and accounting standards. Furthermore, the World Bank’s Corporate Governance — Reports on the Observance of Standards and Codes (CG-ROSC) stated that Thailand should improve in the areas of shareholders’ rights and treatment, and directors’ responsibilities.
Volatility of price indices in the Thai market is more turbulent than in some others, due to the high proportion of retail investors whose trading patterns are characterized by rapid turnover. Other factors contributing to price volatility and the ‘Thailand discount’ are that the investor base is relatively small compared to the population, and policy uncertainty. To illustrate, when the Bank of Thailand recently announced measures to cope with short-term capital flows, the Thai market P/E fell from 10.1 to 8.6 within a day, while fundamentals remained unchanged.
“To help share valuation reflect the real value of stocks and the market, clear long-term policies are essential. A number of changes are required, such as adjusting capital market structure by expanding the investor base and the proportion of institutional investors to reduce volatility; corporate governance development in the area of shareholders’ rights; and the improvement of legal and accounting standards. Not only would these transformations reduce the ‘Thailand discount’, but also enhance market capitalization and long-term development ,” Dr. Sethaput concluded.
For more information on SET Note (in Thai language only), please visit http://www.set.or.th/setresearch
For more information, please contact the Corporate Communications Dept.:
Ladawan Kantawong Tel: 0-2229-2036 / Kulvida Jintakawong Tel: 0-2229-2037 /
Nattaporn Boonprapa Tel: 0-2229-2049 / Watsamon Saowakhonsathien Tel: 0-2229-2797