Listed companies to prepare for share buybacks seen among 20

Twenty listed firms are expected to set up share buybacks after their stock price undershot its intrinsic value, suggesting the outlook is now positive for long-term investors who wish to buy Thai shares, according to Asia Plus Securities (ASPS).

According to the Stock Exchange of Thailand (SET), previously, 28 listed firms had repurchased their shares valued at more than 29 billion baht. The PTT Plc share buyback programme is among several already announced by large-cap stocks.

Overall, the stocks in the SET100 index have dropped by as much as 34% from the same period last year. At present, 39 stocks in the SET100 index have a PBV of less than 1.

ASPS used the following screening criteria to find potential buyback (treasury stock) candidates SMVs (PBV less than 1); companies with abundant cash (cash on hand more than 15% market capitalisation); and companies that generate cash flow from operations.

These included 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.

In a recent statement, SET chairman Kitipong Urapeepatanapong called for supporting treasury stock programmes via amendments to the Public Limited Companies Act.

Another important change is to scrap the current 10% buyback limit, paving the way for unlimited repurchases and allowing firms to launch consecutive buyback programmes without the current six-month waiting period.

Such measures would likely raise the book values of companies while increasing the potential distribution of dividends, ASPS said.

The treasury stock will be the one which the SET has already ruled that it will affect positively to the stock price.

“The buybacks typically drive short-term highs in price. “When a company announces a buy back programme, immediately after such announcements stock prices rise,” the bourse said in a statement.

The average price increase when small companies announce repurchase program is 2-3% on the day of announcement, and when large companies commit themselves to repurchase programs of 15% or more of outstanding shares, the average price increase can be 16% (according to it’s own study).

“Share buybacks are often interpreted positively by the market as they indicate that company management believes their stock is undervalued. “Such perception can ignite some buying interest and thus, lift share prices,” ASPS said.

Share buy-backs have advantages such as boosting demand in the stock market, which can raise stock prices, or limiting the number of shares traded, which can optimize earnings per share, said the SET. They serve to optimise excess liquidity and thereby enhance financial efficiency.

For businesses, a treasury stock project or share buybacks will give further confidence in their performance in the future, as buybacks are an opportunity to build value.

“By repurchasing shares at a low price and then reselling them strategically, companies can create additional returns for their shareholders. The difference in price is booked as paid-in capital surplus, which increases shareholder equity,” the bourse said.

For investors, buybacks can result in higher EPS and return on equity as repurchased shares are not included in the EPS calculation, more dividends per share as fewer outstanding shares result in a higher payout per share and higher stock prices over time, assuming a constant price-earnings ratio, it added.

“In general, although share buybacks are a valuable tool for investing management, they should be evaluated in conjunction with other basic factors to achieve wise investment decisions.