Near-term weakness expected to continue
Tisco Securities
After 33 hours and 86 bidding rounds, Thailand’s first 4G-spectrum auction ended on Thursday. The final winning bids of ADVANC (Advanced Info Service; Bt41 billion) and TRUE (Bt40 billion) were almost double our estimates. The good news is that despite the sky-high licence prices, we see only limited impact to the sector.
Despite being Bt19 billion above our original estimate, ADVANC’s target price will be reduced by Bt6 a share to Bt264. TRUE’s would be reduced by Bt0.7 per share to Bt11.3. Our target prices for DTAC (Total Access Communication) and JAS (Jasmine International) remain unchanged – for now.
With JAS’s failure to win a licence, Thailand remains a three-player telecom market, which is good news for ADVANC, DTAC and TRUE. However, we see a strong chance that DTAC will outbid for a 900-megahertz licence in next month’s auction. Two licences are up for auction on December 15. ADVANC will probably win one, leaving DTAC and JAS to fight over the other.
For the overall market, we expect near-term weakness to continue given unimpressive third-quarter results, PTT’s 3Q15 net loss of Bt26.6 billion, growing expectations of a US interest-rate increase in December and further downward pressure on global commodity prices.
On the plus side, we see potential smaller capital outflows and baht depreciation after the US Federal Reserve raises rates (compared with the period of quantitative-easing tapering) because of SET foreign ownership at 10-year lows and Thailand’s strong current-account surplus, stable external debt and healthy foreign reserves.
In the current market environment, we prefer domestic plays with turnaround stories and stocks with resilient earnings that can benefit from recent government stimulus measures and macro tailwinds. In particular we like ROBINS (Robinson Department Store, a retail laggard with potential same-store sales growth and earnings turnaround), TCAP (Thanachart Capital, improving loan spread and credit quality), AOT (Airports of Thailand, strong play on Thai tourism growth) and CPN (Central Pattana, domestic consumption recovery play).
Thanawat Patchimkul
Head of Research
DBS Vickers Securities (Thailand)
The Stock Exchange of Thailand was unable to stay above the 1,400 level during the first two weeks of November.
Pressures are everywhere, including the decline in oil prices that hit oil and gas stocks. The auction of fourth-generation telecom licences, which ended up with higher-than-expected bids, puts pressure on telecom operators. Banks’ non-performing loans are still on the rising trend.
Foreign investors have turned into net sellers in recent days. They have already offloaded more than Bt100 billion worth of Thai shares year to date.
The market should continue to lose its direction as investors wait for a clearer picture on what the US Federal Reserve will do next month. Apart from the Fed, policymakers elsewhere in the world are undertaking accommodating action and are ready to launch new stimulus measures to support their economies. A war of words is now moving the markets globally.
Given the high risks mounting, we believe investors should reduce their risks associated with equity-market fluctuation by switching to income-generating investments. The bond market may be an option, but the current yield is unattractive.
Real-estate investment trusts (REITs) are the prime overseas choice for investors who prefer a predictable regular income. We have picked some REITs in Singapore with solid track records of paying increasing dividends to their unit-holders during the past couple of years. Visibility for their future revenues is intact.
Frasers Commercial Trust, an office REIT, offers an attractive prospective dividend yield of about 7.5 per cent. The REIT pays dividends every quarter. Its office properties are in Singapore and Australia. Frasers Commercial Trust is one of the property REITs under the umbrella of the Thai liquor tycoon who bought Fraser and Neave a few years ago.
Mapletree Industrial Trust, an industrial REIT, offers a generous dividend yield of about 7.3 per cent with quarterly payments. The REIT rents out industrial facilities for a diversified group of clients in Singapore. Mapletree Industrial is expected to reap the benefits from the completion of development projects from 2017 onwards (for Hewlett-Packard).
Despite a solid performance track record and predictable revenue, these REITs are not risk-free. Rising interest rates might increase their financing costs in the near term while the increase in rental fees might take a longer period.
Research Department
Trinity Securities
The SET Index this week is expected to see pressure from drops in crude-oil prices. However, the index may not fall sharply thanks to rebounds in the communications sector and positive sentiment for the banking sector, which could gain from its loan extensions to the winners of telecom licences on the 1,800-megahertz spectrum.
The 1,800MHz auction results were as expected. ADVANC (Advanced Info Service) and TRUE had the highest likelihood of winning licences.
In the short term, DTAC (Total Access Communication) and JAS (Jasmine International) could see their prices with relief rebounds, but DTAC will likely rise more, as JAS has already rebounded on Thursday.
In the medium to long term, ADVANC is the safe haven of the group, given its capability to shoulder a higher cost burden. ADVANC dropped as the cost of the licence was priced in, against expected benefits from its fourth-generation services. Buy the stock at the targeted price of Bt284.
During next month’s 900MHz auction, we expect DTAC and JAS to see negative sentiment again as high competition for the auction is expected.
Last week, MSCI announced stocks included in and excluded from the Standard Index and Small Cap Index. The lists will take effect on November 30.
1 Stocks included in or excluded from the Standard Index: None.
2 Stocks included in the Small Cap Index: GPSC (Global Power Synergy), IMPACT (Impact Growth Real Estate), PLAT (The Platinum Group), TIPCO (Tipco Foods), VNG (Vanachai Group).
3 Stocks excluded from the Small Cap Index: DSGT (DSG International), LOXLEY, MBK, MONO (Mono Technology), NOK (Nok Airlines), PCSGH (P.C.S Machine Group Holding), PTL (Polyplex (Thailand)), SIM (Samart I-Mobile).
Based on our study from 2008 onwards, stocks included in the Small Cap Index have usually risen 4.5 per cent more than the market average from the announcement date to the effective date. However, in the last three rounds, the stocks increased 6 per cent compared with the market average.
Stocks excluded in the Small Cap Index have normally fallen by only 2 per cent compared with the market average, and this is not very significant.
Prices of GPSC, IMPACT, PLAT, TIPCO, VNG are expected to outperform the market.
This week, the euro zone’s inflation will be announced today, and these figures could direct major policies. Mario Draghi, chairman of the European Central Bank (ECB), recently declared to the European Parliament that prospects of the euro zone’s inflation meeting its target tended to be unclear and risks to the economy were heightened by the global slowdown.
Thus we retain our view of a high possibility for the ECB to ease its monetary policy further at its December 3 meeting.
The likely monetary easing could be a rate cut or a quantitative-easing change in terms of size, period or composition of instruments purchased.
