
The Stock Exchange of Thailand (SET) was sluggish in June as political turmoil hit the market midway through the month, dragging the index to its lowest point in almost four years at 1,281.87 points.
The key Constitutional Court cases remain the potential dissolution of the Move Forward Party and the case against the prime minister. For the latter, it is unclear if he will retain his position.
These cases acted as market overhangs, heightening negative sentiment throughout the month.
On the positive side, the finance minister announced in late June an increase to the tax deduction limit for ThaiESG (TESG) funds, from 100,000 baht last year to 300,000 baht this year. The holding period is also being reduced to only five years from eight years. This bolstered market sentiment as TESG funds channel more than 90% of their total investment into the stock market.
The SET index subsequently clawed its way back to above 1,300 points, reaching almost 1,320. However, at the end of the month, fear of the uptick rule, targeting investors who like to short stocks, dragged the SET back down to close the month at 1.300.96, down 3.3% from the end of May.
Average trading volume was 43 billion baht, down 1.5%.
The short-sale measures being implemented, such as the uptick rule (investors looking to short must sell at the last price plus one step), are aimed at reducing share price volatility.
However, this positive development could be offset by the lower trading volume as short sellers are unable to short as much as they want.
Usually short-sale volume totals around 5 billion baht per day, but since July 1, the figure has plummeted to slightly above 1 billion baht per day. This downtrend has continued: total average trading volume on the SET for the first nine days in July fell to 32 billion baht from 43 billion in June.
But as mentioned above, the uptick rule should improve share price stability. This stability has likely helped the SET index rise nearly 30 points since the start of July, reaching 1,329.37 on Thursday.
Looking forward, we recommend monitoring the government's digital wallet campaign, which it is pushing hard to launch in the fourth quarter.
In addition, banks are set to announce their second-quarter results in the coming few days and we expect to see earnings for the banks under our coverage to tick down by 2.5% year-on-year and 5.7% quarter-on-quarter to 57.3 billion baht.
Disappointing results could push the SET down again in late July.
In August, the rest of the listed companies will report their second-quarter results. We project profit declines quarter-on-quarter for a number of sectors with the onset of the low season for tourism in Thailand and the high number of public holidays during the quarter.
JULY PICKS
Our current investment theme focuses on the big-cap stocks that should be targeted by TESG funds, such as Airports of Thailand (AOT), Bangkok Dusit Medical Services (BDMS), CP All (CPALL) and Charoen Pokphand Foods (CPF).
- Shares of AOT have been hurt recently by a few bad news stories. First, the company announced it was recalling around 1,500 square metres of duty-free shop area in Suvarnabhumi airport. The negative impact on its net profit is estimated at 100 million baht per month or 1.2 billion baht per year. Then the story broke that duty-free shopping in the arrivals area of six airports is being suspended. Although the bottom-line impact from this should be minor, the news worsened sentiment and pushed the share price below 56 baht for the first time in three years.
- We believe the market has overreacted to the news and expect AOT's net profit for this year to exceed 21 billion baht, a jump from 9 billion last year. With tourist arrivals projected at a robust 36 million, there is no reason AOT should be trading at Covid-19 levels, and hence we see an opportunity to accumulate shares.
- We expect second-quarter net profit for BDMS, the operator of the Bangkok Hospital chain, to total 3.3 billion baht, up 9% year-on-year, but down 18% from the previous quarter. The year-on-year growth should come from foreign patient contributions, especially those from the Middle East. Thai patients, on the other hand, should decline with the onset of the low season. Now that Ramadan ended, patient volume from the Middle East should stage a full recovery in the third quarter. BDMS will also be a target for TESG funds.
- CPALL is another stock that should be supported by TESG funds. We like the convenience store giant as a play on the tourism recovery and it benefits from the digital wallet campaign; the government has confirmed the funds can be used in convenience stores. With almost 15,000 7-Eleven branches nationwide, CPALL is positioned to capture a large share of these funds. Another positive factor is the improved performance of CPAXT, which should help CPALL's profit in 2024 grow 22% year-on-year.
- Staying with the CP Group, we also like CPF. The company is expected to book a healthy recovery this year after a huge loss last year, thanks to the sale of a loss-making business in China in late 2022. Together with the price recovery for chicken and swine this year, we expect CPF to report a 2024 net profit of 15.8 billion baht. Although its share price has already increased by 25% since the year began, we still see plenty of room for it to rise further, particularly as CPF will also be targeted by TESG funds.