monthly set strategyinternetfileserver.phillip.com.sg/poems/stocks/...market looks quite fragile...

1

MONTHLY SET STRATEGY:

Thai Stock Market Outlook & Stock Picks for Nov 2014

Strategy TeamNov 5, 2014

Every dip a buying opportunity

in Thai stocks

MCI(P) 046/11/2013

Ref. No.: TH2014_0447

2

Thai stock market outlook for Nov 2014

Summary

External factors would remain a major source of volatility in risk sentiment in the month of Nov.

• Global economic growth slower than previously thought.

• Geopolitical unrest in many regions of the globe especially pro-democracy protests in Hong Kong, the

geopolitical tussle between Russia and the West over the future of Ukraine and the fight against Islamic State

(IS) militants.

• The spread of the deadly Ebola virus.

Intermal factors should continue to temper the market’s downside potential.

• The first batch of the government’s economic stimulus package worth Bt360bn with the second batch of stimulus

expected to be unveiled by the end of this year in a bid to boost the country’s economic growth above 1.5%.

• Bigger institutional role: Local institutions are poised to play a bigger role in the Thai stock market by year-end

on the back of end-of-year LTF buying to take advantage of income tax rebates while the role of foreign

investors would be traditinally reduced in Nov by the most in the year.

• Third-quarter earnings plays.

Nov could be the tug-of-war month between the bulls and bears for Thai stocks. We see a choppy, narrow-range

trading pattern for Thai stocks in the month of Nov as the upside appears limited after the SET index’s P/E ratio

remains comparatively high relative to its regional peers and foreign fund flows will normally slow down by year-end

while the downside is also seen limited by third-quarter earnings plays and institutional buying binge. Overall the

trading range for the SET index is expeced to be between 1520-1600 points in the month of Nov. However, the

market looks quite fragile after a YTD rally of more than 20%. For this reason, the 1480-point level could be used as a

buy-in point to bet on a year-end rebound if the SET index breaks down below 1520 points.

For short-term investment strategy, any market pullback towards key support levels could present an opportunity to

accumulate positions. In our view, third-quarter earnings plays, the likely beneficiaries of government policies and the

year-end spending season would be key investment themes to play in the month of Nov.

Our top picks for the month of Nov include CK, IRPC and TUF.

3

Global economic growth slower than thought

GDP (%YoY) Latest forecasts Changes from previous forecasts in Apr 2014

2014 2015 2014 2014

Global GDP 3.3 3.8 -0.1 -0.2

Developed countries 1.8 2.3 0.0 -0.1

US 2.2 3.1 0.5 0.0Europe 0.8 1.3 -0.3 -0.2Japan 0.9 0.8 -0.7 -0.2

UK 3.2 2.7 0.0 0.0Emerging and developing countries 4.4 5.0 -0.1 -0.2

Russia 0.2 0.5 0.0 -0.5China 7.4 7.1 0.0 0.0India 5.6 6.4 0.2 0.0Brazil 0.3 1.4 -0.1 -0.6ASEAN-5* 4.7 5.4 0.1 -0.2

Source: IMF, data as of Oct 7, 2014

Note: * ASEAN-5* comprises Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

4

Spread of deadly Ebola virus

• The first case of Ebola confirmed in the US

in late Sep and the first person diagnosed

with Ebola in the USdied in early Oct 2014.

• A rapidly evolving outbreak of the deadly

Ebola haemorrhagic fever started in West

Africa in Mar 2014. The number of Ebola-

infected patients and the dealth toll from

the Ebola epidemic have still been on a

steady rise so far.

Source: http://en.wikipedia.org/

5

Three-month stimulus package for Oct-Dec 2014:Oiling the economic engine

Sources: Thaipublica

Key measures Details Budget (Btmn)

Job creation 1. To accelerate spending of leftover budgets for FY05-FY13

24,892

2. To accelerate contracts of remaining investment

projects under the FY14 budget

147,050

3. To accelerate contracts of investment projects under the FY15 budget

129,552

4. To accelerate spending of leftover central budget

from FY12-FY14 and leftover budget from the

previous Thai Khem Kaeng project, focusing on investment in education, healthcare and irrigation

23,000

5. To accelerate approval of investment application for 380 projects

429,208

Efforts to boost income for

low-income earnersTo provide one-time subsidy for production costs to

3.4mn rice farming households in a bid to boost rice farmers’ income

40,000

Total 793,672

6

Institutional role set to rise by year-end

• Statistics dating back five years from FY09-FY13

show inflows into LTFs gradually picked up steam

in 4Q every year and reached their peak in Dec

with an average of Bt15bn while average inflows

into LTFs in Nov were lower at Bt5bn.

• The role of foreign

investors will

traditionally be

reduced

substantially by

year-end especially

in Nov when

foreign sell-off

normally emerges.

Sources: MorningStar Direct, PSR

Sources: SetSmart, PSR

-2,184.53-1,670.08 -1,527.72

-818.47

253.13

1,221.21

-295.87

798.02 743.35

1,846.16

4,947.25

15,094.56

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mil. Baht

Average LTF flow since Jan 2009- Sep 2014

Inflow Prob (RHS) Average LTF flow

(5,997.95)

3,011.64

20,034.57

4,407.12

(20,502.23)

(11,934.27)

11,391.62

(10,441.94)

12,747.68

3,371.97

(14,779.14)

4,189.44

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

(25,000.00)

(20,000.00)

(15,000.00)

(10,000.00)

(5,000.00)

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mill

ion

s

inflow Prob (RHS) Average Foreign net flow

7

Thai stocks still expensive in relative P/E terms

Source: Bloomberg

20.15

17.6116.94 16.49 16.07

14.22 14.08 13.94

10.9410.02

0

5

10

15

20

25P

hili

ppin

es

India

Mala

ysia

Indonesia

Thaila

nd

Sin

gapore

Taiw

an

Vie

tnam

Hong K

ong

Chin

a

Mean 14.81

8

More upside possible but seen limited for Thai stocks

• Room for upside is seen limited to 1590-1600 points as the boost from foreign fund

flows normally loses steam by year-end and the current P/E levels of Thai stocks are

above regional averages.

Sources: Bloomberg, PSR

Thai stock market’s P/E movement

SD SET Index

4 1,632.79

3 1,612.14

2 1,591.50

1 1,570.85

0 1,550.21

-1 1,529.56

-2 1,508.92

-3 1,488.27

-4

-2

0

2

4

Apr13

May13

Jun13

Jul13

Aug13

Sep13

Oct13

Nov13

Dec13

Jan14

Feb14

Mar14

Apr14

May14

Jun14

Jul14

Aug14

Sep14

Oct14

Sta

nd

ard

Dev

iati

on

9

Investment theme and stock picks for Nov 2014

10

CK – Positive catalysts lie aheadInvestment rating: BUY FY15 target price: Bt29.05/share

Read more....

• 2HFY14 results seen better than 1HFY14: Deliveries of projects in the backlog

and tight controls on construction costs should keep the strong growth

momentum in construction business going in 2HFY14 . CK is also expected to

book dividend income of up to Bt321mn from TTW and BECL and a one-off gain

of around Bt800mn from the partial divestment of BMCL in 2HFY14. Our

forecast suggests its 2HFY14 profit will nearly hit Bt1.2bn, up 88% y-y.

• Steady stream of new contract wins: CK is scheduled to sign three new

contracts worth a combined total value of Bt7.6bn in 4QFY14 thanks to the

business expansion of its affiliates while it is awaiting bid results for the green

line mass transit extension project due by year-end. The pipeline of new

potential projects in FY15 include the blue line, orange line and pink line mass

transit extension projects as well as dual track railway projects. Its backlog is

projected to grow by 100% to Bt200bn in FY15. Growing backlog should likely

keep earnings in construction business strong while continued strong outlook for

energy business would provide a further boost to the bottom-line.

• Positive catalysts lie ahead: FY15 bidding plan would be the potential positive

catalyst for the share price and there remains a valuation discount from our

target price of Bt29.05/share.

Danai Tunyaphisitchai, CFA, Capital Market Investment Analyst #2375

Tel: 66 2 636 1700 # 481

Key Financial Summary

FYE Dec FY10 FY11 FY12 FY13 FY14F FY15F

Revenue (Btmn) 8,685 11,074 21,010 33,064 34,633 36,404

NPAT (Btmn) (335) 927 584 7,674 2,196 1,634

NPAT, adj. (Btmn) (1,130) (1,355) 73 1,049 1,396 1,634

EPS (Bt) -0.21 0.57 0.35 4.64 1.31 0.97

EPS, adj. (Bt) (0.70) (0.84) 0.04 0.63 0.83 0.97

P/E (X),adj. (38.7) (32.2) n.m. 42.6 32.4 28.0

BVPS (Bt) 4.30 3.99 5.36 9.46 10.58 11.57

P/B (X) 6.3 6.8 5.0 2.9 2.6 2.3

DPS (Bt) 0.10 0.35 0.35 0.20 0.39 0.39

Div. Yield (%) 0.4% 1.3% 1.3% 0.7% 1.5% 1.4%

Source: Bloomberg, PSR est.

**Multiples and yields are based on latest closing price

11

Ornmongkol Tantitanatorn, Capital Market Investment Analyst #34100

Tel: 66 2 636 1700 # 491

Read more....

IRPC – Phoenix project holds key to FY15 outlookInvestment rating: ACCUMULATE FY15 target price: Bt3.80/share

• 3QFY14 results seen softer than 2QFY14: Even though 3QFY14 results may

come under heavy pressure from a crude inventory loss, the impact could be

offset by a gain from insurance claims for fire damage at VGO/HT, a reversal of

provision for the refund of the remaining prepaid rental fees after the termination

of the lease agreement for TPI Tower Building and tax benefits.

• Outlook still gloomy in 4QFY14 but prospects seen brighter in FY15: The

outlook remains grim for the energy sector in 4QFY14 amid the downward trend

in oil prices but the earnings prospects look brighter in FY15 following the

commercial startup of the UHV project in 3QFY15, a key to the Phoenix project

that would (i) boost its propylene capacity, a move that could enhance

profitability in petrochemical business and (ii) allow its refinery to run at its

maximum capacity and refine more higher spread products. Construction of the

UHV project is now 85% complete.

• Valuation discount to BV: The current valuation represents a discount to our

estimated book value for IRPC and its three-year trailing averages of 1.2x P/B

during the period of FY 11-FY13.



Revenue (Btmn) 221,611 236,519 283,668 292,593 276,116 285,010

NPAT (Btmn) 6,100 3,941 (959) 826 1,328 3,085

NPAT, adj. (Btmn) 6,100 5,108 (1,917) 349 876 3,085

EPS (Bt) 0.31 0.19 -0.05 0.04 0.06 0.15

EPS, adj. (Bt) 0.30 0.25 (0.09) 0.02 0.04 0.15

P/E (X),adj. 11.2 13.6 (36.2) n.m. 79.3 22.5

BVPS (Bt) 3.70 3.71 3.63 3.69 3.66 3.79

P/B (X) 0.9 0.9 0.9 0.9 0.9 0.9

DPS (Bt) 0.18 0.12 0.08 0.10 0.02 0.04

Div. Yield (%) 5.3% 3.5% 2.4% 2.9% 0.5% 1.1%



12

Naree Apisawaittakan, Securities Investment Analyst #17971

Tel: 66 2 636 1700 # 484

Read more....

TUF – Best-in-class earnings recovery story, more M&As on cardsInvestment rating: ACCUMULATE FY15 target price: Bt81.25/share

• Best-in-class earnings seen in 3QFY14: Our forecast suggests TUF will report

3QFY14 profit growth of 91% y-y and 26% q-q to Bt1,923mn based on

assumptions that (i) lower tuna raw material prices would drive profit from

branded business higher, (ii) OEM sales volume should edge higher, (iii) the

benefits of a weaker baht would push up margins and (iv) TUF will book a

reversal of provision for accrued interest expenses from conversion of convertible

bonds.

• More M&As on cards to achieve US$5bn sales target: TUF of late announced

acquisitions of additional two overseas salmon and sardine canners, a move that

would provide a further boost to its top-line in FY15 but it is unlikely to put sales

on course to meet its US$5bn target. For this reason, more M&A deals could be

on the cards.

• Undemanding valuation: Even though much of the positives appear to have

already been baked into the share price, its P/E valuation however remains

cheap relative to its peers



Revenue (Btmn) 71,507 98,670 106,698 112,813 124,472 147,250

NPAT (Btmn) 2,874 5,117 4,694 2,853 6,055 6,402

NPAT, adj. (Btmn) 2,067 4,812 4,197 2,186 5,459 6,052

EPS (Bt) 3.00 5.35 4.39 2.49 5.28 5.37

EPS, adj. (Bt) 2.16 5.03 3.92 1.90 4.76 5.07

P/E (X),adj. 34.7 14.9 19.1 39.4 15.8 14.8

BVPS (Bt) 24.30 28.36 35.16 37.77 39.44 41.76

P/B (X) 3.1 2.6 2.1 2.0 1.9 1.8

DPS (Bt) 1.60 1.56 2.10 1.49 2.95 3.00

Div. Yield (%) 2.1% 2.1% 2.8% 2.0% 3.9% 4.0%



13

Sector update

14

Sector Update

Sector

Investment weighting

Analyst viewNov Change

FOOD NT ---3QFY14 earnings especially in the meat sector would be better than 2QFY14 on strong ASPs and

sales volume growth in terms of both domesitc sales and exports.

BANK OW ---The pace of lending is likely to accelerate in 4QFY14 as the fourth quarter is traditionally the peak

spending season and demand for corporate loans should likely pick up.

FIN OW ---

The sector looks attractive for short-term speculative trading as 3QFY14 results are due to be

released this month. Our forecast suggests 3QFY14 earnings will be up in both y-y and q-q terms

as turnover on the SET & MAI soared as much as 34.67% y-y and 36.9% q-q in 3QFY14.

AUTO NT ---In 4QFY14, vehicle output in Thailand is expected to be higher than in 3QFY14 helped by the

annual Thailand International Motor Expo to be held in Dec.

PETRO NT ---

Even though petrochemical spreads may feel the pressure from oil price slide and aromatics

spreads would head back down after a pickup in 3QFY14 boosted by production cutsbacks by

Asian producers, olefins spreads are however likely to stay high.

CONMAT NT ---

Cement demand is expected to drop 1% y-y in FY14. The pace of growth in 3QFY14 lost steam

from 1HFY14 as construction activity in both public and private sectors remained subdued but

cement demand however looks poised to return to positive growth of 5%-6% in FY15 as

construction under the government’s Bt2.4trn infrastructure plan is scheduled to get off the ground

in FY15.

CONS NT ---

Bidding activity remains subdued this year but the prospects look brighter next year on the back of

the government’s Bt2.4trn infrastructure plan with construction slated to get off the ground next

year. The outstanding green line mass transit extention seems to be only hope for this year with

bid results expected to be announced in 4QFY14.

PROP NT ---

The recovergy in residential property market gained traction as low-rise housing presales steadily

improved alongside growing confidence and condo presales gradually picked up on new project

launches in prime downtown locations. Many developers remain confident presales will meet full-

year targets.

15

Sector Update

Sector

Investment weightingAnalyst view

Nov Change

ENERG UW ▼The downward trend in oil prices would continue to put a damper on sector earnings after there has

been no signal for a production cutback from OPEC.

TRANS NT ---

The outlook for the shipping industry may not be as strong as previously thought after PSL turned in

a loss. The prospects for the aviation sector remain gloomy due to low season effect and persistent

slowdown in tourist arrivals while there seems to be nothing exciting in the land transport sector.

COMM OW ---The nascent revival in spending is in the offing by year-end helped by the peak spending season

and government economic stimulus measures.

HELTH NT ---

The positive growth momentum in healthcare demand looks set to continue from 3QFY14,

traditionally the busy season for hospital visits on the prospects of a pickup in international patient

volume especially from Myanmar and China.

MEDIA NT ---

The slowdown in ad spending in the face of the erosion in purchasing power and the softness in

domestic economic activity would lead most media companies with revenue chiefly tied to ad

spending and purchasing power to see earnings drop in 3QFY14.

TOURISM NT ---

Earnings would remain under pressure from the existence of the martial law which has continued to

scare away foreign tourists. In 3QFY14, tourist numbers dropped further in y-y terms while hopes

are pinned on 4QFY14 to boost full-year earnings as the fourth quarter is traditionally the peak

tourism season.

ICT NT ---The launch of iPhone 6 in late Oct should send mobile handset sales exceptionally higher in

4QFY14 and would act as a catalyst for demand for non-voice services down the road ahead.

ETRON NT ---High seasonality of sales and benefits from baht weakness would push 3QFY14 earnings higher

than the levels seen in 2QFY14.

16

PSR long-term portfolio

17

Current portfolio status

Stocks to be added to

portfolio in Nov 2014FV (Bt)

CK 29.05

IRPC 3.80

TUF 81.25

TUF6%

KBANK8%

SCC5%

SPALI8%

TTA5%

BGH7%AAV

6%

JMART6%

BBL7%

SF8%

CK5%

MC8%

ROBINS7%

IRPC7%

SVI7%

Portfolio Position

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

PSR Port 0.0% 2.3% 7.9% 13.3% 18.2% 23.5% 27.3% 29.2% 41.6% 42.4% 39.1%

SET 0.0% -1.9% 2.0% 6.0% 8.9% 9.0% 14.4% 15.7% 20.2% 22.1% 22.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

% R

ET

UR

N

Cummulative Return

18

Rebalancing of portfolio holdings for Nov 2014: Additions

Ad

dit

ion

s

Additions Inclusion date % Weight FY 15FV (Bt) P/E P/BV (x) Dividend Yield

CK Nov 5.00% 29.05 34.81 2.44 1.13%

IRPC Nov 7.00% 3.80 22.80 0.90 1.17%

TUF Nov 6.00% 81.25 13.87 1.78 4.03%

19

Rebalancing of portfolio holdings for Nov 2014: Hold

Ho

ld

Hold Inclusion date % weight FY 15FV (Bt) P/E P/BV (X) Dividend yield

KBANK Aug8.00% 255.00 11.93 1.90 1.69%

SCC Mar5.00% 480.00 15.46 2.16 2.59%

SPALI Jun8.00% 28.70 9.43 2.43 4.23%

TTA Jul5.00% 27.00 13.89 0.84 1.83%

BGH Jul7.00% 20.70 33.64 5.73 1.51%

AAV Sep6.00% 5.00 15.79 0.75 0.00%

JMART Sep6.00% 17.40 13.84 3.24 5.04%

BBL Sep7.00% 233.00 9.40 1.06 4.04%

SF Sep8.00% 10.70 12.96 1.31 0.29%

MC Sep8.00% 20.80 14.35 3.27 4.91%

ROBINS Oct7.00% 63.00 23.09 3.84 2.07%

SVI Oct7.00% 5.75 11.52 2.06 4.34%

20

Rebalancing of portfolio holdings for Nov 2014: Delections

Dele

tio

ns

DeletionsReturn

(gain/loss) FY15 FV (Bt) P/E P/BV (X) Dividend Yield

GFPT 27.00% 21.75 11.56 2.32 2.59%

THCOM -0.63% 43.00 26.17 2.53 1.61%

ASP -0.51% 4.20 10.89 1.77 7.65%

21

Key factors to watch

in the month of Nov 2014

22

Economic calendar for Nov 2014

Source: Bloomberg

Nov 3 Nov 4 Nov 5 Nov 6 Nov 7

US: Markit US

manufacturing PMI

CH:Non-manufacturing

PMI, HSBC China

manufacturing PMI

EU: Markit Eurozone

manufacturing PMI

TH: CPI YoY

US: Trade balance,

factory orders

EU: PPI YoY

US: ADP employment

change, Markit US

composite PMI

US: Initial jobless

claims, continuing

claims, nonfarm

productivity

US: Change in private

payrolls, change in

manufactuing payrolls,

unemployment rate

CH:HSBC China

composite PMI

EU: Markit Eurozone

retail PMI, ECB rate

decision

TH: Consumer

confidence

EU: Markit Eurozone

composite PMI, retail

sales YoY

TH: BoT interest rate

decision


CH: PPI YoY, CPI YoY EU: Industrial

production SA MoM

US: Initial jobless

claims, continuing

claims

US: Advance retail sales

MoM, University of

Michigan confidence

CH: Retail sales YTD

YoY, industrial

production YTD YoY

EU: CPI YoY, GDP SA

YoY

23

Economic calendar for Nov 2014

Source: Bloomberg


US: Industrial production

MoM

EU:Trade balance SA

TH: GDP YoY

US: PPI final demand

YoY

US: Housing starts US: Fed minutes from

Oct 28-29 FOMC

meeting, initial jobless

claims,CPI YoY,

continuing claims, Markit

US manufacturing PMI,

existing home sales

CH:HSBC China

manufacturing PMI

EU: Markit Eurozone

manufacturing PMI, Markit

Eurozone composite PMI,

consumer confidence


US: Markit US

composite PMI

TH: Customs exports

YoY*

US:GDP annualized

QoQ, personal

consumption,consumer

confidence index

UIS: Initial jobless

claims, continuing

claims, pending home

sales MoM, new home

sales

EU: Economic

confidence,consumer

confidence

EU: Unemployment rate,

CPI Estimate YoY

TH: Exports YoY

24

Research team

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employees or persons involved in the preparation or issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities

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25

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