SCBS Databook

Tags: databook, monthly
May 2021 In May, we expect the SET to be stuck at resistances of 1,600 and 1,630. Although rapid global economic recovery is boosting speculation on global plays, underpinning the market and commodity prices, there has been no easing in the local COVID-19 outbreak, and this raises the probability of “sell in May”. We assign supports at 1,530 and 1,500.

Bank 1Q21 earnings beats gave little support to the SET. In 1Q21, sector earnings rose 46%QoQ and 1%YoY, sharply above consensus. The difference was in lower provisions, better non-NII and tighter operating expenses that compensated for sluggish loan growth and narrowed NIM. After release of earnings, we raise our 2021F growth to 20%YoY but expect lower earnings over the rest of the year from rising provisions, lower non-NII and seasonal rise in operating expenses in 2H21. Bank valuations seem to have fully factored in the expected earnings recovery over 2021-2022 so share prices ignored the earnings beats and market mood also dimmed on the new wave of local COVID-19 outbreak. No reprieve in the spread will keep the SET from breaking 1,600 and pull down the market.

In Apr, foreign investors were net sell for the fourth month at Bt33bn (vs net sell of Bt68mn in Mar), raising holdings in CONMAT and PETRO but reducing in BANK ENERG, PROP and TRANS. Thailand outperformed MSCI APAC ex. Japan in the 3- and 6-month periods but underperformed in the 1M – and 12-month period. Consensus notched up SET 2021 estimates by 4.56%, also revising up South Korea (+9.70%), Taiwan (+8.87%), Singapore (+7.68%), the Philippines (+4.01%), Hong Kong (+3.61%) and Indonesia (+3.04%) but revising down in China (-1.30%).

Sell in May? The SET is likely to fall in May. Data for the last ten years shows that the SET fell in May seven times (70% probability). If the SET goes up during Jan-Apr, the probability of a fall in the market in May increases to 90% - and this year the SET zigzagged up during Jan-Apr without collapsing or switching downward. This means we are likely to see “sell in May” this year and we assign support at 1,500.

This month:  Domestic: 1) May 5 – CPI for Apr, BoT’s MPC meeting; 2) May 6 – Consumer confidence for Apr. Foreign: 1) May 3 – US ISM manufacturing PMI for Apr, 2) May 4 – CN Caixin manufacturing PMI for Apr, US ISM service PMI for Apr, US ADP non-farm payrolls for Apr; 3) May 7 – US non-farm payrolls and unemployment rate for Apr; 4) May 12 – US CPI for Apr; 5) May 14 – US retail sales for Apr.

April 2021 In April we expect the SET to zigzag up and be able to stand on 1,600, boosted by additional government stimulus and speculation on mid- and small-cap shares. However, upside for big-cap shares seems small and earnings growth in 1Q21 is expected to be deterred by the new wave of COVID-19 in the country. This will likely lead to profit-taking in the month. We assign resistances at 1,620 and 1,640; support at 1,560-1,570.

The SET rose in Mar but did not break through 1,600. The market opened at its low, then recovered in the first half on net buy by foreign and institutional investors as they became more optimistic on economic recovery, backed by rapid global vaccinations and the passage of a US$1.9tn US coronavirus relief bill. A rise in commodity prices supported related shares. However, the market cooled in the second half of the month. Foreign investors switched to net sell on concerns about resurgence of COVID-19 in the US and Europe. Commodity prices also cooled down, which led to correction in related shares. Rising US long-term Treasury yield eroded valuation of investment assets and kept the market from breaking 1,600.

In Mar, foreign investors were net sell for the third month but for just Bt68mn (vs net sell of Bt19bn in Feb), raising holdings in BANK, CONMAT, PROP, ICT, COMM, PETRO and TRANS but reducing in others. Thailand outperformed MSCI APAC ex. Japan in the 1-, 3-, 6-month periods but underperformed in the 12-month period. Consensus notched up SET 2021 estimates by 0.52%, also revising up Taiwan (+3.07%), China (+2.25%), South Korea (+1.05%) and Singapore (+0.89%); estimates were cut for the Philippines (-0.53%), Hong Kong (3.15%) and Indonesia (-4.31%).

For Apr, we recommend switching to defensive plays. The SET will be more unpredictable and movement will be narrower. Concerns about resurgence of COVID-19 in some countries and delays in vaccinations have cooled interest in reopening plays, making it difficult for the market to move up. However, there will be support from earnings beats in 1Q21 as companies release earnings from mid-month. We recommend staying sidelined until there are new drivers, resting money in defensive stocks – ICT, HELTH, power plants, green energy theme or EV theme. Mid- and small-cap stocks are still interesting for speculation but must be companies with a good outlook.

This month:  Domestic: 1) Apr 5 – CPI for Mar; 2) Apr 8 – Consumer confidence for Mar. Foreign: 1) Apr 1 – CN Caixin manufacturing PMI for Mar, US ISM manufacturing PMI for Mar; 2) Apr 2 – US non-farm payroll and unemployment rate for Mar; 3) Apr 5 – US USM service PMI for Mar; 4) Apr 13 – US CPI for Mar; 5) Apr 15 – US retail sales for Mar; 6) Apr 16 – CN GDP for 1Q21, EU CPI for Mar; 7) Apr 27-28 – FOMC meeting.

March 2021 In March, the SET is expected to move sideways with supports at 1,470 and 1,450. Initiation of widespread coronavirus vaccinations, easing restrictions and preparation for reopening will continue to support, but tight valuation and US dollar appreciation will induce foreign outflows. Rising bond yield will limit upside at resistances of 1,530 and 1,560.

The SET closed Feb at below 1,500. Relief that the return of COVID-19 in the country was not drastic, the arrival of the vaccine on Thailand’s shores and fiscal stimulus measures have led to expectations for an accelerated economic recovery – which the market has already priced in. Rising bond yield will suppress the market and if there is no support, the market will correct below 1,500. However, progress in vaccinations and a steady drop in new cases will shore up market sentiment. 

In Feb, foreign investors continued to net sell for the second month at Bt19bn (vs net sell of Bt11bn in Jan), raising holdings in BANK, ENERG and PROP, COMM, PETRO and TRANS but reducing in ICT. MSCI Thailand outperformed MSCI APAC ex. Japan in the 1-month period but underperformed in the 3-, 6- and 12-month periods. Consensus notched up SET 2021 estimates by 0.55%, also revising up China (+5.64%), Taiwan (+3.26%), Malaysia (+2.75%) South Korea (+1.65%) and Singapore (+1.32%); estimates were cut for India (-1.98%) and Indonesia (-25.84%).

In Mar, the market is likely to continue to fluctuate; recommend buy on dip. Companies reporting earnings beats for 4Q20 and earnings misses seemed to be roughly equal, keeping earnings performance from being a big issue; of more impact was eased monetary policy, progress of vaccinations and declining new cases and these will keep the market on the upward path. Some stock prices, however, have already reached pre-pandemic price, alerting investors to be more cautious on trading. We recommend accumulating stocks only on correction to provide a margin of safety. The SET is expected to swing around psychological support (resistance) at 1,500. Reflation, rising commodity prices and reopening are key market supports.

This month:  Domestic: 1) Mar 4 – Consumer confidence for Feb; 2) Mar 5 – CPI for Feb. Foreign: 1) Mar 1 – CN Caixin manufacturing PMI for Feb, US ISM manufacturing PMI for Feb; 2) Mar 2 – EU CPI flash estimate for Feb; 3) Mar 3 – US ISM services PMI for Feb; 4) Mar 5 – US non-farm payroll and unemployment rate for Feb; 5) Mar 9 – JP GDP for 4Q20; 6) Mar 10 – US CPI for Feb; 7) Mar 11 – ECB meetings; 8) Mar 16 – US retail sales for Feb; 9) Mar 17 – EU final CPI for Feb; 10) Mar 16-17 – FOMC meetings.

February 2021 In February, we expect the SET to extend the fall begun in mid-January, pressured by 1) profit-taking globally as markets are overvalued, 2) risk-off condition that will pull foreign investors out of stock markets into safe-haven assets such as the US dollar; 3) sell-off in large-cap low-free-float shares, especially DELTA. We assign February supports at 1,450 and 1,400 and expect a rebound from 1,400, supported by COVID-19 relief measures and vaccine roll-out. February resistances are put at 1,500 and 1,550.

4Q20 earnings season began in Jan. Banks reported a drop in total net profit of 25%YoY but an increase of 8%QoQ. In 2020 as a whole, net profit fell by 32%. Our bank analyst believes most banks hit bottom in 4Q20 after raising provisions to build LLR coverage, peaking credit cost in 2020. We expect banks to require three years to return to pre-COVID levels, with earnings growth of 10% in 2021F, 11% in 2022F and 19% in 2020F. Investors appear to be looking beyond 2021 and instead focusing on recovery in 2022 to factor in lower asset quality risk after the vaccine roll-out, as reflected in the outperformance of bank share prices in Jan (rose by 7%MoM).

In Jan, foreign investors switched to net sell of Bt11bn (vs net buy of Bt25bn in Dec), raising holdings in BANK, ENERG and CONMAT but reducing in ICT, COMM, PETRO and TRANS. MSCI Thailand outperformed MSCI APAC ex. Japan in the 3-month period but underperformed in the 1-, 6- and 12-month periods. Consensus revised down SET 2021 estimates by 1.66%, also revising down China (-1.29%), Singapore (-8.17%) and India (-20.93%); estimates were revised up for Indonesia (+43.44%), Malaysia (+11.59%), Taiwan (+2.47%) and South Kore (1.40%).

In Feb, non-bank sectors will start releasing earnings. Analysts have already issued 4Q20 previews for 102 companies to total earnings of ~Bt93.6bn. Refineries, power suppliers, petrochemicals and shipping are expected to report both YoY and QoQ growths while contractors are expected to report contractions. In 2015-2019 (excluding 2020 because of the COVID-19 pandemic), the SET provided average return of 0.51%, close to the SET50 (+0.72%) and SET100 (+0.69%), but SETHD gave a good average return of 2.29%. High return for SETHD suggests that investors switched from earnings plays to dividend plays after companies finished releasing earnings and announced dividends.

This month:  Domestic: 1) Feb 3 – BoT MPC meeting; 2) Feb 4 – Consumer confidence for Jan; 3) Feb 5 – CPI for Jan; 4) Feb 15 – GDP for 4Q20. Foreign: 1) Feb 1 – CN Caixin manufacturing PMI for Jan, US ISM manufacturing PMI for Jan; 2) Feb 3 – EU CPI for Jan, US ISM services PMI for Jan; 3) Feb 5 – US non-farm employment change and unemployment rate for Jan; 4) Feb 10 – US CPI for Jan; 5) Feb 15 – JP GDP for 4Q20; 6) Feb 16 – EU GDP for 4Q20; 7) Feb 17 – US retail sales for Jan.

January 2021 In January, we view the SET as limited to 1,500 as valuation is very tight and good news already discounted. The rise in the final week of the year was fueled by low-free-float large-cap shares and window dressing. This will not be seen in Jan while concerns over COVID-19 local transmission remain. The SET is expected to correct to 1,400 or lower and we assign supports at 1,380 and 1,350.

Rollercoaster in Dec. At the start of the year’s final month, good news rolling in from abroad pushed the SET up from 1,400 to 1,500. The good news centered around the approval of two COVID-19 vaccines for emergency use and the beginning of inoculations. After much negotiation, Congress finally approved a coronavirus relief bill of US$900bn. The UK and EU went back and forth on a trade deal and in the end managed to reach a last-minute deal. Foreign investors continued to be net buyers, but investors seemed overly optimistic, pushing the market to overvalued position on no real fundamental changes nor upward revisions of earnings forecasts. Thus, if the return of the virus in Thailand gets out of control, the fragile market is likely to collapse to 1,400. Solid control over the outbreak will allow a confident recovery in the market. 

In Dec, foreign investors were net buys but in lower at Bt2.5bn (vs Bt33bn in Nov), raising holdings in BANK and PETRO but reducing in ENERG, PROP and TRANS. MSCI Thailand outperformed MSCI APAC ex. Japan for 1-, 3-month periods but still underperformed for 6- and 12-month periods. Consensus revised up SET 2021 estimates by 0.74% but this was lower than Malaysia (+4.1%), Taiwan (+1.6%), South Korea (+1.3%) and China (+1.0%). Consensus cut 2021 earnings estimates for Hong Kong (-5.0%), the Philippines (-4.1%), Indonesia (-2.8%) and India (-1.3%).

Accumulate laggard cyclical stocks and valuation playsWe see slim market upside. We recommend investors switch from defensive shares to laggard cyclical stocks that will benefit from vaccinations this year, such as hotels, property developers, energy, public transportation and banks. The switch is proposed to rebalance portfolios to a focus on reasonable and undervalued companies rather than being based on fundamental changes. We suggest accumulate at 1,350-1,380. To set our 2021 SET target price, we assign fundamental valuation at 1,450-1,500 (PBV ratio at 1.5x) but it could advance to 1,650, supported by capital inflows.

This month Domestic: 1) Jan 5 – CPI and core CPI for Dec. Foreign: 1) Jan 4 – CN Caixin manufacturing PMI for Dec; 2) Jan 5 – US ISM manufacturing PMI for Jan; 3) Jan 7 – EU CPI for Dec, US ISM service PMI for Jan; 4) Jan 8 – US non-farm employment change and unemployment rate for Dec; 5) Jan 13 – US CPI and core CPI for Dec; 6) Jan 15 – US retail sales for Dec; 7) Jan 18 – CN GDP for 4Q20; 8) FOMC meetings.