Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Bangkok Post
Bangkok Post
Business

SET contending with myriad negative factors

The SET index was hit by round after round of negative news in February. The index declined 49.11 points to end the month at 1,622.35, its lowest close for the month. Average trading volume fell 7.3% from January to 63.2 billion baht as sentiment weakened.

A big drag on SET performance was the steady flow of disappointing fourth-quarter results -- we calculate that overall net profits for the quarter missed market expectations by more than 40%. The misses have prompted downward revisions for 2023 and 2024 earnings of around 10% and 5%, respectively, as of this writing.

Moreover, economic figures from the US have beaten expectations, sending the 10-year bond yield surging to almost 4% and fund flows back to the US. The market currently foresees a mild recession but with potential for a prolonged high interest rate environment, at least through this year.

As such, foreign investors were net sellers in the Thai market for the month of 43.5 billion baht. Conversely, local retail investors were net buyers of 28.6 billion baht and and local institutions bought 13.8 billion baht.

The bad news has continued into March with official fourth-quarter Thai GDP figures showing growth of only 1.4% year-on-year. This was well below market expectations and that of the National Economic and Social Development Council, which revised down its 2023 GDP forecast to a range of 2.7% to 3.7%, from 3-4% previously.

The primary culprits behind the weak GDP growth were net exports, down 10.5% year-on-year after 2.3% growth in the third quarter, and government spending, down 8% compared with a 1.5% decline the quarter before. These numbers have heightened concerns that economic performance may disappoint this year, raising pressure on the stock market and potential for further earnings revisions. Against that backdrop, the SET has continued to decline this past week, marking a new low for the year at 1,603.31 in intraday trading.

Adding to the weak sentiment is the pullback in the US markets over fears that the Fed will raise rates at its next meeting by 0.5%, instead of the 0.25% expected previously, and that terminal rate will rise to 5.75% (vs 5.5% previously. Some in the market fear that the terminal rate could even exceed 6%.

SPENDING DELAYS

Also worth monitoring in Thailand is the contraction in government spending. With the election coming in mid-May, a new government is expected to be formed by August. This will leave only one month before the current fiscal year ends, and the new government may not be able to approve the fiscal 2024 budget on time, putting late-2023 spending at risk.

As such, we flag a risk that a plunge in government spending could further depress economic conditions and the earnings of listed companies.

Given the myriad negative factors surrounding the Thai market, our picks feature companies with solid fundamentals and/or exposure to tourism, our main theme for this year. These include ADVANC, AUCT, BDMS, CPALL and MINT.

The telecom operator ADVANC reported fourth-quarter earnings of 7.4 billion baht, up 7.2% year-on-year and 22.1% quarter-on-quarter, slightly better than our expectation. Revenue improved in every segment and average revenue per user (ARPU) should expand for at least another 3-4 months. With its main competitor TRUE putting the finishing touches on its merger, competition is expected to ease in the first half.

ADVANC expects capital expenditure to fall by 2-5 billion baht per year as the company trains its focus on cognitive technology, including AI and auto systems. Cooperation with GULF and Singtel, meanwhile, should broaden the company's reach in terms of data centre clients. The shares also offer a tidy dividend yield of more than 4% this year.

AUCT was one of the few positive earnings surprises in the fourth-quarter results season with a 41% quarter-on-quarter jump in profit to 95 million baht, a new quarterly high. Amid economic weakness, finance and leasing companies repossessed more cars for auction -- and AUCT serves as a broker in that space. Although margins narrowed a bit to 53.3% from 56.5%, overall fees still rose on greater volume of cars up for auction. We expect the trends from fourth quarter to continue into 2023 with more cars to be brought to auction, and thus the company should continue to perform.

BDMS has long been one of our top picks for investment. The hospital chain's fourth-quarter profit beat expectations by 12% at 3.1 billion baht, up 18% year-on-year. Revenue from foreign patients jumped 61% year-on-year, underpinning quarterly performance while Covid-related treatment declined significantly. Interestingly, with Covid fears fading, more people are willing to go to hospitals, raising volume levels. Occupancy is now at 69% while last year with Covid-19 in full swing it was at 70%. The outlook for the first quarter of this year also looks bright as the rebound in foreign tourists will benefit BDMS.

RETAIL REVIVAL

The convenience store giant CPALL is another top pick for us this year. Although its fourth quarter was slightly below expectations, this was mainly due to MAKRO operations. The convenience store business impressed with same-store sales growth at 15% year-on-year and average ticket size at 85 baht, up from 82 baht the quarter before. The company plans to add another 700 convenience store branches this year for a total of 14,500. CPALL should also benefit from Thailand's tourism growth and the coming election, factors that should bolster domestic consumption.

When discussing tourism, MINT is a stock that should always be shortlisted. The company turned a profit in the fourth quarter at 1.9 billion baht, after a net loss a year earlier. At the operations level, profit climbed 18% quarter-on-quarter. Revenue jumped 45% year-on-year and 4% quarter-on-quarter as Thailand's reopening rejuvenated tourism. Revenue per available room (RevPAR) has already exceeded the pre-Covid level by 9% in the US and 35% in Australia (Thailand is unchanged).

The food segment is also improving for MINT, with revenue growth of 20% in Thailand and 19% in Australia. While China was off 20% year-on-year in the fourth quarter, the country has since reopened and thus 2023 should see marked improvement. All considered, we expect MINT's profit to jump 263% year-on-year as normalisation sets in.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.