New year should see less profit risk than 2015

In 4Q15, high season for several industries, listed companies’ net profit is expected to see its normal range at approximately Bt231 billion. As a result, listed companies’ net profit is forecast at Bt707 billion or Bt75.42 per share for the whole of 2015. If extracurricular expense items are excluded, EPS (earnings per share) will be Bt93 in 2015. Next year is expected to be better with less risk for profit.

Energy: Based on next year’s estimated Dubai crude-oil price of US$45 per barrel on average ($53 per barrel in 2015) with records of inventory gains and losses, the energy group is projected to see 2016 net profit of Bt178 billion, about 1.55 times this year’s, which was irregularly low from provision of impaired assets in the oil industry.

Commercial banks: In 2015, commercial banks set loan-loss provisions in proactive style, with large provisions for SSI (Sahaviriya Steel Industries). In 2016, big provisions are not expected. Next year’s loan-growth target 5.37 per cent. This year’s was 5.59 per cent. NIM (net interest margin) is forecast to see a small improvement to 3.08 per cent. This group’s net profit is estimated at Bt204 billion, up 13 per cent year-on-year.

ICT: In 2016, net profit of the information and communications technology group is projected to fall by 16 per cent to Bt72.7 billion from Bt86.5 billion in the previous year. 

Two reasons behind this estimated profit decline are no record of extracurricular items and higher costs – licence amortisation, marketing expenses and investment for network extension by mobile-phone operators from their initial development of fourth-generation cellular. 

In 2015, JAS (Jasmine International) and TRUE (True Corp) booked Bt15-billion gains from asset sales into infrastructure funds.

Construction materials: This group sees its main profit from SCC (Siam Cement), which in 2016 is expected to rise 8.3 per cent to Bt49.6 billion, likely driven by higher demand for construction materials and an up-cycle for olefins. The group is estimated to see an 11-per-cent rise year-on-year in net profit to Bt68 billion.

For 2016, we forecast listed companies’ combined net profit at Bt886 billion or Bt94.55 per share. Next year’s EPS growth is estimated at 25.37 per cent. 

Excluding the 2015 extracurricular expenses, next year’s EPS growth estimate is quite low at 1.67 per cent, compared with the 2016 GDP growth estimate of 3.8 per cent. 

Based on its PER (price-to-earnings ratio) of 15.5 times equivalent to the earnings-yield gap of 5 per cent, the SET Index is targeted at 1,466 points at 2016 year-end with an upside of 12 per cent from now.

The investment theme remains domestic plays on expectations that the domestic economy, particularly public investment, continues to be next year’s economic driver. 

Stock picks: CK (Ch Karnchang), SCC, BTS (BTS Group Holdings), KBANK (Kasikornbank), PS (Pruksa Real Estate) and ERW (Erawan Group).

 

Prakit Sirivattanaket 

Vice President

Kasikorn Securities

 

Given the conditions of the auction for telecom licences on the 900-megahertz spectrum, winning bidders will likely face few problems making cash payments for the first three years of operation. During that period, operators will be able to generate sufficient income and independent cash to pay off the licences in the fourth year. 

ADVANC (Advanced Info Service) is expected to have accumulated independent cash of about Bt150 billion during these four years. 

DTAC (Total Access Communication) is estimated to see accumulative cash flow of Bt56 billion in the four years.

This may be a reason for operators to bid fiercely, regardless of prices, given confidence in future benefits.

Aside from the relaxed conditions, this bidding fight might have resulted from an intention to boost competitiveness and reduce rivals’ capacity. DTAC’s failure to win the 900MHz licence, willlead to problems instantly when its 1,800MHz and 850MHz concessions expire in 2018. There will be only the 2100MHz spectrum left.

Certainly, if that is the case, that will not make it competitive with less market share as customers will move to providers with better services and DTAC will lose its position. That’s why there was such fierce competition at this auction.

ADVANC is expected to be the biggest beneficiary. Other operators, whether or not they win a licence, will likely see impacts. 

It’s a chance for long-term investment when the ADVANC share price stays below Bt200.