EARNINGS SPECULATION SETS THE SHORT-TERM TONE

The market consolidated in the past week after see-sawing in the 1,680 to 1,700 range amid an absence of fresh catalysts since the beginning of this year. Macro indicators released so far have not been significantly off expectations.

Investors took profits from stocks that had pushed the market up late last year such as banks (with optimism confirmed by earnings announcements), retail, tourism and healthcare. They also shifted to laggards such as finance/leasing and petrochemicals as well as medium and small-cap shares that consolidated.

Following the announcement of bank earnings last week, investors started to look for connections to the real sector via loans and NPLs. Fourth-quarter earnings previews of non-bank blue chips — and the rest of the market from next week to mid-February — will become an influential factor in determining the short-term direction of particular sectors and individual stocks. For that reason, speculation will outweigh dividend plays as we expect the benchmark index to move sideways up in a higher range at 1,690 to 1,710 in the near term.

We expect fourth-quarter 2022 core earnings (excluding extraordinary items) of nonbank companies to rise 23% year-on-year. Sectors that will likely report positive profit growth of more than 60% are contractors, tourism (more foreign arrivals), electronics (solid demand for products related to cloud and data centres), media (greater ad spending), and automotive (stronger auto sales).

DIVIDEND OUTLOOK

In the next one to two months, we will place more weight on dividend plays. Based on statistics, companies in the SETHD (SET high-dividend 30) registered a 10-year mean return of 1.7% and a 10-year median return of 3.9%, with a 90% probability of positive returns in the first quarter of each year. Therefore, we think the SETHD looks more compelling than the broader SET during dividend season (first quarter) and has a 60% probability to outperform the SET.

Bualuang Securities has screened 17 outstanding dividend plays by sector with returns above 4% in Shipping: RCL (>10%), PSL (7%); Energy: BANPU (9%), BCP (7%), TOP (6%); Banks: TISCO (7%, XD April 28), KTB (4%); Agri-food: TVO (6%); Property: AP (6%), SIRI (5%), QH (5%), LPN (4%) and SC (4%).

Thailand’s overall economy continues to be driven mainly by tourism, especially the China reopening. Besides direct gainers such as hotels and airlines, other relevant sectors will also benefit such as services (hospitals, wellness, spas), grassroots economy (more working capital, higher revenues, burden reduction and higher purchasing power), and related production such as snacks and beverages. Meanwhile, the approaching election will also boost the mass-market economy through more spending during the campaign period.

The most concrete sign of optimism now is the influx of hotel bookings, which will drive revenue per available room of many hotels back to or beyond pre-Covid levels.

However, Chinese tourist numbers are not expected to really take off until April, due to limited slots for China flights at Suvarnabhumi airport at present. Pre-Covid slots had been allotted to other airlines throughout March. However, travellers have other options including the new high-speed train through Laos.

Based on statistics, companies in the SETHD index have a 90% probability of positive returns in the first quarter of each year.

WATCH THE BAHT

Among negative factors, baht appreciation is a factor to watch as lingering strength could weigh on exporters. From past experience, exporters usually start to call for aid measures when the baht-dollar exchange rate falls to the 30-32 level. It is around 33 at present.

Growing concern about recession in Western economies has also pressured sentiment in various sectors and could eventually lead to downgrades in valuations of equities.

Local politics will gain more weight than international events as many politicians are still in the process of switching parties, while decisions of key political groups could affect poll result expectations. As well, investors will be weighing policy expectations based on various post-election government formation scenarios, which will also affect individual stocks and sectors.