Twenty listed companies are likely to initiate share buybacks after their stock prices fell below intrinsic value, signalling a positive outlook for long-term investors looking to accumulate Thai shares, said Asia Plus Securities (ASPS).
According to the Stock Exchange of Thailand (SET), 28 listed companies have already repurchased shares worth over 29 billion baht. Large-cap stocks, including PTT Plc, have already announced share buyback programmes.
Stocks in the SET100 index have experienced a sharp decline by an average of 34% compared to the previous year. Currently, 39 stocks in the SET100 index have a price-to-book ratio (PBV) below 1.
To identify potential buyback (treasury stock) candidates, ASPS applied several screening criteria comprised of stocks with low valuations (PBV below 1); companies with high cash on hand (cash on hand of more than 15% of market capitalisation); and companies generating positive cash flow from operations.
Twenty companies met these criteria, including Banpu Plc (BANPU), Electricity Generating (EGCO), BGrimm Power (BGRIM), Bangchak Corporation (BCP), Regional Container Lines (RCL), International Research Corporation (IRPC), Thai Oil (TOP), Hana Microelectronics (HANA), PTT, CH Karnchang (CK), CK Power (CKP), PTT Global Chemical (PTTGC), BCPG Plc, Global Power Synergy (GPSC), Sri Trang Gloves (Thailand) (STGT), Siam Cement (SCC), Sansiri (SIRI), SCGJWD Logistics (SJWD), Thai Union Group (TU) and SCG Packaging (SCGP), the brokerage said.
SET chairman Kitipong Urapeepatanapong recently announced plans to support treasury stock programmes by proposing amendments to the Public Limited Companies Act.
The key changes include removing the current 10% buyback limit, allowing unlimited repurchases and allowing companies to initiate consecutive buyback programmes without the current six-month waiting period.
These measures aim to enhance companies' book values and increase dividend distribution potential, ASPS noted.
The SET acknowledges that treasury stock will have a positive impact on stock prices.
"The share repurchases often lead to short-term price increases. When a company announces a buyback programme, stock prices tend to rise immediately," the bourse said in a statement.
According to its study, small-scale buybacks result in an average price increase of 2-3% on the announcement day, while large-scale buybacks which involve 15% or more of outstanding shares can push the prices up by an average of 16%.
"The market often interprets share buybacks as a positive signal, suggesting that company executives believe their stock is undervalued. This perception can drive additional buying interest, further boosting share prices," ASPS said.
According to the SET, share repurchases provide several advantages including an increase in stock demand, potentially driving up prices, or a reduction in the number of tradable shares, leading to higher earnings per share. These optimise excess liquidity and thus improve financial efficiency.
For companies, a treasury stock project or share buybacks would increase confidence in their future performance, as buybacks present an opportunity to create shareholder value.
"If shares are repurchased at a low price and later resold strategically, companies can generate additional returns for shareholders. The difference in price is recorded as paid-in capital surplus, enhancing shareholder equity," the bourse said.
For investors, buybacks can lead to higher EPS and return on equity since repurchased shares are excluded from EPS calculations, higher dividends per share as fewer outstanding shares mean a greater payout per share and increased stock prices over time, assuming a stable price-earnings ratio, it added.
"Overall, while share buybacks can be a powerful tool for financial management, they should be assessed alongside other fundamental factors to make well-informed investment decisions."