Thai stocks pressured by external factors SCBS advises investors to prepare for volatility in Q3

Wednesday 08 July 2015 15:48
SCB Securities (SCBS) has suggested that the Thai economy reached its low point in 1Q15, and positive developments in the local economy will help revive Thai stocks from 3Q15. External factors pressuring the Thai bourse in 3Q15 will arise mainly from a Fed interest rate hike and uncertainty over the future of Greece. Investors should look for six outstanding stocks that will benefit from the improving economic cycle.

Speaking about the Thai stock market for 2Q15, SCBS Senior Vice President Mr. Isara Ordeedolchest said that the SET index for 2Q15 has weakened, plunging by 4.7% from the highest level recorded in the same quarter, reducing investor confidence. However, there have not been any signals indicating further vulnerability for the current economy. With satisfactorily recovering consumption levels (excluding the automobile and private investment segments), it is believed that the downside has ended since 1Q15. This positive trend is also backed by increasing government spending, and the two policy rate cuts to a 1.5% p.a. level, which are expected to help the economy regain momentum. It is estimated that the Thai economy should expand by 3% this year.

Apart from a growing economy expected this year and the year to come, factors to revive the stock market could arise from government budget disbursement and government project investments which have progressed as scheduled.

However, 3Q12 could be a challenge for the Thai stock market with looming external factors. The Federal Reserve has signaled a proposal to tighten monetary policy during its meeting on 28-29 July. It is very likely that interest rates will rise for the first time in September, and capital outflow from emerging markets to the U.S. could be expected. Moreover, the debt crisis in Greece will not end soon, while the threat of the MERS virus will continue adding concern over the tourism industry.

"We do not expect a hard landing for the SET. However, investors should be prepared to face volatility in Q3. Despite awareness of negative factors and the Fed's interest rate hike, signaling improving economic sentiments, the market could face short-term adjustment before making a recovery. Compared to other stock markets in the region, the Thai stock market is regarded as less sensitive to Fed interest rate hikes as foreign funds have flowed out since the Fed decided to end QE."

For 3Q15, SCBS recommends six outstanding stocks that will benefit from an improving local economic cycle:

Advanced Info Service PCL (ADVANC): With 5.8% return from dividends, the company remains unscathed by economic fluctuations, and is capable of generating 10% growth in projects without 4G service.

AEON Thana Sinsap (Thailand) PCL: AEON's price is the lowest in the consumer loan service provider group. With PER of 8.7 and 12% EPS growth, it is supported by its loan growth, falling reserves and financial costs, and slower growth in operating expenses.

CP ALL PCL: The company reports strong growth of EPS (33% in 2015) with potential upside from a partial sale of Makro stock.

Siam Global House PCL: This is a company with strong fundamentals, but pricing still lags amid recovering profitability in Q2 as supported by increasing sales from existing branches, branch expansion, and increasing profitability.

Kbank PCL: KBank is another laggard traded at an average PBV of -1S. The 155 reduction in stock price reflects concerns over NPLs and NIM.

True Corporation: The provider of mobile telephone services has not been much affected by external factors. Its profits are expected to recover in 2015 and double in 2016 with increasing market share.

Listed company profits in 2015 are expected to grow from a low base in 2014. Recovering oil prices could help support profit growth of up to 27% this year, before slowing down to 15% in 2016. Potential groups to report highest profits will be those with contracted profitability in the previous year, such as the insurance, logistics, petrochemical, tourism, energy, and food industries. The media sector is expected to report shrinking profits due to increasing costs related to the digital TV business, while property sector profitability will remain stable.