May is proving to be a critical month for Thailand’s battle against the coronavirus. The third wave of Covid-19 emerged in April and has taken a big toll, but this month has been even worse, with new cases exceeding 2,000 per day. Deaths have also escalated to around 30 per day.
New cases in Thailand since the beginning of April now exceed 67,000, putting the cumulative total since last March above 96,000 with 518 deaths. Elsewhere, India has become the hotspot of greatest concern with more than 350,000 new cases and 3,000 to 4,000 deaths per day.
Even some countries that have had successful vaccination programmes, such as Israel and Turkey, are also experiencing new waves. On the positive side, the US and UK are recovering fast, with new US cases down to about 30,000 per day (from more than 200,000 earlier). This improvement has been attributed to swift vaccination rollouts and social distancing measures.
The third wave in Thailand is taking a severe toll on an economy that was already reeling from the first and second waves. The government has pushed out a number of relief programmes, but the most effective way to bring the economy back to health, in our view, is widespread vaccinations and eventually, herd immunity.
While vaccination distribution in Thailand has been under way for a couple of months already, we expect it to really take off from late in the second quarter. This timeline means the full reopening of the country is likely to be delayed into next year.
Therefore, we should see further cuts, albeit small ones, in GDP forecasts for this year. Current economic growth forecasts are between 2.5% and 3.0%; we expect revisions to around 2% for the year.
Nevertheless, global capital markets continue to do well, especially in the US where the Dow Jones and S&P 500 are marking new highs. Thailand has also been fairly resilient despite the third wave, with the SET trading sideways this month. The index is now around the 1,550 to 1,590 level, a big recovery from the sharp correction on the first day of trading in May.
What has been particularly surprising is trading volume which has exceeded an average of 100 billion baht per day in May, bringing year-to-date trading to almost 95 billion baht per day, the highest average ever for the SET.
Not surprisingly, the breakout of the third wave resulted in big outflows among foreign investors. Net selling was at 11 billion baht over the first 10 days of May with total net sales of more than 44 billion baht so far this year. Local institutions have also been net sellers at 42 billion baht this year, while retail investors have taken up the mantle as the key buyers.
We believe net selling by foreign investors should continue if Covid restrictions, especially in Bangkok, do not ease by the end of this month. We see the market moving sideways and trading in a range of 1,550 and 1,610 points for the month.
Our current picks largely consist of stocks with strong fundamentals and prospects for upbeat first-quarter results. Our top picks include HMPRO, JWD, SCGP and STGT.
We expect the home improvement retailer HMPRO to report year-on-year profit growth in the first quarter, even with the second wave hitting early in the year. Although the third wave should have substantial impact on second-quarter performance, we still see a much improved second half of the year for the company.
HomePro’s operations in Malaysia are strong, as expected, and with refinancing under way, it should also save on interest expenses. We still like HMPRO and expect a big profit jump this year of 20% year-on-year with full-year dividend yield of 3%.
The logistics specialist JWD, meanwhile, should continue to grow from its investments. These will contribute in the form of equity income and should widen to 10% of total revenue. JWD’s first-quarter net profit jumped 51% year-on-year and 85% quarter-on-quarter, with the new investments and businesses recovered from last year.
We also see JWD making a big comeback this year with profit growth expected at 40% year-on-year. While harmful for some, we believe the new normal environment should prove beneficial for the logistics sector.
Turning to SCGP, we see benefits from increasing packaging demand via e commerce. The SCG affiliate reported solid first quarter results with profit growth of 23% year-on-year and 44% quarter-on-quarter. This is particularly impressive given that the second wave hit the country early in the year.
We expect profit to grow 37% year-on-year for 2021 on high paper demand. Moreover, we believe SCGP will be included in the MSCI index and will thus be a target for foreign fund investment.
A clear beneficiary of the Covid outbreak is STGT which produces rubber gloves for medical and industrial services. The company has been enjoying significant growth since last year and we expect it to continue seeing high demand for rubber gloves with higher margin. The market expects net profit to jump 215% year-on-year with a huge dividend yield of 10%.