BETTER TIMES AHEAD

We expect second-quarter earnings per share (EPS) on the SET to be decent, and this should continue to push the index towards our year-end target.

Our optimism is based partly on the better-than-expected results of banks, but also on our expectation of strong year-on-year performance from the petrochemical/refinery and telecom segments — specifically TRUE, thanks to its second-quarter asset sale to the Digital Telecommunications Infrastructure Fund (DIF).

We also expect the petrochemical and refinery sector — particularly IVL and IRPC — to report strong year-on-year earnings growth as a result of widening product spreads and inventory gains (the latter from higher crude oil prices).

This will combine with the lift provided with asset sales by telecoms, strong year-on-year earnings growth from Airports of Thailand (AOT) despite the low season, and strong bank results to push the aggregate SET EPS to 27.50 baht a share, up 22% year-on-year and down 6% quarter-to-quarter.

So despite a tumultuous June in which the index tested the 1,600 level (and breached it on the downside on several occasions), it appears that the brief panic — from fear of a major trade war, heavy foreign selling and forced sales — is mostly over. Largeand mid-cap listed firms should continue to report decent year-on-year growth, while the interim dividend season should help push the index ahead further.

Nonetheless, we note some remaining headwinds during the results season now under way. The weaker baht will likely lead to substantial foreign-exchange losses for upstream PTT Group companies as well as major utilities. We are also fairly cautious about the commerce sector, given indications of sluggish same-store sales growth in the second quarter.

The property sector is likely to be mixed, with some potential outperformers such as AP, while the rest are affected by weaker transfer numbers. Hotels and hospitals may also disappoint (the latter due to a high base).

Lastly, while the banking sector has mostly trumped analysts’ estimates with loan growth and NPL ratios somewhat encouraging, we note that the positive surprises in the second quarter were driven primarily by extra items, reductions in operating expenses, lower-than-expected credit costs for some banks and better-than-expected cost of funds.

With the majority of bank stocks having been re-rated since they reported their results, it’s hard to see the sector outperforming in the very near term. But we still ultimately expect that banks, along with commerce, will be the key sectors that push the SET index towards our 1,850 year-end target.

In terms of stock picks, despite the recent increase in share prices we continue to like BBL and KBANK in the longer term, though near-term outperformance might be difficult.

Some property names have done well (LH) and it may be time to position oneself for a revival in commerce (CPALL, BJC) or construction materials and contractors like SCC and CK. Our other top picks are IVL, INTUCH, TRUE, CPF, PSH and QH.