Tisco ups SET Index target to 1,600 pts

We enter the season of second-quarter results riding a rally that has seen the Stock Exchange of Thailand eclipse our previous target of 1,460 points and, for the first time since June 2015, close above 1,500. 

We thus raise our 2016 SET target to 1,490 and set our 2017 target at 1,600. 

While average volume in July has risen by nearly 10 per cent from June, daily turnover value has been the real story, jumping 25 per cent over last month. 

Locals remain heavily in the net-sell camp, diverging from foreigners, who have been steadily intensifying their buying since May. In fact, foreigner net-buys for July have already reached Bt27 billion, well over June’s total.

This can be attributed to the Thai market, along with the Japanese and other Asian markets, enjoying a safe-haven perception in recent weeks among foreign investors. 

We see this as the result of Thailand being relatively shielded from the fallout of the British vote to leave the European Union (Brexit) while offering reasonable valuation and yield.

But it’s not only global macro factors that have been lifting market sentiment. 

The domestic outlook continues to brighten as many of the government’s hefty infrastructure projects are now entering the bidding stages. This is positive for large civil contractors such as CK (Ch Karnchang), STEC (Sino-Thai Engineering and Construction), ITD (Italian-Thai Development) and UNIQ (Unique Engineering and Construction), foundation specialists SEAFCO and PYLON, and construction-materials players like SCC (Siam Cement) and SCCC (Siam City Cement).

We are also encouraged by material improvements in a number of domestic economic indicators. 

Perhaps most prominent among these is June, marking the third straight month of farm-income expansion, thanks to rising commodity prices. 

Meanwhile domestic car sales jumped 16 per cent year on year in May and should remain strong in the second half of the year, in our estimate.

In the media space, we have turned more positive on BEC (BEC World), lifting our recommendation to “hold” from “sell” as we expect advertising expenditure to begin a gradual recovery in the second half of 2016 and believe shares now sufficiently discount the company’s various headwinds. 

We have also initiated coverage of BTW (BT Wealth Industries), a holding company with subsidiaries in steel-fabrication services, pressure vessels, and modularisation services, with a “buy” rating, and forecast a three-year earnings CAGR (compound annual growth rate) of 23.1 per cent. 

Other equity plays we like at this time include franchise leader KBANK (Kasikornbank) and laggard BBL (Bangkok Bank) in the bank space, as well as ADVANC (Advanced Info Service) and INTUCH (InTouch Holdings) in the telecom sector.

 

 

Thanawat Patchimkul

Head of Research 

DBS Vickers Securities (Thailand)

The Stock Exchange of Thailand’s rally seemed to have run out of steam in the latter part of last week.

Fund inflows have been impressive so far, with year-to-date net buying by foreign investors reaching Bt66 billion, of which Bt30 billion was recorded in July alone. 

Accommodative monetary policies are in place in most of the major economies. 

The market also does not anticipate a US interest-rate increase in the near term. 

Looking beyond the sentiment-driven surge in global equity markets, fundamentals remain weak. The International Monetary Fund cut its global growth forecast last week and warned about increasing uncertainties, particularly in Europe.

At around the 1,500 level, we believe the upside of the SET Index is limited from the perspective of fundamentals. 

Fund inflows could push the market to yet higher levels, but the risk-return ratio seems unfavourable. 

The key factors to watch out for are Japan’s stimulus policy and the European Central Bank’s release of 51 banks’ stress-test results on July 29. Investors have become increasingly concerned over the asset quality of banks in Europe, particularly Italian banks. Any disappointment could trigger bouts of massive profit-taking. 

In terms of investment strategy, we believe property funds and real-estate investment trusts will continue to perform well. 

Global investors have been pouring heaps of money into REITs. The Vanguard REIT ETF, the largest REIT exchange-traded fund in the US market at US$35.6 billion, has risen by more than 16 per cent year-to-date. 

For the Thai market, we like JASIF (Jasmine Broadband Internet Infrastructure Fund) and CPNRF (CPN Retail Growth Leasehold Property Fund).