August 10, 2024
The Stock Exchange of Thailand underwent a significant mood swing in July, trading between 1,286.79 and 1,332.76 points. Early in the month, market uncertainty ratcheted higher as the share price of troubled Energy Absolute (EA) plunged.
However, in the second week, Finance Minister Pichai Chunhavajira announced a plan to revive the Vayupak Fund and raise the tax exemption ceiling for Thai ESG funds to 300,000 baht from 100,000 baht previously. The holding period was also reduced to five years from eight. This helped the SET index climb back above 1,330.
Concerns re-emerged and the investment mood darkened when the Securities and Exchange Commission filed a criminal complaint against three former EA executives.
Though the second-quarter earnings of banks were fair, investors turned cautious about the second half of the year given economic conditions and the likelihood that provisions and non-performing loans could rise.
Thanks to the upbeat results of Delta Electronics and some other high-profile stocks, the SET managed to end the month on a positive note at 1,320.86, up 1.5% from the month before. That said, average daily turnover for July fell 14.5% to only 36.7 billion baht.
The key events to monitor this month are the political cases involving the Constitutional Court. The first ruling, announced on Wednesday, resulted in the dissolution of the Move Forward Party and its leaders receiving political bans for 10 years.
The ruling came as no surprise and since the party is part of the current opposition, the impact on the market was marginal. All of its MPs regrouped yesterday under the new People’s Party.
The more important case involves the ethics complaint against Prime Minister Srettha Thavisin, arising from his selection of a tainted cabinet minister who later resigned. The court will rule on this case on Aug 14.
Our base case outlook is the PM will not be convicted and will retain his position. Consequently, the cabinet and administration policies will remain intact.
In the worst case, the PM would be forced to leave office, along with the entire cabinet. In such a scenario, the fastest we expect the selection of a new PM and cabinet is two months.
In a more complicated scenario, coalition parties are unable to reach a consensus on a new PM or ministers, and the establishment of a new government could take three or four months. This situation would create damaging political uncertainty and panic in the market in the short term.
We see hope in the ongoing second-quarter results announcements, which will conclude next week. So far, earnings have been slightly better than market expectations.
We also believe SET earnings per share (EPS) have bottomed out — the current market consensus is 92.80 baht — after numerous downward revisions. We now anticipate the market revising up its numbers on improved second half-performance.
AUGUST PICKS
To avoid impact from these uncertainties, our investment theme this month centres on stocks that should have good second-quarter results and firms that are export-related. Our picks this month are Com7 Plc (COM7), CP Foods (CPF), Don Muang Tollway (DMT) and KCE Electronics Plc (KCE).
Although the second-quarter profit of COM7 was expected to be poor, down both year-on-year and quarter-on-quarter, we believe the IT retailer will perform much better in the second half. The coming artificial intelligence era should be a boon for sales of mobile phones and tablets the rest of the year. Although the firm will not benefit directly from the government’s 10,000-baht digital wallet campaign, we still believe it will benefit indirectly. COM7 also has a share buyback campaign that ends in December for up to 45 million shares, with 12 million repurchased so far.
We mentioned in our last note that CPF should bounce back this year from its huge 2023 loss. This forecast should be supported by the company’s second-quarter results. We project a profit of 5.2 billion baht for the company, a turnaround both year-on-year and quarter-on-quarter. Swine prices for both China and Vietnam jumped in the second quarter and this should also benefit profits in the second half. We expect CPF to generate a profit of 15.8 billion baht this year. Note also that CPF is a target for Thai ESG funds.
We expect DMT’s second-quarter net profit to rise 9.5% year-on-year on improving tollway traffic volume. This growth is attributed to the recovery of the tourism sector and economic activity post-pandemic. Moreover, the move of AirAsia X from Suvarnabhumi to Don Mueang airport will directly benefit DMT. As well, the company’s strong financial position with net cash and low debt allows for high dividend payouts. The dividend yield is expected to be more than 9% per year. The company’s ESG rating is high and thus it should be another target for Thai ESG funds.
We recommend adding KCE to your portfolio as an export-focused company. We expect it to report a sizeable second-quarter net profit of 629 million baht (up 67% year-on-year and 22% quarter-on-quarter) with its margin to widen year-on-year to 24.8% from 19.1%, as it has resolved a defect issue on its production line. Performance should stay on an uptrend in the third quarter as the production process improves further. This should be a good year for KCE, with net profit growth of more than 40% year-on-year.
Source: Bangkok Post