Funds inflows after FY2015 financial statements could lift the SET Index

  Therdsak Thaveeteeratham

Executive Vice President, Research Department

Asia Plus Securities

 

There’s a chance for the Stock Exchange of Thailand to be driven by fund flows again.

By today, February 29, listed companies whose accounting period ended on December 31, 2015, must submit their 2015 financial statements. According to Asia Plus Securities, listed companies’ estimated net profit in the fourth quarter totals Bt233 billion. 

Up to the morning of February 26, about 314 listed companies, whose combined market cap accounted for 80 per cent of the total, announced combined fourth-quarter net profit of Bt220 billion. Once all of them announce their figures, total combined Q415 net profit is expected to be at least Bt230 billion as forecast. 

For all of 2015, listed companies are expected to post combined net profit of Bt706 billion or Bt75.42 per share, down from earnings per share of Bt76.72 in 2014, as several extraordinary expense items were recorded, particularly in the third quarter of 2015. If the extraordinary expenses had been excluded, earnings per share (EPS) in 2015 would have been Bt93.

This year, listed companies are forecast to have combined net profit of Bt885 billion or Bt94.55 per share. As estimated, the SET Index currently has a PER (price-to-earnings ratio) of 14.2 times, still lower than our assumed figure of 15.5 times (compared with market earning yield gap at 5 per cent) or the SET Index at 1,466 points. 

However, there remain some risks to our EPS estimate. Such risks extend from the level of competition, the ICT (information and communications technology) group’s 4G licence fees and the Dubai crude-oil price. Our forecast is based on an average oil price of US$45 per barrel, much higher than the current level. Fund flows have started to give positive signs to the stock market. In the past seven trading days, foreign investors’ net accumulative buys of Thai stocks totalled Bt83 billion. 

It’s believed that capital has been moved from the bond market into the stock market, as simultaneously, net foreign sales of Thai bonds approached Bt40 billion and the baht has see no significant change. 

Net foreign purchase of Thai stocks could be a positive sign, at least indicating narrower downside risks. 

There were no concerns over other groups of investors’ trading behaviour. However, proprietary trading should be monitored. From early 2016, net accumulative purchase of Thai stocks was high and, hence, there could be profit-taking periodically.

Focus on stocks with high dividend yield. This is because now is the period of dividend payment announcements. Previously, several companies gave high dividend yields thanks to strong performance, and stock prices have not yet reflected these positive factors. 

Stock picks: AIT (Advanced Information Technology), PS (Pruksa Real Estate), ASK (Asia Sermkij Leasing), MCS (M.C.S. Steel).

Prakit Sirivattanaket 

Vice President

Kasikorn Securities

 

On February 25, the Commerce Ministry reported an 8.9-per-cent export contraction year on year in January, lower than market expectation at a contraction of 7.1 per cent. It was the 13th consecutive monthly decline. 

January’s export contraction was a result of a failure of the global economy to recover, a shrinkage in export value to destinations including the United States, the European Union, Japan, China, five Asean countries and the Middle East. At the same time, export expansion to CLMV (Cambodia, Laos, Myanmar and Vietnam) slowed down. 

The prices of agricultural products, oil and other commodities remained lower than in same period last year. This is another factor pulling down the value of Thai exports. Although exports of rice, molasses and cars increased, that could not offset the contraction of oil products (-40.2 per cent year on year) and chemical products (-16.8 per cent), plastic products (-13.0 per cent) and rubber (-25.7 per cent).

KResearch forecasts exports in the first quarter of 2016 contracting by more than 5 per cent year on year on risks in the global economy, particularly China and oil-trading countries. China accounts for 11 per cent of Thailand’s export market and oil trading countries 14 per cent. 

This could have an indirect impact on other export markets. Purchasing orders for key agricultural products like rubber, tapioca and other industrialised products including computers, machinery, plastic pellets and chemical products may not recover. 

The global economy’s weak signals may pressure exporters to set product prices no higher than competitors’ products. 

KResearch expects an export recovery in 2016 if the oil prices rebound within two or three months. This may allow Thai export value to stay in positive territory throughout the year.

However, with exports remaining unsatisfactory and contractions for 13 straight months, we must monitor whether the government and the Bank of Thailand will have initiate relief measures for exporters, particularly whether the Monetary Policy Committee on March 23 will come with cut the policy rate to spur baht depreciation.

If the MPC decides to cut the rate, it is believed that will cause the baht to depreciate again, and that could relieve export problems to a certain extent. 

There remain impacts that will arise in capital markets. Groups that gain direct benefits should be those related to domestic consumption, including real estate, retail and finance. Those receiving indirect impacts include export-related groups in both food and electronic parts, and those losing benefits will be banks that will be concerned about declining net interest margins.