China, oil price plunge affect SET since beginning of year

 

The Stock Exchange of Thailand has been on a rough ride since the beginning of the year, influenced by concerns about China’s policies on the yuan and the further plunge in oil prices. 

Investors have continued to ease their portfolio risks by reducing their equity holdings globally. 

For the Thai bourse, the top losers were led by oil and gas stocks, such as PTT and PTT Exploration and Production (PTTEP). Other widely held stocks that suffered from the sell-offs included Siam Cement (SCC), Minor International (MINT), Bangkok Dusit Medical Services (BDMS), and some large banks such as Siam Commercial Bank (SCB) and Bangkok Bank (BBL). 

Foreign investors sold Bt11 billion net of Thai shares while all other domestic investor groups were buyers to date. 

The Thai market outlook remains unpleasant, particularly in two major sectors, oil and gas and banks. 

The oil and gas sector is vulnerable to the global oil-price fluctuations. The demand-supply imbalances should continue to keep oil prices at the current low levels, if not lower. Any surge in oil prices might not be a trend reversal but possibly a short recovery. The number of short positions in oil exchange-traded funds has risen to a record high this month, according to Bloomberg data. Investors should take a cautious view on the oil and gas counters. 

Meanwhile, the banking sector is expected to experience slow loan growth, while loan loss provisions should be at high levels this year in order to rebuild reserves for deteriorating asset qualities. 

We recommend that investors use the global market rout to diversify their portfolios to include bargain stocks in overseas markets. We recommend that they explore the risks of overseas investments before accumulating stocks. 

 

Tisco Securities

Volatility in global equity and commodity markets continues to roil Thai stocks, helping drive down the SET Index to near two-year lows. 

Worries about a global economic downturn increased after China announced that its fourth-quarter 2015 GDP growth slowed to 6.8 per cent from 6.9 per cent in 3Q15, marking its weakest reading since 2009. Another major headwind is the steep decline in oil prices to below US$30 a barrel after the lifting of economic sanctions on Iran.

Continuing weakness in crude-oil prices, however, is good news for airline stocks such as Bangkok Airways (BA), on which we recently initiated coverage with a “buy” rating and target price of Bt27.26. BA’s key competitive advantage is its near-monopoly position of Koh Samui, the second-most-popular tourist destination after Phuket. The airline currently has an 87-per-cent market share of Samui airport, and plans to increase daily flights to Samui from 36 to 70 over the next two or three years.

Meanwhile shares of AAV (Asia Aviation) have jumped 28 per cent since the beginning of December, riding high on the 46-per-cent collapse in jet-fuel prices during the same period. This is particularly beneficial for AAV, as the airline has lowered its jet-fuel hedging to 24 per cent this year from 50 per cent in 2015.

AOT (Airports of Thailand) is an indirect beneficiary of the dramatic drop in oil prices. It is seeing stronger growth in Chinese arrivals driven by LCC (low-cost carrier) route proliferation (flights between Thailand and China have now risen to 60 a day), encouraged by lower jet fuel costs. Accordingly, we have raised AOT’s 2016-17 earnings forecast by 17-19 per cent to reflect the improved tourism outlook and raised our target price by 14 per cent to Bt380.

Last week banks announced their 4Q15 and full-year results. Sector earnings for 2015 were in line with our forecast and consensus but fell 7 per cent year-on-year mainly because of the SSI (Sahaviriya Steel Industries) credit default at KTB (Krung Thai Bank) and SCB (Siam Commercial Bank) and a rapid rise in non-performing loans to small and medium-sized enterprises at KBANK (Kasikornbank). 

Our analyst recently trimmed her 2015-17 earnings forecasts for the sector by 4 per cent and lowered her target prices by 3-17 per cent. However, she has upgraded TMB to a “buy” for its more attractive valuation, benefits from the government’s SME stimulus measures, and potential M&A (mergers and acquisitions) story. Note that TCAP (Thanacart Capital), her top pick, is the only other buy-rated stock in the sector.

Meanwhile we have revised down our 2016-17 earnings forecast for ADVANC (Advanced Info Service) by 9-14 per cent and cut our target price to Bt210 from Bt235. The stock has fallen 23 per cent since the beginning of December, driven by three key concerns: potential loss of 11 million 2G subscribers to TRUE, the prospect of aggressive licence bidding in 2018, and a potential price war and loss of market share to JAS (Jasmine International). 

We think all three concerns are overblown and believe ADVANC’s strategy to secure spectrum deals with TOT (at a cost of Bt9.5 billion a year) will mitigate most of these problems. In our view, the stock has now entered “buy” territory and currently offers a prospective dividend yield of more than 8 per cent.

 

Research Dept, Trinity Securities 

The results of the meeting of the European Central Bank (ECB) were as expected, leaving its policy unchanged. However, ECB chairman Mario Draghi gave a dovish statement with room for additional policy moves. The bank will assess monetary policy at its next meeting on March 10. Having concerns on drops in oil prices, which could lead to deflation, Draghi said the euro zone’s inflation was low with a possibility of being in negative territory in the short term.

If factors across the world are quite similar to the present situations when March 10 approaches, the ECB is expected to ease its monetary policy further at its next meeting. There are two possible ways to do this: Cut the deposit rate from -0.3 per cent, and/or enlarge the monthly size of QE (quantitative easing) from 60 billion euros. Markets are expected to price in these possibilities before the next meeting on March 10.

Investment strategy: When the SET Index rises, sell, and when the SET Index falls, buy amid market sideways. The SET Index is expected to see a lower range at 1,200-1,220 points and the upper range at 1,280-1,300 points. 

Focus on medium and small caps (non-SET50) with investment themes. Stock picks: KCE (KCE Electronics), SVI, GFPT, KKC (Kulthorn Kirby), HFT (HWA Fong Rubber (Thailand), EPG (Eastern Polymer Group), COM7, BIG (Big Camera Corporation), KAMART (Karmarts), BEAUTY (Beauty Community), AAV (Asian Aviation), NOK (Nok Airlines), THAI (Thai Airways International), ERW (Erawan Group).