Q2 results, fund inflow stay key factors

In the first quarter, listed companies’ aggregate earnings hit Bt212 billion, or 30 per cent of annual forecasts. Bloomberg Consensus shows that since early this year, analysts have revised earnings forecasts by 1.6 per cent, contradicting the forecasts for regional peers: China ( minus 5.5 per cent), Taiwan (-6.4 per cent), Hong Kong (-3.1 per cent), South Korea (-2.9 per cent), Indonesia (-2.4 per cent), the Philippines (-2.7 per cent), Malaysia (-0.7 per cent) and Singapore (-0.6 per cent). 

   As second-quarter results weakened, particularly for energy and petrochemical stocks due to stock losses, it is possible that listed companies’ earnings forecasts will be revised downward, and this would pressure the SET Index. At our house, the earnings forecast was cut by 2.9 per cent in late June. 

   Globally, stock markets are addicted to stimulus measures, which distort actual medium- and long-term market conditions. For example, China’s poor factory output should be interpreted as bad news for the economy, but the markets instead expected stimulus measures from the government, like rate cuts or a reduction in the reserve requirement. This led to a hike in commodities prices over the past two weeks, when crude oil prices had risen by over 7.6 per cent. In Thailand, energy and petrochemical share prices went up 3.47 per cent, against the SET’s 1.5-per-cent rise, in the past two weeks. With the expected price-earnings ratio of 13.8 times, further correction is possible. 

   Foreign investors were net buyers in Asia for two consecutive weeks, with US$3.99 billion (Bt125.3 billion) last week, or the highest weekly net-buy level since April 8, 2011. Foreign net buys in South Korea and Taiwan were the highest last week, at $2.24 billion and $1.5 billion respectively, followed by $163 million for Thailand and $89 million Indonesia. The Philippines was the only market suffering, with a $17-million net sell. 

   A pause in fund inflows is expected this week, after combined Bt5.4 billion net buys in the past five trading days that pushed aggregate net buys since November 29 last year to Bt82 billion. As energy and petroleum stocks outperformed the market, there is a chance that foreign investors will adjust their portfolios.

Top picks this week are EASTW, HMPRO, RML and PS.

 

Kitpon Pripisankit

Equity Analyst and Strategist / Kasikorn Securities

Last week, the energy sectoral index rose 5.9 per cent, against a 1.8-per-cent rise in the SET Index. Still, it is likely that it will continue the upward trend as earnings downgrades should have ended. Moreover, energy stocks’ price-to-book value offers a 20-per-cent discount, as the PBV stands at 1.6 times against the 2 times of the overall market. This is the first discount since 2000. 

   Yet, further market volatility is anticipated. Krung Thai Bank’s recapitalisation sparked fears on loan-loss provisions against loans to Sahaviriya Steel Industries, which would also affect SCB and TISCO. A chain reaction could also hit banks with a low capital-adequacy ratio (KBANK and TCAP). Investors could take profit from the stocks after the disclosure of quarterly earnings. The volatility should have a limited impact, though. 

   We are still bullish on the SET Index, which could test 1,250 points during August and September, which marks the end of earnings-downgrade cycle. Stocks could be re-reated and traded at a higher price-earnings ratio. 

   For this week, top picks are PTTGC, LANNA, BBL, CENTEL, MINT, ERW, SAMART, VNG and NMG. The SET Index could move in a range of 1,200-1,240 points.

 

Sukit Udomsirikul

Assistant Managing Director, Investment Strategy Department / SCB Securities

Last week, the SET index was able to stay above 1,200 points throughout the week thanks to foreign investment. Foreign investors remained net buyers, particularly for energy and petrochemical stocks, betting on new stimulus measures from Europe and the US. 

Meanwhile, most of the listed companies reported second-quarter earnings in line with the consensus. 

This week, we expect the SET index will move in a range of 1,195-1,223 points. Early in the week, the market may be under pressure after the strong rally last week, and also investors will realise a slowdown in China’s economy as Chinese export and import growth slowed markedly last month. This flashed warning signals about both the domestic and the global economies. 

The index may also decline further if there is still no clarification from Europe about the policy stance of Germany in regard to allowing the European Central Bank to purchase bonds and the European Stability Mechanism getting a banking licence. We expect this will be clear in the middle of September rather than in the near term. 

However, we have a positive view on energy and petrochemical stocks in the medium term, as we expect the global economy to recover in the final quarter of the year. Still, we observe that current share prices seem to be rising too fast. Notably, TOP, IRPC, BCP and ESSO only have an upside gain for 12 months of less than 10 per cent. 

   Among the key things to focus on this week are US economic data. Based on a Reuters poll, most of the US data are improving, such the consumer price index for July, which is expected to be flat, and the Fed Empire State Index, which is expected to be slightly up. 

   Another key focus is earnings results, with this week being the final week for listed companies to report earnings. CENTEL, INTUCH and HEMRAJ are expected to report positive second-quarter earnings growth from the same period last year. Meanwhile, we expect INTUCH to announce an interim dividend of Bt2.20 per share.

   As to strategy, during a volatile market we prefer selective buying of stocks with a good history of earnings and which pay interim dividends. Our stock picks are INTUCH, AOT and STEC.

 

Tisco Securities

[email protected]

The SET has gained more than 10 per cent since its recent low last June, driven by a rally in global markets amid hopes of European Central Bank bond purchases and further stimulus measures by the US Federal Reserve.

   However, central banks have yet to fulfil market expectations of a strong monetary-policy response and this leaves the Thai market vulnerable to profit-taking in the short term.

Nonetheless, we believe downside for the SET is limited by the return of foreign fund inflows (foreign investors have been net buyers of Bt5billion of Thai equities so far this month) and the recovery in big-cap energy and petrochemical stocks following the recent rebound in oil prices. 

Also, market-supportive is the steady stream of resilient, if unspectacular, second-quarter earnings and interim dividend announcements. Accordingly, we maintain our SET target of 1,300 points, which implies a 2013F price-earnings ratio of 11.9 times, and a moderate upside of about 7 per cent. 

Note that our banking analyst has turned more cautious on the sector’s prospects in the second half due to external headwinds, and has trimmed her target prices on BBL, KTB and TMB. Her top picks remain KBANK and SCB, due to resilient earnings driven by structural retail/fee income.

Among small sectors, we continue to like hotels (MINT and CENTEL), which have benefited from 7.6-per cent year-on-year growth in foreign tourist arrivals in the first half. 

Despite the euro-zone crisis, tourists from European countries recorded the highest growth rate of 11 per cent year on year and accounted for 28 per cent of all tourist arrivals in Thailand. 

We also see some good buying opportunities in selective micro-caps. In particular, we like SF (whose second-quarter normalised earnings beat consensus by 20 per cent) and SRICHA (plenty of potential projects, cheap valuation and high dividend yield). 

   For our model portfolio, we maintain core picks including ADVANC, TUF, CPN and STEC.