Since the beginning of this year, the Stock Exchange of Thailand has been trading in sideways-up mode on persistent foreign buying amid a generally upbeat "January effect". Popular blue chips among foreign players, such as Indorama Ventures (IVL) and Bangkok Bank (BBL), have performed rather well and partly offset selling pressures from local funds.
Some holders of long-term investment fund (LTF) units became eligible to redeem units from the beginning of this year after holding them for seven calendar years. The market had avoided such redemptions during the past two years due to a change in the holding requirement from five to seven years. Therefore, the overall SET index outlook in the first half of January was not as bad as previously anticipated.
In the final week of January, we expect the SET to continue in a sideways-up pattern in the range of 1,670 to 1,690 points. Brokers will be issuing more fourth-quarter 2021 earnings previews for the real sector before the earnings reporting season begins in earnest in February. Some banks have already released results this week.
We recommend that investors focus on companies with promising fourth-quarter earnings prospects as well as growth potential in the first quarter of 2022 and an ability to withstand the impact from the Omicron coronavirus variant.
We expect the stocks that comprise the SET to post an aggregate fourth-quarter net profit jump of 45% year-on-year, led by the Energy, Chemicals, Shipping, Healthcare and Banking sectors. We estimate a surge in core earnings of 54% year-on-year and 18% quarter-on-quarter.
The sectors likely to report core profit growth exceeding 30% year-on-year for the fourth quarter are Energy (higher crude prices and fatter refining margins; GULF's strong year-on-year earnings jump), Chemicals (greater sales volumes and fatter product spreads for some products), Shipping (the Baltic Dry Index, an international freight rate benchmark, is up 157% year-on-year), Healthcare (Covid-related services), Banking (lighter loan-loss provisions), and Construction Services (helped by CK's bottom-line turnaround last year).
Moreover, we encourage investors to also focus on the first-quarter 2022 earnings outlook as the performance of listed companies will be influenced by Omicron for almost a full quarter. Analysts will factor in the Omicron impact on earnings as well as the strategies companies have used to cope with the outbreak. The adjustment could calm market worries, though we are still not at a bullish level yet.
Our preliminary first-quarter model points to a year-on-year SET bottom-line increase of 5% (and 3% quarter-on-quarter). The core earnings growth outlook is much stronger at 29% year-on-year and 11% quarter-on-quarter.
We currently expect 15 sectors to post year-on-year core profit growth (against 17 sectors for the fourth quarter of 2021). Standouts will be Shipping (a higher Baltic Dry Index), Energy (greater sales volumes, fatter margins and higher crude prices), Healthcare (higher revenue), Media (higher ad revenue), Electronics (higher sales and a weaker baht), and Construction Service (CK's year-on-year turnaround).
Among negative factors, an overheating global economy has led to accelerated inflationary pressure and a significant rise in bond yields. Central banks are starting to tighten monetary policy by withdrawing stimulus and raising interest rates at a more rapid and timely pace than the previously gradual mode.
Meanwhile, the current Omicron outbreak worldwide is making global economic prospects appear weaker than before.
Following earnings misses for the third quarter of 2021 (aggregate SET profit was 8.3% below the consensus estimate), rising new Covid infections globally, and the advent of Omicron, forecasts have been flattish in recent months, with modest upgrades in December.
Net revisions to earnings forecasts may be limited until the impact of Omicron is better understood. Rising Covid cases may squeeze the Consumer, Transport and Tourism sectors. Our earnings per share (EPS) forecasts for the SET are 83 baht for 2021, versus a consensus of 85.60, and 98 baht for 2022, against a projection of 93.80.
Among other risk factors, an excessive rise in crude prices could lead to countermeasures from major countries such as the US, China and Japan. The US and China are already releasing some of their strategic crude reserves into the market and could potentially inject more supply, which will effectively weigh on oil and refinery plays on the energy-heavy SET, causing analysts to put on hold upgrades to earnings forecasts.
Another risk factor to monitor is geopolitical tensions and trade conflicts, particularly rising military tensions between Russia and Ukraine.
