Careful stock selection advised at the 1,200 level

Foreign investors were net buyers with accumulated net buying of more than Bt88 billion from November 29, 2011 to the present, pushing up the SET Index to 1,214 points, the highest in 16 years. It is also possible that foreign capital will continue to drive the market to 1,241 points within this year or the expected price to earnings (P/E) ratio of 13.5 times. At this point, some stock prices are close to overvalued taking into account their fundamentals in 2012. More careful selection of stocks should be taken for the SET Index at around 1,200 points.

The interest rate’s downward cycle could end soon. There was a sign that the easing of monetary policy could cease soon after the MPC decided to leave the policy rate unchanged at 3 per cent at its last meeting. The downward cycle for interest rates could be shortened to only 4-5 months, compared to the upward cycle of nearly three years. The MPC weighted more on inflation risks after crude prices rose more than 20 per cent from the end of 2011. Simultaneously, China gave a signal regarding a pause in the easing of its monetary policy with no further cut in the reserve requirement rate. Although the rate’s downward cycle, which may end soon, will not boost the money supply as it previously did, we believe that the global economic recovery will drive risky assets, commodities and the stock markets to move onwards.

The SET Index target is revised up to 1,241 points. Improvement has been seen in the global stock markets after more confidence in the global economy as Greece was able to finalise its debt restructuring plan and as the US economic figures, particularly labour market, showed signs of continuous improvement since late 2011. Thus, the ASP Research revised up its target for the SET Index to 1,241 points (expected P/E of 13.5 times) from the previous estimate of 1,184 points (expected P/E of 13 times).

We believe that as long as foreign funds continue to flow into the Thai bourse, the SET Index will zigzag up to the target at 1,241 points or the expected P/E of 13.5 times. The stock market may face profit-taking on the way up. Advice for investment is to sell expensive stocks and buy cheap ones with overweighting in automotive stocks, which gain benefits from increasing car production in the country and this year’s Bangkok Motor Show. Stock picks are SAT and STANLY.

 

Chaiyaporn Nompitakcharoen

Head of Tactical Research

Bualuang Securities

 

The SET Index gained slightly last week as investors were reluctant to load more stocks at near 1,200 points. The Bank of Thailand held the repo rate unchanged at its meeting last week but expressed concern over the rising inflation rate for the rest of this year. Stocks have rallied so far post-flood to new highs on expectation of earnings recovery and decline of global financial risk. However, the SET is currently pricing at forward P/E of 13x, moderately above its long-term average of 11.5x. 

What are the implications? 

_ The Thai stock market is priced on earnings back to pre-flood levels and normal growth;

_ It has priced in massive money inflows from overseas, and 

_ A contained inflation environment 

 

However, no QE 3 (quantitative easing), additional liquidity provided by the US Fed would become reason for profit-taking in risky assets, including equity. We are cautious on a bullish move above the 1,200 mark. Our stock picks are DTAC, INTUCH, KK, BECL and MAJOR.

 

Kavee Chukitkasem

Assistant Managing Director

Kasikorn Securities

 

Last week, the Thai stock market moved with volatility. Early in the week saw positive news from improved US economic data and the Bank of Thailand’s upward revision of Thai economic growth in 2012. More, profit-taking was seen in some sectors like banks with continued credit expansion, and ICT stocks with benefits from the master plan for telecommunications and possible auction of 3G licences late this year. Later in the week, investors take profit on concern over the global economy after China and the Europe announced lower-than-expected manufacturing figures. However, the SET Index closed the week with a little gain, compared to the previous week.

Despite last week’s fluctuations in stock markets worldwide and commodity prices, we expect the stock market will not see a big correction. The US economy continues to show improved economic figures. We believe that eventually China will relax its monetary policy to stimulate the economy as inflation starts to slow down. Besides high global liquidity – foreign investors continue to buy Thai stocks – will help limit market downside, at least, for the short term. Local factors still show positive signs from a V-shaped economic recovery and good industry news such as those in ICT, banking, property, automotive, and securities sectors or mergers. This round of short-term corrections could provide opportunity for speculation. Technically, the support level is set at 1,180 points. The SET Index is targeted at 1,230-1,240 points this month.

In the short term, the stock market could continue to gain positive momentum. However, in the medium term, we suggest gradual reduction of portfolio as some warning signs start to show. They are:

_ slowing economic figures in some countries;

_ US property figures begin to weaken; 

_ European bond yields begin to pick up on concerns that Portugal may be next target for financial assistance after Greece; 

_ foreign investors start to short the SET50 futures more; 

_ inflationary pressure is expected after an increase in the minimum daily wages; 

_ technically, the 1,230-1,240 level appears to be the strong resistance level.

 

 

Tisco Securities

 

Although the SET has already surpassed our previous 12-month target of 1,160 points, we believe there is a moderate upside for Thai equities in the near term. Based on our target price bottom-up approach, we believe the SET could reach 1,240 points over the next 12 months, implying an upside of 4 per cent at last Thursday’s closing level. If foreign fund inflows remain resilient and China continues its monetary easing, we could see the SET Index rising to 1,350 points, which would put the market one standard deviation above its 10-year historical average P/E of 11.1x.

The market’s current valuation is supported by a compound annual growth rate for EPS of 17 per cent in 2012-13 fiscal, significantly higher than the decade average of 12 per cent. However, after a gain of 16 per cent year to date, investment risks are rising and it would be no surprise if the SET continues to be buffeted by sharp bouts of profit-taking as happened last Thursday.

The major risk, in our view, is a sudden reversal in foreign inflows or greater diversification of funds into the bond market. The risk of the latter has been heightened by the recent rise in 10-year US bond yields on reduced expectations of QE3. Note that foreign investors have bought a net total of more than US$2.4 billion of Thai equities year to date, with net purchases of $1.5 billion in February alone, the highest monthly foreign net buying over the last six years

We continue to favour energy and petrochem cyclical plays due to their laggard performances, attractive valuations and leverage to improving global demand. Although we only rate PTTEP as a Hold, the stock looks undervalued given that crude oil prices have jumped 15 per cent since mid-January while its share price has remained flat in the same period. With domestic demand recovering from severe floods in the fourth quarter of last year, we continue to recommend selective stocks in the banking, telecom, industrial estates and retail space.