Just the time to pick up some cheap stocks

Thai shares have tumbled 21 per cent so far this year, having reached the levels in terms of price to earn¬ings (P/E) comparable with December 19, 2006 when the 30percent capital reserve require¬ment was implemented.

The lingering political instabil¬ity might cast a shadow over the market. But the smart way to invest now is to pick stocks that have bet¬ter weathered political tensions.

Siam City Research Institute (SCRI) said in its strategy report that food, communication, enter¬tainment and hospital stocks are less sensitive to the political factor.

The research house cited Advanced Info Service (AIS), Bangkok Dusit Medical Services, Minor International, Major Cineplex, Asian Property and Banpu as examples.

These stocks are picked based on their normalised profit between 20082009 of 7.5 to 8.7 per cent, limited risk from political tensions due to no or limited connection between their business and the gov¬ernment, low share prices, strong financial position and high divi¬dend payments.

Based on the closing price on August 27, 2008 and the research house's target price, Major had the highest upside gain with 65 per cent compared to the target price of Bt21.50 and it would offer dividend yield of 4.9 per cent for 2008 and 5.6 per cent for 2009. Bangkok Dusit showed a 58 per cent upside gain from the target price of Bt58, Minor had a 57 per cent upside gain from the target price at Bt20.50.

Asian Property's share price showed a 48percent upside gain from the target price of Bt8. AIS's share price showed a 30per cent upside gain from its target price of Bt114.04, with an expected divi¬dend yield of 7.3 per cent and 8.3 per cent in 2008 and 2009, respec¬tively, the paper said.

Banpu had a 21 per cent upside gain from the target price of Bt464.

Since the beginning of this year, Major has dropped 32.63 per cent, Minor fell 22.66 per cent, Asian Property was off 18.75 per cent, AIS lost 8.25 per cent, Banpu slid 4.5 per cent while Bangkok Dusit bucked the trend with a 7.46 per cent gain.

"SCRI estimates that communi¬cation business has a low connec¬tion with politics as the National Telecommunication Commission (NTC), which is an independent regulator, regulates the business. Earnings of operators in the indus¬try depend on usage volume, which is varies depending on the promo¬tions of each service provider.

SCRI expects that 3G service would be an important factor in service providers' operations and their business would not be hurt by political changes. NTC would issue 3G licences for 2.1 GHz in the first half of 2009," the research paper said.

AIS has a strong financial posi¬tion due to its domination of the market with a 46percent market share.

Although income growth con¬tribution from mobilephone serv¬ice was low due to saturation in the market, the company has made the most progress for 3G investment among service providers and this would allow the company to earn higher income from data service fee, the paper said.

The research house said theatre business was less sensitive to the economic slowdown as ticket price is not too high and the number of moviegoers depends on the popu¬larity of each movie.

Major is the country's largest theatre operator and 48 per cent of its income comes from sale of movie tickets.

"Even though advertising and ticket income would slow down in the second half this year due to the economic situation and the delay in two blockbusters - Harry Potter and King Naresuan - hitting the screens, Major's rental fees and service could make up for it. In 2009, Major's ticket income would increase as the two blockbusters would be released," the research house said.

SCRI is bullish over the hospital business outlook due to increasing healthconsciousness and the growing number of elderly and for¬eign patients.

The research house predicted that the number of foreign patients in the next five years would jump 66 per cent from 1.5 million in 2007.

Although the property sector was expected to feel the pinch from the political instability, SCRI believed that Asian Property would hurt the least as it had steady back¬log of Bt16.88 billion as of August.

Besides, it was less sensitive to interest rate hikes as the company's customers are in the middle or upperincome group, who are resilient to interest rate increase, the research house said.

Political tension would not have an adverse impact on domesticrelated businesses as they are neces¬sities, SCRI said.

Minor International has hardly felt the effects of the economic slow¬down as seen by the fact that its same store sales in the first half this year surged 6.2 per cent yearonyear. Its planned outlet expansion would drive its growth in the future, the research house said.

Managing hotels in the Middle East would be another driving force for earnings, SCRI said.

Commodity is another product that is almost immune to political developments. The research house picked Banpu.

Banpu has a solid financial posi¬tion with 0.67 debttoequity ratio. The coal miner has diversified into power generation, which is a lowrisk business.

Asia Plus Securities chief exec¬utive officer Kongkiat Opaswongkarn said his firm had set aside a budget to invest in stocks that would not be affected by poli¬tics, including exports, retail, mobilephone and commodity sec¬tors.

The share prices of a number of listed companies in these sectors are below their fair value as they were battered by the political situ¬ation, he said.

Moreover, these stocks are high dividend payers, he said.

"This is the right time to pile up stocks and I don't care if my com¬pany must hold them as longterm investment as their prices are very cheap. If the political problem ends or there are positive factors, the stocks are ready to rebound sharply," he said.

Asia Plus Securities would utilise proceeds arising from warrant con¬version, which will become due at the end of this month, said Kongkiat.

The broker expected to mobilise Bt900 million if the remaining 474 million warrants are fully exercised.

Asia Plus Securities' investment portfolio amounts to Bt3 billion, Bt1 billion each of which is invest¬ed in stocks and debt instruments and the remaining Bt1 billion in overseas investment and deposits.