Opportunity to accumulate stocks for long-term; construction sector favoured

The key groups with sharp quarter-on-quarter drops in net profit include construction materials, construction, residential development (as a result of seasonal effects and government-stimulus impacts), and energy. 
Those with year-on-year and quarter-on-quarter increases in 3Q16 included food, banks and non-bank financial institutions, retail, hospital, and electronic parts. 
The listed companies’ combined net profit for the first nine months of 2016 was Bt672 billion, up 40 per cent year on year, given a low base last year. The figure accounts for 76.2 per cent of this year’s net-profit estimate.
After 3Q16 earnings announcements, we revised our net-profit estimates by 2.63 and 1.06 per cent respectively for this year and next. The revision came mostly from PTT, which has seen better-than-expected profit from its gas-separation plants. This year, there are also more positive extraordinary items. We expect this year’s profit to total Bt883 billion or Bt92.52 a share and next year’s Bt950 billion or Bt99.54 a share. 
Based on the market earning yield gap of 4.75 per cent, equivalent to PER (price-to-earning ratio) of 16 times, the SET Index target is 1,481 points this year and 1,595-1,600 points next year with expected return of about 6.7 per cent from now to the end of next year. 
We still weigh on construction stocks because of positive financial flows from tenders for a number of the government’s large projects. After the tenders, construction will start, and that will result in positive developments for construction firms, which will realise income according each project’s progress. 
Stock picks: CK (Ch Karnchang, fair value Bt37.50), a big construction company all set for the tenders; UNIQ (Unique Engineering and Construction, FV@Bt25), on expectation for consistent, positive development of profitability and a chance for upcoming tenders; and SYNTEC (Syntec Construction, FV@Bt4.90). 
The poultry-export business is also interesting. Recently, South Korea permitted imports of chicken meat from 12 plants in Thailand and will permit 18 more next year. Stock pick: GFPT (FV@Bt19).

Prakit Sirivattanaket
Vice President
Kasikorn Securities

It’s certain that US interest rates will rise after Federal Reserve chairwoman Janet Yellen’s November 17 statement confirming that the policy rate will increase if US economic figures remain close to their targets, with the next increases on a gradual basis. 
Yellen recommended stimulus through production capability rather than fiscal policy, while insisting she would not resign before the end of her term in 2018. She reiterated that the Fed must stay independent for its policy implementations without any political interference, and opposed the abolition of Dodd-Frank legislation. Obviously, the Fed’s direction remains the same, while some of it contradicts President-elect Donald Trump’s stated policies. We will follow whether or not the Fed can resist pressure from the new administration and Congress.
In regard to a US rate rise in December, Fed fund futures surged to 96 per cent. The money markets responded instantly, with the US Dollar Index surpassing 100 to a 13-year high of 101.06. 
The Japanese yen weakened to a seven-month low of 110.24 per dollar. The Thai currency depreciated to 35.44 per dollar. 
It’s the same for the bond markets. US 10-year bond yield soared to a 2016 high of 2.302 per cent and pulled up bond yields around the world. This is positive for BLA (Bangkok Life Assurance), whose price is low at Bt55.5. Its targeted price is Bt60. 
Capital may flow out of the Stock Exchange of Thailand as a result of pressure from the US dollar and baht and foreign investors will continue their positions as net sellers of Thai stocks. 
Since September 23, foreign investors have sold a net Bt45 billion, or 30 per cent of their accumulated purchases in the purchase round. Foreign investors are forecast to sell Bt30 billion more (accumulated sell will rise to Bt75 billion or 50 per cent of the purchase round). 
The estimated sales are expected to pressure the SET Index by 39 points and, as a result, the support line will be 1,435 points. This support line is attractive for long-term investment, given its expected PER (price-to-earning ratio) at 14 times based on next year’s estimated EPS (earnings per share) at Bt102.7 (about 1,437.8 points).
The SET Index is expected to take on a bearish mood in a range of 1,467-1,476 points. In the short term, speculate in MSCI and SET50 plays, KCE (KCE Electronics) and BJC (Berli Jucker), and wait to increase investment when the SET Index nears 1,438 points. 
Focus on accumulation following the investment theme of stocks that gain from depreciation of the baht (KCE) and those gaining from the interest-rate uptrend (BLA).