Former premier Thaksin Shinawatra's proposal to cut the electricity tariff has raised regulatory risks for energy and utility stocks, says CGS International Securities, as the China-owned brokerage slashed its year-end stock index target by 100 points to 1,530.
As the Stock Exchange of Thailand (SET) index has slipped below the key psychological level of 1,350 points days into 2025, CGS said it lowered its year-end target to 1,530 points from 1,630, citing regulatory risks, a weak domestic economy, and the incoming US government's trade policies.
Thaksin said earlier this month the government plans to reduce electricity rates to 3.70 baht per megawatt-hour (unit) from the current level of 4.15 baht, with discussions planned with relevant agencies and private sector representatives to ensure consensus on the proposed reductions.
"However, it is uncertain as to when the 3.70 baht per unit tariff can be achieved. Therefore, we see higher regulatory risks for energy and utilities companies, especially as they collectively form 18% of the SET's total market capitalisation as of Jan 7," said Kasem Prunratanamala, head of research at CGS International Securities (Thailand).
"Regulatory overhang could dampen sentiment in the sector and the market, even though we believe the government is more likely to bear the cost of the cuts."
In CGS's view, the government may subsidise the 0.45 baht per unit cut in the electricity tariff. Electricity demand will rise by 4% this year to around 230,000 gigawatts, according to the brokerage.
"If the government fully subsidises the tariff reduction, it would need to spend 104 billion baht per year, which we do not think it can afford, especially given the high level of public debt at 64% of GDP in November 2024. The subsidy would push up public debt by about 0.5 percentage points per year in our calculations," said Mr Kasem.
Downside risks to the Thai market include higher tariffs imposed by the Trump administration, he said.
Thailand's trade surplus with the US surged from about 2.5% of GDP during 2017-19 to 5-6% in 2022-23 and nearly 6.7% of GDP in the first 11 months of 2024. The US was the biggest export market for Thailand during that period, comprising 18% of total exports, followed by China and Hong Kong (15%), then Japan (8%).
CGS anticipates listed companies under its coverage will report a 44% year-on-year increase and 39% quarter-on-quarter growth in aggregate net profit in the final quarter of 2024.
Sectors expected to post strong earnings growth include transport, petrochemicals and food, while weak net profit growth is forecast in construction, agriculture and consumer staples.
Given the weak domestic economy during that quarter, the brokerage believes corporate earnings could be quite volatile, leading to a bumpy market over the next couple of months.
"We prefer defensive domestic sectors that are likely to benefit from government stimulus measures and are less likely to face regulatory risks. These include the consumer, retail, healthcare, banks and consumer finance sectors," said Mr Kasem.
