SCBS sees SET climbing to 1550-1600 in 2nd half of 2016

Stocks and Financial Services Press Releases Thursday July 14, 2016 14:32
Bangkok--14 Jul--Siam Commercial Bank

SCB Securities (SCBS) is still bullish about the Stock Exchange of Thailand's outlook for the second half of 2016, forecasting that the SET composite index will continue rallying to hover around 1550-1600 points, driven by a robust recovery of the domestic economy, particularly accelerated private consumption due to increased incomes earned by farmers.

SCBS Senior Vice President of the Investment Strategy Department of the Research Group, Mr. Isara Ordeedolchest, said that the Thai stock market is likely to move upside to a satisfactory level in the second half of this year, with the SET index expected to climb to a range of 1550-1600 points. Higher-than-expected gross domestic product (GDP) growth in the first quarter of 2016 is a good signal and a significant factor for the direction of market movement for the rest of the year. Robust tourism revenue, increased state investment, and accelerated private consumption upon the recovery of farm incomes as a result of higher output quality and prices will help propel steady economic growth.

However, the market will remain volatile, moving sideways from the first half of this year due to external risk factors, particularly eurozone uncertainties and the wavering recovery of the global financial market and economy.

"The United Kingdom's decision to leave the European Union (Brexit) signals long-term pressure on worldwide trade because global trade may face more obstacles in the form of nationalism, conservatism, and trade barriers. It may also pave the way for other EU members to ponder referendums similar to that of UK, which is considered a risk factor for investors in the near future. The Thai stock market must count mainly on domestic demand for continued pick-up. Although increased demand is insufficient to offset the export shortfall, it is the single driving factor enabling the market to weather global economic storms. Simultaneously, the recovery of farm incomes will help boost the purchasing power of households in the future," he said.

Mr. Isara projected that stock trading on the SET will continue at premium prices because the market offers top-notch sound investment returns in the region. Its P/E ratio in the 12 months ahead will hover at around 14.5 times, higher than the 10-year average. In addition, from the low base due to a significant decline in earnings last year it is forecast profits gained by listed companies will grow considerably in 2016 and 2017. Because of this, the SET's price earnings to growth (PEG) will be more attractive than other markets in the region. Local demand growth will boost the stability of the Thai economy amidst global economic volatility. Investors must concede that the Thai stock market is no longer cheap.

Top picks recommended by the company in the third quarter of 2016 are domestic play stocks benefiting from higher incomes earned by farmers, wage increases, and the shift in labor into the higher-wage payment group. They include:

· AEON Thana Sinsap (Thailand) (AEONTS): Loans are expected to grow from 7% in 2015 to 8% in 2016, and 10% in 2017. Financial costs are set to decline because the company's credit rating was upgraded. The firm targets increasing the revenue portion from its subsidiaries in CLMV (Cambodia, Laos, Myanmar, and Vietnam) to 10% by 2020.

· CP ALL (CPALL): A laggard play in the commerce segment despite the fact that the company has benefited from the stimulus package, higher incomes earned by farmers, and the world-class sports competitions. It is expected the company's profit will grow 20% in 2016.

· Charoen Pokphand Foods (CPF): The recent stock price decline upon market panic about Brexit and the higher cost of animal feeds (stock is kept 6 months ahead) provides buying opportunities.

· Siam Global House (GLOBAL): The company is expected to enjoy the highest profit growth in the commerce segment in 2016 and 2017, boosted by the stimulus package and higher incomes earned by farmers. The gross profit margin is projected to rise to 18.6%.

· P.C.S. Machine Group Holding (PCSGH): An increase in local auto demand signaled that the domestic auto market has nearly bottomed out. The stock price has a 32% upside to the target with a return on dividend of 5-6% in 2016-2017.

· Somboon Advance Technology (SAT): With the upward cycle of local auto demand, it is forecast that auto production will expand 7%, with profit growth of 27% in 2017. The current stock price has a 36% upside to the target with a return on dividend of 5% in 2017.

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