We are barely two months into the year and Thailand has already been buffeted by a number of high-impact events. First was the US assassination of the Iranian general Qassem Suleimani in an air strike on Iraqi soil and the resulting spike in global risk.
Locally, the public was shaken by the Lop Buri department store gold shop shooting that resulted in three deaths. Meanwhile, the jump in PM2.5 readings across the country, but especially in smoggy Bangkok, has challenged businesses and the government and threatened public health.
Of course, the bigger health-related story now is the coronavirus illness that has infected nearly 65,000 people worldwide with almost 1,400 deaths. While only 577 cases and three deaths have been reported in 27 countries outside China, Thailand now ranks fourth in the number of cases at 33.
The latest event to shake public sentiment was the mass shooting on Feb 8 and 9 by a rogue soldier at several locations in Nakhon Ratchasima, most prominently a high-profile shopping mall. With 30 fatalities including the shooter, it was the country's worst ever.
While the impacts from most of the aforementioned events have eased by now, there remain significant fears about the coronavirus. Scientists expect the virus to peak this month, but it will take a few more months for a complete recovery. Full normalisation of economic activity, in China in particular, isn't likely until the second half of this year.
LOW EXPECTATIONS
The impact of the virus outbreak has been heavy, dragging the SET below 1,500 points for the first time since 2017, to 1,496.06 on Feb 3. The index staged a recovery a day later and has remained in the range of 1,520 to 1,540 over the past week. We believe the SET has carved out a bottom, but also that strong resistance awaits at 1,550 points.
This is because February and March mark the results season for full-year 2019, and investors already have low expectations. We expect overall market earnings per share (EPS) to decline by 8% year-on-year, compared with a 2% dip in 2018.
We currently forecast 2020 EPS growth of 7% year-on-year, but caution that the impact from the virus continues to dampen the global economic outlook. Analysts' forecasts for earnings this year could undergo significant revisions, particularly as Thailand's tourism industry is facing a major pullback in arrivals from China -- and this pullback could be extended beyond three months.
China last year was the source of almost 11 million visitors, or 28% of all arrivals to Thailand. With the virus now spreading across the region, the downside could get steeper, as 15 million arrivals in 2019 were from other Asian countries, including South Korea and Japan. The Tourism Authority of Thailand sees a decline of at least 2 million Chinese arrivals this year.
Taking an even broader view, the countries affected by the outbreak account for 26 million of the 39 million tourists Thailand welcomed last year. As such, the economy faces major risk, especially in the first half. Responding to this threat, the Bank of Thailand cut its policy rate by 25 basis points to a historic low of 1%.
We have also revisited our numbers, lowering our GDP growth forecast for this year to below 2% from 2.6% previously -- assuming the outbreak can be contained within six months.
This cloud of negativity hanging over the market necessitates cautious investing, in our view. As we are now entering the March-May dividend season, we recommend focusing on quality dividend stocks. A yield-based strategy is best suited to counter the low-interest-rate environment.
TOP PICKS
Under this theme, we pick AP, EASTW, KKP and TASCO. Though the property sector as a whole remains unfavourable due to prevailing economic weakness, we expect AP to maintain its profit level on higher condominium sales. The stock's yield is also attractive at around 6%, and it trades at a cheap price/earnings ratio of 6.
Meanwhile, EASTW is expected to benefit from drought-related effects this summer. It still has about 40% of its water supply available and expects to raise prices by 5-15%, adding lustre to its earnings outlook for this year. EASTW also offers a tidy yield of 4%.
When discussing search for yield, KKP is nearly always mentioned among the top picks. The bank, which directly benefits from lower interest rates, is expected to generate 7%, well above the market average of 3%.
Finally, for TASCO, the delay in the fiscal 2020 budget means that demand for asphalt will be more concentrated later in the year. We also believe that supply from competitors in the region will fall and demand should pick up for TASCO. The yield of 5% is also attractive.
Besides their strong dividend yields, our top picks are underpinned by sound fundamentals and relatively healthy 2020 earnings outlooks.
