CREDIT SUISSE : THAILAND REVIEW , October 2014

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CREDIT SUISSE : THAILAND REVIEW , October 2014

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TH Economic: Economy in August: Continued to improve

The Bank of Thailand reported Thailand’s overall economic activities in August 2014 continued to improve on the back of domestic demand while manufacturing production expanded slightly, led by production of electronics and petroleum. Overall merchandise exports remained weak.

TH PTT (PTT.BK/PTT TB)*: LPG and NGV prices raised

Energy Policy and Planning Office (EPPO) announced an increase in the price of LPG and NGV for transportation by Bt0.62/liter and Bt1/liter, respectively, effective on October 1, 2014. The increase will apply only to private vehicles. The impact to PTT’s 2014 forecast consensus net profit is around 0.5% and 1.9% to the 2015 consensus estimates.


ECONOMIC

Thailand

Economy in August: Continued to improve

Overall economic activities in August continued to improve

The Bank of Thailand (BoT) reported Thailand’s economy continued to improve on the back of domestic demand and the tourism sector although growth momentum in August declined slightly as public and private spending softened after having accelerated during the initial period of political change. The tourism sector improved gradually while manufacturing production expanded slightly, led by production of electronics and petroleum. The former benefited from the buildup of inventories in preparation for the expected increase in exports in the period ahead, while the latter benefited from the resumption of refineries after a temporary maintenance shutdown in the previous months. Nevertheless, overall merchandise exports remained weak.

Poor performances for major monthly economic indicators

In August, Office of Industrial Economics reported that industrial production fell at a slower pace of 2.7% YoY, compared to a contraction of 5.3% YoY, but increased 3.8% MoM. Overall capacity utilization was up to 60.3%, from 60.1% in July.

The Private Consumption Index (PCI) decreased 0.8% YoY and 0.2% MoM, mainly led by a deep fall in passenger car sales of 41.3% YoY and falls in motorcycle sales and imports of consumer goods of 12.4% YoY each.

The Private Investment Index (PII) decreased 5.6% YoY and 1.2% MoM led by a deep fall in commercial car sales of 21.2% YoY, followed by moderate falls in imports of capital goods.

BoT reported that exports decreased 6.6% YoY in August to US$18.65bn, and imports decreased 8.3% YoY to US$16.46bn. As a result, trade and C/A surplus were US$2.19bn and US$239mn.

Hope for better economic indicator performance

The BoT maintained 2014 GDP growth rate at 1.5% on September 26, 2014, but revised down 2015 GDP growth rate to 4.8%, compared to 5.5% for its previous forecast on June 27, 2014. In addition, it revised down 2015 export value growth rate to 4.0%, from 6.0%, which is closer to our forecast of 4.5%. We still expect further improvement in overall economic conditions through 2015 and still suggest paying much more attention to economic developments in 2H14 and in 2015. We are maintaining our 2014 and 2015 GDP growth rate forecasts at 1.9% and 5.3%, respectively.

We forecast a higher quarterly GDP growth rate with the peak in 2Q15. So, we weigh for zero chance for a rate hike before 3Q15. We maintain our view that the BoT will keep its policy rate steady at 2.0% in 1H15 due to developments in overall economic conditions. It could lift its policy rate by 0.25-0.50% to 2.25-2.50% in 2H15. Primarily, we forecast the first rate hike to be at the September 15, 2015, meeting.

The BoT proposed to the Ministry of Finance that the cabinet approve the use of headline CPI for inflation targeting instead of the core CPI. It is possible this will be approved before year end. We are not concerned about such as a change, as the BoT could weigh for economic growth rather than mild rising inflation next year with a forecast of 2.2%. We could see a slowdown headline and core CPI in September to 1.87% YoY due to deep cuts of domestic oil prices.

STRATEGY

SET likely to have a swing trade in October, as valuations are high and jitters ahead of FOMC meeting are likely

As mentioned in the previous strategy note, we expect to see a swing trade in October, as near-term market valuations look stretched at 17x PE band, leading to higher volatility in the SET. In the next 3-4 weeks, global sentiment may remain fragile as investors are still worried about the signals from the US FOMC October meeting regarding its benchmark interest rate. According to our PE band analysis, SET may have a tactical pullback, but it is unlikely to fall below 1,554pts (16.5x EPS14), our baseline call for the magnitude of correction.

Correction possible, but light position of foreigners implies a limited downside

We view that any near-term pullback is tactical in nature and does not change our core positive view on SET. Thailand, after suffering large outflows in 2013, continues to have a relatively light position of foreign inflows YTD. Foreign investors still report Bt4.1bn of YTD accumulated net selling, compared to significant net inflows in other TIP markets. Lastly, SET could be supported by local institutional flows later in the year as the tax benefit from LTFs for this year remains, according to the new government. The monthly data from 2006-2013 shows that local institutional investors net bought Bt16.9bn into Thai shares during November-December.

Focus on Small Caps : SAM, UWC, CI, RML, TGPRO, OCEAN
                                 MILL, LOXLEY

CS  Comments

We expect the Thai market to remain in a consolidation on Wednesday, as global equities sentiment is mixed. Most investors continue to wait for the ECB announcement on ABS bond buying tomorrow and US economic readings on the manufacturing sector and labor market later this week. The release of China’s official PMI for September will also set the tone for Asian trade today, as the recent slowdown of the country’s economy resulted in the relaxation of property market regulations yesterday. On the local side, the Thai cabinet is holding a weekly meeting today to consider the new economic stimulus package worth about Bt200bn, according to local press. The new package is aimed to boost economic activities which are still slow according to the latest monthly release from the central bank showing that both private consumption and private investment indicators continued to drop MoM. Overall, we maintain the view for a sideways trading in the near-term and see a moderate risk of market correction in October, as investors may soon return to a cautious mode ahead of the US FOMC meeting late of October

Colin McCallum, CFA / Research Analyst / 852 2101 6514 / colin.mccallum@credit-suisse.com
Jennifer Gao, CFA / Research Analyst / 852 2101 6479 / jennifer.gao@credit-suisse.com

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