Asia Plus Securities (ASPS) Research predicts 13 low free-float stocks with high volatility are likely to drop in value following a possible revision of the criteria for free-float shareholding of listed companies.
New liquidity criteria are expected to make stocks with strong fundamentals more attractive to investors.
The Securities and Exchange Commission (SEC) asked the Stock Exchange of Thailand (SET) to revise the free-float standards for minor shareholder distribution along with other measures that may reduce speculation in this stock segment.
The SEC also urged the SET to review measures on posting warning alerts to investors on certain stocks, and the criteria for new additions to the SET50 or SET100 indices.
ASPS Research said the SEC and SET have begun to observe unusual price movements and trading volume among certain equities. They should work to reduce the volatility of low free-float stocks that have risen drastically in price, said the think tank.
Screening for stocks with low free float and unusual price movement and trade volume, ASPS Research found 13 stocks on the SET for investors to monitor.
These stocks were included on the list for having a free float under 30%, share prices increasing 20% compared with SET Index gains of only 3.85%, and accumulated turnover for one month of more than 5%.
Turnover of 5% in one month is considered high, equivalent to the ceiling criteria for screening stocks in the SET50 and SET100 indices.
ASPS Research expects the prices of these stocks to drop after a period of high speculation.
If the SET revises its rules to protect shareholders and investors, and reduces speculation in low-liquidity stocks, then investors should focus on listed firms with strong fundamentals that have more liquidity, said the company.
ASPS Research advises investing in companies with expected fund inflows, with buy recommendations on Siam Cement (SCC), PTT Plc (PTT), Bangkok Dusit Medical Services (BDMS), Kasikornbank (KBANK) and Gulf Energy Development Plc (GULF).
It also suggests stocks with high dividends such as Dynasty Ceramic Plc (DCC) and Applicad Plc (APP), and firms that have a special story like Thaifoods Group Plc.
An analyst from Asia Plus Securities who requested anonymity said prices of low free-float stocks declined yesterday after investors pulled money out in fear of regulatory action.
The source said it is difficult to determine a fair value for some of these stocks as many are not covered by analysts. Most of them trade at high price-to-earnings (P/E) ratios, such as DELTA with a P/E of 150 times compared with the SET P/E of about 23 times.
The analyst said the SET rose about 5% over a month, while some low free-float stocks rose by over 100%.
"We classify these stocks as high risk and recommend investors return to strong fundamentals," the source said.
