Shares rally after US averts default

Next, the market should concentrate on the US FOMC meeting from Oct 29-30 regarding its QE policy and what the Fed says about monetary guidance. It seems to us that the US Fed should extend its QE programme to next year to be a buffer so that US economic growth can persist. 

As the SET climbs higher, its valuation looks more expensive against the economic backdrop. We are more cautious towards the equity market, as forward PE/ rises to over 15 times and 13 on earnings in 2013 and 2014. 

Our stock picks are PTT, BECL, SAMART, SAMTEL, TISCO, MAJOR and TICON. 

 

Tisco Securities

The stock market has risen in seven of the last eight trading sessions, making it vulnerable to short-term profit-taking as it approaches the 1,500-point resistance level. Late last week the SET got a small fillip from the 11th-hour deal between the Democrats and Republicans on the US debt ceiling but this appears to have already been mostly priced in. 

Also, fiscal risk remains as Congress will have to deal with the same issues early next year when the annual sequester is also due. The latest US fiscal crisis – and the very real possibility of a new impasse in early 2014 – does benefit the SET by likely delaying QE tapering. Tisco’s economic team now expects QE tapering to start by March and completely end in 2H14. 

A key takeaway from banks’ 3Q earnings thus far is that asset quality and credit costs need not be a major concern for big banks, but are likely to remain a more protracted risk for the auto-HP lenders where loans linked to used car dealers’ inventory values may face instances of distress. 

BBL, KBANK and TMB all reported net profit in line with our estimates while KKP reported disappointing earnings of Bt1 billion (versus our forecast of Bt1.3 billion), reflecting the recent deterioration in its car loan portfolio. Our top picks in the sector remain SCB and BBL due to their more attractive upside and better balance sheet buffers. 

With the start of the tourism high season next month, we expect investor interest to pick up in hotel and airport/airline plays. We believe the tourism industry’s strong momentum will continue despite the slowdown in Asian economies and China’s new regulations aimed at cracking down on “zero or negative-fare tours”.

Our favourite in the sector is CENTEL for which we have raised our target price by 15 per cent to Bt46. We anticipate exceptional third-quarter earnings for its hotel business, with 42 per cent RevPar growth on the back of the occupancy ramp-up of more recently completed hotels in its overseas portfolio,

We continue to overweight the energy sector, particularly refinery stocks. Note that we recently upgraded BCP to “buy” based on our forecast of a sustained GRM recovery and strong third-quarter net profit of Bt1.4 billion, up 239 per cent QoQ and 29 per cent YoY. 

In the micro-cap space, we have raised our target price for KCE by 31 per cent to Bt25.4 in anticipation of record sales, earnings and gross margin in the third quarter. Other stocks we like at current levels are BANPU, CPALL, HEMRAJ, AMATA and STEC.

 

Research Department 

Trinity Securities 

We expect the SET Index to see a relief rally in the short term after the US Congress agreed on the new budget plan without a cut in the Obamacare project. That helped US government agencies to resume operations until January 15. The US government also extended its debt ceiling until February 7.

With a US fiscal crisis possibly looming in January and February of next year, we’ve changed our view, expecting the first QE reduction not to happen in the FOMC meeting in December. The Fed has recently weighed on the fiscal crisis that could pressure the US economy. 

We forecast QE tapering to occur in the FOMC meeting on March 18-19. Global liquidity is expected to be at a satisfactory level for the medium term, supporting emerging-market stock markets.

In the next period, we expect the stock market to focus on the index rebalancing theme, starting from the announcement of stocks for MSCI calculation in mid-November and then the announcement of the constituents of the SET50 in mid-December.

Trinity Securities expects BTS to be included in the MSCI (large cap) calculation, while VGI and THCOM are expected to be included in the SET50. Based on our past study, stocks that are included in the MSCI Large Cap and SET 50 usually outperform the stock market. We recommend accumulation of BTS, VGI and THCOM.

Investment strategy: With the SET Index’s high valuation, there is a need to select the following stocks with strong performance or theme, and attractive valuations. 

Domestic demand stocks: CPALL, GLOBAL and SINGER

Export-oriented stocks: KCE, HANA and GFPT

Index rebalancing stocks: BTS, VGI and THCOM

Stocks related to Chinese economy: IVL, EARTH, TTA and STA.