SET outlook remains positive in key sectors

Italian election and euro-zone stability remain prime concerns at present

Thai equities are likely to extend their gains but at a slower pace given various external uncertainties. Italy's election stalemate has raised concerns about a new eurozone crisis while automatic US budget cuts worth US$85 billion (sequester) are expected to slow the US economic recovery. In addition, the SET's 12-per-cent rise year to date now limits upside to our year-end target of 1,650 points to just 6 per cent.

On the positive side, investor sentiment has been boosted by a series of record highs for Wall Street equities and a pick-up in foreign fund inflows. Foreign investors have been net buyers of Thai stocks worth Bt3.7 billion MTD after net sales of Bt17.4 billion last month.

We remain overweight on the banking sector, which saw total loans grow by an impressive 13 per cent y-o-y and 0.7 per cent m-o-m in January. In our opinion, Thai banks should deliver decent earnings growth this quarter on the back of strong January loan growth, seasonal high fee-based income and a lower corporate tax rate.

However, we have downgraded our rating on KTB to "hold" following the stock's 50-per-cent surge since last August. It is currently trading at a demanding price to book value of 1.9 times for 2013. At current levels, BBL and SCB offer the most attractive upside to our target prices.

The Cabinet's recent approval in principle of the Bt2-trillion investment programme for transport infrastructure projects reinforces our bullish stance on contractors where our top picks are STEC and CK. Note that we have raised our target price on CK from Bt20 to Bt32 to reflect its record backlog of Bt120 billion, extra gains from its sale of TTW shares and projected gains from the listing of CK Power in March or May this year.

We also revised up our 2013-15 earnings estimates for ITD to reflect its strong fourth quarter 2012 results and brighter outlook. We maintain a neutral stance on residential property stocks, which have outperformed the market in recent weeks, aided by stronger management guidance for new launches. Our top sector picks remain LH (its January bookings surged 119 per cent y-o-y to a record high of Bt2.3 billion) and QH (strong launch line-up in the first half and further gains on its investment portfolio).

Surachai Pramualcharoenkit

Executive director

Trinity Securities

The Thai stock market is expected to move sideways to sideways-up for the first half of this month. However, investors should be careful of foreign investors' profit-taking from the closing period of the first quarter to early second quarter.

The following factors need to be monitored.

lThe Financial Action Task Force, established by the Group of Seven, has passed a resolution to withdraw Thailand from its list of serious risks for money laundering and financial support for terrorists. This is likely to be formally announced in June and could erase obstacles for international financial transactions.

lThai stock trading averaged at Bt50 billion-Bt60 billion per day, which could help the securities business to outperform the market. We expect market trading turnover to stay at this level for three to six months.

lNew Bank of Japan governor Haruhiko Kuroda has a view for easing monetary policy to raise inflation in Japan.

We expect these factors to positively affect the SET Index during the first half of this month. The SET Index is set at 1,580 points. However, care should be taken for foreign investors' profit-taking for the latter half of this month. Presently, the difference between the rate of return on the SET Index and return on the S&P is only 0.5 percentage point, the lowest in 10 years.

Another risk concerns Italy's government to be established on March 15. If no political party can form the new government in Italy, that could negatively affect stock markets across the globe. Besides, the US Congress and White House will negotiate for approval of a new law to allocate the budget before the deadline on March 27, after which state agencies will be closed. Our top 10 stock picks for this month are ASP, BH, ERW, MAJOR, TCAP, TISCO, GLOW, INTUCH, SCC and LH. For small and medium caps selected for the FTSE Asia Pacific ex-Japan Small Cap and the FTSE All-Cap (Large-Mid-Small) with not much daily trading turnover, we pick BCP, GLOBAL, TTW, BCH and THRE.

Chanpen Sirithanarattanakul

Head of research

DBS Vickers Securities (Thailand)

The SET Index gained 1.4 per cent over the last two weeks to 1,560.98 last Thursday, beating regional peers' 0.04-per-cent average return. Market movers were electronics, property and construction, commerce, and financials and banking stocks. The Fed affirmed the continuation of quantitive easing 3 (QE3) with plans to purchase $86-billion worth of assets a month until year-end, as unemployment remains high at 7.9 per cent. The Fed believes the benefits of QE3 outweigh the costs by mitigating the risks of higher oil prices, uncertainty in the eurozone and budget cuts that could slow the US recovery. Meanwhile, the euro zone's outlook remains bleak. The ECB kept the key refinancing rate at 0.75 per cent last week following reported GDP contraction in 4Q12 of 0.6 per cent quarter on quarter, SA and 0.5 per cent for the full year.

On the domestic front, the 469 listed companies on the SET reported an aggregate profit of Bt727 billion last year, up 15.7 per cent year on year. The outlook remains positive. We expect the market to report strong earnings-to-price growth of 17 per cent this year, among the highest in the region.

Growth will be driven by building materials (31-per-cent growth), commerce (29 per cent), transportation (28 per cent) and banking (25 per cent) sectors. We are maintaining an overweight rating for the Thai market premised on the superior earnings growth outlook and still attractive valuation. Our preferred sectors are banks (KTB and BBL), property (AMATA, PS, LH and QH), contractors (CK and STPI) and tourism (MINT and AOT).