SET index showing signs of recovery

SET index showing signs of recovery

We seemed to start the year on the wrong foot as a second wave of Covid-19 hit Thailand with a much stronger punch than the initial outbreak.

New cases from the recent wave averaged 300-400 per day and peaked at more than 1,000 per day in late January. Total cases now top 24,000, up from just over 4,000 in mid-December.

Although the number of new cases appears concerning, the clusters are largely confined to two provinces: more than 15,000 cases in Samut Sakhon and almost 2,500 in Bangkok. Much smaller infection numbers have been reported elsewhere, and only 80 people have died since the pandemic began.

While the lockdowns resulting from the second wave were generally less restrictive than during the first wave, the impact looks to be more severe as economic conditions were already fragile. The recovery had only just begun, and now looks like it will need to be restarted. Thus, we anticipate broad revisions to GDP growth forecasts for this year.

The most recent consensus among economists surveyed by Bloomberg is for GDP growth of 3.9%. This contrasts with our revised forecast of only 2% growth. Our projection accounts for a delay in the recovery of international tourist arrivals. We now expect just 4 million this year, with the bulk to come in the fourth quarter.

Globally, however, the situation has improved significantly. Daily new cases have continued to decline as vaccinations gather momentum in dozens of countries. New cases have been falling, from over 700,000 per day at the start of the year to just slightly over 300,000 in early February. This is in line with the declining global death toll: from almost 15,000 per day in early 2021 to around 8,000 per day in February.


Amid the global improvement in the outlook for pandemic control, the SET index has performed slightly better than expected. Even though the second wave in Thailand poses a more severe economic impact than the first, the index has managed to climb around 5% from last year's close of 1,449.35 points.

What has been particularly surprising is the huge average market trading value of 94 billion baht per day so far this year. in January alone, turnover was slightly over 100 billion baht per day -- the highest ever monthly figure for the SET. Another surprise is that retail investors now account for around 45% of market trading value, with foreign investors at 35% and the rest local institutions.

Historically, retail investors have accounted for 30-35% of turnover, but with the lockdown and work-from home trends of the last year, more individuals have taken up equity investing. Foreign investors remain net sellers this year at almost 16.8 billion baht, while local institutions are net sellers of 18.8 billion.

Given the "DELTA effect" -- so named for the improbable run-up in the share price of Delta Electronics Plc -- the SET is now studying the possibility of introducing a new free-float calculation for the indices by using the free float adjusted market cap method. This news served to slow net fund flows in January.

The IPO of the big-cap PTT Oil and Retail Business Plc (OR), which raised some 47 billion baht in early February, has also served to draw out funds. But now that OR has made its much-awaited trading debut, we believe the funds could be put back into the market. Consequently, we anticipate daily turnover picking up again, with net buying by institutional investors.

However with most corporate results still to be released this month, we do not have high hopes as Covid severely affected the full-year performance of most companies. SET earnings per share (EPS) are estimated at 56 baht in 2020, down 36% year-on-year from 87 baht in 2019.


Though we believe the third quarter of 2020 represented the worst of the crisis for most companies, the arrival of the second Covid wave means the recovery could be delayed by at least two quarters. The Bloomberg consensus is for a 2021 EPS of 77 baht, still far from the 2019 level, but a solid 38% recovery year-on-year. Our picks are companies that should show better-than-average results and attractive dividend yields. Our top picks include AP, DCC, KKP and KCE.

The government has announced lower taxes related to property and this should lift sentiment for the sector this year. AP is one of the few companies able to survive the outbreak with projected profit growth of 7% in 2020 and a further 11% in 2021. The developer also offers a healthy dividend with a stable yield of more than 5%. Hence, we pick AP as a secure yield play.

Another strong dividend stock is DCC. The ceramic tile producer should see strong earnings growth in 2020 of 43% year-on-year. But what is particularly attractive to us is the dividend yield of more than 7% per year for the next three years. Cash flow isn't a problem, and it is one of the few companies that consistently offers a sizeable yield for investors.

When looking for solid dividends, KKP always seems to be at the top of the list. We expect a yield of 5.6% for the bank's 2020 performance, with potential for it to shoot beyond 8% for this year. Performance should remain strong with expected profit growth of 24% in 2021.

Rather than yield, we pick KCE for its exciting performance outlook for this year. The company manufactures printed circuit boards (PCB) used in various industries and most of its products are for European auto manufacturers. Management is confident that after relatively slow growth of 17% in 2020, earnings could surge 78% in 2021.

The moving of outsourced products from China and the growth of EV production and sales stands to positively impact KCE. The company is increasing its capacity for high-margin products in the second half of 2021, with the contribution expected later in the year and throughout 2022.

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