SET likely to see choppy trade in October; fund flows pose only limited risk

The Thai stock market had witnessed thin turnover as investors waited for a clear market direction. Even though they foresee a positive solution over the US debt ceiling and possible delay in reduction of quantitative easing, a lack of confidence in Thailand’s economic outlook apparently has limited a market upswing. 

We project that 2014 corporate earnings growth will slow to 13 per cent year on year, the slowest annualised growth rate since 2009. We are cautious over a resumption of gearing momentum in domestic consumption and investment in the fourth quarter and beyond as government stimulus is ending and households are expected to deleverage. Therefore, the SET Index is anticipated to move in a range of 1,330-1,450 points in the near term. 

Given an undemanding risk-to-reward ratio, increased position in the money market or staying in defensive high-dividend stocks is our recommendation. High-dividend stocks are Bangkok Expressway (BECL), Major Cineplex (MAJOR), SAMART, Samart Telcoms (SAMTEL), MCOT, and Ticon Industrial Connection (TICON). 

 

Chanpen Sirithanarattanakul

Head of Research

DBS Vickers Securities (Thailand)

 

The SET Index fell 4.0 per cent in two weeks to close at 1,429 on October 3, mainly on profit-taking after the strong rebound in early September. 

The MSCI Asia ex-Japan Index eased 0.6 per cent during the period. Most Asean markets have recovered to levels seen in June and July. Fund outflow was most severe in June, but we believe there is limited downside risk from here on now that Asian currencies have stabilised. 

DBS’s chief economist expects the US government shutdown to be temporary and the numbers to be small relative to the economy. A year’s lost wages would represent only about 0.5 per cent of gross domestic product, and possibly six to seven times more if we account for other goods and services that would – temporarily – not be purchased by the government. But most of the latter would be delayed spending, not permanent cuts. Wages for government workers would also be paid retroactively, if the 1995 shutdown is anything to go by. 

The debt ceiling will have to be raised by October 17 if the government is to avoid a default. 

But as macro uncertainties fade over the next month, Asian markets should start to normalise. However, we do not expect a sustainable strong rebound in the near term. It will take some time for Asian markets, currencies and inflows to stabilise, which will be the main stumbling blocks to a near-term market recovery.

We have two major themes for the Thai market: tourism and asset divestment.

Tourism. International tourist arrivals to Thailand surged 21.4 per cent in the first eight months of the year, led by visitors from China (up 88 per cent) and Russia (up 37 per cent). We expect Thailand’s tourism industry to weather the economic slowdown as the country remains a value-for-money destination, especially for budget travellers. The top tourism plays are Central Plaza Hotel (CENTEL), Airports of Thailand (AOT) and Minor International (MINT).

Asset divestment. Several listed companies plan to divest/inject their assets into property or infrastructure funds in the current fourth quarter. These could result in divestment gains and/or extra dividends, both of which could be re-rating catalysts in the near term. Our key picks on this theme include Central Pattana (CPN) and Jasmine International (JAS). 

 

Tisco Securities

After rising nearly 10 per cent over the past month, the Stock Exchange of Thailand is likely to see choppy trade in October, with near-term upside capped by various external and domestic uncertainties. 

A key constraint to market upside is a tightening of liquidity in financial markets caused by intermittent capital outflows linked to expectations of quantitative-easing tapering by the US Federal Reserve. Note that foreign investors were net sellers of more than Bt12 billion of Thai stocks in eight days despite being cumulative net buyers of Bt9.6 billion in September.

The partial shutdown of the US federal government after Congress’ failure to agree on a budget is not a game changer for the SET, in our view. Indeed, we think a brief shutdown could be a small net positive, as it could push expectations towards more QE for a longer period, but without actually damaging the global demand picture. 

The baseline scenario of Deutsche Bank strategists envisages a shutdown lasting just a few days, although they admit an extended period of one or two weeks is possible. However, DB warns that the looming congressional battle over the US debt ceiling (the deadline is October 17) is likely to be the bigger driver of markets.

We continue to overweight the Thai energy sector and particularly like refinery stocks. We have now upgraded Bangchak Petroleum (BCP) to “buy” from “hold” with a new target price of Bt42, implying 32 per cent upside. 

We also retain our “buy” rating on Thai Oil (TOP) (TP of Bt80, implying 32 per cent upside). For the group, we think the recovery in gross refining margin from sub-US$2 per barrel to $4+/bbl in the past four to six weeks, a result of the Syria-related supply fear risk reversing out of the oil price, has yet to be discounted in stock prices. 

For BCP in particular we point out: 1) a 15-per-cent increase in crude runs forthcoming following unit upgrade; 2) 22-per-cent four-year forward growth compound annual growth rate (CAGR), aided by its solar plants coming on stream; and 3) good value at 1.1x P/BV (price to book value) on mid-teens normalised return on equity.

Another sector we view favourably is industrial estates, notably AMATA and Hemaraj (HEMRAJ). Both companies should benefit from new auto investment stemming from the government’s eco-car project. 

Last Wednesday, the Industry Ministry said it expected the second phase of the eco-car project to attract interest from as many as six automakers and investment of at least Bt40 billion (versus Bt30 billion in the first phase). When both phases of the project are completed, production capacity should reach 930,000 eco-cars in 2018, with overall Thai auto-production capacity climbing to more than 3 million vehicles from 2.3 million currently. At that point, the ministry estimates that 70 per cent of production will be for export (vs 50 per cent at present).

 

Research Department 

Trinity Securities

 

We expect the SET Index and stock markets across the world to be pressured by the US debt-ceiling issue from October 17-24. If it is prolonged, a downgrade of the US credit rating is expected. 

The Stock Exchange of Thailand has risks, given high market valuation. The legal draft on the Bt2-trillion infrastructure borrowing bill has not ended yet, with expectations that it will be forwarded to the Constitutional Court for interpretation. Such risk is expected to continue until at least the middle of October. 

If the stock market makes corrections as expected, we suggest buying for investment, as the SET Index is expected to rise if the US debt-ceiling issue is resolved. 

The Thai economy becomes a supportive factor for the SET on likely continuously growing exports and tourism. Domestic consumption signalled improvement from positive expansion of value-added-tax receipts year on year for the first time in four months. Thailand’s current account was in a surplus for the first time in five months on the back of a much-improved trade account figure. Listed companies’ earnings growth is revised up for the first time in 14 weeks.

The following stocks are expected to outperform the market this month. 

1.Stocks that relate to domestic consumption that signals a recovery: CPALL and INTUCH.

2.Export-oriented stocks with likely earnings improvement in the latter half of this year: GFPT, KCE and HANA. 

3.Hotel stocks that gain from consistent rises in occupancy rate: Central Plaza Hotel (CENTEL).

4.Transportation stocks that are entering the high season: Airports of Thailand (AOT) and BTS.

5.High alpha stocks: Superblock (SUPER) and Energy Earth (EARTH).