The SET Index performed poorly during the first two weeks of December, losing almost 5 per cent of its value. The index slipped below the 1,300 psychological level and is likely to hover around that level, with a possibility of a further decline.
Leading the Stock Exchange of Thailand down were PTT and PTT Exploration and Production on the back of declining global oil prices. CPALL was among the top decliners, as investors were concerned on its corporate governance. Large banks posted further drops
on sluggish loan growth and deteriorating asset quality.
To date, the Thai market has fallen by some 13 per cent, with foreign investors selling a hefty Bt126 billion (net) in Thai shares.
This week, investors are expected to pay attention to the decision by the US Federal Reserve, which will set the tone for global market sentiment, and, locally, the auction of fourth-generation telecom licences on the 900-megahertz spectrum. A DBS telecom analyst has upgraded key telecom players to “buys” from “holds” after the recent correction in share prices.
DBS’s regional strategist has assigned an “underweight” recommendation for the Thai market in 2016. We lowered our SET Index target for 2016 to 1,302 from our 2015 target of 1,390 as the current share prices are trading beyond their fundamental values.
The 1,302 index target is based on 16.5 times 2016 PE (median SET index + 1SD) given that our EPS (earnings per share) growth estimate is 17 per cent for 2016.
The key risk to our target is from the oil and gas sector as earnings projections are is difficult because of the fluctuations in global oil prices, which would result in inventory gains and losses including impairment charges.
We have assigned an “overweight” rating on the tourism, transportation, electronics, and specialised finance sectors. We are underweight on banks. Our rating for the other sectors is “neutral”.
Bowing to both internal and external macro pressures, the Stock Exchange of Thailand has extended its losses in December amid heavy outflows by foreign investors. About US$400 million was pulled out in November, bringing the net year-to-date figure to -$3.52 billion.
Rising political tensions, the continuing drop in crude-oil prices and growing expectations that the Federal Reserve will raise US interest rates in mid-December have taken their toll on investor sentiment.
Another major factor behind the market’s recent slide was third-quarter results, which proved disappointing as large write-downs in the energy sector, foreign-exchange losses, and extra provisioning by banks dragged earnings down by 79 per cent year-on-year and 82 per cent quarter-on-quarter. However, stripping out the oil and gas sector, 3Q15 earnings actually rose 5.2 per cent year-on-year. Indeed, there were some bright spots among the results.
Tourism remained resilient despite the Bangkok bombing in August, as evidenced by 3Q arrivals jumping 24 per cent year-on-year and AOT’s (Airports of Thailand) net profit surging 157 per cent year-on-year and 44 per cent quarter-on-quarter.
Healthcare-sector results were also impressive, led by BDMS (Bangkok Dusit Medical Services) beating expectations with 8-per-cent year-on-year earnings growth.
And while smaller commercial banks continued to beat their bigger peers in terms of credit-quality improvement, upcountry financing specialists MTLS (Muangthai Leasing) and SAWAD (Srisawad Power 1979) posted record high earnings on the back of 48-58-per-cent loan growth.
Telecom, the third-biggest sector after banks and energy (by market cap), has been heavily penalised by the market after the cost of licences in the 1,800-megahertz spectrum auction sharply exceeded estimates. Looking ahead to the December 15 900MHz auction, our analyst continues to believe DTAC (Total Access Communication) and ADVANC (Advanced Info Service) will be the ultimate winners. Even if JAS (Jasmine International), the culprit behind the aggressive bidding last month, were to win a licence, it would still be unable to compete effectively in the telecom market given that the licence would only grant 10MHz of bandwidth.
With earnings behind us and the government’s SME/rural stimulus blitz well under way (77 per cent of the Bt60-billion Village Fund and 50 per cent of the small and medium-sized enterprise soft loans have been disbursed, while 88 per cent of the projects in the Bt36-billion tambon construction/restoration programme have been approved), our focus shifts to the government’s infrastructure projects.
On this front we are seeing steady, albeit slow, progress. Note that the government’s Bt100-billion Infrastructure fund, one of its key stimulus/support measures, will be forwarded to the Cabinet this week for approval. The fund is aimed at financing 5 PPP (public-private partnership) projects worth a combined Bt334 billion.