Despite some easing of the political deadlock, including the disqualification of the three scandal-tainted election commissioners, listed companies' earnings in the second half of the year will remain as disappointing as in the first half, stock analysts predict.

A gloomy outlook is expected, despite optimism among many companies that the less murky political scene will boost investor and consumer confidence, convincing them to spend again.

Lower earnings are a concern to fiscal officials, who are now forecasting a 10-per-cent fall in listed companies' second-quarter earnings. As listed companies are the cream of more than 100,000 companies registered in Thailand, their performance could serve as an indicator of falling government tax revenue this year and next year.

Adisak Kammool, KGI Securities (Thailand)'s vice president for economic and strategy research, estimated that listed companies' third-quarter earnings would drop year on year, pressured by interest-rate hikes and the record-high oil price.

"Listed companies' earnings growth will bottom out in the third quarter because of a spate of uncertainties. Their earnings will start to improve in the fourth quarter because the companies will accelerate to make the full-year earnings look good," he said.

Energy, accounting for 33 per cent of the overall net profits of listed companies, is expected to deliver steady growth in the third quarter because of high oil prices.

However, the banking sector - the second-largest profit-maker in the stock market - is forecast to see net profits drop by 15 per cent quarter on quarter and 10 per cent year on year.

DBS Vickers Securities (Thailand) is pinning its hopes on the situation improving if the 2007 Budget Bill is endorsed and the investment budget can be disbursed next January or February.

"Once the Budget Bill is approved, more money would be invested and that would increase confidence among investors and consumers, who will return to the spending scene," the brokerage house said.

Analysts are of the opinion that companies in real sectors - including banking, manufacturing and property that contribute hugely to the economy - will continue suffering from lower purchasing power amid high inflation, oil prices and higher interest rates.

DBS is reducing earning forecasts for 111 stocks which contribute 72 per cent of the exchange's market capitalisation. Their earnings could fall 4.1 per cent this year compared to last year, with a further drop of 1.7 per cent in 2007.

Ayudhya Securities said seven banks that the company covers should report lower earnings, caused by higher interest payments as well as fierce competition. Banks are also expected to increase possible loan-loss reserves as a result of the economic slowdown, which reduces borrowers' ability to repay loans.

In the second quarter, the seven banks reported a combined net profit of Bt18.17 billion, 5 per cent below the securities company's forecast.

If there are companies to be spared from the murky economic conditions, they are export-oriented ones which still enjoy a huge increase in global demand.

Thai Garment Manufacturers' Asso-ciation vice president Sukij Kongpiyacharn said export volume this year should grow 8 per cent year on year to US$3.5 billion (Bt132.5 billion), as targeted.

"We also suffer from fierce competition, mainly from India, China and Vietnam, which could drive down the export value," he said.

Like others in the textile industry, he hopes the new government will proceed with free-trade agreements, especially with the United States, as a way of boosting demand for Thai garments.

A clearer political picture will boost traders' and investors' confidence, says Kamol Trevibul, vice chairman of the electronic and electrical equipment industry in the Federation of Thai Industries (FTI).

He foresees good signs in the second half. Many investors are expected to move their projects to Thailand and some would be in the electronics sector, which anticipates 10-per-cent sales growth this year.

Paiboon Ponsuwanna, chairman of the FTI's food processing industry club, also expects continued high demand in the second half. "The clearer political scene after the October election will push up our food safety standards and that should help boost demand for Thai food products," he said.

The club believes it will succeed in boosting food-export income by 13-15 per cent year on year to Bt450 billion.

"Although exports have grown in volume for the first five months by 13 per cent, the value has dropped because of the country's lack of a clear policy to raise food standards," he said.

Thai Rice Exporters Association president Chookiat Ophawongse said exports in the second half should also achieve their target of 7.5 million tonnes this year.

Many countries have increased rice imports. Despite the baht's fluctuation, the value of rice has increased by 5 per cent so far this year. On average, Thai rice prices jumped from $310 last year to $330 per tonne in the first half this year.

"Now we just hope that there will be no new political problems after the election or we might lose the opportunity to return confidence to the economic sector. And then we would easily lose our competitive edge over our neighbouring countries," Chookiat warned.

Siriporn Chanjindamanee,

Petchanet Pratruangkrai

The Nation