The 'second wave' of investment

The 'second wave' of investment

After a rollercoaster year for the SET, 2021 is finally upon us. We started 2020 on a positive note, with investors optimistic that the market would perform well as economic conditions were improving and tourism was still healthy. The SET peaked at 1,604.43 points in early January.

However, after the Covid-19 pandemic was unleashed a couple of months later, the index was dragged as low as 969.08 points in mid-March before recovering to close above 1,000 on that same day.

The SET continued to rise, from 1,000 points in March to 1,400 in June, as Thailand appeared to have the virus outbreak well under control, opening the door to recovery from full lockdowns. Through the third quarter and into the fourth quarter, the SET moved around the 1,200-1,300 level, before surging significantly over the last two months to touch 1,500 points in late December.

The SET surged almost 50% from its bottom in March to close the year at 1,449.35 points. The pain from earlier in the year hadn't been completely offset -- the SET was still down 8.2% year-on-year.

Nevertheless, trading volume was stunning at more than 100 billion baht per day for December, good enough for the highest daily turnover for a month in history. Average daily turnover for the year topped 67 billion baht, also an all-time high.

NEW COVID CHALLENGE

The big news of late has been the "second wave" of coronavirus, which is hitting Thailand fairly hard. Total cases in the country are now approaching 10,000 with more than 300 new infections reported daily. This includes Myanmar workers in Samut Sakhon province, which has now seen almost 3,000 cases.

This rate of spread is much worse than during the first wave, especially as it is now includes all parts of the country. The situation isn't any better globally; new infections continue to march higher. Total cases now exceed 88 million and are rising by 700,000 daily.

It goes without saying that hopes for a full recovery this year from last year's wreck have faded a bit. While most developed countries have started distributing vaccines to their populations, it will take time before we know how effective they are. Indeed, economic recovery worldwide will not be quick.

US President-elect Joe Biden should be a positive factor for emerging markets, however, as his policies tend to focus on clean energy, investment in infrastructure, and wealth distribution, which should weaken the US dollar.

Moreover, a less confrontational foreign policy compared to the Trump administration should help stabilise the world economy and be positive for the Asian market. But achieving substantial growth will be difficult just the same. For Thailand, we are revising our GDP growth forecast from 3.4% for this year to just below 2%.

Recovery now relies almost solely on government spending as other drivers face substantial risk. All considered, we have a cautious view of the market at the moment.

FOCUS ON DIVIDENDS

We expect the SET to move in a range of 1,450 to 1,590 points this year. Our investment theme focuses on fundamental stocks with dividends that can offset the low interest rate environment. Our top picks include HMPRO, INTUCH, KKP, MTC and SCC.

Though economic recovery now looks likely to happen later than previously expected, the second half of the year should still be better than the first for HMPRO. The home improvement chain's growth profile also stands to benefit from the opening of three new branches this year: two in Thailand and one in Malaysia. The expected dividend yield is fair at 3% for this year.

Another good dividend stock is INTUCH. We are upbeat on its main subsidiary, the mobile market leader ADVANC, as the introduction of 5G service should help average revenue per user bounce back after dropping because of weaker economic conditions. We see a healthy dividend yield of 4.7% for 2021.

We continue to like KKP. The bank's operations should remain formidable with expected profit growth of 24% this year. Playing a key role is its strong balance sheet; the company has already set aside provisions amounting to one billion baht and this should help secure earnings this year. The dividend yield is projected to remain high at more than 8% in 2021.

MTC has been doing very well during the pandemic. We expect 22% year-on-year profit growth in 2020 and another 8% in 2021, underpinned by solid credit control and lower credit costs. Its interest rate for motorcycle loans of 27% is much lower than the industry average of 35%. It also boasts a low NPL ratio of only 1%. The company's plan to add 600 new branches this year, from almost 4,800 currently, will help it reach a mass market much easier. Overall, the outlook looks strong for MTC this year.

SCC is one of the biggest conglomerates in Thailand. In 2020, a number of the company's key businesses were impressive, including petrochemicals (China recovery), packaging (e-commerce), and building materials (public infrastructure projects). The company has also invested in several European companies recently in order to expand its global customer base. We expect profit growth of 5% this year and believe SCC will remain a solid company with a strong fundamental base in Thailand. The yield is expected at 3.6% for 2021, which is fairly high for such a big conglomerate.


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