2018E year-end SET target at 1,720 points
We rolled over our SET target to 2018E yearend at 1,720 points, based on a bottom-up approach with a discount of 3.5% (equivalent to 15.6x PER over the 2018E EPS estimate). This base-case SET target assumes that a general election will take place next year. In the meantime, we have also changed our view toward the Thai equity market to “Slightly Positive” from “Slightly Negative” previously.
Foreign fund flows to continue driving the Thai equity market
Former Prime Minister Yingluck Shinawatra’s fleeing from the kingdom has triggered changes in Thailand’s political path. The implication of her absence is that the political tension in Thailand for the remainder of this year through next year is expected to ease. The current situation may have an impact on the level of popularity of the Pheu Thai Party in the next general election.
Furthermore, external shock buffers in Thailand are relatively better than those seen in EM counterparts. This implies that Thailand is an attractive short-term investment destination amid uncertainty in global financial markets, especially regarding growing tension in the Korean Peninsula and concerns over U.S. politics.
Second-half GDP growth this year forecast at 3.7%
We expect to see a brighter outlook for the Thai economy in the second half, 3.7% in 2H17F vs. 3.5% in 1H17. Key drivers are anticipated stronger demand, in particular merchandise exports, and to a lesser degree, private consumption and investment. Meanwhile, the monetary policy stance remains accommodative as the Bank of Thailand is likely to keep its policy rate steady at 1.50% for the next several months.
Expect just modest growth in SET-listed firms’ earnings
The earnings revisions this year look slightly weak due in part to relatively weaker earnings growth in domestic economy-linked sectors, e.g., banks, and weaker earnings in the ICT sector where competition has intensified. We project the market’s EPS growth at 7.2% for this year and 9.9% for 2018E.
Investment Themes
Given our upbeat view toward fund flows, we employed a top-down approach to select our top-pick stocks. We particularly focus on stocks included in the MSCI Thailand Index, including PTT, IRPC, BANPU, PTTGC, SCC, EGCO, SCB and BBL. Meanwhile, in a bottom-up approach, we favor earnings plays, i.e., stocks demonstrating outstanding net profit growth during 2H17-18E, including IRPC, GUNKUL, TPCH, SC, BJC, MTLS, STEC and MINT.
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December 11th, 2017 is our public holiday (Substitution for Constitution Day). Consequently, The Stock Exchange of Thailand (SET), The Market for Alternative Investment (MAI) ＆ The Thailand Futures Exchange (TFEX) will be closed on this coming Monday.
Please be advised that July 27, 2018 and July 30, 2018 are our public holiday (Asarnha Bucha Holiday and Substitution for H.M. the King's Birthday Anniversary). Consequently, the Stock Exchange of Thailand (SET), the Market for Alternative Investment (MAI) and the Thailand Futures Exchange (TFEX) will close on this coming Friday and Monday.
Please be informed that April 15 - 16, 2019 is our public holiday (Songkran Festival). Consequently, The Stock Exchange of Thailand (SET), The Market for Alternative Investment (MAI), ＆ The Thailand Futures Exchange (TFEX) will close on this coming, Monday and Tuesday.
The quarterly review for May remains mostly the same but with the following weighting increases:
1. The weighting of China A-shares has been increased in the MSCI EM Index to +1.76%. The increase will be implemented in three steps: the FIF was increased in the May review to 0.1 vs. 0.05, and it will be increased further to 0.2 in the review in November 2019.
2. Saudi Arabia (MSCI implemented the first of two steps in this review, with its total weighting in the MSCI EM Index increasing to 1.42%).
3. Argentina (implemented in one step, with a weighting of 0.26% in the MSCI EM Index).
Thai equities: The Thai stocks newly added to the MSCI Global Index are INTUCH, RATCH and DTAC, while DELTA has been removed.
MSCI Small Cap Index: AEONTS, AAV, BLA, EASTW, PSH and TASCO have been added, while MC, PRINC, THCOM, TFG, VGI and VIBHA have been removed.
Other stocks with a higher weighting are SCC, BDMS, CPN, BBL, LH, EGCO, CPALL and TU, while SCB had its weighting reduced.
The review will become effective from May 28, 2019, onward.
