TIMELY PANDEMIC-ERA INVESTMENT PICKS

After closing their borders and placing strict restrictions on business in response to the coronavirus pandemic, many countries are now in the process of easing their lockdowns. Despite more than 75,000 deaths and 1.3 million cases in the United States, there are strong movements in many states demanding an end to the lockdowns, with protests erupting in some locations.

Hard-hit countries in Europe, including Spain, Italy, France and Germany, have started to allow more out-of-home activities for residents. Most businesses have reopened, but schools and public places remain closed.

Indeed, with 3.8 million cases worldwide and total deaths at almost 270,000, many believe the peak of the pandemic has passed and the world is on the path to recovery.

Back home, Thailand appears to have been much more successful than most in controlling the spread of Covid-19. We have seen only around 3,000 cases and 55 deaths, with fewer than 200 people still in hospital. With new cases per day in single digits for almost a week now, the government is moving to ease some lockdown restrictions.

Interestingly, the SET managed to power through virus fears this past month, rebounding almost 16% in April to close at 1,301.66 points at the end of the month. This return to the 1,300 level last seen in early March has been much faster than expected in light of the mid-March collapse when the index sank below 1,000.

We believe investors are now looking beyond this year and realising that the Covid19 impact will likely be a one-off. Indeed, substantial recovery is expected to manifest later this year and in 2021 as the economic situation normalises.

We expect market earnings per share (EPS) to drop by 30% this year to about 67 baht before staging a V-shaped surge of 28% to 86 baht in 2021 — though this would still be a bit below the 2019 figure.

This month we have our eyes on first-quarter earnings, as analysts’ previews indicate profit declines for all sectors. Bank results have already been released, showing yearon-year profit declines for most of the big players.

The impact from the pandemic was largely on one full month of operations, as many businesses were still open as of late February.

We expect greater impact in the second quarter as nearly all businesses have put operations on hold since late March. Specifically, April and May should show the biggest impact before a recovery starts in June.

As such, we expect second-quarter earnings to mark the bottom for most companies. As earnings reports wind down towards midMay, we believe they will be overshadowed by concerns about second-quarter performance, with some weakening of sentiment towards the end of May.

Although we still see some potential for a market decline, the investment theme at present is more about trading than longterm investment. Hence, we recommend stocks that will benefit from the easing of the lockdown and those with good earnings prospects despite the weak economic conditions. Fitting this bill are BEM, CPALL, CPN, HMPRO and RBF.

For BEM, train ridership declined by about 30% in March and April, while traffic on its expressway has been severely affected by the shift to working from home amid business closures. Thus it stands to directly benefit from the lockdown easing.

CPALL, meanwhile, has always been one of our favourites. Easing of the lockdown should certainly help increase traffic for its sprawling 7-Eleven store network. Moreover, CPALL’s 40% stake in Tesco Thailand and Malaysia should start to bear fruit later this year.

Leading mall developer CPN has closed 21 of its 34 malls, representing 72% of its revenue, during the lockdown. We expect the company to also lower rental rates for tenants by about 30% to help them during this difficult period. Reopening of the malls, expected around May 17, should catalyse a recovery.

HMPRO also closed its stores, and a reopening in mid-May should result in a resurgence. We expect the second quarter to be HMPRO’s worst for the year, but the recovery in the second half of 2020 should be quick; hence we expect a profit decline of only 8% this year.

Lastly, we like small-cap RBF, a maker of ingredients for food and drinks with a focus on scent and flavour additives. As people have been stocking up on food while staying home, its sales have increased. We expect profit to increase 9% this year and by a strong 22% in 2021. RBF is one the few stocks that should manage growth during the pandemic.