SET's strong rebound fuels optimistic view

The SET Index fell sharply last week by 2.3 per cent to close at 1,478.97 points on concerns over local politics and the property industry. Prime Minister Yingluck Shinawatra was being probed for an allegedly false asset declaration and there was a rumour over the risk of the Bank of Thailand coming out with regulations to prevent property speculation.

These rumours led to the decline of the whole market, particularly in the property, finance and banking sectors, but it rebounded strongly after Yingluck was cleared of the charge and the central bank denied any intention to introduce any regulations. Foreign investors were net sellers last week.

Last week the Monetary Policy Committee voted 5-1 to keep the central bank’s policy rate at 2.75 per cent, citing rising external risks. Domestic demand continues to support the economy, with household income and employment still strong. Inflation is within its target range but could rise because of easing credit conditions and fiscal stimulus that will accelerate as the water-management project and infrastructure investments roll out by the end of the year. We pencilled in a 25-basis-point hike in the fourth quarter.

We remain optimistic of the long-term prospects in the Thai market. At current levels, the market is trading at a price-to-earning ratio of 13.6 times, which is still attractive given strong projected earning-per-share growth of 17.4 per cent for this year. Our 12-month SET target is intact at 1,688. Another drop in stock prices should present opportunities to accumulate. We prefer sectors that will benefit from the strong growth in domestic consumption and investment. These include banks (KTB, BBL), property (LH, QH, PS, AMATA) and contractors (CK).

 

Tisco Securities

The Thai market’s recent retreat from 19-year highs provides an opportunity to add selectively to portfolios, especially banks, telecoms, commercial and industrial real estate and big-cap commerce stocks.

We also maintain our year-end SET target of 1,650, implying a 13.9-times P/E for 2014, which is a 3-per-cent discount to the current Asean peer average multiple.

After the SET’s gain of 10 per cent year-to-date, upside to our target now stands at a measured 8 per cent.

Key upside limiting factors include sudden baht strength and its effect on tourism, current-account health and foreign dirct investment; further declines in global oil prices, which would hit earnings in the heavyweight energy and petrochem sectors; and decelerating earnings growth deceleration going into 2014.

Updates from recent meetings with Thai banks support our view that the sector is on track to deliver 25-per-cent YoY net profit growth in 1Q13F, backed by strong loan/fee demand, benign credit/funding competition and stable asset quality.

In our view, the recent pullback in sector valuations to 1.7x P/B and 11x P/R for 2013F (+1 STD) presents an attractive re-entry level given decent 1Q13F earnings and above-regional core profit growth of 22-15 per cent in 2013-15F. Our top picks in the sector are BBL, SCB and BAY. We also like certain real-estate plays with a preference for land bank and income asset ownership (CPN, AMATA and LH), telecoms for multi-year earnings and dividend expansion (INTUCH), and commerce based on structural growth visibility and valuation entry opportunity (CPALL).

CPF is also among our top picks on expectations of a substantial improvement in gross margins this year, driven by a recovery in domestic livestock prices. In the very near term, however, the stock’s upside may be limited by concerns over a disease that has killed about 15-20 per cent of shrimp at Thai farms.

 

Natwarin Tripobsakul

Vice President

Research Department

Trinity Securities

 

Politics will be the key issue this month.

The Bank of Japan will launch a big set of measures as expected. 

The major one is a change of the BOJ’s main tool from the policy rate to control of the money supply in the system. 

In the next two years, the Japanese central bank will double the monetary base. Besides, the BOJ targets to double its monthly purchase of government bonds to 7¥ trillion, higher than analysts’ estimate of ¥5.2 trillion.

Our view is that this is positive news as expected. The yen weakened to its record again. We expect to see the yen carry trade as the investment theme again, which will support prices of assets, particularly emerging-market fixed income, across the world.

The SET Index significantly rebounded last Thursday after the Democrat Party unanimously cancelled its filing of a case against Prime Minister Yingluck Shinawatra’s Bt30-billion loan. However, we expect that the domestic political issue has not ended yet.

Several issues should be monitored this month, including the attempt by the government’s MPs and some senators to submit a constitution amendment draft for Section 68. 

The Constitutional Court received a petition from 40 senators for the amendment of the Constitution.

The former Constitution Drafting Assembly of 2007 filed a petition to the National Anti-Corruption Commission, accusing the prime minister and her Cabinet of approving the Bt2-trillion borrowing act.

And Pheu Thai members will tomorrow propose to the House of Representatives the draft investment strategy.

Given both positive (yen carry trade) and negative factors (domestic political uncertainties), the Stock Exchange of Thailand is expected to move sideways in a narrow range of 1,480-1,540 points with lower trading turnover in the next two weeks.

Attractive strategies include sell when stock prices rise and buy when prices fall to their upper and lower limits respectively. Stock picks are those with satisfactory first-quarter earnings results (SCB, KBANK) and defensive stocks with low downside risk (CPF, TUF).