After the May 22 coup, business and consumer sentiment has been restored faster than we initially expected and private consumption should see a small rebound after payments were made to farmers under the rice-pledging scheme.
Accordingly, Tisco’s Economic Strategy Unit has revised up its 2014 GDP growth forecast to 1.5 per cent from 1 per cent (in line with the Bank of Thailand’s new forecast). The ESU also anticipates 4.4-per-cent growth in 2015 on the back of a recovery in domestic demand.
We have turned more positive on the earnings outlook for retailers based on the more stable political climate, which, in our view, should lift consumer sentiment among medium-to-high-income groups. The key catalysts for a consumption recovery are the Consumer Confidence Index in May rose for the first time in 14 months, the junta’s announcement of a seven-point economic road map and the lifting of the nationwide curfew. Our top picks in the sector are CPN (Central Pattana) and HMPRO (Home Product Center).
In the residential-property sector, we have upgraded AP and LPN to “Buy” after strong presales in May. We also project robust 2015 net-profit growth of 20 per cent for AP and 50 per cent LPN.
Note that loan growth of the seven banks under our coverage edged up 0.6 per cent in May (from 0.1 per cent in April and 0.3 per cent in March). This reflects a modest but gradual pick-up in commercial, housing and credit-card loans and may indicate that the economy has already passed its cyclical bottom.
The tourism sector remains in the doldrums, with foreign tourist arrivals in the first five months of 2014 falling 6 per cent year on year to 10.4 million. After our recent meeting with Airports of Thailand, we continue to expect further weakness in airport traffic numbers over the next few months but anticipate a turnaround in the fourth quarter. AOT remains our top pick in the sector as we view it as a long-term beneficiary of tourism growth in Thailand.
The SET Index went up to 1,480 points as expected, thanks to window dressing. In July, we remain positive for the Stock Exchange of Thailand, given increased liquidity and funds that may start flowing into the country.
Increased liquidity came from more than Bt9 billion worth of bond maturities. Next month’s sales of government bonds and savings bonds worth a total of Bt70 billion will lead to more than Bt20 billion looking for somewhere to go. Some will probably move into the stock market, particularly stocks with high dividends like INTUCH (InTouch Holdings), ADVANC (Advanced Info Service) and BTS (BTS Group Holdings). ADVANC and INTUCH see positive factors from the National Broadcasting and Telecommunications Commission, which is preparing for telecom licence auctions for the 1,800- and 900-megahertz spectra.
Capital could start flowing into Thailand as foreign investors may price in the US downgrade of Thailand over its labour practices and worsened relations with the European Union. Foreign holding of Thai stocks is the lowest in five years. Next month could be a turning point for capital to return.
One more attractive investment theme is restructuring of Thai state enterprises after the establishment of a “superboard” for state enterprises. The superboard will formulate management strategies and approve state enterprises’ investment for optimal benefits. We expect state enterprises to be managed with more efficiency and transparency. This could result in positive sentiment for listed state enterprises PTT, THAI (Thai Airways International) and AOT (Airports of Thailand).
Groups that should be avoided now are export-oriented groups like food and electronics that are at risk from a US boycott of processed and frozen seafood and the downgraded relationship with the EU. Although relationships among governments may not affect private enterprises, we expect a delay of free-trade negotiations, while the Generalised System of Preferences will expire this year. Therefore, food and electronics stock prices tend to continue underperforming.
Investment strategy: Continue holding investments, as the SET Index will likely go up on higher liquidity. Energy and communications stocks are expected to push the index up to 1,500 points.
Stock picks: banks (SCB – Siam Commercial Bank, KBANK – Kasikornbank), property (SPALI – Supalai), retail (SINGER), hire-purchase (AEONTS – Aeon Thana Sinsap) and automotive (PCSGH – PCS Machine Group Holding).