The reopening investment theme

With August now in our rear-view mirror, hope is building that the country might finally be getting to grips with Covid-19. Earlier in the month we saw new cases climb from 15,000 per day to more than 20,000, with a peak on Aug 13 at 23,481. The country crossed the one-million threshold on Aug 20, but reported cases subsequently began declining, falling below 15,000 on most days. That led the government to announce the easing of lockdown measures for most provinces from Sept 1.

This easing included the reopening of most businesses, albeit with some restrictions. In general, activities in major cities have almost returned to normal, and daily new cases have stayed below 15,000 with a couple of exceptions. We remain hopeful that the easing of lockdowns will not result in a new surge in infections.

Despite the lower infection rates, daily Covid deaths have stayed stubbornly above 200 and total deaths in the country are near 14,000. On the vaccination front, 25.9 million people (37.3% of the population) have received their first jab and 10.9 million (15.7%) have received two shots. Weekday vaccination rates are encouraging at 600,000 to 700,000 shots per day, and authorities say they will have 24 million doses -- or 800,000 a day -- available to administer in October.

Looking at the SET, early August was a tough period as the domestic Covid situation turned more severe and concerns rose that daily new cases would climb to 30,000 or more. Hence, the index moved sideways during the first half of August with weak daily turnover of 70-80 billion baht. However, after reported infections started to decline, net buying by foreign investors accelerated and the index climbed to its highest level in two years at 1,643.76 points on the last trading day of August.

FOREIGN BUYERS BACK

In fact, August was the first month of the year in which foreign investors showed a net buy position, at 5.4 billion baht. They have remained net buyers in September, at 7.2 billion through Thursday. This contrasts with the first seven months of the year in which foreign net selling totalled 93 billion baht.

Thanks to the easing of lockdowns, the SET has climbed even higher thus far in September, reaching 1,658.08 points, with daily turnover close to 100 billion baht again. We believe investors are now looking forward to economic normalisation and are trading on the assumption that the worst of the pandemic in Thailand has passed.

Second-quarter earnings results, meanwhile, were better than we or the market had expected overall. However, with nearly full lockdowns in half of the country in July and August, including Bangkok and many big cities, we expect third-quarter results to be flat at best compared with the previous quarter.

Our current investment theme aims to ride the positive market sentiment on reopening and the recovery of economic conditions. As such, our picks are COM7, CRC, STEC and HANA.

Amid the rise in daily infections, most businesses have continued to rely on the work-from-home model. As a result, the IT product retailer COM7 is a key beneficiary of this environment. Although lockdowns have affected its store sales, the online sales channel continues to grow. Second-quarter earnings reached a new high on brisk home electronics purchases by home-bound consumers.

Though we believe COM7's profit in the third quarter will be softer quarter-on-quarter due to the full lockdown of almost two months, a recovery in September should boost sales significantly. And with new iPhone models scheduled to debut in the fourth quarter, we believe COM7 should generate impressive growth of 47% this year.

RETAIL REVIVAL

When discussing the reopening theme, one of the stocks is CRC. The country's biggest department store chain has been suffering since last year. We saw some recovery this year when its stores in Europe and some stores in Thailand reopened. But we expect a bigger recovery starting this September.

In Thailand, sales could be hit hard by the lack of tourists in the second half, but starting next year we should see a tourist revival, followed by full recovery in 2023.

The weak operating results of the contractor STEC this year have been due mainly to the ending of long-term government projects in the first half. Weak economic conditions have curtailed new projects and the rise in Covid cases in worker camps have hampered construction activity as well. Nevertheless, we expect STEC will be able to regrow its backlog to 100 billion baht by the end of this year. This should support earnings improvement in the second half and lead to a 56% year-on-year profit jump next year.

Next is HANA, the only exporter on our list of picks. The electronics company's second-quarter profit marked a new high with record sales value of 6.1 billion baht. We expect the second half to also be strong. There may be a slight slowdown in the third quarter from a Covid breakout at its Ayutthaya factory, but the new production capacity to come onstream in the fourth quarter will help to compensate for the fall.

We also note that the company is entering the power management industry with a focus on the electric vehicle market, a venture that looks promising and positive for securing future growth. Indeed, we expect HANA to continue to grow for the next few years.


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