Sluggish SET sentiment to continue for a few weeks
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The stock market moved sideways in the first two weeks of this month, with fewer days recording gains than declines.
Energy and banking sectors gained 4.5 per cent and 2.3 per cent during the period. ICT, construction materials and healthcare were relatively flat. Leading the decline were automobile and tourism, followed by commerce, property and food.
Market sentiment was relatively weak due to a series of negative macro news. Gross domestic product (GDP) growth of major economies, especially Europe and Japan, missed expectations. The exception was the US.
Thailand’s GDP growth might fall short of the government’s target following delays in budget disbursement, which is the nation’s only economic growth engine for now.
The latest corporate results season for the third quarter indicated that the recovery remains fragile. The electronic components, property development, healthcare services and food sectors recorded impressive results with bottom lines improving from the previous quarter and year-ago period.
Sectors reporting earnings contractions, both quarterly and yearly, were construction materials, construction services, energy and utilities.
We expect the market to remain sluggish in the coming weeks in the absence of positive drivers. Measures by the Stock Exchange of Thailand and the Association of Securities Companies to curb excessive speculation, which will be disclosed on Wednesday, could shake investor sentiment temporarily.
Small caps will be the most vulnerable to those measures. On the other hand, we expect fund flows to shift from small caps to the mid-cap space as investors seek laggard plays.
We continue to see upside in stocks with sound fundamentals and clear business prospects. Our picks are Airports of Thailand, Ch Karnchang, Supalai, Pruksa Real Estate, Siam Cement and Thai Union Frozen Products.
Tisco Securities
The market remains in consolidation mode, with sentiment muted by economic weakness, the plunge in oil prices, which has hurt big cap energy stocks, and foreign selling amid the dollar strengthening against the baht.
Despite various domestic and external headwinds, we expect the downside to be tempered by seasonal long-term mutual fund and retirement mutual fund inflows.
Although third-quarter earnings from banks beat our forecasts by 2-3 per cent, results from most other sectors were generally disappointing, with few companies showing visible signs of recovery.
This is consistent with weaker-than-expected macro data, which has prompted Tisco’s economic team to lower its third-quarter GDP growth forecast to 1 per cent on year and 1.8 per cent on quarter.
The Bank of Thailand now sees exports shrinking this year, versus flat previously, and will cut its GDP growth forecasts for 2014 and 2015 from 1.5 per cent and 4.8 per cent.
One bright spot is the contractor sector where we maintain “Buy” ratings on STEC and CK. We expect an increasing flow of new infrastructure projects to open for bidding next year following the recent tender for the Dark Green Line, whose results should be known early next year.
These projects include double-track railways, the Suvarnabhumi Airport Phase 2 expansion and mass transit routes.
Note that we have just upgraded two stocks, KCE and ANAN, from “Hold” to “Buy”. ANAN’s third-quarter results were weaker than expected due to delays in unit transfers.
However, the developer remains one of our top picks in the residential property sector due to its solid presales for Skytrain-located condo projects, aggressive 2015 targets and decent upside to our Bt4.10 target price.
KCE continues to hit new highs in operating profit, sales and gross margin after ramping up production to peak levels in the third quarter. We expect the company to report earnings growth of 15-17 per cent in 2015-16, aided by its new factory, which will come on-stream at year-end.
