The Stock Exchange of Thailand (SET) swung with global bourses this week, facing a sell-off prompted by worries about an artificial intelligence (AI) bubble, before an earnings surprise by Nvidia, which beat already high expectations, triggered buying again.
Along with positive earnings guidance for the chipmaker, Nvidia chief executive Jensen Huang said it is premature to think about an AI bubble. He sees rising demand from real orders amid the biggest computer infrastructure transition in decades, as all industries are developing AI models and consistently require enormous processing power.
We also believe the “super cycle” for tech plays will persist through next year as a fresh round of development kicks in, starting with hardware and large language models, which will then turn into applications that will ignite changes in technology and global lifestyles. Therefore, we see trading opportunities in tech plays throughout next year.
We believe market consolidation amid bubble fears towards year-end provides opportunities to accumulate global tech stocks. For the Thai market, other than DELTA, which is in the hardware phase, we expect other sectors such as utilities (water, power and internet) to take their cues. The coming week is a fine time to collect related stocks and we recommend WHAUP, which has a high dividend yield at 6% to cushion any price volatility.
We expect Thai shares to be rangebound, with the SET index trading between 1,260 and 1,320 points next week, but rising volatility from big-cap DELTA could trigger excessive movement. As the market has shown signs it can sustain momentum during a consolidation phase (the 1,250 support held last week), we think institutional investors will have the courage to rotate stocks.
We are focusing on key sectors that can absorb flows of stock rotation such as hotels, airlines, refineries, agri-food and commerce. We prioritise stocks with potential near-term catalysts such as AOT (duty-free saga ends, focus shifts to higher passenger service charges) and CENTEL, which will thrive on revitalised tourism.
EARNINGS OPTIMISM
A positive factor for the Thai market was solid third-quarter earnings growth, up 30% year-on-year but down 24% quarter-on-quarter, beating the consensus by 6.8% and beating our forecast by 5.6%. Key drivers were revenues from mobile-internet services and contributions from additional capacity for GULF.
Sectors pressured by the global economy such as upstream energy and petrochemicals continued to register losses, while falling meat prices hit some agribusiness shares, and property demand remains sluggish.
Excluding extra items, core earnings grew 1% year-on-year (but fell 7% quarter-on-quarter) as expected, for stocks covered by Bualuang Securities. Sectors with positive year-on-year core earnings growth were led by:
Telcos: Mobile-internet revenue growth;
Energy/power: Wider refining margins, GULF seeing a bigger contribution from ADVANC as softer energy prices pressure upstream energy plays;
Finance: Title loan business bolstered by loan growth and stable bad debt, hire-purchase business sees slow asset quality recovery while asset managers are pressured by weak cash collections;
Banks: Higher investment gains, softer operating expenditure and lower credit costs;
Retail: IT retailers register solid growth from Apple sales, rental-based department stores see higher rental revenues, CPALL grows on greater profitability and higher contribution of ready-to-eat food and beverages, while stiffer competition for Lotus’s weighs on CPAXT despite solid growth in the Makro wholesale business, building materials stores see same-store sales contraction;
Hotels: Lower interest expense boosts MINT’s profitability, solid growth in the food business pushes CENTEL earnings despite losses from new hotel in the Maldives.
As listed firms are conducting analysts’ meetings around this time, we see positive signals from the agricultural sector. TFG, CPF and BTG will benefit from signs of a swine price recovery while costs continue to drop. Leasing firms will likely benefit from the declining trend of credit costs and asset quality improvement.
Among negative factors, revisions to forecasts could signal earnings risk in the fourth quarter despite the cautious optimism that followed third-quarter results.
Analysts continue to revise down earnings forecasts on a broader basis, with more companies cut than raised. Both domestic and global plays have suffered earnings cuts, including retail, healthcare, energy-petrochemicals and electronics.