Bangkok--11 Jan--SCB
SCB Securities (SCBS) has released its 1Q12 outlook for the Stock Exchange of Thailand (SET), expecting yields beyond market expectations. Positive surprises from external factors, including more concrete remedies to tackle the Eurozone debt crisis and China's move to loosen its fiscal policy, will help prevent overall economic and investment slowdowns. Foreign fund flows are expected to resume. The performance of SET listed companies is not a concern, and their post-flood recovery will bring growth to 19% this year. Top stock picks for the first quarter are in energy and industries related to post-flood recovery: PTT, BANPU, TOP, DCC, and CPF.
According to SCBS Research Group Managing Director Mr. Kiattisak Jenwipakul, a positive outlook for the SET is expected, with yields outdoing market expectations. As the market reacted to a lot of bad news in the last quarter of 2011, low market expectations will leave more room for upside surprises from external factors. Remedy measures for the Eurozone debt crisis are expected to be more concrete, while there are early signs of accommodative monetary policies in Asia, particularly China, to preempt economic and investment slowdowns. The Chinese government has been trying to promote domestic consumption to ease the heavy dependency on exports, but it will take some time before the transition can be made. Inflation in China has started to ease and is currently expected to be in the region of 3% for 2012. This will give the People’s Bank of China (PBOC) some room to relax its tightened monetary policy to avoid a hard landing. It is widely expected that the reserve requirement ratio (RRR) could be lowered by no less than 2% as early as 1Q12, further to the previous cut of 0.50% on 5 December 2011, to improve liquidity in the financial system. However stringent lending practices for mortgage loans will remain in place, so as to ease concerns that the Chinese property bubble may impede the policy transition.
On the domestic front, the flood crisis in late 2011 severely affected 4Q11 performance of SET listed companies, but it should not be a concern. The impact is rather short-term, and will be followed by a recovery in 2012 due to: 1) broad-based normalization of business activities, 2) release of pent-up demand, and 3) new demand creation from replacement/reconstruction. That said, aggregate net profits of the SCBS universe are forecasted to grow 10% in 2011 and 19% in 2012. The forecast has factored in weaker global economic conditions, the hike in minimum wages, and reduction of corporate income tax to 23%.
Mr. Sukit Udomsirikul Senior Vice President - Retail Strategy Department, Research Group of SCB Securities said that in 1Q12 most investors are still concerned about persisting risk factors from last year, particularly the Eurozone debt crisis. As a result, investors remain not so keen to invest in the stock market. Negative investor confidence was reflected by the SET Index's price-earnings (PE) ratio at the end of 2011 at 12.6x and price/book value (PBV) ratio at 1.9x. PE and PBV ratios this low reveal that investors do not expect much growth in 2012 performance. This year is a good investment opportunity, as the SET Index has a chance to grow significantly, provided that the performance of listed companies outdoes market expectations. Foreign fund flows are expected to be no less than 50 billion baht for the whole year, as the prices of low-risk assets such as treasury bonds and gold are rising, compared to stocks. In addition, as investor concerns over Eurozone debt begin to ease, fund flows will be seen in oil, commodities, and stocks.
As for investment strategy, SCBS 1Q12 stock picks continue to bet on energy plays, which offer the best risk/reward proposition. As such, BANPU, PTT, and TOP are recommended based on the fact that 1Q12 is the season for refineries. Apart from these stocks, two other industry- and company-specific stocks are DCC and CPF. Although the post-flood reconstruction theme as a whole is over-hyped, SCBS sees an exceptional case for ceramics, especially DCC, to be an immediate beneficiary. For CPF, a quick recovery from the floods is expected, compelling valuation and potential upside from acquisitions in China and Vietnam.