SET tipped to pass through 1,300 as QE3 boosts Thai stocks

However, poor economic data from the US, China and the euro zone still weighed on the market. Next week, we think the market will move sideways in a range of 1,260-1,290 and might possibly surge to 1,300, at which point short-term investors should consider scaling back their exposure. Lacking any new catalyst, we believe risky assets should not rally much, and the market will be switching between sectors. We recommend investors focus on cheap, lagging sectors such as property developers and contractors. Good mid- to small-cap stocks are also suited to the market, which lacks an investment theme for now. Our top picks are QH, HEMRAJ, PS, SC, CK, TRC, ITD, AH, AJ, SOLAR, SUC, BTS and TTA.

 

TISCO Securities 

 

We expect the Stock Exchange of Thailand (SET) Index to breach our previous year-end target of 1,300 points based on our forecast of a new wave of foreign fund inflows following the US Federal Reserve’s surprise announcement of a large-scale QE3 programme. Although the new US stimulus measures do not alter Thailand’s economic fundamentals or corporate earnings outlook, they will boost global liquidity, which in turn should lead to higher valuations for all asset classes in Asia. 

Based on the target price bot-tom-up valuation method, we expect the SET to comfortably reach the 1,360 level next year, which would imply a fiscal 2013 price-equity ratio (PER) of 12.6 times. Note that the Thai market is currently trading on a 2013 PER of 11.4 times, which is lower than other Asian markets with the exception of China and South Korea. In particular, QE3 is likely to support the recent rally in crude oil prices and lead to a stronger share price performance in the second half of fiscal 2012 by big-cap laggards in the energy and petrochem sectors. 

Our top picks in these sectors are TOP and SCC, which have significantly underperformed the SET over the last 12 months. We believe TOP could report earnings of Bt10 billion-Bt12 billion in the third quarter, its best performance in more than four years, due to strong refining margins coupled with stock gains. Meanwhile SCC’s earnings should improve quarter-on-quarter in the third quarter due to high seasonal demand for petrochem products and the absence of the huge inventory loss it suffered in the second quarter. 

Other changes to our model portfolio include the addition of KTB, MAKRO and CPALL. We also maintain ADVANC, HEMRAJ and TUF in our list of top stock picks. 

So far in 2012, small- and medium-cap stocks have easily outperformed market heavyweights despite strong gains in the banking and telecom sectors. However, if foreign funds embark on a new buying spree for Thai equities, as we anticipate, we expect them to target big caps that offer strong growth prospects and attractive valuations but have underperformed the overall market. There is already early evidence of a recovery in foreign inflows, with net foreign buys for Thai equities rising to Bt4.5 billion month-to-date versus net sells by foreign investors of Bt22 billion in the previous four months.