The SET moved up throughout the month of July despite some political turmoil as a new coalition government struggled to take shape.
The first half of July featured uncertainty ahead of the first round of voting for prime minister, with Move Forward Party leader Pita Limjaroenrat failing to secure a majority on July 13. After parliament voted against considering his nomination a second time on July 19, Move Forward passed on the task of setting up and leading a new coalition government to the Pheu Thai Party.
The SET reacted positively and finished July at 1,556.06 points, 3.5% higher than the previous month. Average turnover was 44.7 billion baht, down 0.5% from the month before. Foreign investors were net sellers of 12.6 billion baht, while local funds and local investors were net buyers.
Central banks around the globe continued to increase interest rates, as expected. These moves were led by the US Federal Reserve, which raised its policy rate by 25 basis points to a range of 5.25% to 5.50%, the highest in 22 years. The Fed has not closed the door on raising rates further and said its next move would be very much data-dependent. The European Central Bank also increased its rate by 25 basis points to 3.75%, and terminal rate projections have now risen to a range of 4% to 4.25%.
The Bank of Japan, meanwhile, maintained its ultra-low rate at 0.1% and maintained its yield curve control policy, despite market speculation about a change. In early August, the Bank of Thailand hiked its policy rate by 25 basis points to 2.25%, saying that while inflation is close to zero, it could start to rise again. The Bank of England also made a 25-basis-point move, to 5.25%, citing continuously high inflation that is still close to 8%.
On the positive side, tourism in Thailand is still showing strong growth. For the first seven months of the year, foreign arrivals totalled 15.4 million. In July alone, 2.5 million international tourists arrived. Encouragingly, the Chinese were the top source market with 410,000 in July, followed by Malaysians at 340,000. With this momentum, especially the growth in the Chinese market, we believe our target of 30 million tourists for 2023 should be achievable. It is clear at this point that tourism will be the main catalyst for 2023 GDP.
HEALTHY EARNINGS
Meanwhile, the earnings results for SET-listed companies in the second quarter, most of which will be announced by Aug 15, could be slightly better than previously expected. We expect the energy, construction materials, healthcare and food sectors to report the biggest year-on-year and quarter-on-quarter earnings declines. On the flip side, the information and communication technology (ICT) and tourism sectors should see earnings growth, both year-on-year and quarter-on-quarter.
We expect political uncertainty to remain the main factor influencing the confidence of investors and the overall SET. This is especially the case for foreign investors, who are likely to continue selling Thai shares until a new government is formed; we do not see any other positive factors big enough to stop the selling.
It remains unclear if we will see a new government finalised by the end of August. It has already been three months since the May 14 general election, and the confidence level of foreign investors has deteriorated.
Our investment strategy for now revolves around a wait-and-see stance. On a medium- to long-term view, we prefer to wait for the new government to fully take shape before entering the market. We recommend that investors look only for short-term trading in the interim. Our current stock picks are based mainly on good fundamentals with healthy second-quarter earnings. We picked ADVANC, BEM, III and SCB.
ADVANC has long been one of our favourite picks. The telecom operator's second-quarter profit of 7.3 billion baht was in line with our expectation. Service revenue rose 1.1% quarter-on-quarter, signalling the end of price wars, with average revenue per user up slightly to 213 baht from 210 baht in the first quarter.
We see this as an encouraging trend and believe second-half earnings should be even better than in the first half. The company's strong financial position remains key to our preference for the stock. ADVANC also announced an interim dividend of 4 baht a share (XD of Aug 18).
BEM should also see a second-quarter profit increase, both year-on-year and quarter-on-quarter. Revenue is expected to climb 19% year-on-year on a robust increase in rail mass transit ridership to 350,000 passengers per day, up 52% year-on-year, as new MRT lines have begun operating this year. Moreover, the Yellow Line will add at least 20,000 new riders per day and bring ridership to almost 400,000. For 2023, the company should generate a record profit of 3.6 billion baht, up 49% year-on-year.
III is a smaller logistics company with strong potential. Its second-quarter profit of 163 million baht was up 37% year-on-year and 10% quarter-on-quarter, higher than our expectation. Although air freight rates have been hit hard this year, the rise in supply of flights as the aviation sector recovers from the pandemic has fully covered the plunge in rates. Increasing tourism activity, including cargo flights, should also help III turn around this year. Meanwhile, profit contributions from its investments should bear fruit starting this year, while its core operations should also continue to grow.
In the banking sector, SCB continues to be one of our top picks. Its second-quarter profit of 12 billion baht, up 18% year-on-year and 8% quarter-on-quarter, was higher than our estimate and market expectations. Although we saw deterioration in asset quality from Card X, it was still controllable. The group's Gen II businesses were solid in the second quarter, including Auto X which posted impressive loan growth of 46.5% quarter-on-quarter. We also project an attractive yield for SCB at more than 7% per year.
