Despite slide, outlook for 2015 looks promising

We had earlier warned that valuations in the Thai market were rich and there could be a consolidation. But this was compounded by other selling triggers, including concerns over a global Ebola outbreak, disappointment over the decisions of the European Central Bank, signs of a slowing Chinese economy, and the protests in Hong Kong. On the local front, the triggers included slowing economic indicators such as weak value-added tax collection, slip in consumer confidence, disappointing export numbers, and weaker-than-expected tourist arrivals. Essentially, the market slipped quickly as stock prices had run ahead of fundamentals, but the weak sentiment caused the market to be more sensitive to negative news. 

But to be fair, the outlook for next year is promising. Numerous stocks are trading on 2015 valuation, and we need to look at what would bridge the gap between this year and next. They are, improving economic indicators and corporate earnings. Earnings in the third quarter are expected to show some improvement but they would be nothing to shout about. We do not expect much excitement from the banking sector, with loan growth anticipated to be only marginally better than the previous quarter. We believe the Thai market will move sideways with a downside bias in the coming weeks. On this note, we would recommend accumulating big caps on price weaknesses. For global investors, diversify your portfolio to capture opportunities beyond the Thai market. For example, the correction in the Hong Kong market was so steep in September it offers a good opportunity for bottom-fishing. 

 

Tisco Securities

The SET recorded a modest 1.6-per-cent gain in September, extending its winning streak to eight consecutive months (January has so far been the only negative month this year). However, we see various external and domestic headwinds on the horizon and believe the long-awaited correction has already begun.

Among our principal concerns is recent data indicating that the country’s economic recovery is losing momentum. Domestic demand continued to sputter in August as the PCI fell 0.8 per cent year on year (vs +0.3 per cent in July). The PII also fell during the month, tumbling 5.6 per cent year on year (vs minus 3.4 per cent previously). Meanwhile consumer sentiment weakened in September, with the Consumer Confidence Index dipping to 79.2 vs 80.1 in August, the first decline in five months.

On the positive side, Tisco’s Economic Strategy Unit has trimmed its inflation forecasts for 2014-15 following the fall in September inflation to a nine-month low. It now believes the first central bank policy rate hike will take place in the second half of 2015 (vs 2Q15 previously).

Although bank stocks rose 35 per cent in the first nine months of the year (vs the SET’s gain of 22 per cent), our analyst believes the sector could continue to outperform the overall market over the next six months on the back of an expected second-half earnings recovery and 15-20 per cent upside potential to 2015F GGM-based fair values. Her top picks are KBANK and TMB and she expects both banks to report superior third-quarter results due to strong loan/fee growth.

Elsewhere, we like LPN due to its strong launch value target of Bt9.2 billion in the fourth quarter (representing 47 per cent of its full-year target) and AMATA, which should benefit from a jump in Board of Investment applications in the fourth quarter as well as its plan to inject assets into a real estate investment trust worth Bt4.75 billion. Note, that we also recently initiated coverage of VGI with a “Buy” rating and target price of Bt14.30. The stock is a strong play on the Skytrain’s ridership growth as well as being the dominant out-of-home advertising media player thanks to its “captive audiences” eg Skytrain passengers, discount store shoppers and office workers in elevators.

 

Trinity Securities 

Research Department

In October, through The Big Picture’s report, the SET Index is expected to move with higher volatility than the previous month, given higher external risks. However, foreign capital remains at a satisfactory level as the stock market is in the correction period, not the downward trend.

The following risks need to be monitored. The October 28-29 US Federal Open Market Committee meeting will be the first time the quantitative easing (QE3) programme will end, and this could lead to market volatility across the world. Hedge funds’ net long position for the US dollar reached its historical record. Liquidity in the country has reached saturation, given absorption of this month’s over Bt40 billion government bonds and no more liquidity arising from expiry of savings bonds. The SET Index’s valuation with those of small and medium caps in particular, has been rising. 

This month, the Research Department picks laggard communication stocks like INTUCH and THCOM, residential and related stocks that will enter the best of the year like LH and LHBANK, high-dividend stocks like ASP and TICON, stocks that gain from the baht depreciation like CPF and SVI, and stocks that benefit from higher consumer confidence like MACO and SAWAD.