Stocks that will weather the inflation storm

CP All, the 7-Eleven convenience store operator in Thailand, is one of the stocks that brokers recommend investors to buy amid the rising interest-rate trend.

"In the present situation, we recommend stocks that can weather the interest-rate-hike trend or can offer dividend yields of more than 7 per cent," Asia Plus Securities said yesterday.

The broker said interest rates might be raised 1-1.5 per cent over the next 12 months and expected inflation to average 7 per cent this year. It said 10 stocks were expected to benefit from the upward trend in interest rates.

CP All, operator of 7-Eleven convenience stores, has net cash of Bt4.48 billion, followed by Hana Microelectronics with Bt3.72 billion, BEC World with Bt3.69 billion and MCOT with Bt2.28 billion, the broker said.

Thai Stanley Electric has net cash of Bt1.49 billion, SNC Former Bt1.01 billion, Siam Makro Bt826 million, Siam Steel International Bt816 million, MCS Steel Bt555 million and City Steel Bt250 million.

Asia Plus said Total Access Communication would feel a minor effect from interest-rate hikes, because 75 per cent of its Bt23.78 billion worth of debts had fixed rather than floating interest rates.

Other companies carrying more than 50 per cent of their debts on fixed interest rates include Quality Houses, Land and Houses and Asian Property.

Stocks expected to yield dividends higher than 7 per cent include Thai Metal Trade, Supalai, MCS, Property Perfect, SC Asset, Thai Vegetable Oil, Thai Plastic and Chemicals, Demco, Kiatnakin Bank and CSP Steel Centre.

Others are Thanachart Capital, Syntech Construction, Nava Leasing, Cal-Comp Electronics (Thailand), the Vanachai Group, Sri Trang Agro Industry, Baan Rock Garden, MK Real Estate, Delta Electronics (Thailand) and Hana Microelectronics.

Tisco Securities said in its "Thailand Market Strategy" advisory paper that Banpu, PTT, Bangkok Bank, Advanced Info Service (AIS) and Minor International were its top picks for inflation-hedging stocks.

It said companies whose share prices should outperform during the present high-inflation environment could be identified by a number of characteristics.

They will have attractive real-dividend yields exceeding the rate of inflation and pay dividends quickly, in order to reduce inflation-risk premiums.

They will have cash-flow profiles that can be adjusted to the rate of inflation and cost structures that allow higher costs to be quickly passed on to clients.

They will also be price commanders or companies operating in a monopolylike environment with strong earnings growth to offset the negative effects of inflation.

Tisco Securities said annual headline-inflation rates could rise to 7.3 per cent year on year if oil prices remained at US$120 (Bt4,000) per barrel or 8.1 per cent year on year if prices remained above $130 a barrel.

"Our monthly correlation analysis between sector performance and Consumer Price Index (CPI) data from 2005 and the first five months of 2008 shows four sectors that have outperformed the rise in the CPI: agriculture, food, energy and information and communications technology. Major sectors that underperformed the increase in the CPI include construction materials, commerce, transport and tourism," the broker said.

It has set the following target prices: Banpu, Bt561 a share; Bangkok Bank, Bt150; AIS, Bt109; Minor International, Bt21.50; and PTT, Bt446.