Kicked when already down, SET looks to rebound

Kicked when already down, SET looks to rebound

Thai stocks were some of the biggest losers worldwide to start the year, and the looming pandemic has only intensified the local sell-off

On a year-to-date basis, the SET index has generated a return of -13%, with a price-to-earnings ratio of 16 times. (Photo by Pattarapong Chatpattarasill)
On a year-to-date basis, the SET index has generated a return of -13%, with a price-to-earnings ratio of 16 times. (Photo by Pattarapong Chatpattarasill)

The Stock Exchange of Thailand (SET) index was battered last week amid a sea of red as relentless news of the coronavirus epidemic sapped investor confidence. What unfolded after the dust settled is that Thailand's benchmark equity index is ranked among the worst performers in Asia, if not the world.

On a year-to-date basis, the SET index has generated a return of -13%, with a price-to-earnings ratio of 16 times. One-year return is also -13%, positioning the Thai bourse alongside regional peers in Malaysia, Indonesia and the Philippines as the biggest losers in Asia-Pacific.

Thailand's main stock gauge tumbled to its lowest intraday threshold in more than three years on Feb 26, crossing the 1,400-point mark as the rising number of coronavirus cases in the country took a toll on investment appetite.

"External factors have caused the SET index to nose-dive significantly," said Jitipol Puksamatanan, head of investment strategy at SCB Securities.

The downward cycle of petroleum and refinery businesses, coupled with the equity sell-off in the services sector, means the local bourse has little cushion against a heavy sell-off, Mr Jitipol said.

Energy shares contribute a large portion of the SET index, making it prone to external volatility.

"Our weakness is there is hardly any local innovation despite sufficient infrastructure and relatively low financial costs," Mr Jitipol said. "There is no innovative technology in Thailand, and that is what investors have been investing in during the past five years."

On a year-to-date basis, the SET index generated a return of -13%, with a price-to-earnings ratio of 16 times. Pornprom Satrabhaya

He said the recent sell-off should be a wake-up call for businesses relying on Chinese capital inflows into Thailand: that they need greater diversification in order to stay afloat during tough times.

Growth prospects are bleak for revenue streams generated by Chinese tourist arrivals after China banned outbound group tours to stem the spread of the virus.

Chinese visiting Thailand via group tours totalled 3.1 million in 2019, making up 28% of total inbound Chinese tourists in Thailand, according to the Association of Thai Travel Agents.

In total, 11 million Chinese tourists visited the Land of Smiles last year, bringing with them spending worth 544 billion baht.

Therdsak Thaveethiratham, senior executive vice-president of Asia Plus Securities (ASP), said sentiment around the Thai bourse this year is not much different than last year.

In 2019, Thailand's stock market was also distorted by foreign net selling to reallocate money from risky assets to safe-haven counterparts, especially government bonds.

Delays in approval of the fiscal 2020 budget also lowered investor confidence by several notches.

Mr Therdsak said the structure of the Thai bourse is also closely linked to commodities, from both the listing companies' profit structure and the trading price structure.

"The overall picture is the same: GDP growth forecast has been revised down to 1.6% [by ASP] while market earnings have also been revised down and are likely negative against last year," he said.

The expiry of the tax privilege for long-term equity funds means there's hardly any incentive to invest in LTFs, making this buffer disappear, Mr Therdsak said.

Still, Soraphol Tulayasathien, senior executive vice-president and head of the SET's corporate strategy division, remains confident that the index will recover at a fast pace once the outbreak subsides.

The bourse's rebound will be supported by high-yielding dividend stocks and infrastructure funds reflective of Thailand's present strengths, Mr Soraphol said.

Sector-by-sector outlook from ASP’s analysts

As the combined 2019 net profit of 98% of SET-listed companies was registered at 939 billion baht, down 3.3% year-on-year, this year's earnings outlook has been revised down on the back of growing uncertainty clouding Thailand's economic growth trajectory, according to Asia Plus Securities (ASP).

Combined net profit of listed companies in 2020 has been revised down to 83 billion baht, down 8.2% from 918 billion baht projected previously, with lower earnings per share of 85.60 baht anticipated, down from 95.71 baht, ASP said.

For each sector of the SET, ASP provides a mixed outlook depending on the nature of each business segment.

Downward Revisions

Energy and petrochemicals: revised down by 61 billion baht in total, pressured by low petrochemical spread.

Banks: revised down by 13 billion baht, pressured by the country's historically low interest rates and economic decline, which could trigger additional rate cuts.

Telecommunications: revised down by 10 billion baht, pressured by higher cost of 5G auction.

Aviation and tourism: revised down by 31 billion baht. No rationale given, but the coronavirus outbreak could be the main factor sapping revenue for listed companies operating in this business segment.

Upward Revisions

Some exporting companies: supported by the weakening baht and higher pork price.

Some energy companies: revised up by 1.6 billion baht in total, supported by sales that are likely to increase.

Infrastructure funds: revised up by 15 billion baht, supported by asset revaluation.

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