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Bangkok Post
Bangkok Post
Business

Bumpy road ahead despite tourism upturn

After moving sideways for most of December, the Stock Exchange of Thailand ended 2022 at 1,668.66 points, up just 0.7% year-on-year from 1,657.62 at the end of 2021. Despite the subdued holiday trading mood, the market shot up for eight trading days in a row to close out the year.

The SET has continued to climb, reaching 1,695.53 in early January, up almost 100 points from mid-December. Average daily turnover last year was 71.2 billion baht, down 19.5% from 88 billion in 2021.

Though the SET barely edged up in 2022 from a year earlier, what surprised us was the rebound in foreign investor interest, with a net-buy position of 202.7 billion baht for the year. Foreign investors have maintained this position into early January. On the other hand, local institutions recorded net sales of 153.9 billion baht last year.

The market is expected to be volatile this year, but we believe foreign investors will maintain a net-buy position. That said, we note that for the first time in seven years, long-term investment fund (LTF) holders in Thailand can offload shares. Thus, we expect net sales of 25 billion baht from LTFs alone, the majority of which should happen within the first quarter.

SET sentiment remains positive in the new year. In contrast to our expectation that trading activity would ebb, and the market would be sideways, daily turnover has risen almost 10% from last year to 77 billion baht.

CHINA DIVIDEND

The most impactful announcement has come from China, which on Jan 8 scrapped the requirement for a re-entry quarantine, removing a big impediment for Chinese wishing to travel freely around the world.

Thailand is one of the top destinations for Chinese and will directly benefit from revival in Chinese tourism. Given that Chinese visitors accounted for 28% of the country's 40 million arrivals in pre-pandemic 2019, Thai tourism industry sentiment has been recharged and will be a key catalyst for the SET Index.

The return of Chinese tourists is taking place earlier than our previous expectation of the second quarter of 2023. This raises our forecast for total tourist arrivals from 22.7 million to almost 27 million, with an additional 4 million coming from China alone. For 2024, arrivals should expand further to the pre-Covid level of around 40 million.

While the resurgence in Chinese tourists could raise Covid-19 risk, tourist spending should provide much-needed help to the industry, which has been suffering since 2019, and the overall economy. For the SET Index, we target 1,720 to 1,750 for the first half of 2023, followed by a slide to under 1,600 later in the year, assuming a global recession kicks in.

Tourism remains our favourite theme for this year in light of the China reopening. Not surprisingly, many stocks have already priced in the benefits from this news. Consequently, we recommend investing in more defensive stocks as many factors remain unclear and risk is still elevated. These include BBL, CENTEL, EGCO, KKP and MAKRO.

BBL remains our top pick for the bank sector with a price to book value (PBV) of only 0.55 times. The high interest rate environment still benefits banks. Asset quality remains sound for BBL, and we expect provisions to have fallen in the fourth quarter of 2022. Net profit for 2022 is estimated at 36 billion baht, increasing 36% year-on-year, with a yield around 4% for 2022 operations.

CENTEL is our top pick for the hotel sector and is a key beneficiary of the pickup in tourism. We expect occupancy to climb from 66% in the third quarter of 2022 and estimate a net profit of 544 million for 2022, a turnaround from net loss in 2021. Room rates already exceed pre-Covid levels and with a higher occupancy rate, CENTEL can substantially expand profit.

POWER PLAY

Amid the high inflation environment, utilities have been a favourite sector for investment. The stronger baht and lower bond yields have also made utilities more appetising. EGCO has long been one of our favourite stocks in the sector. The power producer sold out its investment in Indonesia and this will give it the funds needed to invest in new projects with greater returns. We expect EGCO to book a foreign-exchange gain in the fourth quarter of 2022 on the stronger baht, leading to a net profit of 5.7 billion baht for 2022 with an expected yield of more than 4%.

KKP is another bank that we always think of early in the year. Indeed, the bank has been a favourite when it comes to dividend season. Its overall operations remain sound with profit growth of 10-15% each year, and its dividend yield should hit 7-8% per year in 2022-23.

One of the turnaround stocks worth looking at is MAKRO. Its price has surged 22% over the past three months. Worries about Lotus's have faded, and we are more upbeat about the growth prospects. This year will also mark the start of a new business structure, under which we expect net profit to grow more than 45% to 12.5 billion baht. Also, with tourist arrivals gaining momentum, MAKRO will indirectly benefit via greater domestic consumption.

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