SET = 1789,CHILL CHILL!!!
โพสต์แล้ว: พฤหัสฯ. ส.ค. 09, 2007 11:36 am
Thailand deserves better
On August 19, Thailand holds a referendum on the new Constitution. Expect it to
be passed and attention to shift to elections in December. To date, only the
Democrats have disclosed any manifesto; it is People First. Some readers may
recall the UK Labour Partys historic manifesto of 1997: New Labour because
Britain deserves better. It has remained in government ever since and the UK
has enjoyed the longest continuous period of growth since the 1800s.
Crises are a second opportunity for reform
The Asian financial crisis had a tremendous effect upon Thai industries. Many
companies and financial institutions transformed themselves as a result. However,
the sense is government and the regulatory structure have lagged behind. Our
strong hope is that the political and currency issues of 2007 will have the same
effect upon policy and the public sector, as 1997 did on the private sector. It
represents a second opportunity for reform.
A positive convergence trade
Historically, emerging markets have delivered growth but with significant volatility.
This has caused the PEG ratios for many companies to be inferior to their peers in
developed markets. However, as the size and depth of markets increase,
corporate governance improves, and management track records grow, valuations
are converging. As Thailand returns to democracy, we expect a similar trend.
Whats required for the SET to beat previous high (1,753)?
If you accept our thesis that the current situation is a second opportunity for
reform, we can experience a double positive of accelerating growth and higher
multiples. Using a simple Gordon Growth model, we estimate Thailand can
exceed its pre-crisis high of 1,753 within four years based on compounded real
GDP of 5.75%.
The consumer, infrastructure and reflation
Over the next four years we expect domestic growth will become more important.
This should be due to a combination of public investment, pent-up private
investment and consumption, and undervalued assets. Expect more balanced
growth and changing equity leadership. Equities are already starting to reflect this.
Model portfolio should reflect these themes
The benchmark was companies which we have a high degree of conviction will
generate compounded double-digit performance over the next four years.
Positive implications for the SET Index
The policies discussed in this paper implemented under any future government
would likely boost investment and overall economic growth. Using the Gordon
Growth model we tried to profile the impact this would have on the SET Index
during a full life of the new government i.e. through to the end of 2011.
The main assumptions were as follows:
Real GDP growth averages 5.5% and inflation of 3%, equating to nominal
GDP of 8.5%. Note, this is 100 basis points below the average for the past
four years of 9.5%.
EPS growth equal to 1.25x nominal GDP growth and an increase in the
dividend payout ratio from 45% currently to 50% by 2011. The latter assumes
large cap energy companies and large banks resolve to increase their
divided payout ratios.
A risk premium of 7% and a risk-free rate of 5%.
Our model suggests that from a top-down perspective the SET Index could reach
1,600 within a full term of a new government i.e. four years. This would equate to
a trailing PER of 15.5x. This would be high by Thailands own, recent standards.
However, it would still represent a discount to the rest of the region and is below
Thailands trading range pre-1997.
If the economy can average real GDP growth of 6%, or the risk-free rate were 50
basis points lower (at 4.5% instead of 5.0%) the fair value would rise to
approximately 1,900. This would represent a new all-time high for the SET. The
previous high was 1,753, more than 13 years ago. At the time of writing, we
remain more than 50% below this level.
The conclusion, investors should be buying into the current consolidation. It
remains a case of buy in 2007, ahead of the acceleration in EPS growth in 2008.
Three themes for the next four years: the consumer,
infrastructure and asset reflation
Leading themes during the next government should be different from the recent
past. Over the past four years it has all been about external growth and, in
particular, the influence of China. Over the next four years we believe domestic
growth will be more important. This should be due to a combination of public
investment (discussed at length above), pent-up private investment and
consumption, and undervalued assets.
If we are correct, expect more balanced growth and changing equity leadership.
Share prices are already starting to reflect this. An attribution analysis for the
years 2004-2006, inclusive, shows positive performance to be concentrated in
energy, and service sectors dominated by a small number of mid-cap stocks.
Conversely, large cap domestic sectors were the biggest drag on performance
i.e. banking, communication, finance and securities, building materials and
propertyThree themes for the next four years: the consumer,
infrastructure and asset reflation
Leading themes during the next government should be different from the recent
past. Over the past four years it has all been about external growth and, in
particular, the influence of China. Over the next four years we believe domestic
growth will be more important. This should be due to a combination of public
investment (discussed at length above), pent-up private investment and
consumption, and undervalued assets.
If we are correct, expect more balanced growth and changing equity leadership.
Share prices are already starting to reflect this. An attribution analysis for the
years 2004-2006, inclusive, shows positive performance to be concentrated in
energy, and service sectors dominated by a small number of mid-cap stocks.
On August 19, Thailand holds a referendum on the new Constitution. Expect it to
be passed and attention to shift to elections in December. To date, only the
Democrats have disclosed any manifesto; it is People First. Some readers may
recall the UK Labour Partys historic manifesto of 1997: New Labour because
Britain deserves better. It has remained in government ever since and the UK
has enjoyed the longest continuous period of growth since the 1800s.
Crises are a second opportunity for reform
The Asian financial crisis had a tremendous effect upon Thai industries. Many
companies and financial institutions transformed themselves as a result. However,
the sense is government and the regulatory structure have lagged behind. Our
strong hope is that the political and currency issues of 2007 will have the same
effect upon policy and the public sector, as 1997 did on the private sector. It
represents a second opportunity for reform.
A positive convergence trade
Historically, emerging markets have delivered growth but with significant volatility.
This has caused the PEG ratios for many companies to be inferior to their peers in
developed markets. However, as the size and depth of markets increase,
corporate governance improves, and management track records grow, valuations
are converging. As Thailand returns to democracy, we expect a similar trend.
Whats required for the SET to beat previous high (1,753)?
If you accept our thesis that the current situation is a second opportunity for
reform, we can experience a double positive of accelerating growth and higher
multiples. Using a simple Gordon Growth model, we estimate Thailand can
exceed its pre-crisis high of 1,753 within four years based on compounded real
GDP of 5.75%.
The consumer, infrastructure and reflation
Over the next four years we expect domestic growth will become more important.
This should be due to a combination of public investment, pent-up private
investment and consumption, and undervalued assets. Expect more balanced
growth and changing equity leadership. Equities are already starting to reflect this.
Model portfolio should reflect these themes
The benchmark was companies which we have a high degree of conviction will
generate compounded double-digit performance over the next four years.
Positive implications for the SET Index
The policies discussed in this paper implemented under any future government
would likely boost investment and overall economic growth. Using the Gordon
Growth model we tried to profile the impact this would have on the SET Index
during a full life of the new government i.e. through to the end of 2011.
The main assumptions were as follows:
Real GDP growth averages 5.5% and inflation of 3%, equating to nominal
GDP of 8.5%. Note, this is 100 basis points below the average for the past
four years of 9.5%.
EPS growth equal to 1.25x nominal GDP growth and an increase in the
dividend payout ratio from 45% currently to 50% by 2011. The latter assumes
large cap energy companies and large banks resolve to increase their
divided payout ratios.
A risk premium of 7% and a risk-free rate of 5%.
Our model suggests that from a top-down perspective the SET Index could reach
1,600 within a full term of a new government i.e. four years. This would equate to
a trailing PER of 15.5x. This would be high by Thailands own, recent standards.
However, it would still represent a discount to the rest of the region and is below
Thailands trading range pre-1997.
If the economy can average real GDP growth of 6%, or the risk-free rate were 50
basis points lower (at 4.5% instead of 5.0%) the fair value would rise to
approximately 1,900. This would represent a new all-time high for the SET. The
previous high was 1,753, more than 13 years ago. At the time of writing, we
remain more than 50% below this level.
The conclusion, investors should be buying into the current consolidation. It
remains a case of buy in 2007, ahead of the acceleration in EPS growth in 2008.
Three themes for the next four years: the consumer,
infrastructure and asset reflation
Leading themes during the next government should be different from the recent
past. Over the past four years it has all been about external growth and, in
particular, the influence of China. Over the next four years we believe domestic
growth will be more important. This should be due to a combination of public
investment (discussed at length above), pent-up private investment and
consumption, and undervalued assets.
If we are correct, expect more balanced growth and changing equity leadership.
Share prices are already starting to reflect this. An attribution analysis for the
years 2004-2006, inclusive, shows positive performance to be concentrated in
energy, and service sectors dominated by a small number of mid-cap stocks.
Conversely, large cap domestic sectors were the biggest drag on performance
i.e. banking, communication, finance and securities, building materials and
propertyThree themes for the next four years: the consumer,
infrastructure and asset reflation
Leading themes during the next government should be different from the recent
past. Over the past four years it has all been about external growth and, in
particular, the influence of China. Over the next four years we believe domestic
growth will be more important. This should be due to a combination of public
investment (discussed at length above), pent-up private investment and
consumption, and undervalued assets.
If we are correct, expect more balanced growth and changing equity leadership.
Share prices are already starting to reflect this. An attribution analysis for the
years 2004-2006, inclusive, shows positive performance to be concentrated in
energy, and service sectors dominated by a small number of mid-cap stocks.
