FSS International Investment Advisory Securities (FSSIA) stated in the analysisม based on its analysis of the stocks with the most influence on the SET Index, that the five blue-chip stocks (BIG5) which account for 23% of the SET’s market capitalisation, are likely to be the next key drivers for the SET Index.
The BIG5, consisting of PTT Plc. (PTT), Airports of Thailand Plc. (AOT), Gulf Energy Development Plc. (GULF), Siam Cement Plc. (SCC) and CPALL Plc. (CPALL), have solid fundamentals, while some have plans to list their subsidiaries in the second half of 2020. For the stocks under FSSIA’s coverage, the security company believed they will have more catalysts to unlock the value of their legacy businesses to create shareholder value, which will likely catapult the SET Index in 4Q20E.
FSSIA also gave tactical views on the BIG5, stating that PTT has a well-diversified business portfolio in the energy industry, from upstream to midstream and downstream. FSSIA saw that PTT’s net profit is highly resilient due to its utility-like ventures (GSPs, pipelines, LNG terminals, oil stations), which accounts for over 40% of PTT’s EBITDA. More importantly, FSSIA expected the upcoming listing of its subsidiary Oil Retail (OR) by 1H21to likely unlock PTT’s value in the oil station business.
As for AOT, the company operates six international airports, capturing more than 80% of total passenger traffic in Thailand. The new concession contracts for King Power will start in April 2022. Aside from a strong aero-revenue stream, AOT plans to increase its non-aero revenue through several projects, including Airport City and Certify Hub.
GULF is an influential stock whose 2-year surge continues to push the SET Index higher. GULF is Thailand’s largest power producer with the highest visible earnings growth outlook among the Thai power companies. The key growth drivers include growth in equity capacity at 18% CAGR to reach 6.3GW by 2024E, driven by the projected lower gas cost, the commencement of its newly-awarded shipper license for LNG imports, and the consolidation of the Borkum Riffgrund 2 Offshore Wind Farm Project by 4Q20. The 10% capital increase should provide a buying opportunity ahead of GULF’s solid net profit growth outlook.
FSSIA stated that SCC has an integrated business portfolio of cement, building materials, packaging, and chemicals. In the meantime, SCC also has an upcoming listing for its packaging unit in SET Index.
Lastly, FSSIA wrote that CPALL is the leading wholesale and retail player in Thailand. More importantly, the sector is far from the saturation point, in FSSIA’s view, and this suggests that CPALL can potentially achieve its target to expand its stores by 700 branches annually to 13,000 by the end of 2021. On top of its SSSG growth and expansion plan, CPALL plans to increase its GPM by 10-20bp per year from its current 26-27% by focusing on high-margin ready-to-eat products (RTEs).
In the short run, CPALL’s earnings in FY21E could dilute by 1.8-2.0% from Tesco’s acquisition, but FSSIA remained convinced that CP Group could utilise its management expertise and implement an expansion strategy that would make Tesco’s operation more profitable.
In addition, FSSIA reiterated “overweight” rating on Thailand equity, expecting SET Index to reach 1,550 by end-2021, driven by 1) economic activities that have resumed more quickly than expected in Thailand; 2) rising investor confidence thanks to Thailand’s proven ability to contain the Covid-19 outbreak; and 3) continuing domestic fund flows ahead of economic recoveries.