Investment Strategy

April 1, 2015
Investment Strategy
Given the political and economic tension, SET Index would swing downward within a frame of 1,510-1,485
pts. SET Index at P/E ratio of 14.5x is a good entry point for stocks with low P/E ratio and high dividend like
AIT(FV@B53; XD date is April 21). Today top pick is laggard STPI([email protected]) for it is very likely to win
new contract.
YTD Global Returns
Developed Country
India
Thailand
-0.15%
2.71%
Indonesia
-0.08%
3.25%
Hong kong
Phillipines
US S&P
UK
Japan
France
Germany
-5%
China
-0.13%
0%
US DJIA -0.81%
5%
3.78%
5.01%
10%
1,031.77
-462.33
553.84
-1,123.27
Malaysia
8.86%
11.55%
20%
15%
Net buy and sell by investor type (Bm)
Foreign
Proprietary Trading
Institution
Retail
Developing Country
13.83%
25%
17.17%
1,505.94
9.43
35,904.43
20.79%
SET Index
Change
Market cap (Bm)
Political and economic tension depressing SET
Politics The government is ready to revoke the martial law and use Section 44 of the 2014 interim constitution
instead to maintain peace and order from May 2015 on. Though cancellation of the martial law would
considerably relieve tension on tourism or some kinds of investment, Section 44 grants the prime minister (having
power from the NCPO chief) a wide range of authorities to keep the situation under control, which will be
announced later. According to the media, the section will cover five or six issues, e.g. which kind of crime will be
taken to the military court. Investors need to keep a watchful eye on announcements regarding Section 44, which
are possibly based on the political situation and stability.
Economy Thailand's GDP growth is very likely to be revised down below 3% since important economic
components have still been weak:
Porranee Thongyen, CISA
License No: 004146
[email protected]
Therdsak Thaveeteeratham
Household consumption (C; 50% of GDP) Household consumption has been declining. Value-added
tax (VAT) collection fell by 2.1% in January 2015, close to 2% drop in January 2014. After the first-car
scheme in October 2011, passenger car sales have declined for 22 consecutive months, falling 11.4%yoy
and making a three-year low at 23,400 in January as a result of weak purchasing power. Meanwhile,
motorcycle sales grew slightly in January but dropped by 8.4%yoy (decreasing at a slower pace though).
License No: 004132
[email protected]
Pobchai Phatrawit
License No: 052647
[email protected]
Assistant Analysts
Kasidej Ratanasomboon
Maraporn Kiwiriyakun
English research reports are a rough translation of our Thai-language
research products. It is produced primarily with time efficiency in mind, so
that English-reading clients can see what the main recommendations are
from our Thai-language research team. Given that this is a rough-and-ready
translation, Asia Plus Securities pcl cannot be held responsible for
translation inaccuracies.
The Thai language research reports and information contained therein
are compiled from public data sources and our analysts' interviews
with executives of listed companies. They are presented for
informational purposes only and not to be deemed as solicitations to
buy or sell any securities. Best attempts have been made to verify
information from these vast sources, but we cannot guarantee their
accuracy, adequacy, completeness and timeliness. The analyses and
comments presented herein are opinions of our analysts and do not
necessarily reflect the views of Asia Plus Securities.
Private investment (I; 21% of GDP) The construction industry has been declining. Cement sales fell
2.4%yoy in February (declining continuously since 2014). Investment in machinery has also dropped.
Commercial vehicle sales fell by 9.6% in February (declining continuously since 2013, but rebounding
from over 30% plunge in 2014 and 14% drop in January).
Government investment (4% of GDP) Only B131.4bn or 17.5% of total FY2015 budget plan has been
disbursed as of February (down 14.7%yoy), B109.7bn (down 22.7%yoy) for regular expenditure and
B21.8bn (up 78.4%yoy) for investment budget.
International trade (x-m) 2M15 (January-February) export growth was -4.8%yoy, mainly from a decline
in export from China, Japan, Eurozone, and ASEAN-5. Export of agricultural products, fuels, minerals,
automotives, and agro-industrial goods plunged, while export of electric appliances and electronics
products increased. Meanwhile, 2M15 import decreased by 5.9%. Consequently, Thailand faced
international trade deficit of US$66.5m in 2M15.
Air transportation, tourism industries depressed by many negative factors
Air transportation E The International Civil Aviation Organization (ICAO), the regulator of aviation worldwide,
flagged that the operation of the Department of Civil Aviation (DCA), the aviation authority of Thailand, does not
meet the ICAO's safety standard because the number of government officers working on Thai aviation regulation
was too small compared with the rapidly growing number of flight in the past ten years. As a result, adding of new
charter flights and new destination of flights from Thailand was banned in some countries e.g. Japan, South
Korea, and China and was inspected more strictly in Singapore. The ban would affected NOK(BV@B6) most
since all NOKScoot's (NOK holding 24% stake) flight to Japan and South Korea are cancelled.
THAI(Hold:[email protected], [email protected]) would face a limited adverse effect. Though it has two new charter flights to
Japan, it is an internationally-certified operator. AAV(Buy:FV@B6, BV@B6) would face a limited negative effect
as well. AirAsia X that has flights to Japan and South Korea is only related to AAV by affiliated shareholders, so
this will have no actual effect on AAV's income and earnings; the ban would still have a psychological adverse
effect on AAV and affect new flights to China though. An internationally-certified operator like THAI,
BA(Buy:[email protected], BV@B12) would be affected least by the ban since it focuses on flights in Southeast Asia
and has no flight to Japan, China, and South Korea. The government would deal with this problem by itself; we
expect Thai air operations to improve and meet the ICAO's standard in two months and all problems would be
completely solved within eight months. Under our assumption, AOT's (Thailand's sole airport operator) flight
volume would decrease by 400 or 0.06% from our forecast and its passenger volume would fall by 0.6 million or
0.69% of our projection of 86 million in 2015, thus weakening its passenger service charge and landing charge.
For the worst-case scenario that all charter flights (5% of AOT's total flight) were banned, AOT's net profit would
be depressed by 15% from our initial forecast and its fair value would drop by 7.8% or B25 to B295, implying 6%
upside. Since risk has remained, we recommend HOLD for investors who still have AOT in their portfolio. For
investors looking for short-term investment in AOT, a supportive level of B260 is a good entry point since it has
12% upside from the fair value of B295.
Tourism E The switch from martial law to Section 44 of the interim charter does not prove that the situation has
already been back to normalcy; imposition of the new legislation will still hinder the tourism business, especially
business trips, because an insurance company does not cover a risky incident. In addition, problems in the
ThailandIs aviation industry from inefficiency of government agencies can be an aggravation to the tourism sector.
Tourist volume in 2015 is initially targeted to increase 13% from 2014 to 28 million, while the peak season, which
is usually in the last quarter of the year and the first quarter of next year, has already passed. According to recent
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data, the number of tourists travelling to Thailand in January 2015 was 2.65 million, rising 16.3% from January
2014, marking the fourth consecutive month of growth. The number of tourists from the East Asia increased most
from 47.27% of total tourist volume in 2014 to 58.23% of total tourist volume in January 2015, mostly ASEAN (up
from 18.28% to 23.44%) and China (up from 15.6% to 21.11%), while tourists from the EU decreased from 37.2%
to 27.4%, mostly Russia, Finland, Sweden, Norway, and Netherland.
Foreign net buy rises nearly threefold in Asia
Yesterday, foreign investors possessed a net buy position in Asia at US$213m (leaping nearly threefold). Every country
(except Taiwan that faced net sell) was with net buy (see the table below). Foreigners bought net Thai stocks at US$31.7m
or B1,031m yesterday. In March, foreigners and retail investors bought net Thai stocks at B2,741m and B8,764m,
while institutions and proprietary traders sold net in Thailand at B2,657m and B8,848m, respectively. Still, whether
foreigners will buy or sell net in Thailand from now on depends on the political and economic situation, especially after the
martial law is revoked and replaced by Section 44; whether the new charter will revive foreign investors' confidence needs to
be monitored closely.
Foreign Net Sell in Asia Yesterday (US$m)
ytd
mtd
-5d
-1d
5000
4000
3000
2000
32
120
45
0
39
67
1000
-1000
-2000
Indonesia
Philippines
S. Korea
Taiwan
Thailand
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Stocks Recommended in Market Talk
Start
Stocks
Date
Price
Fair Value
Start
Last
Accumula
ted Return
PER
2015F
PBV
2015F
Dividend
Yield
Strategist Comment
30-Min Chart
Inexpensive laggard stock with high dividend.
SPALI
05-Jan-15
31.96
23.15
21.50
-4.3%
6.73
1.76
6.02
AIT
05-Jan-15
53.00
38.20
39.50
3.4%
9.98
2.57
5.41
STPI
05-Jan-15
23.64
19.12
15.70
-7.0%
8.02
2.44
4.75
PTT
08-Jan-15
398.00
355.89
323.00
-7.8%
8.58
1.24
4.36
PTTEP
03-Feb-15
134.00
118.29
109.00
-6.6%
10.19
1.07
4.17
SALEE
16-Feb-15
12.20
8.70
7.10
-6.9%
21.19
3.71
4.80
ASK
12-Mar-15
30.10
22.67
19.90
-12.2%
8.35
1.61
8.38
RCL
25-Mar-15
13.10
9.28
9.10
-1.9%
20.97
0.76
2.38
GUNKUL
25-Mar-15
38.75
36.03
33.50
-7.0%
53.17
5.38
0.66
Backlog making up 80% of FY2015 income target.
Paying B1.10 dividend; XD date is April 21.
Benefiting from Digital Economy policy.
Potential winner of EPC Contractor bid. Likely to win
other projects too, but share price has not risen yet.
Rebounding crude oil price,
LPG price float benefiting PTT.
Crude oil oversupply subsides.
Benefiting petroleum business.
Revise returns to reflect shareholders' right to get
three SALEE shares for one SLP share.
Benefiting from policy rate cut.
Low P/E ratio, high dividend yield.
Retainer shipping business rebounds significantly
with high return before Songkran.
Likely to win new power plant
with high return before Songkran.
Accumulated returns since our recommendation
ASK
-12.2%
PTT
-7.8%
STPI
-7.0%
GUNKUL
-7.0%
SALEE
-6.9%
PTTEP
-6.6%
SPALI
-4.3%
RCL
-1.9%
AIT
-15%
3.4%
-10%
-5%
0%
5%
Note: In calculating returns from a stock we recommended, we use the average price on the day of our recommendation as cost and compare it with the
recent closing price. This will result in accumulative returns until the day we recommend closing the position to take profit or cut loss.
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