SCB Securities Co., Ltd. (SCBS) is maintaining a positive perspective on the direction of the Stock Exchange of Thailand (SET), reiterating their earlier projection that the SET composite index will reach 1,900 points by late this year, boosted by state and private-sector investment, local spending stimulation from the mid-year budget, expected loan growth, and improved asset quality in the banking sector.
Mr. Isara Ordeedolchet, SCBS Senior Vice President, Investment Strategy Department, Research Group, said the overall global economy ended on a positive note in 2017 with a growth forecast of 3.7% year on year. It seems the world economic growth will gain momentum in 2018. Still, the investment atmosphere will be affected by a sooner-than-expected interest rate hike and an expected global trade war. The Thai economy continued growing at 3.9% in 2017 and is forecast to expand further in 2018, bolstered by private investment recovery and continued robust consumption from the previous year. Based on the latest economic forecast by the International Monetary Fund (IMF), the global economy is projected to grow 3.9% this year, driven by an upward revision of the United States economic forecast. Under the circumstances, Thailand’s exports will continue growing.
At present, he said, there are two main risk factors posing a threat to the global economy and financial markets. First, mounting concerns over higher interest rates and financial costs might undermine investor confidence. US interest rates are likely to rise sooner than expected since the inflation rate is expected to accelerate in the wake of an intensified labor market. The output gap has also widened, indicating production capacity utilization is accelerating in many business sectors and growth momentum may be stronger than expected. Under this scenario, it is forecast that the US Federal Reserve will raise the policy interest rate 4 times this year, up from 3 times projected earlier. Second, SCBS forecasts concerns over a world trade war will re-emerge. Since the assumption of the US presidency by Donald Trump in late 2016, the US has imposed import tariffs on solar energy, washing machines, steel, and aluminum. Although the US relaxed tariff over for some trade partners, including Australia, Canada, and Mexico, the latest announcement of its plan to raise import tariffs, which led to retaliation by China, appeared to intensify tension and fueled concerns about the emergence of a trade war.
As for the investment strategy for the second quarter of 2018, Mr. Isara said that the SET index has risen around 4% from early this year to March, driven by a stock rally in the energy and petrochemical sectors. It is forecast the SET index will move sideways in the second quarter. However, SCBS maintained its SET index target at 1,900 points by the end of 2018.
Top picks recommended in the second quarter are stocks in the banking sector because loans are expected to grow again and asset quality will improve. SCBS picked stocks in the commerce sector since the government plans to set aside a mid-year budget to stimulate the economy and spending by people at the grassroots level. Health sector stocks are of interest because they are laggards, and profits are expected to grow robustly in 2018. The increased popularity of the health insurance business will help stir spending on healthcare in Thailand in the long term.
- Bangkok Bank PCL (BBL): This stock is the most attractive laggard play in the banking sector because it will benefit from a new round of investment and higher fees from the sale of non-life insurance products.
- Krungthai Bank PCL (KTB): This stock's price is a laggard trading at a price to book value (P/BV) ratio of 0.9 times (-1SD from an average of 15 years). The stock will grow in tandem with state investment and a new round of investment in the country.
- Berli Jucker PCL (BJC): This stock price is another laggard, with trading at a price/earnings to growth (PEG) ratio of 1.0 times in 2018 (the average ratio of the industry is 2.2 times). It is expected that profits will grow 33% in 2018.
- Siam Global House PCL (GLOBAL): This is the most laggardly stock in the commerce sector. Profits in 2018 are forecast to grow 22%, backed by same-store sales (SSS) growth of 4.5% (the best in the sector).
- Robinson PCL (ROBIN): This stock is the cheapest in the commerce sector, with a price/earnings ratio of 22 times in 2018 (the average ratio of the industry is 32 times). It is expected that profits will grow 16% due to better same-store sales (SSS) and profit rates.
- Bangkok Dusit Medical Services PCL (BDMS): This stock has been underperforming since the SET began to rise in September 2017. Earnings per share (EPS) is expected to grow 17% in 2018. Cooperation with insurance companies will boost revenue from the treatment of patients under the health insurance scheme in the long term.
- Chularat Hospital Group PCL (CHG): This stock has plunged 28% in the past year over concerns over competition in business expansion in the Eastern Economic Corridor and nearby areas. The number of beds in private-sector hospitals represents only 5-15% of the total.
