Late February was a tough time for Thailand and the SET was not spared from the troubles. Daily new Covid-19 cases surged above 50,000 when both PCR and ATK test results were included. And although death rates are still far below last year's peak, we are now nearing almost 70 Covid-related fatalities per day.
That said, the spread of the Omicron coronavirus variant has been rapid but it has not been as deadly as Delta, and experts believe the peak is near, with a recovery expected in the second half of 2022.
The global situation is also encouraging with new cases per day declining, from more than 3 million at the start of the year to between 1.4 million and 1.6 million, and deaths down significantly. As a result, many countries are now easing regulations, dropping requirements for masks and social distancing. In essence, the world has been nearing normality.
But the global order was once again shaken up on Feb 24, when Russia launched an invasion of neighbouring Ukraine.
The resulting assault has had a broad impact across the globe and sent stock markets reeling, including the SET. Prices of gold, crude oil and all commodities spiked to new highs while cryptocurrencies were hammered.
- More volatility -
In contrast to the turmoil of late February, the SET Index did quite well for the first half of the month, climbing from 1,648.81 points at the end of January to its year-to-date peak of 1,718.55 in mid-February. However, it has been quite volatile ever since Russia marched into Ukraine. Daily market turnover increased from 87 billion baht in January to 91 billion in February and has risen even further to 113 billion for the month to date.
With gold soaring as high as $2,070 before correcting below $2,000 on Thursday, and Brent crude at one point exceeding $130 a barrel before falling more than $20, the rollercoaster ride is far from over. We believe the direct impact from the war on Thailand should be minimal, but the indirect impact could be sizeable with exports hurt and the tourism recovery slowed.
Our current base-case scenario sees the war winding down by the end of March and most markets recovering over the following month. While predicting the ultimate outcome of the conflict remains very difficult, we believe holding more cash is the best strategy for now.
For those looking at equity investments, we recommend a highly selective, domestic-focused strategy. Our current picks are BDMS, BEC, INTUCH, MAKRO and SCB.
The hospital group BDMS reported very strong fourth-quarter earnings of 2.3 billion baht, up 10% year-on-year and 5% quarter-on-quarter, much better than market expectations. The growth came mainly from a surge in Covid-related revenue and a rise in foreign patients, supporting an occupancy rate of 70%.
We expect performance to continue in the first quarter of 2022 on sustained Covid-related revenue and BDMS's status as a top hospital group in Thailand for foreigners. This latter point is relevant as the arrival of more foreign tourists under the Test & Go scheme means we should see more patients coming to the company's hospitals.
BEC also reported good fourth-quarter results with earnings at 295 million baht, a jump of 107% quarter-on-quarter and 10% year-on-year, also beating market expectations. The "Single Content, Multiple Platforms" strategy, which allows BEC to use its content across several media formats, including TV, digital platform and foreign TV through global licensing, should continue enhancing revenue into the first quarter of 2022. We continue to see substantial growth for BEC in 2022 at 51%, followed by another 17% in 2023.
- Intuch optimism -
Although INTUCH reported a fourth quarter that was weaker than expected, this was mainly from weak performance at the satellite subsidiary THCOM. For 2022, however, we believe THCOM as well as the mobile flagship ADVANC could show turnarounds on arise in 5G users in Thailand. We recommend INTUCH as its share price has retreated to its normal range, representing a 10% discount to net asset value, while its dividend yield is alluring at 4-5% per year for 2022-23.
In the commerce space, MAKRO reported a very strong fourth-quarter 2021 net profit of 9 billion baht, shooting up 327% year-on-year and 479% quarter-on-quarter. These impressive numbers came from the booking of a fair value of 9.3 billion baht, much higher than our expectation. Excluding this, normalised profit was 2.6 billion baht, still higher than expectations, on store expansion and higher same-store sales growth from both Makro and Lotus's branches.
With the restructuring complete, we believe the strong Makro-Lotus's alliance and economic recovery will be key drivers this year.
SCB remains a top pick in the banking space. The bank's restructuring should improve earnings for 2022 and support growth of 27% year-on-year. The transformation to SCBx should be completed in April and we foresee upside from its investments this year. Finally, credit cost and asset quality stand to improve this year, also helping earnings. Overall, sentiment for SCB looks good for this year.
