THANAWAT PATCHIMKUL Head of Research DBS Vickers Securities (Thailand) A lineup of major events in September is likely to create noises in global markets. The European Central Bank is scheduled to hold its meeting on September 7.
The market anticipates that the ECB will give official guidance on its current view of the economy along with an inflation outlook, given that the Euro has recently strengthened significantly. We expect ECB to reduce its quantitative easing (QE) program to around 30 billion euros (Bt1.2 trillion) per month beginning 2018 from 60 billion euros per month now.
The Federal Reserve will hold a meeting September 19-20. The two major issues are guidance on the policy rate, and a clearer picture of the Fed balance sheets, particularly the implementation time frame. Meanwhile, US politicians will be busy resolving the fiscal budget that is due by the end of this month with an increase in the debt ceiling to avoid the government shutting down. Debates on the new healthcare bill and the tax reform bill are in the cards but there is little hope for the two bills to pass this year.
We recommend that investors be selective in picking stocks. Our top picks for the Thai market in September are Amata Corporation, Central Pattana, Minor International, and Tisco Financial Group.
The SET’s surprise surge last week has prompted us to review our model portfolio. Although the healthcare sector was the best performer (up 9.9 per cent in August), followed by banks and transport, several of our top picks – notably EGCO, AOT and BBL – outperformed the SET while contractors, DIF, CPALL and AP underperformed.
We have turned more cautious on utilities stocks and have removed EGCO and GLOW from our model portfolio after these stocks significantly outperformed the market in August.
We see a limited upside for the baht after its outperformance against the dollar and regional currencies YTD, thereby reducing the chances of FX gains for utilities companies.
BBL has also been removed from our model portfolio due to its share price outperformance, coupled with our banking analyst’s view that NPLs are shifting to the corporate segment.
We added KBANK and TRUE to our top picks. For KBANK, we believe that the NPL cycle is shifting from SMEs to corporates and the NPL formation rate/credit cost for SME-exposed banks should be relatively stable YoY in 2017-18F. We also see less OPEX pressure on fintech/digital investment for KBANK relative to its peers, and expect its earnings to recover faster than peers at 6-29 per cent in 2018-19F. For TRUE, we believe capital increase pressure should ease in 4Q17 as the company prepares to divest assets and scale back on prepaid subsidies.
Our model portfolio now consists of AOT, KBANK, TRUE, DIF, CK, UNIQ, SCC, AP and CPALL. Our SET target remains unchanged at 1,620 for 2017 and 1,720 for 2018. We continue to remain cautious on the market for September and 3Q17, particularly for consumption-related stocks. However, we expect to see a marked improvement in earnings in 4Q17.