Market View: Aug 23-27

The SET went up so well last week relative to anywhere else in region, mainly on the country's strong economic outlook, passage of the fiscal budget and high liquidity. If we take next year's earnings growth prospect of 15 per cent into account, the Thai stock market could run strongly to the 1,000 level with an estimated price-to-earnings ratio (PER) of 12.5 times. Absolutely, we must assume that crude oil needs to gradually go up to $100 a barrel for next year as well.

Key factors this week are the National Environment Board's revising of a project list submitted by the four-party committee led by former prime minister Anand Panyarachun. If nothing is revised, the SET should gain more confidence in earnings momentum next year. If there is no progress, the market may lose confidence and a sell-off may take place. Our view is for a positive outcome.

The Monetary Policy Committee (MPC) will likely raise interest rates further out of confidence in economic growth and concern for negative real interest rates. However, we believe the MPC's decision has already been priced into the market, so it should not have any negative impact on market sentiment. Stock picks: BBL, TVO, STEC, TSTH and BTS.

CHIRASIT VUTTIGRAI

Deputy head of institutional research

DBS Vickers Securities (Thailand)

Despite the demonstrations in April-May, more than half of Thai companies under our coverage reported better-than-expected net profits in the second quarter. Banks, food and consumer staples reported strong earnings growth, while tourism-related companies reported sluggish results in the quarter.

The aggregate SET earnings under our coverage grew 5.4 per cent on year but fell 18 per cent on quarter to Bt97 billion, due to weak earnings at tourism-related companies and a high base effect in the first quarter of 2010. Aggregate SET earnings should recover this quarter, led by banks, food, property and tourism-related companies. Energy would report flat earnings in the quarter.

We forecast the market will post 15-per-cent earnings growth for 2010 versus a consensus 17 per cent, with the strongest growth in transport (73 per cent), petrochemical (44 per cent), electronics (31 per cent) and food (24 per cent).

The consensus earnings-per-share (EPS) estimate is still on an uptrend after hitting bottom in April 2009. Downside risk is minimal, as aggregate first-quarter SET earnings account for 55 per cent of our full-year 2010 forecast and 53 per cent of the consensus estimate.

The SET Index has surged 132 per cent from its trough in October 2008 and 21 per cent year to date - the second best performer in the region after Indonesia. Despite the improved earnings outlook, the share prices of many companies have rallied and valuations have become stretched. We recommend investors to be selective and buy companies with clear earnings visibility.

We recommend overweight on banks and food. Bank earnings will remain strong led by stronger loan growth, wider net interest margins, higher fee income and lower credit costs.

Meanwhile, food companies should continue to report strong earnings in this quarter led by TUF and TVO. Our top picks include BBL, KBANK, PTTEP, TUF, TVO, DELTA, THCOM, and MAJOR.

TISCO SECURITIES

Overall earnings in the second quarter have been better than expected and point to a solid recovery in various sectors, notably banking, retail, auto and construction. The impressive results, coupled with government forecasts that GDP growth could rise as high as 8 per cent, should further boost market sentiment and support our 12-month SET target of 1,000 points, which translates to a 2011F PER of 12.3 times. In the very near term, however, we expect the market to extend its consolidation due to concerns about a slowdown in the US and Japanese economies.

Our favourite sector remains banks, which are likely beneficiaries of a corporate capex upcycle. Note that our banking analyst recently raised his 2010-2012 EPS estimates for Thai banks by 6-7 per cent per year. He's also raised his average loan growth forecasts to 7.8 per cent from 6.1 per cent for 2010 and to 7.8 per cent from 7.5 per cent for 2011. Our top picks in the sector remain SCB and KBANK, as we believe they will see the biggest NIM expansion during the interest rate upcycle. However, among the medium-sized banks we like BAY as a beneficiary of re-acceleration in consumer loan growth and TCAP for its cheap valuation and improving prospects.

Outside financials, we recommend SCC due to its ability to weather the petrochemical cycle trough period through a combination of new volume, higher concentration of HVA products and projected recovery in its cement and paper operations. We also like HMPRO, the leader in the under-penetrated DIY sector, which is benefiting from rising rural incomes and expansion of its nationwide store network.

In the energy sector, our top picks are BANPU, which should benefit from the uptrend in coal prices as China becomes a net importer this year, and PTTEP, where we revised up 2010 earnings by 12 per cent after it reported stronger-than-expected second-quarter net profit of Bt10.6 billion, up 63 per cent on year.

VAJIRALUX SANGLERDSILLAPACHAI

Executive director, Trinity Securities

Last week, the SET Index performed very well, up 3.7 per cent from the previous week with robust market turnover. This was driven by continued foreign fund inflow. We expect funds to keep flowing into Thailand to enjoy the baht's appreciation. The baht has strengthened 2.36 per cent this month against the US dollar.

However, expectations of an interest-rate hike on Wednesday would continue prompting the baht to appreciate further, in our view. We expect the MPC to announce a policy interest rate increase of 0.25 percentage point this week from 1.50 per cent to 1.75 per cent. Moreover, we believe that the interest rate could be raised up to 2.00 per cent by year-end. This would be another key driver for further baht appreciation.

For this week, the NESDB will also announce second-quarter GDP. We expect 8-per-cent GDP growth this quarter. For full year, we forecast 7.0-per-cent GDP growth. These data would continue confirming Thailand's solid economy.

For the energy sector, we expect to see developments in the Map Ta Phut problem. The National Environment Board will announce the harmful list of projects. Then, projects that are not listed will use this statement to petition the court to unlock their operating licences. This would be a catalyst for corporations that have projects in the Map Ta Phut area such as PTT, PTTCH, SCC and GLOW. The banking sector would also benefit from loan originations to these corporations.

For this week's strategy, we expect the SET Index to keep gaining momentum to test 900-910. Our stock picks combine big cap stocks such as PTTEP, PTT, BBL and medium caps with a solid outlook and fundamentals, such as IVL, RCL, SF, TUF. For the ICT sector, we recommend SAMART based on its earnings story and a potential project that would increase its value.