Rate cut may bring about portfolio adjustment
The Monetary Policy Committee's cut in the Bank of Thailand's benchmark interest rate last week was totally unexpected, and the one-year bond yield plunged from above 3 per cent to 2.86 per cent. As this widens the earning yield gap (between one-year bond
Our quantitative analysis, tracking stock prices after six previous rate cuts since 2008 (excluding the October 17 action), shows that energy, property and chemical stocks outperformed the SET Index. Meanwhile property stocks gained from the positive sentiment, as lower rates should encourage more purchases while those waiting for loans could win loan approvals easier. In this group, Raimon Land (RML; fair value Bt2.20) and Major Development (MJD; fair value Bt3.44) are the most outstanding.
Energy stocks are attractive as they have underperformed the SET Index. Statistically, a week, two weeks and a month after the rate cuts, their average return was as high as 2.9 per cent, 5.7 per cent and 10.5 per cent respectively, which is 2.1 per cent, 3.95 per cent and 8 per cent higher than returns from the SET. Our top picks are PTT (fair value Bt390) and Thai Oil (TOP), as they should book stock gains and enjoy a cyclical increase in refining margin in the second half.
Externally, this week we should closely monitor the European Union Summit, when bail-out packages to Spain and Greece will be discussed. Spain is due for a debt repayment at the end of this month.
Overall, investors should tread carefully this week. Stock holding should not exceed 40 per cent of investment portfolio. Focus on stocks with good second-half results and prices below fair value. The SET Index’s main resistance for the rest of this year is 1,325 points, indicative of the price-to-earning ratio of 15 times.
Kitpon Pripisankit
Strategist
Kasikorn Securities
The SET Index rebounded sharply late last week, after the surprise policy-rate cut. Foreign investors returned, after seven days of consecutive sell-offs, mostly to accumulate telecom stocks after the auction of the third-generation cellular bandwidth was cleared to proceed. The SET Index last week hit a 16-year highest resistance level at 1,314 points.
This week, profit-taking is in the picture, because of some weak technical signs. Much will also depend on the China’s manufacturing index (HSBC Manufacturing PMI, or purchasing managers’ index), which will be announced next week. The US Federal Open Market Committee will also convene in midweek. Meanwhile, speculation should be high, as many listed companies are expected to release positive third-quarter results. This should boost the sentiment in the latter half of the week.
Keep your focus on stocks with good second-half earnings, such as SC Asset (SC), Krungthai Bank (KTB), Thai Airways International (THAI), The Erawan Group (ERW), Central Plaza Hotel (CENTEL), Nation Multimedia Group (NMG), Charoen Pokphand Foods (CPF), Thai Oil (TOP), IRPC and ESSO.
Tisco Securities
The Stock Exchange of Thailand looks likely to extend its consolidation this month amid an absence of fresh catalysts to drive share prices higher. Also capping the Thai market’s near-term upside is an increase in equity sales by foreign investors. Foreigners have sold a net total of Bt9 billion worth of Thai stocks so far this month after the SET’s gain of nearly 11 per cent in the third quarter and 27 per cent year-to-date.
We maintain our overweight rating on banks as continued strong loan demand should boost aggregate earnings growth by 24 per cent year on year in the third quarter and 19 per cent year on year in 2013. Although trading at historical highs of 1.7 times price to book value (P/BV) and a price to earnings ratio (PER) of 10.6x, the Thai banking sector is still inexpensive compared with regional peers and other sectors of the SET. However, with the Monetary Policy Committee’s surprise 25-basis-point rate cut on Wednesday, the sector could experience some short-term weakness. Our top picks are Kasikornbank (KBANK), Siam Commercial Bank (SCB) and Bank of Ayudhya (BAY), while among smaller banks we like Kiatnakin Bank (KK), whose third-quarter net profit of Bt928 million beat our forecast and Bloomberg consensus by 13 per cent.
Telco stocks could face further weakness after last week’s spectrum auction amid concerns over new lawsuits against the National Broadcasting and Telecommunications Commission. However, any price decline offers an opportunity to accumulate Advanced Info Service (ADVANC), which we believe will ultimately emerge as the winner from upcoming regulatory changes.
For smaller sectors of the market, we continue to favour hotels and contractors. Minor International (MINT) and Central Plaza Hotel (CENTEL) are likely to get a boost from news that foreign-tourist arrivals to Thailand totalled 1.6 million in September, an increase of 7.9 per cent year on year. This raises foreign arrivals for the first nine months by 7.7 per cent year on year to 15.8 million.
Among contractors, Sino-Thai Engineering and Construction (STEC) remains our preferred choice despite its strong rally. Note that we have raised our 2012-14 earnings forecasts for STEC by 13 per cent, 10 per cent and 18 per cent respectively to reflect its record backlog of Bt67 billion (as of October 10) and the likelihood of it winning new major projects in the fourth quarter of this year and in 2013.
