A rash of bad third-quarter results from key listed companies hit the Stock Exchange of Thailand (SET) in November, leading to relatively subdued trading activity during the month.
External factors also loomed large. The US presidential election affected the SET significantly for the first two weeks of November, and we saw foreign fund outflows that continued through the rest of the month.
With Donald Trump winning, investors expect the US economy to strengthen, with all roads pointed towards the US bourses.
However, enthusiasm seemed to fade in the second half of the month. SET fundamentals were actually weak in November, but brisk trade in the large-cap Delta Electronics Plc kept the index from falling too much. In fact, every 1-baht change in the DELTA share price was roughly equivalent to a 1-point index change.
DELTA shares were supporting the SET until the last week of November, when the stock was placed on a trading alert list and subsequently fell 28 points in one day, pushing the main gauge down 22 points.
The Thai market continued to weaken, hitting its low for the month at 1,421.96 points before clawing back to end the month at 1,427.54, down 2.6% from a month earlier. Average daily turnover was 43.1 billion baht, down by 19.6%.
Foreign net selling for November was 13.7 billion baht, compared with net buying from local institutions of 3.8 billion baht and retail investors of 8.5 billion baht.
Vayupak Fund activities also appear to have pulled back in November.
Trump Trade 2.0 has been the talk of analysts since his election win. Both corporate and personal income tax are expected to be reduced, with import tariff hikes specifically for products from China, Mexico and Canada.
These increases are expected to lift inflation in the long term and mean the Fed may not be able to decrease interest rates as much as previously expected.
The US 10-year bond yield surged to almost 4.5% in early November, while US stock markets reached new highs in the immediate aftermath of the election.
Other than the Trump victory, the other big factor influencing the SET in November was the third-quarter results of listed companies. They were mostly negative, with less than 30% of the results beating market expectations.
Roughly 30% of the results were in line with forecasts, while more than 40% missed market expectations. This worsened SET sentiment, signalling downward revisions in market earnings forecasts for this year and next.
Thus far in December, negative sentiment has continued to pressure the SET. However, we believe investments from tax-saving Thai ESG funds could act as a saviour for the SET at the end of the year.
The tax allowance was raised to 300,000 baht and the holding period reduced to five years, seeking to entice investors to buy TESG funds, similar to tactics for long-term investment funds in the past.
Net buying of shares by local institutions has picked up in early December and we believe these to be from TESG funds.
DECEMBER PICKS
Our investment theme this month focuses on companies that could be targeted by TESG funds and should benefit from the festive season, namely Airports of Thailand (AOT), the IT retailer COM7, 7-Eleven operator CPALL, and Siam Commercial Bank (SCB).
- In the transport space, AOT will enjoy a boost from the tourism high season. In 2025, we expect the number of tourists to grow 14%, while management conservatively projects revenue growth of 10%. AOT's expansion plan is on track and should increase capacity at its six airports to 70 million passengers, up from 60 million currently. We appreciate that as the expansion will happen gradually, capital expenditure should also be booked gradually, rather than in big chunks. With an ESG rating of A and CG rating of 5, we believe AOT will be targeted by TESG funds.
- The IT retailer COM7 is enjoying its quarterly peak for the year. While its third-quarter net profit of 709 million baht was 10% below our expectations, the launch of the new iPhone 16 has been a hit and that revenue will be fully recognised in the fourth quarter. The company also started a new business line -- solar cells -- and is expecting to enter the SET50 index starting next year.
- The convenience store giant CPALL continues to be a top pick. We remain focused on domestic retail and expect the company to benefit from a buoyant tourism industry. Moreover, we believe CPALL will benefit from the next round of the government's 10,000-baht handout at the beginning of 2025. Ready-to-eat products continue to be outperformers, offering higher margins. With an ESG rating of AAA and CG rating of 5, CPALL should be another target for TESG funds.
- Lastly, we like SCB, one of the few banks to report better than expected third-quarter earnings (10.9 billion baht, up 13% year-on-year and 9% quarter-on-quarter). SCB is preparing for lower interest rates; management expects every 1% decline in the policy rate to impact its net interest margin (NIM) by 25-30 basis points for both loans and savings. As SCB expects rates to fall by 50bps, the downside to its NIM should be only 12-15bps. With a yield of 9% per year, SCB's high dividend payout is one of its key selling points.