Sunday, December 13, 2009

How Thailand's stock market will be this week

Therdsak Thaveeteeratham Senior vice president, Asia Plus Securities

The Stock Exchange of Thailand (SET) Index has been clouded by a series of negative factors including the Map Ta Phut legal case, continued foreign selling, the Vietnamese dong's devaluation and persistently high levels of public debt in several countries. Yet these factors have been absorbed to some extent, as reflected in falling share prices over the past two months. The market has dropped more than 7 per cent in that period, bringing its price-to-earnings ratio (P/E) down from 14 times to 13 times. Foreign net selling topped Bt26 billion in the period. As such, the downside is limited. The main resistance level will come when P/E drops to 12 times, or the index falls to 650 points. However, those are worst-case scenarios.

During this period, investors are advised to accumulate stock when the index hits 690. Attractive stocks with high potential to outperform the market in December and January include: stocks with high dividend yields, mostly in the property and construction-material sectors, which naturally show low P/Es (outstanding stocks are Thai Metal Trade, Dynasty Ceramic, Supali, SC Asset, Ticon Property Fund and Samui Airport Property Fund); stocks that typically outperform the market in December and January (based on data dating back to 1990, these stocks include PTT, Minor International, Makro and Kasikornbank); and stocks that stand to benefit from the SET50 recalculation next year, in which MBK, Cal-Comp Electronics and Italian-Thai Development might be replaced by True, Bangchak Petroleum and Quality Houses.

History shows there is a 90-per-cent chance of new inclusions yielding 7 per cent in the weeks ahead of their actual inclusion. Of these, Bangchak is the most noteworthy. It is expected to offer a dividend yield of more than 10 per cent, with an expected 2009 dividend of Bt2 per share.

When the SET Index hovers near 690 points, it represents an opportunity for accumulation with a focus on stocks in the three groups listed above.

Kavee Chukitkasem

Kasikorn Securities

Last week's volatility was partly due to the long holidays. But a major contributor was the strengthening of the US dollar, which brought down the prices of risk assets such as oil, gold and stocks. Due to a decline in US unemployment to 10 per cent in November, investors feared the US Federal Reserve could raise interest rates faster than expected. The downgrade of Greece's credit rating contributed to the thin trading volume.

The impacts of these events should be short-lived, however. The Fed is not likely to raise rates any time soon, as reflected in Chairman Ben Bernanke's affirmation that the low-rate environment would continue for a while. Meanwhile, Asian rates could be hiked before the US takes action. The dollar could then weaken against Asian currencies, which would lead to inflows to Asian markets. We're positive on the Asian markets' outlook, and have revised our SET Index target for next year from 765 to 830 points.

Despite the rosy outlook, investors in Thailand must stay alert. The Thai market's attractiveness is diminished in the eyes of foreign investors, and volatility will remain during the Christmas and New Year holidays. While the suspension of the affected Map Ta Phut projects is good for the environment and in terms of compliance with the law, it is doing damage to numerous private companies. Given the lengthy period required to review the projects, these companies are pressing the government to devise a mechanism that will render operation of the projects legal in the meantime.

Meanwhile, political conflicts might intensify after the King's birthday. In January, the Supreme Court will rule on the Bt76-billion asset-foreclosure case against former prime minister Thaksin Shinawatra, and there is a chance the red shirts will beef up protests near the ruling date.

On the bright side, the market should get some support from the "January effect" and stocks' strong fundamentals.

Investors are advised to unload speculative stocks and wait for clearer political conditions. In the short term, Quality Houses, Preuksa Real Estate, Central Plaza Hotel and Thai Stanly Electric are recommended on expectation that their financial results in the fourth quarter of 2009 and first quarter of 2010 will show huge improvements. PTT Exploration and Production is another attractive stock, as oil prices are near the point of rebounding.

Sukit Udomsirikul

Siam City Research Institute

This week the SET should show a clearer direction, as the Federal Open Market Committee is scheduled to hold a meeting tomorrow and Wednesday to discuss the US rate outlook. Last week, there was speculation the US Federal Reserve could raise rates sooner than the third quarter of next year, further strengthening the dollar, which has gained 1.5 per cent against major currencies in the past two weeks. Global stock markets went into a tailspin as a result.

We expect US rates to stay low for now, despite the fact that the November unemployment rate declined to 10 per cent, from 10.2 per cent in October. Fed Chairman Ben Bernanke said recently that the US economic recovery remained fragile; markets assumed the Fed would maintain low rates for some time.

We believe the dollar could weaken this week, and that the SET could rise to 720 points. The dollar could weaken 3.4 per cent based on the Bloomberg Consensus, which estimates that the greenback could weaken to 1.52 per euro in the first quarter of 2010, compared to 1.47 at present.

The expected depreciation of the dollar will likely spur speculation in gold and oil this week. Gold futures for February delivery stood at US$1,120 (Bt37,105) per ounce, while oil futures for March delivery were at $74 per barrel. Large numbers of speculative transactions from hedge funds are expected in the last trading week before Christmas, and US weekly oil reserves will also affect price movements. In Thailand, key figures to be released include November export figures, which could increase as much as 22 per cent year on year, in pace with increasing global demand.

This week, investors looking for short-term gains should enter the market when the SET Index is in the range of 695 to 703 points, and leave when it falls to 688. Recommended stocks: Quality Houses, Minor International, Tipco Asphalt, PTT Exploration and Production and Tata Steel. For medium- and long-term gains, buy high-dividend stocks like Thai Metal Trade, Tirathai, Thai Plaspac, Makro, CP All and Big C Supercentre.

Map Ta Phut fiasco could impact economy "severely"

Map Ta Phut would be the greatest economic risk next year, given the magnitude of the impacts on Thailand's long-term attractiveness.

These were the thoughts last week of some of the top executives at Siam Commercial Bank (SCB).

"The impact of the Map Ta Phut fiasco could be more severe to Thailand than the sub-prime crisis," senior executive vice president Arthid Nanthawithaya said in an interview.

"Despite a limited impact from the loans extended to the companies involved, a huge weight hangs in potential investors' minds. If this fiasco is not ended peacefully, the investment climate will be affected severely."

SCB has extended credit lines of Bt50 billion to the 76 industrial projects in question. The main borrowers are PTT, the Siam Cement Group and their subsidiaries. All Thai banks' combined credit line to the projects is estimated at Bt170 billion.

SCB president Kannikar Chalitaporn agreed the financial impact on the bank was limited, thanks to the liquidity of borrowers. Moreover, most of the projects are just expansions, which would not hurt the liquidity of the companies.

Yet, aside from the impact on the investment climate, as the projects involved are upstream and midstream petrochemical plants, the delay will affect employment and the supply chain. Without raw materials, many plants will have to look to imports at a higher price. And this will lead to higher prices for finished products and consequently the cost of living.

"The problem is not only in Map Ta Phut, but also with the chain reaction, because many projects there supply raw materials for other businesses in the supply chain," said Kannikar.

Given the ongoing discussion, she believes the problem will not be solved within six months. She said she understood the process would take time if all the rules had to be clarified. Then a body in charge would be named to enforce the laws. Evaluation will take place, with a number of committees appointed.

She said the four-party committee chaired by former Prime Minister Anand Panyarachun is only the beginning of the process, as its main task is to finalise recommendations. Then the recommendations will need to be implemented.

Industrialists now fear that gas leaks in Rayong in the past week would intensify pressure on industrial projects.

The Federation of Thai Industries earlier estimated that the delay in 65 industrial projects would affect 37,000 jobs. Labour Minister Paitoon Kaewthong said most of the affected workers are involved with the construction works, and so far about 80 workers have contacted the ministry's hotline centre.

Paitoon said the ministry had contacted the PTT Group suggesting the workers be shifted to places where there is demand. Moreover, he expected construction projects under the Thai Khemkhaeng stimulus package next year to ease the unemployment. The Skill Development Department is also launching training courses for farmers who are seeking industrial jobs in the off-harvest season.

Aside from the Map Ta Phut "fiasco", Kannikar said political turbulence at home would hold back Thailand if the conflict intensified next year. Asked if there was any country Thailand should be afraid of, she simply said: "Thailand itself."

However, Kannikar believes the local economy will fare better next year, thanks mainly to the severe slump this year.

The bank expects the economy to grow more than 3 per cent next year following the sharp contraction this year. SCB's loan growth this year is 1 per cent, against the 3-per-cent contraction in gross domestic product (GDP). The bank's loan growth normally expands 1.5 times GDP.

Rather than focusing on loan growth, Kannikar is more concerned with the bank's sources of income and cost controls as "operating a bank is different than it was 10 years ago, when business depended entirely on lending".

"Operating a bank is different than it was 10 years ago, when business depended entirely on lending. Now we must control costs and look for opportunities to increase revenue," she said.

While non-interest income was nil over a decade ago, it now accounts for 35 per cent of the total. And Kannikar is looking to increase the ratio further, through better services, which must be supported by efficient information technology. Each year, the bank spends more Bt1 billion on its information-technology (IT) system.

"It's difficult to increase the non-interest income, as that comes on an annual basis. Each year, we must renew the services to reap the income, unlike when we extend a loan, which generates interest income throughout the loan period. Without efficient IT, non-interest income cannot not be increased. I never feel sorry about investing in the system," she said.

Wednesday, December 2, 2009

Thai Court Upholds Suspension of Industrial Projects (Update1)

By Daniel Ten Kate and Suttinee Yuvejwattana

Dec. 2 (Bloomberg) -- Thailand’s Supreme Administrative Court upheld the suspension of 65 industrial projects halted in September because of pollution concerns, a ruling that may sour investor sentiment and hurt the economy.

Construction on 11 projects may go forward as planned during the trial because they don’t have an environmental impact, Judge Kasem Comsatyatham said today. A lower court on Sept. 29 issued an injunction to stop work on 76 projects with a combined value of 400 billion baht ($12 billion). The court didn’t state the value of the 11 projects approved.

The ruling further delays investments by Siam Cement Pcl and PTT Pcl, which together account for 17 percent of the SET index’s market capitalization. The central bank previously said a one-year delay of the investments may shave next year’s gross domestic product growth by as much as 0.5 percentage point.

“It is a compromise result that is presumably intended to give something to both sides, but it’s not a result that helps the economy,” said Andrew Matthews, Bangkok-based partner of U.K. law firm Clifford Chance LLP. “The immediate task for the government is damage limitation and to broadcast this in the most positive way they can to investors who are holding back.”

Projects that will remain suspended include PTT’s $780 million gas separation plant, PTT Chemical Pcl’s polyethylene expansion project and the expansion of an olefins plant by a unit of Siam Cement, according to a list provided by the court. PTT Aromatics & Refining Pcl’s aromatics expansion project also remains suspended, the court said.

PTT Shares Slump

PTT fell 5.1 percent to 225 baht after the ruling, PTT Chemical dropped 5.3 percent to 71.5 baht, PTT Aromatics lost 3.8 percent to 23 baht and Siam Cement dropped 5.1 percent to 223 baht, the most in more than a month. The SET index fell 2.3 percent to 693.51, the biggest drop since Nov. 12.

Officials from PTT and Siam Cement declined to immediately comment on the ruling.

Prime Minister Abhisit Vejjajiva said yesterday his government, which was surprised by the decision in September and immediately appealed, would keep “fighting” if the decision went against him. The petrochemical, refinery and electricity projects in Map Ta Phut, Thailand’s largest industrial port, buoy the country’s manufacturing and exports, which amount to about 60 percent of Southeast Asia’s second-biggest economy.

“We are a one-strategy economy, and that is industrialization using Map Ta Phut,” Supavud Saicheua, managing director of Phatra Securities Pcl, Thailand’s third- biggest brokerage, said before the ruling. “Growth could drop quite precipitously” without the investments, he said.

Constitutional Test

The case brought by environmental groups is the first to test Article 67 of the 2007 constitution drafted by a military- appointed committee a year after it ousted Prime Minister Thaksin Shinawatra in a coup. The clause bans all projects that don’t have environment and health studies, public consultations and opinions from independent experts.

“We hope to reach a conclusion on the new criteria soon, to prevent any impact on other new projects,” Abhisit said today. “The joint committee is working on it now. The legal process will continue as the case is still at the court. When all the projects follow the constitution, the case shouldn’t be a problem.”

Environmental groups claim the investments would generate pollution that would hurt the public. Last month, the Cabinet approved changes to environmental legislation that would create an organization to oversee such projects and require assessments on the environmental and health impact to be concluded before construction can begin.

Chinese tourists die in Pattaya Thailand boat-clash

BANGKOK, Dec. 2 (Xinhua) -- Two Chinese tourists died in a speed-boat-clash on Wednesday off Thailand's Pattaya coast, while at least another 14 people on board got injured.

The Chinese travel agency that organized the tour group identified the two victims, who got drowned, as Zheng Honglu, male,57, and Chen Dingshan, male, 61.

According to an official from the Chinese embassy in Thailand, another nine tourists from the Chinese mainland and one from China's Hong Kong, were injured when two speed boats clashed at about 12:30 p.m. local time in Pattaya offshore.

The accident happened about 100 meters offshore, said Liu Xiaojian, an injured Chinese tourist, when an one-engine speed boat named Ta-wat-chai-nam-chok collided with the other one-engine speed boat named New Friend.

"The boat was carrying us, 29 tourists from China, three tour guides and a boat driver to go back to Pattaya shore from Lan Island, when I felt the strong shock suddenly and the boat begin to sink right away into the sea," Liu said in the hospital. He said his nose was broken in the accident and probably need to accept surgery.

The other boat, with 13 tourists from the Middle East, Britain and Russia along with two boat drivers, stuck onto the shallow water, according to The Nation online.

All the injured had been sent to Pattaya Memorial Hospital immediately, said the hospital's coordinator Somkiat Potrerayut, adding that eight of them had been discharged as their injuries are minor.

Besides the 9 mainlanders and a Hong Kong tourist, there were also two British, one Pakistani and one Thai injured in the accident, he said.

Somkiat said so far there are six Chinese, including the one from Hong Kong, remaining in hospital, with two of them in ICU. "But the two guys are fully conscious and are able to talk, " he said, adding they will stay in the ICU for one or two more days after suffering the condition of "near drowning".

The two victims, who were identified to be dead on the way to the Memorial Hospital, had been sent to the nearest public hospital for the possible autopsy, Somkiat told Xinhua.

According to The Nation online, Muang Pattaya's deputy superintendent Pol Lt Col Chanapat Nawalak said the initial police investigation found that the two boats drove in the opposite direction to one another, arriving at and departing from the pier, when a side of New Friend boat hit the other boat's rear, causing both boats to break and sink. Police was aiming to press the charge of reckless driving, causing other people's deaths and injuries, against both boats' drivers.

The officials from the Chinese embassy arrived in Pattaya this afternoon to help investigate the accident and to show their condolence to the dead and the injured.

The Chinese victims were under a tour group organized by Wuhan Spring International Travel Service of China's Hubei Province. Ms.Liu Huiping, an staff from the travel agency, told Xinhua that they will send staff to Thailand Thursday to take care of their tourists and other issues.

Beach resort town Pattaya is located in Thailand's eastern province of Chon-bu-ri.