Weak bank results contribute to SET blues

Weak bank results contribute to SET blues

Following last year's decline of 15%, the Stock Exchange of Thailand plumbed a new three-year low in January.

The year started with positive sentiment from the kick-off of the government's Easy E-Receipt campaign and hopes that the tourism industry would gain further momentum this year. Indeed, the SET index increased to 1,438.10 points before turmoil started to hit the market.

The bad news started with Italian-Thai Development Plc (ITD) announcing it was delaying some bond payments for another two years, though high expectations for bank results managed to keep the SET above the 1,400 level for a while. But then the banks surprised with lower than expected profits attributed to high IT spending and credit costs.

These developments, combined with the delay of the government's digital wallet campaign, pulled the SET down to a new three-year low at 1,352.48. The index closed January at 1,364.52, down 3.6% month-on-month with average daily turnover at 45 billion baht, up 19% from December.

Market chatter included Thailand's 2023 GDP expanding only 1.8% year-on-year, much worse than the market expectation of 2.5-3%. If this proves true, fourth-quarter GDP growth would be around only 1%, the lowest since the pandemic ended.

The Bank of Thailand recently admitted it may need to revise down its 2023 and 2024 GDP projections.

This statement weakened sentiment and if fourth-quarter GDP is below expectations when it is announced on Feb 19, the outlook for real-sector earnings could suffer. That could lead analysts to downgrade their forecasts for SET earnings per share (EPS) for 2024, pushing the index down even more.

We maintain our view that the first half of 2024 will be challenging. The government's fiscal 2024 budget should finally be available in April, with disbursements starting around June, meaning more state project investment in the third quarter of 2024.

In addition, with the fiscal 2025 budget starting on Oct 1, the second half of 2024 should produce heavy budget spending overall.

Although hopes for the government's digital wallet campaign have faded, we believe the government could try to use the 2024 budget, as opposed to a loan, to fund the programme. Regardless of when or if the digital wallet comes into effect, we could see additional aid packages before year-end to boost the economy.

Moreover, we have high hopes for tourism, expecting around 36 million arrivals in 2024, up from 28 million in 2023.


We continue to be conservative in our investment strategy for this month, picking Asian Property (AP), Erawan Group (ERW), SISB and Siam Wellness Group (SPA).

- We continue to like the developer AP, which announced 23 new projects worth 36 billion baht in the fourth quarter of last year. Standouts so far have been The Aspire Vibha-Victory, a 2.3-billion-baht project with bookings for the quarter to date at 55%, and The Rhythm Charoennakhon Iconic, a 5-billion-baht project with quarter-to-date bookings of 80%.

The company plans another 55 new projects in 2024 with a total value of 75 billion baht. AP is a solid dividend stock with around a 6% yield per year while trading at a price/earnings (PE) ratio of less than 6 times currently.

- One of our top picks in the hotel sector is ERW. The hotel chain is a direct beneficiary of the tourism recovery, with a spotlight on the new Thailand-China visa-exemption agreement that is expected to help attract 8 million Chinese arrivals this year, up from a disappointing 3.8 million last year.

We also like that ERW has greater hotel exposure to Thailand than the riskier overseas markets. In addition, the company doesn't face the food business risk we are seeing with others. As Thai street food becomes more popular, more tourists are shying away from big fast-food chains and restaurants.

- On the education front, SISB (Singapore International School of Bangkok) continues to be one of our favourite stocks. We believe its fourth-quarter profit will reach a new quarterly high of 203 million baht, bringing its annual profit to a record 646 million. We project a robust compound annual growth rate (CAGR) of 25% for earnings in 2024-25.

SISB has 4,125 enrolled students (as of Sept 30, 2023) and 1,102 of them, or 27%, are foreign students. Chinese make up 70% of the foreign students. We expect 400 to 500 new students for 2024 and believe all branch expansions will reach break-even faster than previously expected, mostly in 2024-25.

- Another play on the tourism recovery theme is SPA. We expect healthy fourth-quarter results, supported by the high season for tourism, pushing its 2023 revenue past 1.4 billion baht, a jump of 30.5% year-on-year. The company should turn a full-year profit in 2023 of 275 million baht after struggling with net losses during the pandemic.

We highlight that pre-Covid, more than 50% of SPA's customers were Chinese. With tourism picking up, SPA should benefit greatly from growth in Chinese tourists this year. The company also plans to add five more branches this year, helping it grow profit by 25% year-on-year.

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