Slow climb back from the bottom

Slow climb back from the bottom

The SET index swung widely in July, ranging between 1,303.25 and 1,391.77 points and closing the month at 1,328.53. The value has not risen above 1,340 since then. This level is now acting as a key technical boundary, and trade remains sluggish.

Local confidence was shaken in July by fear of a second wave of Covid-19 after an Egyptian airman visiting Rayong province tested positive after leaving quarantine. So far, the outbreak remains under control with the only reported cases being in quarantined people returning from abroad.

Political uncertainty also rose amid a shake-up in the coalition-heading Palang Pracharath Party (PPRP), leading to a cabinet reshuffle that included two key members of the economic team.

In stimulus news, the government has been pinning its hopes on the We Travel Together campaign, which reimburses hotel and transport costs for domestic travellers. But the response has been weak amid lingering virus fears and poor economic conditions overall.

Globally, the Covid-19 situation remains in flux. New cases are still averaging more than 200,000 a day, and the total to date is approaching 21 million. Tensions between the US and China have re-emerged, and this has raised the pressure on most stock markets.

Amid these risks, gold prices have marched upward into uncharted territory. Spot gold peaked at $2,070 an ounce in early August before pulling back to below $1,900 a few days later. It was trading around $1,950 yesterday.


The National Economic and Social Development Council will announce official second-quarter GDP figures on Monday, with analysts estimating a contraction of 12% year-on-year. This should be the worst quarter of the year, as most lockdown measures were eased as of late in the quarter, opening the door to a slow recovery from the third quarter onward.

Nevertheless, tourism remains a key driver of local GDP, and the news on this front remains grim. Inbound international leisure travel remains banned indefinitely, and anyone who does arrive in the country still needs to be quarantined.

The market hopes that international arrivals could start trickling in from late in the fourth quarter, but recent developments point to early 2021 as possibly a more realistic target.

If that is the case, the Bank of Thailand's projection of an 8.5% GDP contraction for the full year might not be bearish enough. Domestic travel cannot fully compensate for the lack of international tourists, even with stimulus campaigns.

Investors have also been monitoring the second-quarter showings of listed companies, which look to be around 15% lower than market estimates so far. While some businesses returned to normal operations in June, performance during the month was still quite weak.

We are now waiting to see how much analysts revise down their forecasts and target prices in the wake of the results. It's worth remembering that the stiffest lockdown measures were in place for nearly all of the quarter, so we have probably passed the bottom.

We recommend investing in stocks with decent earnings prospects and secure interim dividends. They include AP, CPF, SMPC and TVO.

AP is one of the few property stocks to show second-quarter earnings improvement on both a yearly and quarterly basis, underpinned by a rise in condominium transfers from high bookings. But its gross margin suffered from ramped-up promotions and marketing costs. We expect AP to continue to perform in the second half, with about 55% of estimated total revenue for the year due to be booked.


As a pandemic play, we prefer the food sector because we expect demand for food to remain resilient. CPF is one of our favourites in this regard.

Although the lockdown reduced CPF's domestic sales as restaurants closed and people stayed home, the reopening of the economy in June catalysed demand for swine and chicken. Moreover, swine prices, both locally and in Vietnam where CPF has farms, have reached an all-time high amid lower global supply. The company is also benefiting from subdued corn and soybean prices. We expect CPF to pay an interim dividend of 30-35 satang a share on first-half operations.

SMPC, the world's biggest LPG cylinder maker, is positioned well to capture rising LPG usage in developing countries in Africa and Southeast Asia. US-China tensions have also resulted in SMPC's exports to the US increasing. We expect both revenue and profit to improve from a pickup in exports and utilisation in the second quarter. Although selling prices have declined, higher volume should help to offset the impact. The company is expected to pay an interim dividend of 30 satang a share on first-half operations as well.

TVO reported better earnings both year-on-year and quarter-to-quarter. Although revenue from soybean oil has declined, feedstock is doing well. Meanwhile, higher exports of swine and chicken have boosted demand for feedstock. We expect TVO to pay an interim dividend of 70 satang a share.

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