Capital: Asean Stars on the SET and SGX

Investors can now access companies listed on the Stock Exchange of Thailand (SET) via the Asean Trading Link, in addition to those on the Singapore Exchange (SGX) and Bursa Malaysia. The Edge takes a look at a few of the top companies on the SET and SGX.

Last Monday, the Stock Exchange of Thailand (SET) became the third member of the Asean Trading Link, joining the ranks of the Singapore Exchange (SGX) and Bursa Malaysia. This means Aseanâ s three largest equity markets are now connected through a single trading platform.

The three exchanges have a combined market capitalisation of US$1.4 trillion (RM4.3 trillion) from more than 2,300 companies, which is equivalent to two-thirds of Aseanâ s combined market capitalisation.

The companies listed on the three exchanges offer investors exposure to Asean, whose economy Moodyâ s Investors Service says is a bright spot against a gloomy global environment.

While acknowledging that Southeast Asia is not immune to severe global headwinds given their export-driven economies, Moodyâ s is certain that solid domestic demand will help most Asean economies grow near trend. With the exception of Singapore, which has been hit by a downturn in the demand for electronics, Indonesia, Thailand, Malaysia and the Philippines are expanding at or near potential, thanks to solid domestic demand, according to the rating agency.

With this in mind, The Edge takes a look at some Asean Stars on the SGX and SET, which may stand to benefit from Asean growth. The Asean Stars comprise 30 of the top stocks from each exchange, ranked in terms of market capitalisation and liquidity. The selection of stocks for this article is based on analystsâ calls and their individual merits â " such as attractive dividend yield, growth potential and catalyst in sight â " coupled with the internal factors of their respective countries.

The Thai economy for one is highly dependent on the manufacturing sector. The country took a massive blow when floods threatened to cripple economic growth last year. Nevertheless, the Thai economy appears to have rebounded from the effects of the floods. In the second quarter, it recorded a 4.3% annual growth while the SET outperformed both Bursa and the SGX, chalking up a 26.91% YTD increase to 1,301.28 points.

CIMB Research opines that the Thai marketâ s valuation looks attractive because it is still trading at the â upcycle averageâ in terms of forward price-earnings ratio (PER). The research house remains overweight on sectors such as agriculture, media, hospitals, property, petrochemicals, retail and banks, and underweight on telecom, oil and gas, transport and mining.

Furthermore, government support measures that have been put in place will spur the domestic growth of the country.

Notably, the seven-year line-up of infrastructure projects, focusing on strengthening the countryâ s logistics networks, which costs up to THB2.27 trillion (RM225.5 billion), should propel growth in the construction sector.

The higher minimum wage to take effect on Jan 1, 2013, first-car tax incentives and government support measures to boost farm incomes and credit availability as well as the postponement of the VAT tax increase are set to boost private consumption going forward, says CIMB Research.

Consumer companies as well as banks and property, media, telecom and food companies can expect to benefit from these measures.

As for Singapore, the Straits Times Index has risen 17% YTD. Hwang Investment Management Bhd head of equities Gan Eng Peng views the SGX as attractive in the medium term based on its current valuation of 12 times PER.

With massive amounts of liquidity flowing in from the developed markets coupled with the low interest rate environment, investors have been hunting for yield, says Gan.

The country is highly attractive as an investment destination, he says, given its status as one of the few AAA-rated countries left in the world and the openness of the market.

Other factors that have lured investors include its stable currency exchange and socio-political environment, he adds.

â We believe the market buoyancy will continue given that it is flush with ample liquidity. The low interest rates will lead to demand for yield, and this will drive yields to compress further. As Singaporeâ s yield valuation remains attractive, yield compression trade should continue, barring any black swan events,â Gan says.

One example of a high-yielding investment favoured by Hwang Investment is Singapore real estate investment trusts (REITs), which provide an attractive yield spread compared with its sovereign bonds. â The 10-year Singapore sovereign yield is trading at 1.8% while Singapore REITs are yielding about 6%,â says Gan.

SET Asean Stars

Krung Thai Bank Pcl

The state-owned financial institution is poised to benefit from the ongoing capex recovery cycle and renewed public and private investment from 2013 onwards, according to KT ZMICO Securities. This comes on the back of its large exposure to corporate loans amounting to 38% of its total loans, which makes it one of the top three lenders in the corporate loan segment. Krung Thai Bank (KTB) also provides 15% of its total loans to government entities.

The boost in minimum starting salary for bachelorâ s degree holders for civil servants and employees of state-owned companies is set to drive the bankâ s personal loan segment as personal loans are generally secured through payroll deductions. Its personal loan segment grew from 6% in 2007 to 14% in 1H2012.

Analysts say that KTBâ s key net profit drivers will be its loan growth, driven by retail loans and loans to corporate clients and government entities. The bank also has stable fee income growth, estimated to be 16% in 2013.

KTBâ s price-to-book value (PBV) of 1.28 times is lower than its sector average forecast PBV of 1.6 times for 2013, making it an attractive investment, says KT ZMICO Securities.

â The bank offers value, especially since its share price has trailed its peersâ despite similarly solid earnings,â says CIMB Research, which has an â outperformâ call on the stock.

Airports of Thailand Pcl

Airports of Thailand Pcl (AOT) is principally engaged in the management, operations and development of six airports in Thailand, namely Suvarnabhumi, Don Muang, Chiang Mai, Chiang Rai, Hat Yai and Phuket.

According to Phillip Securities, the company reported that passenger and aircraft movement through its airports continued to rise 9.3% and 10.78% y-o-y in July and August.

Kasikorn Securities notes that the eurozone crisis has not dampened the tourism sector in Thailand as tourist destinations have shifted from the traditional European and North America countries to Asean, Eastern Europe, the Middle East and South Asia.

KGI Securities has highlighted a number of near-term catalysts for AOT such as the opening of shopping and F&B outlets King Power Duty Free and The Mall Group at Don Muang Airport, which will contribute THB956 million (RM94.4 million) to annual rental revenue.

The airport management company is also submitting plans to increase its airport tax on its international passengers to THB800 while domestic charges will be increased to THB150. However if the Civil Aviation Council does not approve the plans, KGI Securities says AOTâ s forecast net profit for FY2014 will be down to THB8 billion from THB9.4 billion.

Thai Union Frozen Products Pcl

Thai Union Frozen Products Pcl (TUF) is one of the worldâ s largest manufacturers and exporters of frozen and canned tuna, and seafood. It commands 20% market share in the packed tuna segment globally.

According to a report by JPMorgan, TUF is yet to fully maximise the synergies that can be derived from its recently acquired MW Brand, which has a strong brand presence in Europe. The research house sees room for improvement in its margins with the ongoing realisation of the synergies.

In the short term, the stabilising price of tuna fish should provide better margins for the business in 2H2012 as the retail price of canned tuna has been adjusted to reflect higher tuna prices, says OSK Research.

TUF is still looking for more potential M&As with branded companies in the sardine and pet food segment, although this may take some time.

The rapid rise in the Thai baht after the US Federal Reserve announced a third round of quantitative easing could hurt its earnings capability, says Phillip Securities. A total of 67% of TUFâ s revenue and half of its production cost are in US dollar terms. However, TUF has hedged 50% of its foreign exchange exposure.

â Based on a regional comparison between TUF and food companies in Indonesia [Indofood] and Singapore [Petra Foods], TUF came up more attractive in terms of return on equity and PER, with the company pegged at 1.2 times price-earnings-to-growth ratio versus 1.3 times for Indofood and 2.4 times for Petra Foods,â says OSK Research.

Bangkok Dusit Medical

Services Pcl

Thailand saw a higher number of international patients in 1H2012 compared with domestic patients. Medical tourism in July grew 8% YTD, in line with the growth of tourist arrivals in Thailand, says OSK Research.

â Moving forward, we expect Asia and Asean to be the major growth drivers for Thailandâ s medical tourism sector, given the regionâ s rising wealth and Thailandâ s strong brand as a medical tourism destination,â it adds.

On such prospects, companies such as Bangkok Dusit Medical Services Pcl (BDMS) are set to reap the benefits.

Analysts are expecting BDMS to record a strong set of results for the third quarter ended Sept 30, on the back of the high season for domestic patients due to the rainy season coupled with strong growth momentum from international patients.

The company plans to open another three hospitals by 2014 in Udonthani, Rayong and Chiang Mai. Although losses are expected from the operations of these new ventures, says Kasikorn Securities, the impact on BDMSâ bottom line should be less than 2%.

According to OSK Research, BDMS offers stable and attractive earnings growth potential in spite of its high valuations. However, the company has a comprehensive and diversified market exposure.

PTT Global Chemical Pcl

PTT Global Chemical Pcl (PTTGC) was listed on the stock exchange in 2011 after the amalgamation of PTT Chemical Pcl and PTT Aromatics and Refining Pcl.

The olefin and aromatics production company has been affected by a weak outlook for the petrochemical industry, which is suppressing its share price.

However, its third quarter results ended Sept 30 are expected to rebound on the back of strong refining margins and stock gains, says OSK Research. The aromatics business saw improved spreads while olefin spreads were down due to higher feedstock prices.

Kasikorn Securities says the company still has potential for organic growth.

â The 1H2012 maintenance meant that PTTGC has yet to fully ramp up its late 2010/11 ethylene expansion. The full operating capacity followed by 2013 post-merger synergies mean that PTTGC will still enjoy organic growth. The expected earnings before interest and tax contribution from the synergies is expected to be THB2 billion (RM198.6 million) to THB4.5 billion per annum,â it says.

Analysts believe that PTTGCâ s share price has declined to a point where there is limited downside, and made a â buyâ call on the share.

â Trading at eight times PER and one times PBV, the share price gives a 4% yield and an upside of 17% to our target price of THB68.23 per share,â says OSK Research.

SGX Asean Stars

CapitaLand Ltd

CapitaLand Ltd, one of Asiaâ s largest real estate groups, has its core business in real estate, hospitality and real estate financial services in growth cities in Asia-Pacific and Europe.

According to research by Cantor Fitzgerald, the companyâ s multi-sector property exposure and geographical diversity enable the group to withstand volatility in property cycles and policy risks. Its diversification portfolio includes a growing real estate fund management business, which has S$36.1 billion (RM90.2 billion) worth of assets under management.

Phillip Securities in its research report notes that the groupâ s residential sales in China increased 18% with 1,067 units sold in 1H2012 as buyer sentiment improved.

CapitaLandâ s Beaufort residential development, which was launched in Beijing in May, received a positive response with 61% of the 228 units sold.

Although China reported slower economic growth in the third quarter at 7.4% y-o-y compared with 7.6% the previous quarter, economists say the countryâ s economy has bottomed.

CapitaLand has a strong balance sheet with S$5.1 billion in cash and a net gearing of 0.41 times.

â Despite having committed S$2.4 billion in new investment in 1H2012, we believe CapitaLand will continue to deploy its capital into new investments and opportunistic acquisitions with its S$5 billion cash on hand. That will provide catalysts to its share price going forward,â says Phillip Securities.

However, there are some risks attached to the stock. There is the possibility of a weaker economic condition and unfavourable government policies in Singapore and China, which will dampen demand for properties.

Furthermore, with a tighter credit market, CapitaLandâ s increasing borrowing cost may also be a cause of concern for the group.

Singapore Press

Holdings Ltd

Apart from publishing, printing and distributing newspapers and magazines, Singapore Press Holdings Ltd (SPH) also provides multimedia, broadcasting and telecommunications services. It has growing interests in the property segment where it manages shopping centres and other commercial properties.

In the fiscal year ended Sept 30, revenue from SPHâ s newspaper and magazine segment fell 1%, shrinking its pre-tax margin for the segment by 33.3%. During this period, the segment contributed 75.9% to the groupâ s profit before tax while property and other businesses made up the balance.

Maybank Kim Eng Research opines that SPHâ s property segment will be the growth driver for the group going forward.

For its property segment, the topline increased 1.8%, driven mostly by income from Clementi Mall and the newly acquired exhibitions business, says OCBC Research. It adds that SPHâ s retail property, Paragon, scored a 3.4% increase in rental income due to positive rental revision while Clementi Mall contributed S$18.6 million to the groupâ s full-year performance.

The groupâ s Seletar Mall in Singapore is expected to be completed by end-2014.

The stock has an attractive dividend yield of 5.9% based on its price of S$4.06 per share last Friday.

Olam International Ltd

The supply chain management group is involved in agricultural commodities and food ingredients. It supplies edible nuts, spices and beans; confectionery and beverage ingredients; food staples and packaged foods; and fibre and wood products.

Olamâ s investment case may be premised on the fact that the food business is generally resilient to economic slowdown.

Its edible nuts, spices and beans; confectionery and beverage ingredients; and food staples and packaged foods make up of 76% of total revenue while fibre and wood products contribute 24%.

However, OCBC Research notes that near-term market and industry dynamics could impact margins and profits in the food segment. The research house is also less sanguine about Olamâ s industrial segments due to customer pessimism and slowing growth in China and India.

â Nevertheless, Olam stresses that it is well diversified in its sourcing and is well positioned to respond to potential short-term volatility in specific segments. It adds that it has a strong balance sheet in place to handle potential macro-economic shocks and will not need to tap the equity market to support both current and future investments.

â Last but not least, Olamâ s priority is now on focused execution and extracting full value for investments already made or committed to,â says OCBC Research.

Golden Agri-Resources Ltd

Golden Agri-Resources Ltd is the worldâ s second largest oil palm plantation owner with integrated operations focused on the production of palm-based edible oil and fats.

The past three weeks saw crude palm oil (CPO) prices slipping 18% to below RM2,500 per tonne, hit by the weaker demand from China, which led to high stockpiles in Malaysia and Indonesia.

â In October alone, Golden Agri-Resourcesâ share price fell as much as 4.5%, bringing its YTD decline to 13.1%. Should CPO prices remain around current levels for the remainder of 4Q2012, we can also expect downward revisions from the street for its FY2012 estimates and could see a larger impact on FY2013 forecasts,â says OCBC Research.

According to Phillip Securities, CPO prices are expected to remain weak in the near term until production starts to fall towards the end of the year.

Phillip Securities highlights that the groupâ s plantation age profile looks attractive, with 46% of its trees at their prime, 20% young and 8% immature.

Sembcorp Industries Ltd

The conglomerate is primarily involved in utilities, marine and integrated urban development and has assets totalling more than S$10 billion.

According to Phillip Securities, the company has a pipeline of utility projects for the next few years, which are poised to contribute to future earnings.

The research house highlights that earnings in the utilities business have grown substantially over the years as Sembcorp engages in sizeable acquisitions, such as the waste and waste service company Cascal NV in 2010 and WSN Environment Solutions in 2011. The company has also taken up stakes in energy businesses across the globe, namely UAEâ s Fujairah IWPP, Vietnamâ s PHU MY 3 power plant and Chinaâ s Cao Jing co-generation plant.

Maybank Kim Eng Research notes that the company aims to build a significant renewable energy portfolio. Sembcorp announced in September that it had successfully acquired China Wind Farm.

â Sembcorp does not rule out making more acquisitions if the opportunity arises.

â Excluding S$1.2 billion in project finance loans, it has net cash of S$900 million, mostly held under Sembcorp Marine,â says the company.

Hwang Investment Management Bhd head of equities Gan Eng Peng opines that the market is undervaluing Sembcorp Industriesâ stable and growing utility business as well as its world-class oil and gas segment. The stockâ s current trading level of around S$5.48 per share presents a good opportunity, he adds.

Sourced: cospp