After the recent political stability, analysts anticipate that the newly established Thai government will introduce economic stimulus measures. This presents a favourable moment for investors to explore opportunities in the Thai equities market.
After starting the year above 1,630 points, the Stock Exchange of Thailand (SET) dipped to 1,466.93 on June 28, making it Asia’s worst-performing market this year. Maybank Securities Thailand’s head of research, Chak Reungsinpinya, believes the SET index underperformed for two reasons: Investors’ concern over political uncertainty, and weak earnings.
“Even after the prime minister selection is completed, many foreign investors are not convinced that the new government would be stable,” Reungsinpinya tells The Edge Singapore.
Earnings have also been weak this year, with one of the steepest EPS downgrade cycles by the street of the past 10 years save for 2020, Reungsinpinya notes.
The 2023 Thai general election results were announced on May 25, with the Move Forward party attaining majority seats under the leadership of Pita Limjaroenrat. However, the party could not form a government after being blocked by the allies of the monarchy and military in the senate.
Fellow opposition party Pheu Thai then took the lead, allying with conservative, pro-military parties to nominate real estate tycoon Srettha Thavisin as prime minister. His cabinet was sworn in on Sept 5.
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The formation of a new government is a positive development for the market, says DBS Group Research analyst Chanpen Sirithanarattanakul. “A successful government formation reduces the domestic risk and political uncertainty, enabling the country to move forward,” he adds.
“The new government’s key priority will be to sustain Thailand’s post-pandemic economic recovery, which has lagged regional peers. Light foreign investor position amid low valuations and a recovering domestic economy substantiates our constructive view on the market,” says DBS in its 4Q outlook report.
Maybank believes the government will enact quick-win policies to not only jump-start the economy but also win support from the public. These measures will likely include cash handouts, energy price reductions and farmer debt moratoriums. These stimulus measures are estimated to amount to THB965 billion ($36.55 million), or 5.5% of Thailand’s 2023 nominal GDP.
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Positive impacts from longer-lasting policies such as minimum wage increases, minimum salary for college graduates and infrastructure investments would further enhance the potential uplift to the economy. Maybank expects these measures to help jump-start the economy from 4QFY2023.
Aside from the positive economic impact, Maybank also expects the formation of the new government to boost investors’ confidence in the Thai market, which could lead to fund inflows. As of Sept 6, Thailand has already seen a very large fund outflow at over US$3.7 billion ($5.1 billion), compared to other Asean markets’ net outflow of less than US$500 million each. Reungsinpinya thinks there is room for capital to return to the Thai markets.
He notes that the SET index has also seen a relatively strong 2QFY2023 results season. Based on around 160 companies with Bloomberg quarterly consensus forecasts, Maybank estimates that aggregate positive earnings surprises amounted to about 4.5% for the SET index.
This is a sharp reversal from the disappointing 1QFY2023 reporting season, leading to sharp EPS downgrades. In 2Q23, sectors that surprised the most on the upside were automotive, food, media and construction materials. On the other hand, petrochemical, agriculture and construction reported the largest negative earnings surprises.
Over the next two years, growing consumption and tourism, along with a rebound in export and investment, is expected to boost earnings for listed companies, says Chutikan Santimetvirul, Phillip Securities’ (Thailand) assistant vice-president of the research department. She expects the Thai economy to grow by 4.4% in 2024, driven by these factors.
“We foresee an EPS growth of 16%, with the SET Index expected to test 1,750 to 1,800 points. The new government is pushing ahead with stimulus policies, while the monetary policy is geared towards fostering sustainable economic growth,” she adds.
That said, she acknowledges that the country’s economy is still facing challenges in delivering the key policies, such as the minimum wage hikes and cash handout, aside from addressing the key impact of El Nino. Nevertheless, the major challenges are still from external factors, including global economic slowdown, monetary policy adjustments by major central banks, international politics and elections in big countries, says Santimetvirul.
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Recovering consumption play
Regarding the impending government stimulus measures, Maybank believes consumption-related stocks will benefit significantly, with retailers benefiting the most. Reungsinpinya notes that same-store sales growth (SSSG) has weakened in 3QFY2023. As such, the analyst thinks retailers will be particularly sensitive to consumption-boosting measures.
CP All is Maybank’s top pick within the retail sector as it continues outperforming peers in SSSG. The analyst expects CP All to benefit from a potential cash handout as its wide footprint will enable it to capture the highest traffic given the 4km radius limitation attached to the policy.
CP All is also DBS’s top pick for the commerce sector as it is poised for strong performance recovery. The analyst highlights CP All’s potential internal synergies — especially within the convenience and wholesale segment, following the resumption of local activities and rebound in tourist arrivals and Lotus’s business rebound. “In the long term, besides growing SSSG, CP All plans to improve its margins with a better product mix and higher service revenue,” says Sirithanarattanakul.
Maybank also likes Charoen Pokphand Foods (CPF), which Reungsinpinya describes as a “turnaround play”. Maybank had recently upgraded the stock to “buy” from “hold” as the analysts believe the share price weakness has already captured the down-cycle in swine price amid operational improvements due to falling feed costs.
Besides CP All and CPF, another consumption play stock that has caught analysts’ attention is Central Retail Corp (CRC). Analysts at HSBC see room for CRC to grow its hardline business through new store openings and the addition of new banners within the food division, such as Tops Care (health and beauty), Tops Vita (vitamins and supplements) and Pet ‘N’ Me (pet shops). For 2023, the HSBC analysts expect CRC’s revenue to increase by 7.3% y-o-y and its ebit margin to expand to 6.1%.
The last retail player highlighted by the analysts at HSBC, DBS and Phillip Securities is Central Pattana (CPN). In 1HFY2023, CPN’s recovery in the core business was better than expected despite a volatile period in Thailand’s macro environment, HSBC notes. The company’s operating metrics have largely returned to pre-pandemic levels while occupancy improvements and new mall openings will continue to drive sequential growth as tourism continues on the recovery path, they add.
Post-pandemic, Thailand has seen the number of foreign tourists grow by triple digits, reflecting a strong recovery in the tourism industry, says Phillip Securities’ Santimetvirul. Within this sector, an interesting stock he highlights is Central Plaza Hotel, which has 92 hotels under management — of which 42 are still under development.
Thailand is also a medical tourism hub, generating more than THB4.4 trillion annually, underpinned by its competitive price, quality and global standards. As such, Phillip likes Bangkok Dusit Medical Services, the largest private healthcare operator in the country, with over 50 hospitals and 8,600 structured beds.
One of DBS’s picks on the tourism revival theme is Airports of Thailand (AOT). Sirithanarattanakul likes the stock for its monopolistic status, expected earnings turnaround, strong cash-flow-generating capacity post-pandemic and solid balance sheet with a net cash position. “We believe AOT is well positioned as a prime beneficiary of the rising international travel demand. China’s borders reopening should be a key catalyst for both AOT’s performance and share price,” he says.
Financials and energy
Within financials and banking, DBS’ top pick is Bangkok Bank, a proxy for domestic and international corporate investments. Sirithanarattanakul explains that the bank has a strong position in international loans, with most taken out by Thai corporations for investing overseas.
As such, it stands to benefit from business relocations in Asia, combined with regional integration within Asean. “Bangkok Bank is also one of the prime beneficiaries of the rising interest rates given its high liquidity on hand, high exposure to minimum lending rate-based corporate loans and unique exposure to foreign currency loans. This has helped boost Bangkok Bank’s net interest margin ahead of other Thailand banks and is thus positive to its earning,” says Sirithanarattanakul.
Meanwhile, Maybank has Krungthai Bank as one of its Thailand top picks. In addition to rising net interest margin and strong asset quality, Krungthai Bank could benefit from Pheu Thai’s digital wallet cash handout policy, which can help the bank increase its exposure to consumer banking, says Reungsinpinya.
Non-life insurance broker TQM is another counter DBS pick. By collaborating with several business partners, TQM differentiates itself from other insurance brokers and is gaining market share, notes Sirithanarattanakul. He adds that TQM normally enjoys a 70% to 80% insurance renewal rate — with its extensive partnerships and wide range of insurance products, the company can acquire new customers and expand.
DBS’s top pick in the energy sector is PTT Exploration and Production (PTTEP), which is set to benefit from the oil price uptrend. This is supported by tighter crude supply, increasing oil demand and a potential export cut from Russia. Although PTTEP is a stock that Maybank likes, its top pick within the energy sector is Bangchak Corp. This is based on a robust gross refining margin outlook, completion of the ESSO acquisition and strong earnings momentum, which would help drive the share price.
