The Stock Exchange of Thailand (SET) in March followed in February's footsteps with a slight gain of 0.5% or 7.27 points to close the month at 1,377.94, with average daily turnover of 41.2 billion baht, down 8.4% from the month before.
The market had its ups and downs throughout the month as Thailand's economic situation and investor sentiment remained dull. Essentially, the SET was mainly a trading market. Both the low and high for the month were set in the first two weeks: 1,350.98 and 1,395.88 points, respectively.
Although the Senate passed the fiscal budget for 2024 in late March, overall sentiment was not positive until the end of March. Export growth of 7% was reported, but excluding gold, exports declined from the month before, hurt by negative sentiment about automobile production, which decreased 19.3%.
As we expected, the SET bottomed out. With the budget passed, we expect to start seeing drawdowns in late April or early May.
However, there will only be five months for disbursement before the fiscal year ends on Sept 30.
We believe the main usage of budget funds will be to increase public spending on infrastructure projects. Indeed, we should see many government-led campaigns to improve economic conditions in the short term, bolstering market sentiment in the second quarter.
On the monetary front, the Bank of Thailand maintained its policy rate at 2.50% at its April 10 meeting, which wasn't surprising to us. The 5:2 vote by its Monetary Policy Committee was identical to the previous meeting.
Adding to positive sentiment was Prime Minister Srettha Thavisin's recent assurance that the digital wallet stimulus programme is still being pursued, albeit with a delay to the fourth quarter of this year.
The government increased the budget deficit by another 150 billion baht for fiscal 2025 and expects most of this money to be used for the digital wallet. The total budget for the scheme has been confirmed at 500 billion baht and the funds will be disbursed to 50 million people aged 16 and over, with some conditions.
Budget disbursement and the digital wallet are key factors that should drive the SET beyond 1,400 points, in our view. We maintain a year-end SET target of 1,500 points.
Rate-cut beneficiaries
In anticipation of improved market sentiment, our investment strategy looks more to bigger market-cap stocks and those that can benefit from lower interest rates. Our picks are Aeon Thana Sinsap (AEONTS), AP, CP All (CPALL) and Muangthai Capital (MTC).
- In the finance space, AEONTS reported a 2023 net profit that exceeded our expectations at 3.3 billion baht, down 15% year-on-year. Its fourth-quarter profit of 1.1 billion baht was up 55% from the quarter before. The fourth-quarter result reflected lower provisions (1.3 billion baht versus an expected 2 billion) and a non-performing loan (NPL) ratio declining to 5% from 6.2%.
While the company has long adhered to strict policies on provisioning and NPL classification, management has eased them a bit to match industry standards. Cost of funds has increased to almost 3%, in line with the higher policy rate. Hence, with the policy rate expected to decrease in the second half of 2024, AEONTS will be a key beneficiary.
- Turning to residential property, the new stimulus measures announced last week by the government will be positive for mid-market developers. These include increasing the house price limit for the reduced transfer fee of 0.01% to 7 million baht from 3 million previously. Our data shows units priced up to 7 million baht represent 60-70% of the total available in housing projects in Thailand, while those priced at 3 million and below represent only 20-30%. Hence, the higher limit could raise significant demand for mid-market residences. We highlight AP, which has the biggest backlog for medium-priced housing at 40% of its total.
AP is also resilient as 20% of its projects are in the high-end segment, which tend to be unaffected by weak economic conditions. The company should also benefit from interest rate cuts. These factors, together with its good fundamentals and a dividend yield of more than 5% per year, make AP our top pick in the property sector.
- Looking at the commerce sector, we believe CPALL will be a turnaround stock this year. Aside from its good fundamentals, CPALL should benefit from stronger local economic conditions throughout the year and the growth of the tourism industry. We expect same-store sales growth of 3-5% this year, supported by the digital wallet campaign where recipients receive 10,000 baht each. The government clarified the funds can be used at convenience stores. With its nationwide 7-Eleven branch network, the biggest among convenience store players, CPALL could grab the highest share of the funds when the campaign kicks off.
- Although the Bank of Thailand maintained its policy rate at 2.50% on April 10, we still expect 50 basis points in cuts in the second half of 2024, bringing the rate to 2% by the end of the year. MTC, another top pick, should be considered a must-have for the rest of the year as its cost of funds will decline.
Moreover, the digital wallet programme will boost spending. Though the money cannot be used directly to pay off debts, it can be used for daily living expenses, giving recipients more room to pay debts with other funds. With MTC's ticket size not particularly high, we expect borrowers to pay their debts to the finance company first, lowering its NPLs.