Recent news that the caretaker government is about to appoint a new Board of Investment (BoI) after getting the green light from the Council of State and the Election Commission should be considered quite positive for the market.
Industrial estate players in particular, such as AMATA, HEMRAJ and TICON, which have suffered from the lack of a board since last October, stand to benefit the most from a functioning board.
Amata’s land presales have a 85-per-cent correlation with BoI application approvals.
On the political front, market positive news remains largely absent. The Democrat Party continues to remain vague as to whether they will be involved in any upcoming election – recall that the February 2 election was nullified – until their demands for reform and/or removal of the Shinawatra family from politics are met.
Upcoming rallies by both sides of the political spectrum and the continued possibility of violence are also keeping market players cautious.
We have turned more cautious on Thai banks as aggregate loan growth in February slowed to 7.5 per cent YoY, reflecting further slowdown in consumer loan demand. Furthermore, with deposit growth outpacing loan growth, liquidity has climbed and will likely keep NIM under pressure for an extended period.
Preferred stocks include upstream energy player PTTEP for its improving production profile – substantial production expansion by end-2015, swap out of the loss-making oil aands project, potential divestiture of Montara – and IVL for PTA margin improvement.
Others are BCP for its renewable energy expansion and BBL for its laggard status, as it is up only 10 per cent YTD while the industry is up 20 per cent, and its position to benefit from the BoI’s resumption.
The property sector – LH, QH and SPALI – are also preferred for project launch ramp-up, backlog security and cheap valuation.
Head of research
DBS Vickers Securities (Thailand)
The SET Index advanced 2.2 per cent in the last two weeks to close at 1,391 on Friday on the back of foreign funds flowing back into the region. Yet, it still underperformed regional peers, represented by the MSCI Asia ex-Japan Index, which surged 6.2 per cent during the period.
Foreign investors contributed to a net buy position of Bt10.6 billion. Local institutions were also net buyers at Bt3.1 billion, while local retail investors were net sellers at Bt20.1 billion.
The top three major sectors outperforming the market were electronics led by DELTA, energy led by RATCH and banks led by BAY.
Given the lingering political uncertainty, the Fiscal Policy Office has cut its GDP growth forecast for 2014 to 2.6 per cent from 4.0 per cent. The cut reflects the negative impact from the political unrest on the confidence of consumers, investors and foreign tourists.
The FPO’s revised forecast is in line with the Bank of Thailand’s revision. The central bank also recently cut its 2014 GDP growth forecast to 2.7 per cent, citing the negative impact from the prolonged political instability on consumption and investment.
Looking forward, various political developments are likely to emerge this month that could significantly heighten the political deadlock. Investors should keep a close watch on these developments.
Among these are the red-shirts’ mass rally last Saturday, the Constitutional Court’s ruling on the caretaker PM’s transfer of National Security Chief Thawil Pliensri and the meeting on April 22 between the Election Commission and various political parties to deliberate on the new election date.
The Constitutional Court recently voted to accept the petition filed by a group of senators accusing the caretaker PM of abusing her power by transferring Thawil to become adviser to the PM’s office in September 2011 without authority. The court will grant the caretaker PM 15 days to defend herself after receiving the court summons.
A Constitution Court ruling against her could result in the caretaker PM and her cabinet being removed, paving the way for the proposal of a “neutral government” to implement national reform. Nonetheless, the subject remains controversial. The current charter stipulates that the “House approves the PM, who must be an elected MP”, which appears to contradict the neutral government’s concept.
In terms of valuation, the Thai market is trading at 13 times FY14F P/E, which is fairly in line with its historical average. We have cut our corporate EPS growth to 8 per cent this year from 12 per cent. We recommend investors accumulate stocks with solid fundamentals, which should see their businesses recover swiftly once the political deadlock is resolved.
Our top picks include BBL, DTAC, KBANK, SCC, QH and SPALI.
Trading will be thin this month, given the prolonged political situation, which has not found a certain solution yet, and the long holiday. The SET Index is expected to move in a narrow range of 1,350-1,400 points.
The following factors need to be monitored closely.
The SET’s implied equity risk premium stays at higher than the average, reflecting that bad news was much priced into stock prices. If the Monetary Policy Committee decides to lower the policy rate at its April 23 meeting, stock prices will benefit from P/E expansion.
The risk to the stock market remains the political situation, which may worsen. The situation extends from the Constitution Court’s ruling on the prime minister status of Yingluck Shinawatra, the NAAC’s charge of corruption in the rice pledging scheme and big gatherings of both political sides.
The drought has also started to worsen and that will affect farm income and consumption in regions in the next periods.
Communications stocks: ADVANC with targeted price of Bt281, INTUCH with targeted price of Bt100, SIM with targeted price of Bt4.10 and JAS with targeted price of Bt9.80
Global recovery stocks: IVL with targeted price of Bt25.80, SVI with technically targeted price of Bt4.60, TUF with targeted price of Bt75 and BANPU with targeted price of Bt29.20.
Entertainment stocks with unique positive factors: RS with targeted price of Bt10.
Alternative energy stocks with certain profit: EA with targeted price of Bt11.10.