SET to close the year on a sluggish note
THAI STOCKS are likely to trade in a narrow range in the final days of the year, with foreign net sales slowing down ahead of the New Year holidays. Near-term risks remain to the downside, however.
Among the various market headwinds are the continuing retreat in crude oil prices (the oil and gas sector accounts for about 20 per cent of the SET’s total capitalisation) and the fallout from JAS’s successful bid for a 900MHz spectrum licence. However, our telco analyst believes the panic sell-off over JAS’s entry into the 4G market is overdone. He describes the company’s three-year business strategy as “rather underwhelming” and believes the possibility of JAS capturing substantial market share from the three incumbent operators is limited.
He is also doubtful that JAS can achieve its target of 5 million subscribers by 2020 and expects it to report losses until 2023. Consequently he has slashed JAS’s 2016 earnings forecast by 65 per cent and cut his target price from Bt6 to Bt2.8. He has downgraded his earnings estimates and target prices for all other telco stocks but maintains AIS and INTUCH as his top picks, arguing that they are most resilient to industry changes (aided by AIS’s surprise announcement of a spectrum deal with the TOT). He also keeps his “Buy” rating on DTAC given that the stock is currently trading at a 2016F enterprise value to earnings before interest, tax, depreciation and amortisation of 3.5 times and offers a 12-per-cent dividend yield for next year.
For True, the other 900MHz licence winner, our analyst has revised down his target price from Bt10.7 to Bt7 and forecasts it to make a loss next year (versus his previous estimate of Bt3.1 billion net profit), Although he believes True’s improved spectrum advantage and aggressive expansion will turn it into the second-largest operator by 2020, he does not expect that this will help it recoup its stratospheric licence cost.
Also dampening market sentiment is the continued depreciation of the baht against the US dollar. This trend should continue in 2016 after the US Federal Reserve hiked interest rates for the first time in nine years while the Bank of Thailand’s Monetary Policy Committee kept its policy rate on hold at 1.5 per cent.
On the plus side, we believe the impact of the Fed rate lift-off on the SET will be limited by Thailand’s high domestic liquidity and strong current account surplus and the fact that foreign holdings in the SET are now at 10-year lows, making it relatively safer compared to other emerging markets.
Valuations of major banks now look more attractive after their recent sell-off, with Bangkok Bank (BBL), Siam Commercial Bank (SCB) and Kasikornbank (KBANK), currently trading close to 1x forward price/book levels. Our analyst, however, is still not convinced that any yet deserve a “Buy” rating given the absence of a near-term catalyst. Her only “Buy” in the sector remains Thanachart Capital (TCAP) due to its improving loan spread and credit quality with a Bt27-billion tax shield to improve loan loss reserves and return on equity.
