Market seen as likely to extend its rally

The energy and property stock results were mainly in line, while electronics-stocks earnings were fairly soft because of a strong baht, but earnings should improve in the second and third quarters driven by seasonality. 

The retail sector was relatively weak, dragged down by higher labour costs and electricity bills as well as a higher base effect due to strong post-flood earnings last year. 

Also in the limelight last week were Home Product Centre (HMPRO), Minor International (MINT), Intouch (INTUCH) and True Corp (TRUE), whose share prices surged on news they would be added to the MSCI Global Standard starting in June. 

At the macro level, we expect a 25-basis-point cut in Thailand’s benchmark interest rate to 2.5 per cent at the Monetary Policy Committee meeting on May 29 and anticipate a 25-point hike back to 2.75 per cent in the first quarter of 2014. 

Previously we expected no change this year and a 25-point hike in 4Q13. Several factors prompted us to change our view. First, the Bank of Thailand has been pressured by a stronger baht. Several central banks in Asia – India, Japan, South Korea and Vietnam – have cut rates, and we believe Thailand is likely to follow. Second, lower-than-expected inflation in April of 2.4 per cent year on year leaves room for a rate cut. 

Elsewhere in Asia, Malaysia reported below-consensus growth in gross domestic product (4.1 per cent) due to easing public spending, despite stronger private consumption. 

At current levels, the market is trading at 13.7x2013 PE, which is still attractive given the strong projected EPS (earnings per share) growth of 20 per cent for this year. We remain optimistic of long-term prospects in the Thai market. We will continue to overweight sectors that will benefit from the strong growth in domestic consumption and investments, including banks (KTB, BBL), property (LH, QH, PS, AMATA), and telecom (INTUCH). 

 

Tisco Securities

We expect the Stock Exchange of Thailand to extend its rally in the near term, aided by stronger global liquidity following a series of policy-rate cuts by central banks in Europe, Asia and Australia. In addition, first-quarter earnings results have been slightly better than expected. Meanwhile foreign investors have been net buyers of Bt10 billion of Thai stocks over the last five sessions, bringing their MTD net purchases to Bt7.7 billion.

Another positive factor is the baht retreating from 16-year highs after verbal intervention from the Bank of Thailand. However, we expect the baht to strengthen again as verbal intervention effects dissipate, leading to further market volatility.

The market’s latest upswing now makes our 2013 SET Index target of 1,650 points look too conservative. At the same time our 2014 target of 1,800 points is still clearly achievable, although much will depend on the central bank’s measures to keep asset inflation (particularly land and condo prices) in check without damaging business sentiment.

We remain overweight on the banking sector, where our top picks are Siam Commercial Bank (SCB; more secured and sturdy earnings growth among large bank peers in 2Q13F), Thanachart Capital (TCAP; balance sheet clean-up) and Bank of Ayudhya (BAY; M&A resolution). However, we see more measured upside for the overall sector given that it is now trading on an average P/BV of 1.7x and PER of 10x (+1 STD) for 2013-14F.

Our other favourite sector is telecom, where we have raised our target prices for Advanced Info Service (ADVANC) and INTUCH by 27 and 25 per cent respectively to reflect their brighter margin outlook as a result of regulatory-cost reductions. Our telecom analyst believes that Thailand faces a serious capacity shortfall over the next few years given the limited amount of spectra available for third- and fourth-generation cellular. He argues that this will keep tariffs high, citing the unwillingness of mobile operators to cut rates despite pressure from the National Broadcasting and Telecommunications Commission.

Elsewhere, we like selective names in the real-estate and construction sectors, which should benefit from themes such as the increase in upcountry consumer spending, the government’s Bt2-trillion infrastructure investment programme and the ultra-low interest-rate environment. Among our top picks in these sectors are CPN, AMATA, STEC, QH and DCC. 

 

Natwarin Tripobsakul

Vice president

Research Department

Trinity Securities

Focus on index rebalancing theme

Pressure on a likely launch of capital-control measures eased after the recent depreciation of the baht. This bettered the investment climate in the Thai stock market. 

We expect the SET Index to continue moving sideways. The attractive investment strategy is to sell after the rise and buy into the fall. 

Our stock picks are the following: 

1. Stocks that are selected for MSCI Thailand (Global Standard Indices): HMPRO; MINT; INTUCH; TRUE.

2. Stocks that will likely be selected for the SET50: CENTEL; GLOBAL; CK.

3. Stocks that will likely be selected for the SET100: VGI; MBK; UV; WHA; SRICHA; GOLD; UMI; TFD; RS; DEMCO; MDX; KCE.

Based on Trinity’s study, stocks selected for MSCI Thailand (Global Standard Indices) mostly outperformed the market significantly between the announcement and the date the stock data were used. Average return is expected to be 12 per cent higher than the market. Accumulate-buy HMPRO, MINT, INTUCH and TRUE now and find timing to close status on May 31.

Stocks selected for the SET50, based on our study, mostly outperformed the market for six weeks before the date the stock data were used. Accumulate buy Central Plaza Hotel (CENTEL), Siam Global House (GLOBAL) and Ch Karnchang (CK) now and find timing to close status on July 2, the date the data are used. Average return on these stocks is expected at 6 per cent higher than the market.

Stocks selected into the SET100 normally outperform the market for six weeks before the date the stock data are used to three weeks after that date. Accumulate-buy the stocks now and find timing to close status on July 23. Average return is expected to be 5.5 per cent higher than the market.