Current State of Thai ROE Return on Equity (ROE) in Thailand currently reflects a significant decline, resting at less than half its level from 2011. It ranks as the fourth lowest in Asia, excluding Japan, according to Kiatnakin Phatra Securities (KKPS) in the research paper.
Despite this, KKPS’ research suggests that the drop is largely the result of cyclical factors. This implies that ROE normalization is possible even without a surge in real GDP growth. The report aims to estimate where normalized ROE might stabilize, and how this normalization could enhance market valuations.
Top-Down Analysis: Identifying Growth Potential
The top-down analysis reveals two essential aspects that could lead to increased ROE in the long term. First, the existing ROE is low given the current GDP growth rates. Second, much of the ROE reduction has been linked to low inflation rates. An increase in inflation could naturally boost ROE since it is a nominal metric. KKPS’ projections indicate that a normalized ROE could be 2.5 percentage points above current levels.
Bottom-Up Analysis: Supporting Insights Similarly
The bottom-up analytical approach supports these findings. By employing a comprehensive five-stage DuPont analysis on non-financial sectors and establishing targets for each phase, we estimate a normalized ROE improvement of approximately 2.3 percentage points. This aligns closely with its top-down insights.
Implications for Price-to-Book Value (P/B) Ratios
Further analysis assesses the normalized P/B ratio. Historically, market P/B strongly correlates with the difference between ROE and the cost of capital. Using regression analysis, we estimate a normalized P/B ratio, which leads to a projected SET P/B of 1.65x—a 20% increase from the current 1.37x.
2025 Outlook: Near-Term Challenges
Despite these optimistic projections, KKPS’ expectations for ROE reaching normalized targets within the next few years are tempered. The immediate environment involves unpredictable variables such as earnings, global events, domestic macroeconomic trends, and politics. KKPS forecast for 2025 includes a weak first quarter, followed by rather stagnant progress throughout the year.
Medium-Term Perspective: Significant Upside Potential
In the longer-term, the analysis underscores considerable implications. The possibility of ROE normalization aligns with the notion that Thai earnings are currently cyclically subdued. Restoration to normalized levels presents opportunities for notable market gains over the next two to four years.
