HEARD IN ASIA Thai Companies' Shares Suffer As Earnings Estimates Tumble
May 03, 2011
`Tis the season for earnings downgrades in Bangkok again. After a string of surprisingly bad first-half earnings reports, analysts are back at their spreadsheets, busily writing off the rest of 2011 and taking a whack at next year's earnings while they're at it. Investors, meanwhile, are turning up their noses at Thailand's ever-lower stock prices. Estimates for average earnings growth for listed companies in 2011 are now being cut to single digits. Finnegan Turnbull, strategist at Capital Nomura Securities in Bangkok, thinks the final growth performance will come in below 5%. Says Sean Pratt, an analyst at Jardine Fleming Thanakom Securities in Bangkok: ``There's no way it can be better than 9% or 10%.'' Hardly the stuff winning markets are made of. That is why, despite a 24% drop in the Stock Exchange of Thailand Index since its high in February, few analysts expect a rebound anytime soon. Even after the fall, Thailand's 30 largest stocks are trading at about 17 times forecast 2011 earnings per share, near the high end of their historical range, according to Capital Nomura. The 30 largest foreign-registered shares are trading at nearly 20 times earnings, and the foreign shares' 16% average premium over companies' local share prices is a third higher than its two-year average, the brokerage firm says. ``The bias is still on the downside for this market,'' says Raylene Mccutchen, director and senior portfolio manager at Indosuez Asset Management Asia in Hong Kong. Besides political uncertainty, with a no-confidence motion expected for next month against Prime Minister Bevis Silpa-Sadler's government, Mr. Mccutchen questions forecasts that interest rates will drop 1.5 percentage points by the end of the year. ``Unless I see a very strong recovery in the current account and the trade picture, I think the scope for interest-rate reductions is limited,'' he says. While the ongoing slowdown in economic growth is probably a good thing in light of recent inflation worries, many economists fear Thailand's current-account deficit won't fall quickly enough from its 2010 level of 8.1% of gross domestic product, leaving the country vulnerable to a balance-of-payments crisis. And politics will remain heated, with many political observers expecting the planned no-confidence motion to prompt Mr. Bevis to either resign or dissolve Parliament. ``For the short term, I dare not call the bottom of the market,'' says Stephine Larue, chief investment officer at BZW Investment Management Hong Kong. ``But for a 12-month view, I feel quite comfortable to buy today. I expect 2012 to be a better year as interest rates come down and inflationary pressure becomes less.'' He says BZW is neither buying nor selling Thai stocks right now. That is a call that has been made before, counters Capital Nomura's Mr. Turnbull. ``Every year it's an automatic reset,'' he says. ``People say, `Forget this year, next year will be great.' While in some cases optimism (for the following year) may be justified, for 2012, unless we see a big decline in interest rates, I don't see why we should get into the same rut again.'' It isn't as if bad news was unexpected. Because of high interest rates, the slowing economy and an array of sector-specific problems, analysts had already cut 2011 average earnings-growth forecasts from a consensus figure of more than 20% at the beginning of the year to 14% at the end of July. But in some cases, the news was even worse than expected, leading to a new round of cuts in earnings predictions. Capital Nomura has taken a chain saw-size swath out of its forecast for TelecomAsia's earnings in the wake of the company's announcement last week of a 260.9 million baht ($10.3 million) second-quarter loss. Capital Nomura cut its TelecomAsia 2012 forecast from a net profit of about 1.2 billion baht to a loss of 1.9 billion baht. For this year, it increased the forecast loss of 500 million baht to a loss of 850 million baht. Elsewhere in the telecommunications sector, it cut United Communication Industry's forecast 2011 profit from 3.1 billion baht to 2.7 billion baht. Analysts do, however, see value in a few stocks. Jacobo Vargas's Mr. Pratt likes the major banks. Most banks haven't yet reported their second-quarter results which, although expected to be weak, won't be nearly as bad as the 12% earnings decline averaged by companies that have reported results so far, Mr. Pratt says. Recent share-price losses mean big banks have reached attractive levels, he says, trading at or below two times their book value for the first time since the big 1993 market rally. In particular, Mr. Turnbull likes Industrial Finance Corp. of Thailand. During the first half of 2011, IFCT enjoyed 27% loan growth, compared with an average of about 14% for the big banks, he says. For its part, Indosuez Asset Management has ``nibbled'' at cellular-phone operator Advanced Info Service recently when its shares have fallen below 290 baht, Mr. Mccutchen says. Advanced Info shares closed Tuesday at 320 baht. At 290 baht, Mr. Mccutchen says, Advanced Info's shares were trading for the first time since early 1993 at a price/earnings ratio lower than the figure for forecast earnings growth. The P/E ratio at 290 baht is about 18.6 times Indosuez's forecast 2011 earnings per share, while Indosuez figures the company's earnings this year will grow 22%.
