Market View

Therdsak Thaveeteeratham

Executive vice president/research

Asia Plus Securities

Last year, the bourse remained under pressure from foreign sales worth more than Bt157 billion, a more than 40-per-cent drop in the Dubai crude oil price from US$53-$54 per barrel to $32-$33 and listed companies’ flat growth in net profit – about Bt700 billion. In the meantime, economic engines – exports, household consumption and public and private investment – could not work efficiently, prompting the sluggish economic situation.

Late last year, the 4G-licence auction, whose second round was worth more than Bt230 billion, raised concerns over the ICT group’s profitability, given greater cost burdens arising from the auction, and fiercer competition. That environment dragged down the SET Index by more than 14 per cent in early 2015.

At the beginning of 2016, however, we believe that these factors have already been priced in and continue to ease. Dubai crude, currently staying at $32 per barrel, is expected not to see sharp falls like last year.

Listed companies’ earnings performance is forecast to be back to normal at more than Bt200 billion per quarter. ASPS estimates a 25-per-cent jump in net profit to Bt885 billion or Bt94.55 per share. The market’s price-earnings ratio, at the end of this year, is expected to fall to a very low 13.6 times. GDP growth is projected at 3.8 per cent. Thus, the Thai stock market is estimated to see a low downside, meaning lower risk. Under the estimated earnings-per-share ratio of Bt94.55 and targeted price-to-earnings ratio of 15.5 times (based on a 5-per-cent market earnings yield gap, or market risk premium), the SET Index is forecast at 1,466 points with an expected return of 14.5 per cent at year-end. These figures will be high enough to attract long-term investment.

The investment theme is domestic plays, based on assumptions of domestic economic drivers, particularly public investment.

Stock picks:

SCC (fair value @Bt595) with expected rise in demand for construction materials; CK (FV@Bt33) with readiness in financial and business bases for joint investment with the government; PS (FV@Bt36) with a chance for optimal benefits from the government’s stimulus of the property market; KBANK (FV@Bt240) with low valuation and potentially profitable credit portfolio; ROBINS (FV@Bt55) with a policy change for expected gain in the long term and a recovery in household consumption

With regard to fears over local institutional investors’ stock sales as a result of LTF units’ redemption, in January, in five of 10 years studied, local institutional investors sold stocks. And, in January of the other five years, they bought stocks. Interestingly, they purchased stocks for four straight years (2012-15) out of the five years of stock purchases.

This could come from still high confidence in the bourse. However, it’s possible that confidence will fade this year after the pressure in the previous year. We believe if there’s a selling spree as a result of LTF units’ redemption, it will not be big, as LTFs, which will expire in 2016, are still seeing negative returns. Their average cost is expected at the SET Index of 1,400 points.

Prakit Sirivattanaket

Vice president

Kasikorn Securities

The stock market is expected to confront no less difficulty this year than the previous year. Although signs are not as certain as they were in 2015, I don’t feel the year of 2016 is a good year for investment.

Old negative factors have been priced in. But the stock market has not yet recovered. We hope for earnings improvement following the country’s economic recovery. The government has accelerated investment and budget disbursement. Based on surrounding factors, 2016 will be similar to 2015.

We put our hopes on public spending. However, if it does not happen or is delayed, the economy will continue to be sluggish. Certainly, earnings estimates may be cut continuously in 2016 like they were last year.

Major risk factors:

l Fluctuations in money and capital markets across the world, following the uptrend in interest rates, leading to liquidity problems in emerging markets

l Domestic political conflicts and market concerns over the resolution when the constitution draft is presented and worries over a roadmap for the election

l Expected more severe droughts.

Another main factor is the unexpected, which is expected to be negative rather than positive. This could cause the SET to fall lower than expected.

We dare not target the SET Index at year-end. Investment portfolios should be 70-80 per cent in cash. The rest should be selectively invested in stocks whose net profits are expected to outperform the market. Stock picks: KCE and BH.