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Investors Advised to be Cautious as Fund Inflows May Be Temporary

By on Mar 10, 2016 in Property News

The SET Index’ performance has been impressive, gaining around 7 per cent year-to-date. Leading the gains were blue chips such as Airports of Thailand, PTT, Siam Commercial Bank, Advanced Info Service and Kasikornbank.

The laggard sectors were property and construction. Many property developers have adopted more conservative expansion plans for 2016 because of weakening demand. The sentiment among construction contractors has weakened, as investors are now worried about possible delays in the roll-out of government infrastructure projects.

After the first-quarter earnings round-up, we forecast that the Stock Exchange of Thailand’s aggregate profit will grow by 30 per cent in 2016, after two consecutive years of earnings contraction: minus 6 per cent in 2015 and minus 11 per cent in 2014. The major growth driver will be the energy sector in the absence of impairment losses recorded last year. Excluding such oil-price-sensitive sectors as oil and gas and petrochemicals, the market’s aggregate earnings are expected to grow by only 9 per cent in 2016. With the improving earnings growth, we raise our SET Index target for end-2016 to 1,480, which is equivalent to a generous 16.4-times 2016 price-to-earnings ratio (+1SD, or standard deviation, of its mean).

The recent fund inflows that helped push up the market could be short-lived. We advise investors to adopt a cautious approach and take profits on any market strength in the near term. The Thai market remains vulnerable to swings in global oil prices and global fund flows. Thailand’s economic fundamentals have not changed much and remain weak, in our view. Our top picks for March are BA (Bangkok Airways), EPG (Eastern Polymer Group), ERW (The Erawan Group), GL (Group Lease), and PTT.

Tisco Securities

Despite disappointing macro data for January and worse-than-expected Chinese manufacturing numbers, the Thai market continued to recover from its early-2016 lows. The Stock Exchange of Thailand has now extended its gain from its January 7 trough to 13 per cent. Key factors supporting the current rally are a rebound in global oil prices, a surprise 0.5-per-cent cut in China’s reserve requirement ratio (RRR) and market expectations of more monetary easing by both the European Central Bank and the Bank of Japan. Tisco’s Economic Strategy Unit (ESU) maintains its non-consensus call for a 25-basis points rate cut at the Monetary Policy Committee’s next meeting on March 23 after Bank of Thailand data showing a slowdown in consumption and contraction in manufacturing in January. Although the current policy rate is near historical lows, the ESU argues that Thai real interest rate is high by historical standards and relative to peers.

Despite the slowdown in consumer spending, listed retailers mostly reported upbeat fourth-quarter results. CPALL was the sector’s standout performer with a 4Q15 net profit of Bt3.8 billion (+24 per cent quarter on quarter, 44 per cent year on year), beating the Street by 19 per cent.

HMPRO (Home Product Center) also exceeded expectations, with a 4Q15 net profit of Bt1.14 billion (+42 per cent quarter on quarter, +11 per cent year on year). Its strong result was driven by SSSG (same-store sales growth) turning positive (+0.4 per cent) for the first time since 4Q14, eight new stores and a rise in EBITDA (earnings before interest, tax, depreciation and amortisation) margins.

Our top retail-sector pick remains CPN (Central Pattana). Its 4Q15 recurring profit of Bt1.87 billion (+3 per cent quarter on quarter, +7 per cent year on year), missed our forecast by 6 per cent. However, we anticipate earnings growth to accelerate to 21 per cent this year on rental-rate rises of 2-3 per cent and 13-per-cent growth in leasable space after the recent opening of Eastville and the completion of its Pinklao mall. Of particular note this earning season were the record quarterly earnings reported by provincial financiers SAWAD (Srisawad Power 1979) and MTLS (Muangthai Leasing).

SAWAD’s 2015 profit surged 56 per cent year on year to Bt1,336 million on the back of loan growth of 48 per cent, NIM (net interest margin) expansion of 49bps to 26 per cent and non-interest income growth of 31 per cent.

MTLS reported similar performance, with 2015 earnings rising 52 per cent year on year to Bt825 million driven by 70-per-cent year-on-year loan growth and significantly lower funding costs. Despite impressive gains in the second half of 2015 for both stocks, we maintain our “buy” ratings based on their forecast robust earnings growth in 2016 as a result of strong loan demand and aggressive branch expansion. Also note that there is upside risk to our forecasts if interest rates stay flat or decline in 2016.

Source: The Nation – 7 March 2016

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