Rebound likely this week, with limited upside

The SET Index hit an intraday low of 1,508.24 on Thursday and staged a rebound before the market closed. The SET was weighed down by the PTT group including PTT, PTTEP and PTTGC. 

Large banks were also down on poor market sentiment, led by Kasikornbank, Siam Commercial Bank, Bank of Ayudhya, Krungthai Bank and Bangkok Bank. 

Stocks that supported the market were AOT, BIGC, TUF, major communication stocks including Advanced Info Service, True Corporation, Intouch Holdings and airlines.

We expect the market to rebound after the heavy sell-off but the upside should be limited. The dispute among oil-producing countries is not settled yet. We could see more fluctuations in oil prices through the rest of 2014 and into 2015. This is negative for the global energy sector. 

In fact, during the massive retreat from energy stocks over the last five trading days, local energy stocks performed in line with global peers. The NYSE Arca Exchange Oil Index, which measures the performance of oil and gas stocks in the US market, plunged 8.25 per cent during the period, while the Thai energy sector index plummeted 9 per cent. 

Since energy stocks have a higher weighting on the Thai market’s capitalisation than peers, the impact was more severe. The weighting of the energy sector on the SET is around 15 per cent compared with 7.5 per cent on the Hang Seng Index, 6.8 per cent on the FTSE Singapore Strait Times Index and 4.2 per cent on the Jakarta Composite Index. 

On the positive side, lower crude oil prices will benefit the economy as Thailand is a net importer of crude oil. Retail gasoline and diesel prices have come down rapidly. The immediate impact on consumption is significant. 

We estimate that the monthly savings from softer retail oil prices, compared with peak retail prices in June and retail prices early this month, is more than Bt8 billion a month. On an annualised basis, it would be Bt96 billion, or 3.5 times the personal income tax cut introduced late last year, which cost the government Bt27 billion. 

Consumption, SMEs and businesses in terms of reducing logistics costs are beneficiaries. The retail sector and restaurants should enjoy a windfall as savings will likely be spent on daily living expenses. Airlines will also benefit depending on the proportion of unhedged fuel prices.

 

Tisco Securities

The market’s near-term outlook remains skewed downwards due to external pressures and heavy selling by foreign investors. 

Sentiment has been battered by the continuing correction in global stock markets and the fall in oil prices to five-year lows, which is continuing to put downward pressure on big cap energy and petrochemical stocks.

The SET Index lost 4.44 per cent in the sell-off last week to Thursday, with PTT group of companies leading the retreat. For investors with medium- to long-term horizons, we believe the correction offers a good opportunity to accumulate quality stocks in the banking and retail sectors such as KBANK, TMB, BBL, CPN and ROBINS.

We continue to remain bullish on the contractor sector based on the improving visibility and momentum of new infrastructure projects next year. 

We reaffirm our “Buy” rating on Thailand’s largest contractor, ITD, with a target price of Bt9. ITD’s backlog stands at Bt249.6 billion, equivalent to 5.2 times our estimated construction revenue for this year. This does not yet include the Dark Green Line contract 1 worth Bt15.3 billion for which ITD was recently declared the lowest bidder.

For investors seeking recovery themes in the coming year, the auto sector looks interesting. This year the industry has been hit by weak domestic sales (hangover from the first car buyers’ scheme), a slow economy, high household debt and disappointing car exports. 

Next year should see improved performance for auto companies although we don’t anticipate a major turnaround. Among our top picks among auto-related stocks is Namyong Terminal (NYT), whose share price has fallen 30 per cent since its peak last February and is now just 20 per cent above its late 2013 IPO price.

In the mobile phone space, we recently upgraded TRUE from “Hold” to “Buy” and raised our target price from Bt10.70 to Bt14.50. Although our telecom analyst retains his “Buy” rating on ADVANC, he believes TRUE stands to gain the most from the data consumption explosion in the Northeast and other regions.