Expect to see profit-taking when index hits 1,237 points

Politics: The Constitution Court’s decision to dismiss the case brought up by opponents injected new life into the market. With the decision, the government can proceed with changes to the Constitution, once the parliamentary session reopens in August. This will pave the way for the selection of the charter amendment committee members. The move relieved political tension in the short term and we expect tension to return during the parliamentary session, as key issues would be discussed like the charter amendment, the unity bill and the no-confidence debate. 

Banks’ earnings: This week, listed companies are scheduled to report their second-quarter earnings, starting with banks, which should release their results on Wednesday through Friday. ASP estimated that the banking sector’s earnings would show a 4-per-cent growth rate from the previous quarter, and small and medium-sized banks which service mainly retail clients like BAY, TCAP and TISCO could also show new-high earnings. Other good performers are in the hire-purchase industries (like ASK, GL, KCAR), as their earnings should expand in line with the automotive industry. In the US, top companies would also start to release quarterly results, led by JPMorgan (last Friday) and CitiGroup today. The results will largely determine the mood of the market in the week.

External factors: It remains important to closely monitor global economic conditions, chiefly due to the debt crisis in the euro zone, which should require a long time to fix. Right now, the real sectors are feeling the pinch, reflected through the 7.6-per-cent economic growth rate of China in the second quarter – the lowest in three years. Under this condition, more monetary policy easing in several countries is expected, and this would boost the market sentiment in the short term. 

Without grave negative factors, the SET index this week could advance further. Still, we don’t see any possibility for the index to make a new high this year, beyond 1,248 points. We believe that the index could rise to as high as 1,237 points in the second half, based on the price-earnings ratio of 14 times. As such, whenever the index is getting near that level, all should be aware of possible profit-taking. 

Stocks in focus this week are those with laggard prices like RML, SC or high-dividend ICT stocks. Included are stocks that offer discounts from net asset value (NAV) like INTUCH, as well as small growth and high-dividend stocks like SNC.

 

Kitpon Pripisankit

Strategist

Kasikorn Securities Plc

The SET index last week advanced, as investors comfortably welcomed the US Federal Reserve Board’s decision not to launch QE3 as well as China’s 7.6-per-cent second-quarter economic growth rate. These are within expectations. Plus, the Constitution Court’s decision also boosted sentiment.

We expect the market to further advance this week and throughout this month, as:

1. Listed companies tend to show strong quarterly results;

2. Global equities are cheap, with those in Europe showing a price-earning ratio of 10-11 times. This will somewhat limit the downside; 

3. Markets are free from both positive and negative factors in July. No bad news is good news; and

4. US Treasuries’ 10-year and 30-year bond yields are as low as 1.5 and 2.5 per cent, respectively. The low returns would encourage investors to shift partial investment to equities. We expect the SET index to hit 1,225 points or exceed that this week. 

Our strategy is investors should start accumulating shares in the hotel, construction and palm-oil businesses, from now until the third quarter. For now, stocks in the communications, aviation and banking also tend to outperform the market. Investors should hold on to these stocks, waiting to sell when prices rise. Stocks recommended for this week are TISCO, TCAP, DTAC, SAMART, KCE, NMG, TRC and VNG.

 

Tisco Securities 

The market got a short-term boost on Friday from two factors. First, the Constitution Court ruled that the government’s attempt to amend the charter was not aimed at overthrowing the constitutional monarchy. The judgement removes the threat of a judicial dissolution of the ruling Pheu Thai Party, a move that would have sparked a new round of political unrest.

Second, the SET and other Asian markets were buoyed on Friday by news that China’s GDP growth for 2Q12 was in line with consensus at 7.6 per cent. Nonetheless, this marked China’s slowest growth for three years and represented a significant decline from its 1Q12 GDP expansion of 8.1 per cent.

This week investor sentiment should be partly driven by the announcement of 2Q12 bank results. We expect the seven commercial banks under our coverage to report aggregate earnings of Bt41 billion, up 21 per cent year-on-year and 4 per cent quarter-on-quarter, aided by lower corporate tax rates and continued strength in loan growth and fee income. The sector has risen by nearly 7 per cent since June (versus 4.5 per cent for the SET) and we believe the strong 2Q12F earnings are already priced in. KBANK and SCB remain our top one-year picks. We view KTB and TCAP as attractive laggard plays given their undemanding valuations.

Despite external uncertainties, we are maintaining our year-end SET target of 1,300, which implies a 2013F PER of 11.9x and moderate upside of 9 per cent. The deteriorating global backdrop has increased the probability of the US Fed introducing QE3, which is likely to improve market sentiment in 2H12. More stimulus measures from the EU and China are also on the cards.

For our model portfolio, we maintain ADVANC, TUF, HEMRAJ, MINT and STEC but have dropped CPF and BLA. Instead, we have added BANPU (attractive valuation after sharp fall in share price due to coal price weakness) and CPN (strong earnings growth from new malls, renovated properties and rental contract re-pricing).