Earnings visibility to boost Thailand stocks and sectors in 2022: CGS-CIMB

EARNINGS visibility, rather than just earnings recovery, is set to drive stock and sector performance in Thailand, said CGS-CIMB, as the brokerage placed its preference on large cap companies with domestic exposure.

In a report on Wednesday (Nov 24), the research team reiterated its target of 1,850 points for the Stock Exchange of Thailand (SET) in 2022. Downside risk to the call is a possible new wave of Covid-19, while re-rating catalysts could come from more foreign inflows into the SET and higher than expected tourist arrivals.

The SET index target is based on 18.5 times the 2023 price to earnings ratio.

CGS-CIMB observed that investors are overly optimistic on Thailand's tourism recovery, and too pessimistic on domestic sectors such as consumer, retail, property and banks. It believes that Thailand's border reopening has already been priced in by the market.

"With tighter liquidity overseas, more stringent rules to curb excessive domestic speculation, and higher foreign inflows, big caps would outperform small caps in 2022," said CGS-CIMB.

The percentage of fully-vaccinated people in Thailand's population is "likely to reach" 70 per cent at year-end, up from 55 per cent as at Nov 18, and numbers of new Covid-19 cases are expected to decrease. This will lead to higher consumer confidence and spending, the report noted.

On the political front, the brokerage believes that despite the possibility of a rift within the main coalition party, Palang Pracharat, the government "will likely" serve out its full 4-year term until March 2023.

Other key themes the brokerage is looking out for in 2022 are a stronger baht, election plays in the second half of 2022, and the awareness of environmental, social and corporate governance in Thailand.

Assessing the multiple themes, CGS-CIMB has an "overweight" rating or positive recommendations on the retail, bank, property, oil and gas, and construction sectors. Whereas the transport, telecom and hotel sectors have an "underweight" rating.

CGS-CIMB said: "Despite the strong earnings per share (EPS) growth of 51 per cent expected in 2021, we believe corporate Thailand will continue to post another solid year in 2022 with EPS growth of 14 per cent year on year (yoy), followed by 16 per cent yoy growth in 2023."

Among the list of companies that the brokerage expects to perform well, it highlighted 3 companies - Central Retail Corporation, CP All and Kasikornbank, and maintained its "add" call on these counters.

Highlighting CP All as "one of the best retail plays" on Thailand's reopening theme, CGS-CIMB said the company saw strong sales recovery in tandem with increasing people mobility.

A public offering of the group's wholesale arm, Siam Makro, would be a near-term catalyst, the report added. The target price of 84 baht is based on discounted cash flow (DCF), with 7.5 per cent weighted average cost of capital (WACC) and 2 per cent long-term growth.

Central Retail Corporation is also said to be a good retail play, as the company looks to benefit from the pent-up demand for fashion to boost near-term earnings, while its advanced omni-channel developments would help shore up its long-term competitiveness. The target price of 42 baht is based on DCF, with 6.5 per cent WACC and 2 per cent long-term growth.

Kasikornbank is the "top bank pick among Thai banks", given its preemptive provisioning as a buffer against credit risks. The brokerage expects the bank to witness net profit recovery in 2022 on the back of stabilising net interest margin, improvements in small-medium enterprise lending and lower credit costs.

CGS-CIMB also believes that improved earnings visibility should allow the bank to benefit from foreign fund flows, and that possible upside benefits could come from value accretion from strong retail lending and tech subsidiaries. Kasikornbank's target price of 170 baht is based on 0.87 times the 2022 price to book value ratio.

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