SCBS Databook

Tags: databook, monthly
February 2020 We expect the SET to recover in Feb as the clouds begin to disperse. The SET’s undervaluation will attract investors. Three issues: 1) Status of Wuhan coronavirus outbreak: The spread should slow as strict controls have been put in place worldwide. 2) Market valuation is attractive: The SET PE ratio is around 15x, which has upside of 100 points if we assume the market moves at its average PE ratio of 15.0-16.0x and 1Y forward EPS at 100. 3) Earlier OPEC meeting in February rather than March to discuss further production cuts to uphold crude price; a plus for oil-related stocks.

Old risks fade, new risks loom. 2020 opened with high hopes after the US and China announced the signing of a phase one trade deal and prepared to talk phase two, easing tensions between the two countries – as well as on economic and investment activities worldwide. The relief did not last long – new clouds came, both external and internal: the outbreak of a new coronavirus that will hit economic growth, an earlier onset of a drought and a further delay of 2-3 months in the FY2020 budget. BANK reported earnings misses of about 17% below consensus in 4Q19 because of high provisions. Big-caps PTTEP and SCC reported earnings in line. In Feb, stocks in real sectors will gradually release earnings. Cyclical stocks are expected to reported growth both YoY and QoQ off a low base while domestic stocks are expected to report earnings contractions in YoY and/or QoQ.

In Jan, foreign investors were net sellers for the sixth month at Bt17.3bn. They raised their holdings in ENERG and COMM but reduced in BANK and PETRO. MSCI Thailand underperformed MSCI APAC ex. Jan in 1-, 3-, 6- and 12-month periods. Consensus cut estimates again by 2.1%, the biggest cut in the region, with a 1.33% cut in Indonesia, 0.74% in the Philippines and 0.2% in Singapore. Revised up were India (1.58%), Taiwan (0.78%) and Hong Kong (0.32%).

Heavy clouds raining on the Thai economy – flee to defensive stocks. The year got off to a troubled start - the outbreak of a new coronavirus, earlier onset of a drought and delays in the FY2020 budget. We have thus cut our 2020 GDP growth forecast to 2.4% from 2.7%, most slow in 2Q20. That being said, we do still expect a recovery in 2H20. As for the market, we expect earnings to shrink around Bt28bn or 4% of the previous estimate. In view of the clouds both without and within the country, we suggest playing defensive and/or high-dividend stocks. 

This month:  Domestic: 1) Feb 4 –NBTC to accept applications for 5G auction, qualification check on Feb 5-12, trial auction on Feb 13-14 and auction on Feb 16 ; 2) Feb 5 – BOT’s MPC meeting; 3) Feb 19-21 – no-confidence debate over six ministers; 4) Feb 20 – Criminal court to announce whether to a lawsuit filed by the Future Forward Party against 14 ECs regarding dissolution of FFFP. Foreign: 1) Feb 4 – US 2020 State of the Union Address; 2) Feb 12 – announcement of day of MSCI quarterly index review for 2Q20; 3) OPEC meeting to discuss deeper cuts.

January 2020 We see limited downside for the SET at 1,530-1,550 in Jan. Supports include: 1) Undervaluation: 1Y forward PE ratio is only at 15x. 2) A better outlook for the economy this year supports investment in risky assets like stock markets. 3) Eased US-China trade tension after settling on a phase one trade agreement. Investors are optimistic about upcoming second phase talks. 4) The January effect: The SET generally rises in Jan and we assess resistances at 1,600 and 1,620 but beware of selling of LTFs bought before 2016. If the SET falls to January supports, we suggest accumulating.

December, a dreary month: 2019, good in 1H but bad in 2H. Dec 2019 was a dreary month, with numerous pressures. On the plus side, the US and China finally agreed in principle on a phase one trade deal, averting more tariffs, but on the down side, politics heated up at home, worrying investors (banning of Future Forward Party, rally led by Thanathorn and cracks in the government coalition). The BoT’s cut its economic growth forecast for 2019F and 2020F while analysts cut market earnings estimates. Individual stocks also suffered. These pushed the SET into a fall of 0.7%MoM. The market was shored up by capital from LTFs and RMFs, with institutional investors net buyers of Bt24.8bn. In 2019, the SET rose in 1H from 1,563 to peak at 1,730, up 10.7%HoH, but then fell in 2H to 1,580, -8.7%HoH. SET yield in 2019 was -1.02%YoY.

Foreign investors net sold the SET for the fifth month at Bt24.5bn, upping holdings in ICT and PETRO while cutting ENERG and PROP. MSCI Thailand ETF again underperformed MSCI APAC ex. Japan in 1M, 3M, 6M and 1Y periods. Consensus lowered SET earnings forecast for 2020F by 0.3% in Dec, with downward revisions seen also for Hong Kong (0.3%), Singapore (0.3%), Indonesia (1.0%) and Malaysia (1.4%) with revisions raised for China (0.1%), Taiwan (0.8%) and India (1.0%).

Will there be a “January effect”? In the last five years the SET has risen in January with an average return of 3.6%. Outperformers in January include BANK (average return of 4.9%), TRANS (4.8%) and ICT (4.7%). Stocks of interest are TCAP (average return of 5.8% with 100% probability of an increase), AOT (7.7%, 100% probability), INTUCH (6.8%, 100% probability), KKP (3.1%, 80% probability) and ADVANC (4.2%, 80% probability). For the past five years, institutional investors have been net buyers in Jan of an average of Bt7.3bn but foreign investors were net sellers in Jan three out of the five past years with an average net sell of Bt692mn. We expect institutional investors to again end Jan 2020 as net buyers.

This month:   Domestic:   1) Jan 1 – Land & building tax law takes effect. Minimum wage rises. 2) Jan 8-9 –Second and third readings of the budget bill, going to the senate on Jan 20, for royal endorsement on Jan 27.   Foreign:   1) 2H of Jan –US and China to sign phase one trade agreement; 2) Central bank meetings: Jan 20-21 – BOJ, Jan 23 – ECB, Jan 28-29 – FOMC, Jan 30 – BOE. 3) Jan 31 - Brexit deadline