Thai shares moved sideways in the past week, recovering from the key 1,600-point psychological support.
Fundamentally, the equity yield gap of about 4% is undemanding and considered attractive for bargain hunters.
Market outlook
We remain hopeful for a potential rebound in the coming week after the SET index managed to stay above 1,600. We recommend accumulating net-asset-value plays and selective stocks in accordance with thematic considerations.
Here are some of the positive factors affecting Thai shares:
Hefty foreign net selling this year has provided an opportunity for listed companies to implement treasury stock schemes, reflecting the solid fundamentals of Thai companies that can command ample cash. We expect more share buybacks during the remainder of the year, due to limited new investment deals.
Higher cash on hand and the absence of new investment could mean bigger dividend payments and accelerated buying in January. According to our research, many industries accumulated cash during 2016-18 with limited debt. Without a share buyback scheme, they should be able to pay a larger dividend and thus lift overall stock sentiment. Despite interim dividend payments by some companies, we expect the second-half dividend for 2018 to be greater than the first half's. Among the companies that implemented a treasury stock programme this year are MILL, MC, BA, TPIPL, TCAP, BR, LPN, TAPAC, KYE, GUNKUL, GIFT, FSMART, LPH, PCSGH, BEAUTY, ROJNA, SVI, RATCH, TACC, BTS, SVI, MALEE and SIRI. Companies that already completed the programme include GUNKUL, BTS and SVI.
The stocks that comprise the SET index reported that aggregate third-quarter net profit soared 25% year-on-year (but was flat quarter-to-quarter). Out of 26 sectors, 16 managed to post higher profit year-on-year, including contractors (higher revenue recognition from projects on hand, special gains); finance (healthy loan growth, bad loans under control); media (better cost controls); petrochemicals (higher sales volume, product spreads, inventory gains); energy (higher oil prices); and automotive (strong car production growth, margin improvement).
Eleven sectors (out of a total of 17) beat consensus estimates, which is in the upper end of the range of 6-13 sectors that have beaten the consensus in the past four years. The proportion of SET-listed firms that reported upside surprises (i.e., they beat the consensus estimate by more than 5%) was 38%, up from the 32% that did so in the second quarter. Some 33% of companies posted weaker results than expected, on a par with the second quarter. Earnings beats were contributed by contractors (asset gains); media (better control of expenses); transport (largely BA's better cost controls and BEM's asset gains); insurance (smaller provisions); petrochemicals (better core earnings, inventory gains); and banks (lower loan-loss provisions). Among the sectors that posted earnings misses were shipping (higher operating costs); ICT (slower revenue growth); construction materials (higher costs than assumed); and tourism (slower tourist arrivals, higher operating costs).
On the downside, aggregate core earnings missed Bualuang Securities' estimate by 2%. For companies under BLS coverage, aggregate non-operational gains accounted for 3% of third-quarter core earnings, in comparison with non-operational losses equivalent to 12% of core profit in the third quarter of 2017. Operating (core) profit for the recent quarter increased by 4% year-on-year (but was flat quarter-to-quarter) and was 2% below our expectations.
Investors seem hopeful that the US-China trade talks will bear fruit, while the Fed's tightening may not be as steep as the "dot plot" has suggested. Meanwhile, emerging-market currencies and the baht have turned firmer and driven fund flows into regional and Thai equities.
