Improved trend for long-term investment begins to appear

The commercial banking group set aside Bt23 billion in provisions for lending to Sahaviriya Steel Industries. SSI booked impaired investment of about Bt10 billion for SSI-UK.

In the energy sector, PTT Exploration and Production recorded impaired assets of Bt49.8 billion for its oil business. PTT, which holds 65.29 per cent of PTTEP, will have to realise a loss proportionally. The refinery business may register inventory loss from drops in oil prices. As a result, the energy group is expected to see a significant drop in net profit.

This result could push down listed companies’ 3Q15 net profit to Bt100 billion. Thus estimates of listed companies’ full-year net profit will be revised down. However, most of these have been priced in. There could be no significant pressure on the SET Index.

After the 3Q15 financial announcements, the SET Index is expected to improve on two factors. First is a high growth estimate for earnings performance in 2016.

ASPS Research forecasts 2016 EPS (earnings per share) at Bt101.92, based on the targeted SET Index of 1,630 points for 2016 on fair value at PER (price-to-earnings ratio) of 16 times.

Holding stocks at the current SET Index level from now to the end of this year will see an expected return of more than 15 per cent. That is relatively high compared with the 10-year average return of 8.6 per cent. Given the expected return, long-term investment could move back to the Stock Exchange of Thailand in another round.

The other factor will be a buying spree for long-term equity funds (LTFs) late in the year. In the past 10 years, LTFs’ annual purchase of stocks increased continuously, from Bt5 billion in 2004 to Bt56 billion in 2014. In the past 10 years, LTFs’ high stock purchase was concentrated in the last two months of a year. LTF stock purchase accounted for 13 per cent of the yearly total in November and 46 per cent in December.

Assuming that purchase into LTF units in 2015 equals that in 2014 at Bt56 billion, LTFs’ stock purchase is expected at no less than Bt33 billion for the last two months of this year. This could build up a good environment for the SET Index for November and December.

Overall, the SET Index from now on will tend to improve with limited downside risk. Accumulate stocks with sound fundamentals into investment portfolios.

Long-term portfolios: SCC (Siam Cement; fair value @Bt595), PTT (FV@Bt350), KBANK (Kasikornbank; FV@Bt240).

Stock picks for small and medium caps: BJCHI (BJC Heavy Industries; [email protected]), PLANB (Plan B Media; FV@Bt8) and PS (Pruksa Real Estate; [email protected]).

Prakit Sirivattanaket

Vice President

Kasikorn Securities

Last week, the Stock Exchange of Thailand recovered by nearly 1 per cent after a 1.54-|per-cent drop. The SET Index swung rela-|tive to a lack of certain factors for market |direction.

It’s difficult for the SET Index to rise given expensive market valuations, and it’s difficult for it to plunge, given no sellers. Foreign investors did not have much to sell.

The stock market will also see a new buying spree, particularly from long-term equity funds (LTFs) late in the year. Already there are signs of LTFs in the market, reflected in the net purchases of local institutional investors at Bt2.8 billion last week.

Late in every year, the SET Index can be expected to see LTFs’ purchase of local institutional investors, particularly in the final two months, particularly December. Based on 2004-2014, LTFs’ November purchases averaged Bt4 billion or 13 per cent of their purchases for the whole year, and Bt14 billion or 46.3 per cent in December.

November-December LTF purchase is in line with the net purchase of local institutional investors, who usually buy into the market in this period. Local institutional investors net-bought stocks in November in 10 of the past 11 years, or 91-per-cent probability, and net-bought consistently in December in eight of the past 11 years, or 72-per-cent probability.

The SET Index rose in November in seven of the 11 years or 63.6-per-cent probability, with the 11th-year return at minus-0.29 per cent. In the seven years when the SET Index rose, the return was 2.02 per cent.

The SET Index increased in December in eight of the 11 years or 72.7 per cent. The 11-year return averaged 1.83 per cent. In the years the SET Index went up, the return averaged 4.93 per cent.

Based on the 11-year data, purchase of LTFs rose at the same level every year. Based on the regression analysis for 11-year data, 2015 purchase of LTFs is expected at Bt59.103 billion, about 5 per cent higher than the 2014 figure of Bt56.283 billion. From January to July 2015, purchase of LTFs was as high as Bt16.5 billion, up 87 per cent year on year.

Based on an estimate of LTF purchase at Bt59 billion, there could be more than Bt7.7 billion in November and Bt27 billion in December if purchases in November and December this year are close to the yearly average.

Stocks with rises in November and December for the past 11 years included agriculture, food, construction materials, energy, retail, hospitals, and parts.