SET Index gains in Q1 may be temporary

The index rose by 5.7 per cent in March, as foreign investors bought a hefty Bt26.5 billion worth of equities during the month. In the quarter, foreign investors bought Bt18.4 billion net of Thai shares. The top gainers in March were PTT, Charoen Pokphand Food, Bangkok Bank, Advanced Info Services, and PTT Global Chemical. The laggards were BEC World, U City, Banpu, Bangkok Life Assurance, and Bumrungrad Hospital. 

The external factors that will continue to influence the market direction include expectations of Fed rate movements, global oil prices, and fund flows into Thailand. The recent inflows helped bring down Thailand’s 10-year government bond yield to 1.69 per cent, which is below the US 10-year Treasury yield of 1.80 per cent. We do not believe this situation can be sustained for long. Once the foreign fund inflows start to reverse, we could see the return of volatility to the Thai bond market and baht forex rates. 

As far as the Thai stock market is concerned, we believe the SET Index will hover around the 1,400 level in the coming weeks, though it could face difficulties pulling away from this level. Having said that, we expect the contractor sector to outperform the broader market – note that we upgraded this particular sector to “Overweight” in late-March. 

We are convinced that the government is working hard to expedite the approval and bidding processes for infrastructure projects. At least 11 projects worth Bt786 billion will get fast-tracked, thus allowing these projects to begin sooner than we had initially anticipated. A series of projects will open for bidding soon and this could help rejuvenate the contractor sector. Our top picks in this sector are Ch.Karnchang (CK) and Sino-Thai Engineering & Construction (STEC).

 

Tisco Securities

The SET is likely to face consolidation this month amid a slowdown in trading due to the Songkran holidays and profit-taking after a strong gain of 5.7 per cent in March. The market’s extended rally came despite more disappointing economic indicators, increasing worries over drought and the Bank of Thailand’s downgrade of 2016 gross domestic product growth to 3.1 per cent from 3.5 per cent.

The negative news was offset by increased foreign flows to emerging markets and dollar weakness after the Fed indicated it would remain cautious about raising US interest rates due to persistent global risks. Also local sentiment was boosted by new government stimulus measures (the “Happy Songkran” tax break and the Bt70 billion housing packing aimed at low-income earners) as well as signs of progress on infrastructure mega-projects (Cabinet approval of the Pink and Yellow lines and the State Railway of Thailand signing of a Bt32-billion contract for the Red Line).

Meanwhile the Bt110-billion Orange Line was delayed for another week due to the reference price being cut (the Transport Ministry will submit this to the Cabinet for final approval on Tuesday). Greater clarity on government infrastructure projects should act as a near-term catalyst for contractors such as STEC, CK and Unique Engineering and Construction (UNIQ) as well as building materials stocks, notably The Siam Cement Public Co (SCC).

In the telco sector we have revised up our target prices for mobile operators following the return to a 3-player market after Jasmine International Public Co (JAS) failed to meet the payment deadline for its 900MHz license. Our telco analyst now sees a brighter longer-term outlook for top pick ADVANC (Advanced Info Service) and “Buy”-rated INTUCH (Intouch Holdings) and DTAC (Total Access Communi-cation) and has raised their target prices to Bt210, Bt70 and Bt70 respectively. We have also lifted the target price for Airports of Thailand (AOT), one of our long-time favourites, by 18 per cent to Bt460, to reflect an upwards revision in our long-term tourism arrivals growth assumption from 6.3 per cent to 7.9 per cent. This is mainly due to better-than-expected growth of Chinese tourist arrivals, which now account for about 30 per cent of total tourist arrivals

 

Research Department 

Trinity Securities

The climate for investment eased last week on a dovish speech by the Fed governor Janet Yellen. Foreign investors were significantly net buyers of Thai stocks. However, this was a positive factor for the short term due to Thai stock market’s unchanged fundamentals and consistent downgrades of listed companies’ profit estimates. We see the SET Index’s rises in this round fragile and unstable.

Key positive factors in the country include the tax deduction measures for the Songkran Festival and extended tax deduction measures for tourism.

We expect the SET Index to swing in a range of 1,350-1,430 points in April amid likely thin trading volume. Two key factors must be followed.

1)The Bank of Japan’s April 27-28 meeting. There is 60-per-cent probability Japan’s central bank will decide on further monetary easing through: 1) a cut in commercial banks’ deposit rate from minus 0.1 per cent to minus 0.2 per cent; and/or 2) increase of quantitative easing for some assets such as JGB (Japanese Government Bonds), ETF (Exchange-Traded Fund), J-REIT (Japanese real-estate investment trust) and/or 3) universe expansion of JGB purchased to include those with longer maturities if any of the measures take place. 

2) Meeting between the Organisation of Petroleum Exporting Countries (Opec) and Non-Opec on April 17. Basically, we expect no concrete policy to come out. There will likely be only a decision to maintain joint crude production as discussed earlier.

Investment strategy: We calculate the proper level of the SET Index following the earning-yield gap model at 1,310 points. Given downside risks of nearly 100 points and short-term liquidity, we see this as not worth investment at this point. Slowdown in investment is suggested. 

Construction (CK, UNIQ) could outperform the market. Medium-term investors could focus on electronics (KCE, SVI, HANA), food (CPF, TU, TFG) and hotel (CENTEL, MINT, ERW) on expectation for gains from baht depreciation in the second quarter.