FSS International Investment Advisory (FSSIA) stated in the “Thailand Market Strategy” research, expecting the Federal Reserve upcoming moves on tapering, curbing balance sheet and hiking interest rate to have a limited impact on Thailand’s stock market.
FSSIA believed a tailwind would arise from the stock market trending upward even under the Fed’s aggressive hike in its policy rate, as long as economic growth and corporate earnings continue to strengthen. Thus, the Fed’s moves will have a limited impact on Thailand’s stock market due to five key reasons: 1) low foreign debt; 2) fundamental-driven catalysts are more sustainable than liquidity-driven catalysts; 3) the positive impact on the FTSE 100 after the Bank of England (BoE)’s first rate hike; 4) Thailand’s generous cushion thanks to its hefty foreign reserves; and 5) the decoupling of the Thai economy from other Western economies.
Based on the 4Q21 earnings results forecasts, Bloomberg consensus expects that the SET’s aggregate corporate net profit could grow to THB240b (+27% q-q and +37% y-y), driven by the domestic sectors (food & beverages, property funds, transportation and commerce). Among the stocks under FSSIA’s coverage, it expects companies with strong 4Q21 earnings results, on a q-q basis, to include PLANB, BEM, PSH and BANPU, while IVL, THG, BCH, PTTEP and EGCO should have strong earnings on a y-y basis.
Additionally, for a one-month investment horizon in Feb-22, FSSIA stated that it prefers a set of companies with quality earnings growth, linked with the investment themes in FSSIA’s 2022 portfolio. In Feb-22, FSSIA expects that the SET index will be highly volatile. Thus, value stocks are likely to outperform growth stocks in 1Q22. FSSIA extends top picks to KBANK, IVL, SAT, EA, BCH and NEX for Feb-22.
KBANK (TP THB180)
FSSIA believes that KBANK’s business is almost running parallel with Siam Commercial Bank’s. First, KBANK is one of the leading banks in terms of digital platforms and technologies. Accordingly, FSSIA believes that it is one of the best positioned banks to benefit from the country’s digital age. Second, KBANK’s retail lending market share is always ranked among the top three spots. Retail lending in Thailand has a high growth potential, with the most attractive risk-reward vs other segments, in its view.
IVL (TP THB70)
IVL’s net profit is expected to rise in 4Q21-2022 on stronger product margins and higher utilisation rates for the IOD, PET-PTA, and fibre groups, with q-q improving MTBE and MEG margins. Key potential drivers are: 1) a stronger PET-PTA margin due to China’s lower export volumes and solid demand; 2) a polyester fibre margin recovery for the automotive and lifestyle segments; and 3) the start-up of its ethane cracker in Nov-21 after the lightning strike in 2H20.
SAT (TP THB29)
FSSIA states that it likes SAT considering that 1) its 2021 earnings could hit a new record high; 2) its 2022 outlook remains strong thanks to the expectation of a continuous recovery in the car production level; 3) new orders; and 4) it has an attractive dividend yield at above 7% p.a. Although the company still has few relationships with EV manufacturers, FSSIA believes that in the future, as a tier 1 manufacturer, SAT should be able to get some EV orders, if there are more EVs produced domestically.
EA (TP THB122)
FSSIA stated that it thinks EA’s net profit growth will accelerate starting in 4Q21 to boost its 2022E net profit growth by 19% y-y and 2023E by 14% y-y, driven by the start-ups of its multiple S-curve growth projects, which include the expected deliveries of 200-300 e-buses in 4Q21 and the 1GWh battery phase 1 plant in Dec-21, along with the delivery of 2,000-3,000 EVs in 2022.
BCH (TP THB28.50)
FSSIA believes that if there is a new wave of Omicron variant infections in Thailand, the healthcare sector would benefit the most from Covid-related services, including Covid screening tests, treatments in hospitals and hospitels and more alternative vaccination revenue. BCH is FSSIA’s pick as it had the largest revenue contribution from Covid-related revenue during the Delta variant third wave, accounting for 56% of total revenue in 2Q21 and 71% in 3Q21. Its EBITDA margin also jumped to 42-52% over that period, compared to 27-29% during the pre-Covid level due to the high utilisation rate.
NEX (TP THB26)
Despite a 2x share price rally since 23 Jun-21, FSSIA believes NEX’s net profit growth momentum remains strong, and FSSIA expects a marked rise in its earnings in 2022-23, backed by 1) more visible and higher sales volumes for e-bus orders of up to 3,000-4,000 in 2022, while FSSIA thinks the start of e-truck sales, likely in 2022, could provide even higher upsides to NEX’s net profit; and 2) potential upsides from a windfall demand for commercial fleet vehicles (buses and trucks) thanks to the government’s soon-to-announce incentive packages to promote the EV industry’s development.
