In my opinion, our Singapore market is still cheap. Take note the earnings used by me were the trailing 12-months (TTM). How about the earnings going forward? Of course when future earnings are expected to decline, the PE ratio is not going to stay at the same low level. But you can do some extrapolation based on the TTM PE ratio.
The table below will give an idea of what STI PE ratio is going to be if earnings are to drop by so much and assuming price remains the same level. Now you can make a smart estimate of what our forward STI PE ratio is going to be.
Taking a worst case scenario of 30% decline in earnings, our PE ratio will be 9.39 which is still more than 60% discount of a 10-year average PE ratio according to Macquarie (read comments).
| TTM PE ratio (6 Jan 2009) | Earnings drop by | PE ratio |
| 6.57 | 10.00% | 7.30 |
| 20.00% | 8.21 | |
| 30.00% | 9.39 | |
| 40.00% | 10.95 | |
| 50.00% | 13.14 | |
| 60.00% | 16.43 | |
| 70.00% | 21.90 | |
| 80.00% | 32.85 | |
| 90.00% | 65.70 |
1 comment:
0130 GMT [Dow Jones] Singapore market valuations are undemanding but earnings risks remain, so more defensive plays are best bet for early part of 2009, says Macquarie. Broker notes Singapore market trading on forward PE ratio of about 10X, which is 60% discount to 10-year average. But earnings expected to fall 13% this year with worst-case scenario of 27% EPS decline. Broker has Overweight call on sectors with higher earnings certainty, little refinancing and earnings risk such as telecom and S-REIT sectors. Says on signs of an improving economic outlook, investors should add higher-beta sectors like banks and property going into 2H09. Advises avoiding transport sector given expected demand destruction, pricing and margin pressures. Tips end-2009 STI index target of 2188. STI last down 1.6% at 1851.24. (KIG)
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