Market earnings to stay on recovery path

  Thanawat Patchimkul
Head of Research
DBS Vickers Securities (Thailand)
According to DBS Bank Economics-Market Strategy for the first quarter of 2017, the Asian market is expected to underperform the US, which is on a clear recovery path. The widely anticipated fiscal stimulus policy to promote growth in the US is likely to draw investors’ money back home. The impact on Asia under the new US helmsman is still unclear. However, we believe that the global economic recovery is on its path and will benefit exporting countries such as Singapore and Taiwan. Hence, we upgrade Singapore to “Overweight” and Taiwan to “Neutral”.
Meanwhile, we downgrade China/Hong Kong to “Neutral” from “Overweight” as uncertainties arise in their trade relationships with the US while the Chinese yuan’s depreciation will be a key risk.
We believe the emerging Asean economy has solid fundamentals that would prompt us to view the region more positively should the new US policies become clearer and the Fed’s guidance on the rate hike path be seen. We downgrade Indonesia to “Neutral”, on par with the Philippines. We favour Thailand over Indonesia as the Kingdom has a surplus in its current account balance and low foreign debt exposure. These make Thailand less vulnerable to global risks.
The Thai stock market is currently cheaper than those in Indonesia, Philippines, and Malaysia. We expect market earnings to continue on a recovery path. We keep our 12-month SET index target at 1570, which is based on 15 times 2017 price to earnings.

Tisco Securities
Donald Trump’s unexpected victory in the US presidential election has prompted us to reassess our view on Thailand. Other than short-term currency and commodity volatility, we do not think that Trump’s proposed policies will significantly impact the Thai economy. Nonetheless, with substantial uncertainty in global markets over what will happen under a Trump presidency, we continue to stick with sectors not driven by external macro events such as contractors, consumer plays and telecom companies.
The most likely impact could come from possible currency weakness and lower commodity and oil prices. The energy sector, which accounts for 20 per cent of the SET’s market cap, has the highest vulnerability, in our opinion. However, reduced expectations of a US Fed rate hike in December could offset some of the adverse impact. Also, Thailand’s direct export exposure to the US is limited (exports to the US account for 6 per cent of Thailand’s GDP). However, we see more risks related to indirect export exposure for intermediate goods (we estimate that nearly half of all Thai exports end up in the US via China).
Companies with the biggest exposure to both commodity prices and US dollar debt are those in the PTT Group, utilities and some petrochemical stocks. Oil price declines and a weaker baht could result in poor 4Q16 earnings for these sectors. Note, however, that we have upgraded our rating on Banpu to “Buy” after revising up our 2016-17F earnings by 3 times.
In the banking sector we have cut our earnings growth estimates for 2017-18 to 4-12 12 per cent, from 11-18 per cent. Our analyst believes that three major factors will keep the sector from outperforming the SET: 1) prolonged economic weakness limiting organic growth and credit quality revival; 2) structural changes (fintech investments to pressure costs); and 3) tougher regulations necessitating further buffer build-up.
Given the risk of continued volatility in the bonds, equities and commodities markets following the US election, we continue to prefer defensive and non-macro linked stocks for the time being, particularly those in the contractor, telco and commerce sectors. Among our top picks are ADVANC (Advanced Info Service), INTUCH (Intouch Holdings), BH (Bumrungrad Hospital), CK (Ch Karnchang) and SCC (Siam Cement Public Co).