Thai banks, oil & gas, tech sectors likely to enjoy healthy H2: CGS-CIMB
STRONG global headwinds of high oil prices, rising interest rates and a weak baht are factors which are likely to drive growth among sectors such as banking, oil and gas, and technology for the second half of this year, said CGS-CIMB analysts in a research note on Friday (Jul 1).
The transportation sector, however, is unlikely to be as lucky as companies weather higher fuel and energy costs, according to the report.
In a general outlook note for the Thai market, CGS-CIMB analyst Kasem Prunratanamala and his team have also cut their FY22 SET Index target to 1,690 points from the earlier 1,750 points due to an extension of the Russia-Ukraine war, as well as higher interest rates overseas.
Of its energy picks, CGS-CIMB analysts believe there are opportunities for investors to “add” via PTT Exploration and Production, Star Petroleum Refining and Thai Oil, especially now as concerns over the imposition of a special tax on refinery profits have weakened prices. The target prices for these stocks are 190 baht, 15 baht and 69 baht, respectively.
Given the current inflationary economic climate, the weakening baht is likely to prompt further rate hikes in Thailand. The analysts are however of the view that the baht would still weaken in the third quarter this year as they expect that the Bank of Thailand to raise policy rate by just 25 basis points and maintain it throughout the rest of the year.
As the Thai interest rate inches up, banks’ net interest margins are likely to widen, said the analysts, noting figures from Bank of Thailand that most of their loans were on floating rates, while 69 per cent of their deposits were in savings accounts. The analysts recommended Bangkok Bank and Kasikornbank among the banking equities with an “add” call and target prices of 164 baht and 170 baht respectively.
A NEWSLETTER FOR YOU
Friday, 8.30 am
Asean Business
Business insights centering on South-east Asia's fast-growing economies.
Separately, food exporters may also benefit against the backdrop of a prolonged and ongoing Russia-Ukraine war, with Thailand being one of the world’s largest food exporting countries, said the analysts.
They believe the tight supply could create opportunities for counters in the food industry, like Charoen Pokphand Food. CGS-CIMB has an “add” call on the stock with a target price of 29 baht as they expect that the firm would be able to pass on downside risk in higher costs to consumer with ease, on the back of tight supply.
Tourism is another sector that Thailand is expected to see further growth in, said the analysts, who revised their tourist arrivals forecasts upwards to 21 million in 2023 and 40 million in 2024, which is equivalent to the country’s 2019 arrival figures.
However, strong competition from neighbouring countries and an excess supply of hotels in Thailand have dampened recovery in occupancy and room rates, said the analysts, noting Thailand’s average room rate is only about half that of the pre-Covid-19 level.
As such, the brokerage prefers hotel operators with larger exposures to markets that are less competitive than Thailand’s, such as the Maldives.
They particularly like S Hotels and Resorts, recommending a target price of 5 baht on expectations that the company’s exposure to the Maldives would push revenue upwards.
The brokerage was also optimistic on the growth of Thai exports, though on condition that the global economy does not slow down significantly on the back of high energy prices and higher interest rates.
Downside risks for the Thai market include a new and more deadly Covid-19 variant, worsening geopolitical tensions, as well as a sharper rise in Fed Fund rates.
Copyright SPH Media. All rights reserved.
