Fuel, hospital shares can offer good value

Inflationary pressure is posing a bigger threat to people around the world. Inflation pinches wallets and shocks people as they receive the same nominal salary but have to pay more for essentials. They wind up with fewer savings or even have to borrow money to finance the rising expenses of daily life.

Concerns over inflationary pressure mounted when the Commerce Ministry announced that the annual headline inflation in April this year hit the highest level in 23 months at 6.2 per cent. Yet the Bank of Thailand announced on May 21 that the latest real deposit rate is in a negative 4.54 per cent, the lowest rate over the past three months.

The real deposit rate is obtained by deflating the nominal rates by subtracting the expected 12-month inflation rate from the interest rate of 12-month fixed-deposit accounts.

Stocks seem to be one among few investment instruments that can beat inflation.

Bualuang Securities' head of research, Chaiyaporn Nompitak-charoen found that some industries can fight well against rising inflation: oil-related stocks, coal, and the hospital and leisure service sector.

"The criterion is that the companies are able to largely pass along their increasing costs, mainly driven by commodity prices, to their end consumers," he said.

"The inflation rate may be driven by either demand-pull or cost-push. In this situation, we see cost-push is the key. As result, those companies are able to maintain their profitability."

PTT Explora-tion and Produc-tion, Banpu and Bumrungrad Hospital are his picks to ride the soaring inflation rates at the moment.

He said PTTEP's net asset value (NAV) relies upon the crude oil trend.

PTTEP is Thailand's leading petroleum exploration and production company. It has invested in 38 exploration and production projects with overseas investments in Malaysia, Indonesia, Cambodia, Burma, Vietnam, Oman, Iran, Egypt, Algeria, Bahrain, Bangladesh, Australia and New Zealand.

Although PTTEP's main product is gas, its price is connected to the oil price. Chaiyaporn said that PTTEP can pass its costs to end consumers.

"Our analyst expects its earning will grow by 25 per cent from volume expansion and its valuation is fine with PER [price/earnings ratio] of 20 times, in line with regional peers," he said.

He recommended Banpu as coal prices will be on the up-trend over the next three years, given rising demand from new electricity plants across Asia.

"The revenues and earnings outlook is in a strong growth phase with a discount valuation relative to regional peers at PER of 30-40 times," he said.

For Bumrungrad Hospital (BH), he said the luxury hospital's earning recovery should happen this year and it should enjoy benefits from high-income earners in the international market.

BH's rising costs can be compensated by higher medical rates, said Chaiyaporn, adding that BH has a strong competitive position relative to Asia. Banpu generally relies on price in global market.

Voice of inflation concern has gotten louder and louder after BOT released April inflation at 6.2%. What can we do during inflation rise but saving interest is fixed at quite low, let say 2.75%?