December was a particularly volatile month with the Omicron coronavirus variant disrupting stock market sentiment. The Stock Exchange of Thailand index moved between 1,566 and 1,660 points during the month, with a rally of almost 90 points in the second half, closing at 1,657.62.
Foreign investors were net buyers of more than 23 billion baht worth of Thai shares for the month even after being net sellers in the first half. Indeed, the foreign buying towards the end of the year was significantly stronger than expected.
On the Covid front, while Omicron spreads more rapidly than Delta, it appears to be less severe in terms of symptoms. Death rates have not increased even as new cases are now reaching new highs globally at more than 2.8 million per day (vs nearly a million per day for Delta). Although hospitalisation rates have fallen, the high number of infections still presents concern for the global economic recovery.
Except for China which continues to pursue its zero-Covid policy, no countries have reinstituted full lockdowns. As much of the global population has already received two vaccine doses and third-shot boosters are being rolled out, people appear more focused now on trying to live normal lives.
For 2021, the SET returned 14% while world markets averaged a return of 17%. We are expecting 2022 to be another tough year for Thailand. Omicron has thrown cold water on the recovery of the country’s economy, pushing it back to the second half of the year at best. We believe that even without full lockdowns, people will now curtail travel to a greater extent.
The delayed recovery of Thailand’s tourism industry has a significant impact on economic outlook and there is, of course, a risk that the domestic recovery could be slowed by a worse-than-expected virus spread. In short, the present environment is quite challenging and we see scope for negative impact from the aforementioned factors on the SET.
Earnings for listed companies may recover more slowly than previously expected, and downward revisions could knock the market down again. Factors that we foresee negatively affecting the equity market include LTF redemptions, Fed stimulus reduction and balance sheet rebalancing, and high oil prices.
The first batch of long-term equity funds (LTFs) that were extended to seven years, bought in 2016, is expected to total 70 billion baht and thus we could see sales at around 30-40 billion baht this year.
Meanwhile, the US Federal Reserve is expected to begin increasing its benchmark interest rate, possibly as soon as March, while the rebalancing of its balance sheet could occur within the first half as well. These developments should affect liquidity and could prompt bond yields to continue rising. Stock markets worldwide should hence see some sell-offs in money markets this year.
The world oil price is expected at above US$70 per barrel, but the eventual stimulation provided by travel could add impetus to the price rise, and in turn, inflation.
Given all these headwinds, we are not overly positive about the SET this year, especially in the first half. However, we believe investors will soon look beyond this year and to the projected tourism recovery in late 2022 and into 2023. We have an end-2022 SET target of 1,720 to 1,750 points. Our top picks for January — BEC, DCC, KKP and TVO — are well positioned as dividend plays and defensive investing strategies.
First is BEC, which is seeing an uptrend in its advertising revenue. The latest figures for October and November show gains of 12% and 3% month-on-month, respectively, boding well for the company’s fourth-quarter 2021 results. Even with Omicron affecting economic sentiment in December, we still expect BEC’s 2021 profit to turn around and hit 654 million baht, after a net loss of 214 million baht in 2020.
Backed by Thailand’s anticipated economic turnaround, we forecast further earnings growth of 49% this year for BEC to 972 million baht. Another positive for this year: We expect BEC to start paying a dividend again with projected yields of 2% on 2021 earnings and 3% for 2022.
The construction materials player DCC should wind up with a lacklustre 2021 with a projected 3% decline in net profit. However, we expect the company to regain its footing this year with earnings growth of 6% year-on-year. DCC’s overall operations remain quite stable and the company has always paid a good dividend to investors. For 2021 and 2022, we expect DCC to pay dividend yields of 6.6% and 7%, respectively.
Among the banks, KKP is one of our top picks. We believe the sector will enjoy several positive factors this year, including higher interest rates, easing of restrictions as the pandemic winds down, and lower credit costs. Although these factors may have more influence in 2023, investors are likely to start pricing them in late this year. KKP also has a strong dividend yield track record; we expect yields of 6.7% for 2021 and 8.5% for 2022.
Finally, TVO has already realised the benefits of higher soybean prices in 2021, supporting projected net profit growth of 36%. Normalisation this year means the vegetable oil producer’s profit could pull back 17% year-on-year before climbing again at 9% in 2023.
Note that even with the projected slowdown in profit this year, we expect TVO to still generate an appetising dividend yield of around 6% per year.