Political instability is main concern of the markets now

The SET Index lagged regional peers, represented by the MSCI Asia ex-Japan Index, which inched up 0.24 per cent in the period. 

Foreign investors were net buyers in the last two weeks with a slight net-buy position of Bt444 million. Leading the decline were stocks in the tourism (-5.7 per cent), information and communications technology (-5.0 per cent) and transport (-3.6 per cent) sectors, as investors took profit in these counters after the strong rally previously. 

Looking into November, concerns over external threats have eased but political risks are rising in Thailand.

On the external front, the key events in November are the China Communist Party Central Committee plenum from November 9-12 and the US Senate nomination hearing for Janet Yellen as chairwoman of the Federal Reserve on November 14. The reforms to be unveiled by China’s leaders over the next 10 years are important to assuage concerns over slowing growth in the world’s second-largest economy.

Domestically, the House of Representatives voted to approve the second and third readings of the controversial amnesty bill on November 1. The bill will be passed on to the Senate at a date to be confirmed. This could attract larger crowds to the protests. In addition, the ruling by the International Court of Justice on the Preah Vihear Temple dispute between Thailand and Cambodia will be out on November 11. This could also attract a lot of anti-government protesters if Thailand loses the case.

In terms of stock selection, our theme for November is strong forecast 2014 earnings growth, as we expect investors to start looking at 2014 with the current year drawing to a close. Our stock picks include Thaicom (THCOM), Thai Union Frozen Products (TUF), and Supalai (SPALI). 

THCOM is forecast to register 48-per-cent profit growth in 2014. This would be supported by full-year contribution from the IPStar contract for China with Synertone Communication Corporation, and full-year contribution from Thaicom 6. The stock remains a “buy” with a DCF-based TP (discounted-cash-flow-based target price) of Bt42.50.

TUF’s net profit should have bottomed out in the second quarter, to recover strongly in the third quarter with profit doubling quarter on quarter to Bt794 million (but still weaker year on year). This would be led by the turnaround of the shrimp business, as it was able to utilise its capacity by importing some shrimp raw material and successfully raising selling prices. 

Earnings should continue to recover in the fourth quarter and in 2014. We expect earnings to drop 44 per cent this year, before surging 66 per cent next year on higher sales and wider margins. We like TUF for its global lead and promising long-term growth prospects. Earnings have bottomed out and should gradually recover from here, making it an attractive turnaround play.

SPALI will shine in 2014. We expect the company to report superior earnings growth of 30 per cent next year on strong condo transfers. The company has secured 91 per cent of our forecast revenue for next year. 

We also see upside risks to our 2014 profit forecast if SPALI manages to sell more low-rise houses or completed condo units and book those sales next year. Maintain “buy” rating and Bt20.3 TP, pegged to 12x FY13F PE (price to earnings).

 

Tisco Securities

Growing political tensions triggered by the controversial amnesty bill are likely to dampen market sentiment further in the first half of November. 

The bill passed its third ruling late on Friday night by 310 votes to 0 after Democrat MPs walked out of Parliament. We now expect extended protests to “kill the bill” led by the Democrats and other anti-government groups.

Another market overhang is the scheduled ruling by the International Court of Justice on November 11 on the Thai-Cambodian dispute over the Preah Vihear Temple. A ruling unfavourable to Thailand by the ICJ could trigger further anti-government protests.

The deterioration in the political climate comes at a particularly bad time given the current economic slowdown and the start of the tourism season. 

Note that Tisco’s Economic Strategy Unit (ESU) has revised down its estimate of third-quarter growth in gross domestic product (data are due on November 18) to 3 per cent year on year (from 4.5 per cent) and its 2013 estimate to 3.5 per cent (from 4 per cent) after the Bank of Thailand’s release of disappointing economic figures for September. The ESU warns that if protests against the blanket amnesty bill escalate into bigger and prolonged demonstrations, there could be downward revisions to fourth-quarter GDP growth estimates. Fresh political turmoil would not only dampen the tourism sector but also weaken consumer confidence and investment.

On the positive side, several big-cap companies reported better-than-expected third-quarter results last week. SCC (Siam Cement Plc) was the stand-out performer, reporting quarterly net profit of Bt9.8 billion, up 53 per cent year on year and 8 per cent higher than our forecast. 

Also beating consensus was PTTEP (PTT Exploration and Production), which announced third-quarter earnings of Bt17.8 billion (versus our estimate of Bt15.4 billion) and TOP (Thai Oil) with quarterly net profit of Bt7.6 billion, beating our estimate of Bt6.5 billion. TOP’s strong earnings were mainly due to bigger inventory gains, while PTTEP’s bottom line was boosted by non-recurring items including a lower-than-estimated tax rate and a foreign-exchange gain.

We maintain our year-end Stock Exchange of Thailand target of 1,420 points, which implies no upside at current levels. However, we suggest using market weakness to accumulate stocks with strong fundamentals and sound long-term growth prospects including SCB, BBL, SCC, ADVANC, CPALL, HEMRAJ, AMATA and STEC. 

 

Research Department 

Trinity Securities

 

This week is expected to see the political factor as a major risk that could interfere with the investment climate. In the worst case, the SET Index is expected at 1,410 points, based on the gauge’s corrections in the previous political crisis. If there is no violence outside the Parliament, the SET Index may see a chance to test 1,480 points again. 

The following factors are expected to support the SET Index going up.

First, Thailand’s third-quarter economy tends to stage a recovery compared with that in the second quarter and the same period a year earlier. The export and tourism sectors will see strong growth.

Second, the Chinese Communist Party may have good news about a new round of economic stimulus.

However, risks remain.

First, local political chaos, particularly for the amnesty bill. 

Second, consistent cuts in listed companies’ earnings estimates. Stock picks 1) Index-rebalancing stocks that are expected to be included in MSCI and SET50: BTS, TMB, VGI, THCOM. 2) Export-oriented stocks that are expected to see strong performance in the next period: KCE, GFPT. 3) Stocks related to the Chinese economy: EARTH. 4) Stocks with low downside risks: IRPC. 5) Stocks with high alpha. Their prices usually depend on each company, not the direction of the capital markets: IFEC