Thai market emerges the best performer in Asean in 2016
The Stock Exchange of Thailand is expected to end the year as the best performer in Asean.
As of December 21, the SET Index had risen 17 per cent since the beginning of the year, compared with a range of minus 4 per cent to plus 13 per cent for other markets in the region. This has been the best annual performance since 2012. This reflected strong profit growth of 35 per cent for the first nine months of 2016.
Nonetheless, we maintain our 12-month target for the SET Index at 1,570 points, based on a forward price-to-earnings ratio (P/E) of 15.4 times for 2017. The upside potential of the SET Index from the current level is quite limited in light of the fact that the EPS (earning per share) growth of the Thai market is relatively low compared with regional peers. As the government continues to accelerate its spending, mainly on infrastructure projects, to drive the economy, we believe that construction activity will be ramped up in 2017. This will be positive for leading Thai contractors like Sino Thai Engineering (STEC) and Ch Karnchang (CK). We estimate construction contracts of about Bt500 billion to open for bidding. DBS also expects the baht to be on a downtrend throughout 2017 because of the appreciation of US dollar after the recent increase in the US policy interest rate. This will benefit the Thai export sector.
On this count, we like KCE Electronics (KCE), which exports 95 per cent of its products. The company could also leverage on the fast-growing PCB (printed circuit board) market for the automotive segment.
We also maintain our top picks, which are ANAN (Ananda Development), COM7, GL (Group Lease), MTLS (Muangthai Leasing) and TCAP (Thanachart Capital).
For the final days of 2016, market sentiment is likely to be muted by the Christmas and New Year holidays, lacklustre growth in tourist arrivals, and the US Federal Reserve’s increase in its policy interest rate.
This month has been a very good one for the contractor sector, with significant progress in many mass-transit projects, including the announcement that the CK/STEC (Ch Karnchang/Sino-Thai Engineering and Construction) joint venture won the last contract (No 5) for the Orange Line for Bt4.9 billion. In all, the CKST group won the most contracts for this line with a combined value of Bt47 billion. CK holds 60 per cent and STEC owns 40 per cent in the JV. ITD (Italian-Thai Development) won a contract worth Bt18.59 billion, and UNIQ (Unique Engineering and Construction) got one worth Bt13.75 billion. We remain overweight on Thai contractors, with STEC, CK and UNIQ as our top picks. Note that we recently upgraded our rating on STEC from “hold” to “buy” after its joint ventures won three MRT line projects worth a total of Bt68.9 billion (STEC’s portion).
We expect the SET Index next year to move sideways in a range of 1,350-1,620 points. More downside risks are projected. Despite the likely depreciation of the US dollar, commodity prices are estimated to improve after higher inflationary pressure across the world. Amid the SET Index’ higher downward risks and likely less liquidity in the world, stock investment should be accumulated when the SET Index makes corrections. Stock picks for 2017: energy and petrochemical group – PTT, IVL (Indorama Ventures); agricultural business – BRR (Buriram Sugar), STA (Sri Trang Agro-Industry); food and beverages group – CPF (Charoen Pokphand Foods), TU (Thai Union Group); electronics group – SMT (Stars Microelectronics (Thailand)), SVI; and construction group – CK (Ch Karnchang), EAFCO.