Market seen falling further soon, or later

This week, there are no new factors. Existing factors will continue to impact market fundamentals and fuel pressure. The key issues are as follows.

_ Cuts of listed companies’ earnings estimate: 

In 2Q13, listed companies’ net profit totalled Bt165 billion, up 25.7 per cent from 2Q12 when the country started a recovery after the floods in late 2011 and their profit base was very low. However, they saw a 33-per-cent drop in net profit from 1Q13’s Bt246 billion. It is a sharp contraction in net profit quarter-on-quarter. 

About 12 industries’ net profit came out lower than ASP Research’s forecast. The research unit revised down estimated 2013 net profit for listed companies. 

The energy and petrochemical groups experienced the heaviest cuts in profit projections due to the recent lightning strike on the GSP5 plant, oil leakage and closure of the LDPE production unit. Banpu also cut its coal prices under our assumption. 

Commercial banks saw the second biggest cut in estimated profit for 2013 due to a slash in expected loan growth and increases in likely credit costs and loan loss provisioning. 

The food group had the third severest cut in projected profit for 2013. CPF and TUF’s profit estimates were also cut due to the impact of early mortality syndrome on their shrimp businesses. 

After the 6.8-per-cent cut in their 2013 profit estimate, listed companies are expected to see a combined profit of Bt848 billion or Bt97.64 per share with 14.7-per-cent growth. EPS next year is expected at Bt109.46 with 12-per-cent growth. At this EPS, the P/E at the end of 2013 and the current SET Index stands at about 13 times.

_ Foreign investors’ selling spree: 

Foreign investors have continued to invest in the Thai bourse since 2009. Foreign portfolio investment peaked on March 18 with net accumulated purchases of Bt196 billion (investment cost) and market value of Bt320 billion. 

There has been profit-taking since then, pressuring the SET Index down by 18.8 per cent to the present. Market value plummeted by 53.4 per cent to only Bt150 billion – a 18.8-per-cent drop from the SET Index and a 34.6-per-cent fall from selling. 

Next is to see how much selling there is from the remaining investment. In the worst case, if this round of foreign investment is expected to drop by two-thirds from the record high of Bt320 billion, there will be a further drop of Bt63 billion in foreign investment due likely to selling and the SET Index’s fall. 

If the past pattern (March 18-present) is considered, selling of Bt41 billion more is expected and that could sink the SET Index no more than 65 points. Based on a statistical study, every Bt1 billion worth of stocks sold will cause the SET Index to fall by 1.6 points. This means that the foreign selling spree is unlikely to drag the SET to stay below 1,200 points.

This week, the SET remains under pressure, however, it will unlikely fall below 1,200 points. An investment portfolio should be 40 per cent in stocks with high dividend yields. If the SET dives below 1,250 points, stock holdings should increase to 50 per cent of the portfolio. 

 

Kitpon Pripisankit

Vice president

Kasikorn Securities

 

The SET Index fell since early last week due to the Commerce Ministry’s trade report. Thai exports dropped 1.5 per cent with a higher-than-expected trade deficit of US$2.28 billion. The market expected a deficit of $2 billion. Besides, there was the chemical weapon situation in Syria. 

These dragged the SET to last week’s low of 1,260.08 points – the lowest in 11 months – before it rebounded along with regional and emerging-market currencies last week.

Next week, we expect the announcements of satisfactory economic figures in China, the US and Europe, pressuring a likely QE reduction in the FOMC meeting from September 17-18. 

Other factors this week could be a likely protest of the LPG price rise and the rubber mob. However, these could not be market concerns. The NBTC plans to make a digital TV bidding clarification on September 3 and that could prompt speculation in related stocks. 

We expect the SET to rebound to test 1,300-1,320 points early this week and weaken later due mainly to a lack of support factors. 

We expect cyclical stocks to outperform domestic plays. Stock picks: PTTGC, PTTEP, IVL, SCC, TICON, NMG, GRAMMY, RS and WORK.