The emergence of the new Omicron coronavirus variant generated some panic trading as we closed out November. The SET had been doing well during the month, climbing from the 1,610 level to almost 1,650. But after news emerged of the new variant in Africa and Europe, the Thai market plunged by 80 points over the last three trading days of November.
The panic was punctuated by a spike in trading turnover to almost 160 billion baht on the last day of the month. This was almost double the average in November of around 80 billion baht before the sell-down.
However, views are now mixed on how harmful Omicron will be, and with reports that symptoms appear mild and the Thai government affirming no new lockdowns for now, the SET bounced back more than 50 points in the first week of December, and was trading close to 1,620 on Thursday.
All in all, we believe that December will be a more relaxed month for the SET and global markets as activity winds down amid the festive season. With investors awaiting further information on Omicron and its potential impact on global economic conditions, we believe the investment environment will remain neutral/sideways.
Thailand has confirmed just three cases of Omicron, all in arrivals from abroad. But the pandemic is still very much in play as the new variant is spreading fast and raising uncertainty about the global recovery.
ALL EYES ON EUROPE
European countries are being hit hardest by the rise in daily cases and resulting restrictions. In fact, seven out of the top 10 countries with the highest daily cases are in Europe. Concerns have risen that we could see countries reinstitute lockdowns later in the month if Omicron proves to be deadlier than expected, dragging the global recovery back down .
For the last month of 2021, we see more downside to the SET than upside with an anticipated trading range between 1,590 and 1,640. Though Omicron may not be as severe as the Delta variant, we are still cautious about the recovery.
The global economic outlook has been dampened a bit and this could delay Thailand's recovery by reducing the number of tourist arrivals just as the country was starting to open up. Moreover, the US Federal Reserve has signalled its intension to speed up the tapering of its asset purchases, which should negatively affect liquidity and stock markets worldwide.
Another issue directly affecting the SET is the approaching maturity of long-term investment funds (LTFs) that were bought in 2016. That was the first year in which the holding period for LTFs was changed from five to seven calendar years, and hence the first lot will be redeemed in January 2022. Under the current environment, we believe investors will redeem LTFs regardless of profit. We caution that this could represent between 30 billion and 50 billion baht in selling in January alone.
For investors seeking to stay balanced amid myriad uncertainties, our top picks for the month -- ADVANC, EGCO, HMPRO and RBF -- offer recovery and dividend plays.
ADVANC continues to be the leader in Thailand's telecom sector and announced third-quarter earnings of 6.3 billion baht, down just 2% year-on-year and 9% quarter-on-quarter. Average revenue per user, the key metric in the mobile industry, remained strong and revenue was up almost 2% year-on-year, but higher operating expenses dragged down profit.
The pending merger of rivals TRUE and DTAC should ultimately benefit ADVANC. We believe the resulting competition with a larger rival will either be the same or just a short-term factor, while benefits will emerge in the form of reduced network capital expenditure in the long term. We also see ADVANC as a dividend stock, offering a yield of almost 4% per year.
Another good dividend stock we recommend is EGCO. Although the electricity producer's earnings have been pushed down by foreign-exchange losses, we should still see a profit this year of 6 billion baht followed by a jump back to normalised levels in 2022. We expect a dividend yield of 4-5% per year for EGCO.
HOMEPRO REVIVING
The home improvement company HMPRO has been recovering in the fourth quarter after temporarily closing 29 stores nationwide in the third quarter amid lockdown measures. Sales in Malaysia are also recovering as are sales at its Megahome store. HomePro's e-commerce sales are also strengthening and now account for almost 10% of its total. Indeed, the online channel looks to be a solid growth segment for the company going forward.
In terms of expansion, HMPRO has opened one store in the Bang Na area in the fourth quarter of 2021 and has a land bank ready for additional stores. We recommend the stock as a recovery play and for its improving performance in the fourth quarter of 2021 and into 2022.
Another domestic play we like is RBF, a major producer of food ingredients and seasonings. Currently, the biggest story for the company is that it will start realising revenue from its hemp products in 2022. This should catalyse a jump in profit of 179% year-on-year next year.
We also believe RBF will recover strongly in the fourth quarter of 2021 as food producers ramp up their production in the wake of the easing of lockdowns. Margins should also fatten as production picks up and this should continue into 2022. Finally, RBF recently announced a partnership with TU; we expect new products from the partnership with the global seafood giant to enhance overall performance.
