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.
