Volatile and thin trading in store this week

The floods could prompt a downward revision of listed companies’ earnings growth this quarter.
The prolonged flooding has damaged several industrial estates in the central part of Thailand, forcing plants located there to halt operations and obstructing delivery of some products.

Organisations revised their estimates of GDP growth for 2011 to 3-3.5 per cent from the previous forecast of 4 per cent. Some industries’ estimated earnings growth is also at risk to be revised down.
Flooded industrial estates suffer two kinds of damage. One is the loss of land sales at least in this quarter or possibly next quarter, depending on recovery and marketing. The other is the loss of revenue from utility services while customers suspend operations.
The estate suffering the most is Rojana. The estate’s supporting industries, like factory rent, are also affected.
At least two listed companies, TICON and TFUND, have factories for rent in the flooded industrial estates. Despite insurance coverage, it must be monitored how much compensation would be given during the business interruption.
The flooding directly hit big carmakers like Honda, which may halt its production possibly for two to three months until the situation is cleared. Some auto-parts makers like AH have suspended their operations. The impacts have spilled over to other carmakers like Toyota and Nissan, which temporarily stopped production due to supply disruption of some auto parts. This is expected to affect other auto-parts makers, like Thai Stanley Electric, which is a major supplier for Honda.
Insurance is greatly affected by the expectations of much higher disbursement for indemnity. This flooding could affect Bangkok Insurance and Thai Reinsurance. Recently, Thai Reinsurance reported in a regulatory filing that it has set aside Bt260 million in reserves for one-time expenses this quarter.
Many electronics parts plants are situated in flooded Ayutthaya and have temporarily ceased operations there. They are Hana, KCE Electronics and Stars Microelectronics. SVI is located in Pathum Thani, which is at risk for flooding. Delta and Cal-Comp Electronics are expected to have no impact from flooding, as their factories are not in provinces prone to inundation.
Of the total listed companies’ earnings, about 52 per cent are concentrated in two industries – energy and banking. These sectors have not been seriously affected by the flooding, hence the flood-hit industries’ earnings downgrades are unlikely to have any big impact on total listed companies’ earnings due to their low profit contribution to the total listed companies.
Besides, such a likely loss could be offset by some industries benefiting from the flooding. They include agriculture, food and construction materials.
This week, the SET Index is likely to be volatile with thin trading. On Wednes-day, the Monetary Policy Committee (MPC) is expected to keep the policy rate on hold and this could support the market in the short term. Stock picks are Siam Cement and Charoen Pokphand Foods, which could be safe and benefit from the current situation. Gradual stock accumulation is suggested when prices decline.

Chanpen Sirithanarattanakul
Head of Research
DBS Vickers Securities (Thailand)
The Thai market rebounded month to date along with regional markets. European and global leaders are finally acknowledging the depth of the euro-zone problems, and how, if left unresolved, the global economy could be consigned to another Lehman-style crisis. The IMF, World Bank and US have all highlighted that if the global economy suffered another blow, recovery would be more difficult due to the lack of policy flexibility such as fiscal constraints and lower interest rates. The stakes are too high for global leaders not to act decisively this time round.
The meetings on October 23 and November 3 could be turning points for markets. If they result in positive measures, it might sustain the current short-term rally.
On the domestic front, the Finance Ministry, government think-tank NESDB and the central bank have put forward initial estimates of damage caused by the recent floods at Bt100 billion or 1 per cent of GDP. Floods have been ravaging the country since July, but the latest bout has hit industrial estates, which could raise the economic cost manifold.
Tourism may also be affected substantially – and consequently, GDP – given the risk of flooding in Bangkok over the next few weeks. It is too early to estimate the total impact on growth because of uncertainty surrounding the flooding situation ahead.
The economic cost of the floods will surely extend beyond the near term. Businesses might review their investment strategies and capacity expansion plans in Thailand to take into account floods as a major risk factor, in addition to political risks. Mindful of the longer-term impact, the government plans to invest B100 billion over three to five years to prevent such exigencies.
Among listed companies, the automotive and electronics sectors have been the most affected by flooding so far. Many of the plants are located in industrial estates in Ayutthaya, which is one of the provinces most severely affected. Companies like Honda, Canon, Nikon, Somboon Advance Technology, Hana, KCE and Stars Microelectronics have been forced to temporarily shut down operations, either directly due to the floods or disruption to supply chains. Rojana Industrial Park and TICON are severely affected.
In the near term, we expect to see profit downgrades for those sectors/companies that are affected by the floods. Given the rising risk to growth, we expect the MPC to keep the policy rate at 3.5 per cent until year-end.
We recommend investors focus on domestic plays that would benefit from the government’s policies. Our preferred sectors are telecom, property and commerce. Our top picks are ADVANC, DTAC, AP, LPN, LH, SPALI, BIGC and HMPRO.

Vajiralux Sanglerdsillapachai
Executive director
Trinity Securities
This week, the SET is expected to trade within a wide range like in the last two or three weeks. Last week the difference between the high and low levels of the SET was 63 points.
The unexpected damage to flood-hit industrial estates will become our concern for GDP growth. It hurt many parts of the real sector, including industrial estates, electronics and automobiles.
The external factors from the US, Europe and China will make fewer waves on the market. We believe that the US is going to gradually recover and bring a stronger US dollar, while the euro-zone is still weak. The stronger US dollar will also help the global economic turnaround but will reduce the attractiveness of speculating on commodity and emerging stock markets.
We still recommend BGH, BIGC, ADVANC and CPF as the top picks for this round at 908-970. However, we add our recommendation for construction material stocks for trading this week including TPIPL and DCC.