Recent share price weakness offers good opportunity

Local funds and retail investors, on the other hand, have been net buyers with a total value of Bt10.6 billion and Bt27.4 billion in the same period.

DBS’ economist does not view a tapering as a QE exit. Liquidity would still be injected but in smaller amounts. QE tapering would be gradual, not harsh.

Looking forward, investors should watch for the Federal Open Market Committee meeting tomorrow and on Wednesday. 

At the macro level, the Bank of Thailand cut the benchmark rate by 25 basis points on May 29 but that had no impact on the banking industry as only a few smaller banks have followed with modest reductions in fixed deposit rates. Most banks are still competing head-on for deposits by offering higher rates.

Meanwhile, we recently revised down our inflation forecast to 2.9 per cent from 3.2 per cent for this year premised on the consumer price index remaining tame this year. The baht had weakened rapidly to Bt31 to the US dollar with the heavy fund outflows in recent weeks, but should not push inflation much higher than our forecast. Hence, we expect the benchmark rate to be maintained.

The baht has depreciated by 8.1 per cent in seven weeks to peak at Bt31.16 before rising to Bt30.52 at the end of last week. DBS Bank forecasts the baht strengthening to Bt29.8 by year-end.

At current levels, the market is trading at 11.9 times price to earnings, which is still attractive given strong projected earnings per share growth of 20 per cent for this year. We remain optimistic of the long-term prospects of the Thai market.

The recent share price weakness has presented a good opportunity to accumulate companies with solid fundamentals at attractive prices. Our top picks include Siam Commercial Bank, Shin Corporation, Jasmine International, Quality Houses, Pruksa Real Estate, Sansiri, Amata Corp, Airports of Thailand and Minor International.

 

Tisco Financial Group

 

We have trimmed our year-end SET Index target by 6 per cent to 1,550 due to financial market liquidity contraction caused by the collapse in fixed-income capital inflows and the effect of rising US Treasury global risk-free rates on equity discount rates and present value price targets. The market also faces downside pressure on price to earnings multiples due to the deceleration in aggregate earnings growth from 22 per cent this year to 11 per cent next year, based on our coverage universe.

In our view, the health of Thailand’s balance of payments should help contain further collateral damage to stock prices caused by the reversal of fixed-income inflows. In contrast to the 1990s, the current account has remained in surplus for several years running.

Meanwhile, on the capital account, the unprecedented surge of outbound portfolio and foreign direct investment by Thai companies in the past few years has scope to subside, countering the reversal of foreign portfolio outflows.

Our new SET target implies a price-to-earnings ratio of 12.9 and upside of 10.5 per cent next year from Thursday’s close of 1,403. Notwithstanding the recent rise in external risk factors, our target price to earnings stands at one standard deviation above the market’s historic average of 11.2 on the grounds that equity discount rates via the US 10-year risk-free rate, though rising, are likely to remain substantially below their historic average.

In the face of the global headwinds buffeting Thai equities, our key buy ideas emphasise individual stock selection, specifically companies whose share prices have overcorrected, exposing value, and/or whose fundamental business and earnings fundamentals are insulated from the direct effects of the technical factors driving down stock prices. Among our top picks are ADVANC, SCB, TCAP, KK, BGH, LH, QH, AOT, TOP and STEC. 

 

Natwarin Tripobsakul

Vice President

Research Department

Trinity Securities

 

We begin to see signs of slowdowns in capital outflows from the earning yield gap of the SET Index rising to a long-term average again, giving more attractiveness for foreign investors, and the gap between Thai bonds’ yield and Japanese bonds’ yield returning to its high in 2008. That could temporarily cease positions of the yen carry trade. Such a wide gap may encourage Japan’s pension funds to invest in Thailand’s long-term debt instruments and this will indirectly give positive sentiment to the SET Index.

The baht has also depreciated to the 200-week average, a major support level. Based on our study of the past 10 years, the baht has never depreciated beyond this level. If we buy stocks at this 200-week average, the SET Index will always provide a positive return in a period of one month. Average return is expected at 6.5 per cent. 

The SET Index is expected to rebound from the latter half of this month, given the following external factors:

_ The Fed meeting results and Ben Bernanke’s interview on Wednesday are expected to come out in more easing.

_ The European finance ministers’ meeting and the EU Summit in the last two weeks of the month. Discussion will likely be made on details of stimulus measures in the euro-zone countries.

_ Thailand will be formally delisted from the grey list of the Financial Action Task Force.

_ Japan’s election for senators late next month with likely result in Shinzo Abe’s LDP gaining a majority of votes. This could become a trigger point for Japan to launch major economic reform.

We overweight the following stocks, which are expected to outperform the market:

Communications: ADVANC, INTUCH, JAS

Extension from communications: MFEC, MONO and ILINK

Residential stocks with sharp drops in prices: LH and QH