Six of the best, and how they might move

The business of power generation is like a fixed income instrument; they have fixed returns on the electricity produced, so I wonder why the price has seen such an increase. ANONYMOUS INVESTOR

As the euphoria in the equity markets continues, some of the stocks that were traditionally considered to be fundamentally strong have failed to see their share price surge, while others whose fundamentals are questionable are witnessing a surge in their prices.

The likes of Siam Cement Plc, Land & Houses Plc and the banks among other have been left behind in the recent run on the Thai stock market while the listings such as Gulf Energy Development, Origin Property Plc, Energy Absolute Plc, Airports of Thailand Plc, Do Day Dream Plc JKN Global Media Plc have surged to levels that many would question the fundamental values of these companies.

Here is a look at some of the companies:

SIAM CEMENT PLC

Siam Cement Plc, also known as Siam Cement Group, had been a darling of foreign investors, as the company has always been considered to be the bellwether of the industrial production of Thailand, thanks to the wide number of industrial areas it covers.

SCC, which was trading at around 500 baht a share in mid-2017, continues to hover around 502-510 baht seven months later, despite the fact that more than 50% of its revenues are derived from petrochemicals, a sector that has returned to become the darling of the investors all across the world.

Although, many would argue that the feedstock price of SCC has risen with the rise of crude oil prices, which is trading at a threeyear high, SCC has typically not come up on the radar screens of domestic investors.

Some brokers such as Phillip Securities (Thailand) noted that SCC’s profit outlook is still cloudy because the cement/building materials business remains in the doldrums and the quarterly sales in chemicals were low.

During this period, domestic cement demand fell 6% due to the sluggish private construction sector despite a constant flow of public construction projects.

SCC’s overseas cement/building materials business, however, has benefited from cash on delivery of plants in Laos, Vietnam and Myanmar since the first quarter of 2017 , althought the gross processing margin weakened in the wake of the higher price of new lots of coal.

Although Phillip Securities has a “buy” rating on the shares with a target price of 550 baht a share, with the possibility of a long-term bullish outlook, the shares have remained subdued in the eyes of the investors on the SET.

LAND & HOUSES PLC

The once behemoth of the Thailand’s realestate sector that was the leader of the market to come out of the 1997 financial crisis with flying colours, has been another stock that has been discarded by the investors on the Thai market.

LH, which partially owns Quality Houses Plc (a 36-billion-baht market capitalised property developer) and Home Products Center Plc (a 192-billion-baht market capitalised retailer), has been left high and dry until recently by investors.

Shares of LH which has been at the forefront of the property sector in Thailand was trading at around 9.8 baht in December 2016 against 11.00 baht, or a mere 7.14% rise in the share price, thus underperforming the SET Index, which rose by 13.7% in 2017.

Brokers have different ratings on the stock with Nuttachart Mekmasin, executive director at Trinity Securities, saying that he has a target price for LH share at 12.30 baht based on a projected revenue growth of nearly 6% and a flat net profit this year as the extra-net profit may be lower than last year.

“Revenue and net profit growth of this giant property developer may not be as high as other smaller firms, but the share has strong points on low-beta price and the upper customer segment will lend support to a low loan rejection rate,” he said.

Another analyst, Therdsak Thaveeteeratham, executive vice-president at Asset Plus Securities, gave a fair value for LH share price at 12.60 baht and suggested to buy before the ex-dividend sign is placed.

Mr Therdsak said a surge in IPO share prices last year was propelled by the Stock Exchange of Thailand’s bull run where investors have not priced in such bullish index rise.

“For this year, we may not see an enormous upside on IPO share prices compared with last year’s scenario as the market has already absorbed such [bullish] sentiment,” he said.

AIRPORTS OF THAILAND PLC

While some of these traditionally strong companies have seen their share price remain out of flavour, there are others that have made it big in the past few months, and Airports of Thailand (AOT) is one of them.

AOT, which recently crossed the 1 trillion baht line in market capitalisation, making it the most valued airport operators in the world, has seen its share price rise from blow 40 baht at the end of 2016 to about 71 baht, or a rise of more than 77% in the past year. In the past six months alone, AOT shares have risen by as much as 48%, amid euphoria about high tourist arrivals.

Many analysts have questioned the valuation, saying that most of the positive news has already been factored in and that the current valuations are way overboard.

“AOT shares have gained 70% in the past five months [vs SET’s 14%], and 11% in the past three weeks. Valuations can no longer justify a buy. If anything, there are greater risks of a disappointment as all of the good news we expected on traffic growth, DFS concessions auction and regulation issues have now materialised.

Now trading on 40x PER and 27x EV/ EBITDA, we downgrade the shares to HOLD,” Thapana Phanich, strategist at Tisco Securities said in a note to clients on January 11 this year.

But there are other analysts who remain bullish, citing that AOT’s business remains on an aggressive expansion. The company is expanding the combined capacity of its six international airports to 184 million passengers per year, up from 101 million passengers per year at present, to relieve a capacity problem from 2020 onward.

To deal with its current capacity problem, the company plans to take over and develop 15 additional airports owned by the Department of Airports in order to support international flights and thus help relieve capacity problems at Suvarnabhumi and Don Mueang.

However, the Department of Airports plans to transfer only two airports (Tak and Udon Thani,) to AOT and it is estimated that it will take one more month to study the plan.

“Airport city development and transfer of the state’s additional airports would become more certain this year. Still, we expect this year’s earnings to grow at 10.7% as passenger volume would rebound after the zero-dollar tour crackdown in 2017,” Suwat Wattanapornprom, analyst at Asia Plus Securities, says.

GULF ENERGY DEVELOPMENT PLC

The newly listed company that had undertaken its initial public offering at a mere 45 paht a piece was listed on the Stock Exchange of Thailand (SET) on Dec 6, and surged nearly 20% on its first day of trading.

In less than 30 trading days since its listing, Gulf’s shares are trading at nearly 80 baht a piece, or a rise of nearly 78%, thus raising questions on whether the investors are taking into account something that the market is unaware of, or whether the financial advisors who listed the nearly 170-billion-baht market capitalised stock were wrong in setting the IPO price.

But not all investors are too optimistic about the continued surge in price of Gulf in the future.

“The business of power generation is like a fixed income instrument; they have fixed returns on the electricity produced, so I wonder why the price has seen such an increase, not for Gulf alone but also for GPSC [Global Power Synergy Plc],” an investor who has billions of baht tied up in the Thai market said.

GPSC, a company that is majority stateowned through PTT Plc and its subsidiaries, has seen its share price surge to 83.50 baht, or a 122% rise from its close of 37.25 Baht a piece at the end of 2016. But the market capitalization increase in the subsidiary company of PTT does not seem to be reflected on PTT, which was trading at 486 baht a piece against 376 baht at the end of 2016, or a 29% increase — despite the sharp increase in oil prices.

ENERGY ABSOLUTE PLC

While shares of PTT Plc rose by a mere 29% in 2017 up until this week, Energy Absolute (EA) has seen its share price rise by 129% in the same period. Trading at nearly 70 baht a piece, EA, which is focusing on alternative energy, has seen its market capitalisation rise to 253 billion baht.

Now compare that to Siam Cement, whose market capitulation is barely at 600 billion baht, or Charoen Pokphand Foods Plc, a company that has businesses spread all across the world, has a market capitalisation of 211 billion Baht.

Despite the surge in the price of EA and plans to build what it calls as Asia’s largest battery plant in Thailand, some brokers continue to rate the company.

A Thanachart Securities analyst, asking for anonymity, says that he has a very positive outlook on EA shares and revises up the target price to 110 baht from the 46 baht previously assessed in November.

EA shares are recommended for purchase as the company has an excess in other related renewable energy projects such as energy storage, which will boost corporate profit in the long run, the analyst said.

Net profit is projected to increase in 2020 or 2021, while operating revenue growth for this year and next is anticipated to rise by 19% and 52%, respectively.

The target price of 110 baht will come from projects such as bio-diesel, solar farms and wind farms.

ORIGIN PROPERTY PLC

While shares of giants such as Land & Houses Plc (LH) rose by a mere 7.14% from the end of 2016 until mid-January 2018, shares of the likes of Origin Property (ORI), a relatively smaller property developer, rose by 177.5% during the same period.

Shares of ORI currently are trading at 22.20 baht a piece against the 8 baht they were trading at by the end of 2016, and yet there are analysts who remain positive about the outlook into this year.

Analysts say ORI still has a positive outlook in 2018 as the company continues to focus on high-end single houses, together with a plan to launch as many as 38 projects over the next five years, with investment worth 35 billion baht under the Britania Brand. The sale price for the projects ranges between 3 million and 20 million baht.

With a target group identified as mediumto high-income customers, the company has good prospects of maintaining its net profit growth going forward. The company will book revenue from condominium, which is a project for low to medium income people, in this year’s final quarter.

LH Securities says that it targets shares of ORI to hit 23.7 baht per share and the company still has a positive outlook this year. LH Securities forecasts that ORI revenue will grow 73% from last year because the company has backlog projects in Bangkok around 60% of total revenue projection, the most among property developers.