Kiatkakin Phatra Securities (KKPS) has written in its research paper, indicating a headwind up ahead for the Thai stock market based on weak performance forecasts from the listed companies as seen in the fourth quarter of 2024 that was largely buoyed by the banking sector.
In an early stage of earnings season in the fourth quarter of 2024, the earnings per share (EPS) of 28 SET100 companies (57% of market cap) slightly outperformed analysts’ expectations by 1.8%, with banks being the primary driver of this positive surprise.
Banks delivered strong results, beating consensus by 9% and growing 20% YoY. They benefited from the rate hike cycle, but slightly below 3Q24 (-6% QoQ). Banks benefited from rate hikes but this may end as rate cuts are forecasted as early as 2Q25. A total of three cuts are expected throughout the year.
However, without the strong bank performance, earnings would have fallen below expectations by 5.8%. “Without Banks, earnings growth would have dropped to -4.1% YoY and -12.7% QoQ,” wrote Kiatnakin Phatra. The drop was mainly due to a significant shortfall from DELTA, a major electronics exporter and the largest company by market cap in the Thai stock market.
Electronics (-58% miss by DELTA) and Transport (-7% miss by AOT) were a major drag. If excluding Banks, earnings came below expectation by -5.8%, primarily due to a big miss from DELTA, the biggest electronics exporter.”
Analysts anticipate cautious guidance from companies due to fragile macro improvements. “Just like the previous quarter, we expect cautious guidance from companies as macro improvement is still fragile, and the green shoots we noted earlier may be at risk.”
The report suggests that the upper leg of K-shaped consumption (tourism and services) may not be sufficient to offset weaknesses in overall domestic demand. Meanwhile, the figures indicating domestic-issued credit card spending have also declined. Additionally, there are concerns about the decreasing daily travel indicators, as well as the month-on-month drop in inbound tourist numbers since the beginning of the year.
The consensus SET EPS for 2025 is considered too optimistic, according to the firm, and earnings downgrades are anticipated. Historically, the typical downgrade magnitude during the year averages 15%-20%. The report forecasts 2024 EPS to finish at Bt80 (+7% year-on-year) in the best-case scenario, compared to the initial forecast of Bt98. For the following years, the consensus EPS forecasts are Bt97 for 2025E and Bt105 for 2026E.
Given the current market focus on downside risks, including domestic political uncertainty and geopolitical tensions, a defensive strategy is recommended, with a preference for earnings-resilient stocks. Sectors with net upgrades include Banks, Telecoms, and Food.
“Old Economy” sectors like Energy and Banks are being overlooked as investors flock to “New Economy” sectors like Commerce and Tourism. “Banks could be considered a safe investment with relatively lower downside risk (undemanding valuation and dividend headroom),” wrote the securities firm.
Meanwhile, certain sectors, especially electronics and food exporters, may be vulnerable to the impact of tariffs, considering their significant overseas revenue exposure.
Additionally, Kiatnakin Phatra Securities stated that given the macro-driven market, valuation de-rating is expected to continue to overshadow earnings in the short to medium term.
