The reopening investment theme

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With August in the rearview mirror, hope grows that the country will finally get a grip on Covid-19. Earlier this month, new cases jumped from 15,000 a day to more than 20,000, peaking at 23,481 on August 13. The country passed the one million mark on August 20, but reported cases subsequently fell, falling below 15,000 on most days. This prompted the government to announce the easing of lockdown measures for most of the provinces from September 1st.

That easing included the reopening of most stores, albeit with some restrictions. In general, activity in the big cities has almost returned to normal and the number of new cases every day has remained below 15,000 with a few exceptions. We continue to hope that the loosening of the lockdowns does not lead to a new surge in infections.

Despite lower infection rates, daily Covid deaths have remained stubbornly above 200 and the total death toll in the country is close to 14,000. On the vaccine front, 25.9 million people (37.3% of the population) have received their first vaccination and 10.9 million (15.7%) have received two vaccinations. Weekday vaccination rates are encouraging, with 600,000 to 700,000 vaccinations per day, and authorities say they will have 24 million doses – or 800,000 per day – by October.

Looking at the SET, early August was a difficult time as the domestic Covid situation worsened and concerns increased that new cases would rise to 30,000 or more every day. Therefore, the index moved sideways in the first half of August with a weak daily turnover of 70-80 billion baht. However, after reported infections declined, net purchases by foreign investors accelerated and the index climbed to 1,643.76 points on the last trading day in August, its highest level in two years.

FOREIGN BUYERS BACK

In fact, August was the first month of the year when foreign investors had a net buying position of 5.4 billion baht. They remained net buyers in September and stood at 7.2 billion as of Thursday. This is in contrast to the first seven months of the year, when net foreign sales were 93 billion baht.

Thanks to the loosening of the locks, the SET has risen even higher in September and reached 1,658.08 points with a daily turnover of almost 100 billion baht again. We believe investors are now facing an economic normalization, assuming the worst of the pandemic in Thailand is over.

In contrast, the result for the second quarter was better than we or the market as a whole had expected. However, with near-total lockdowns in half of the country in July and August, including Bangkok and many major cities, we expect third-quarter results to stay flat at best from the previous quarter.

Our current investment theme aims to support positive market sentiment on the reopening and recovery of economic conditions. Therefore, our recommendations are COM7, CRC, STEC and HANA.

With the increase in daily infections, most organizations continue to rely on the work from home model. The IT product dealer COM7 thus benefits significantly from this environment. Although bans have affected store sales, the online distribution channel continues to grow. Second quarter earnings hit a new high due to brisk home electronics purchases by homebound consumers.

While we believe COM7 earnings in the third quarter will be weaker compared to the previous quarter due to the full lockdown of nearly two months, a rebound in September should boost sales significantly. And with the new iPhone models slated to hit the market in the fourth quarter, COM7 should see an impressive 47% growth this year.

REVIVAL IN RETAIL

When discussing the reopening issue, CRC is one of the stocks. The country’s largest department store chain has been suffering since last year. We have seen some recovery this year as stores reopened in Europe and some stores in Thailand. However, we expect a bigger recovery from September this year.

In Thailand, sales in the second half of the year could be severely affected by the lack of tourists, but from next year we should see a tourist pick-up, followed by a full recovery in 2023.

The poor operating result for contractor STEC this year is mainly due to the termination of long-term government projects in the first half of the year. Weak economic conditions have constrained new projects and the rise in Covid cases in labor camps has also hampered construction activity. However, we assume that STEC can increase its backlog to 100 billion baht by the end of this year. This should support the improvement in earnings in the second half of the year and lead to a profit jump of 56% over the previous year in the next year.

Next up is HANA, the only exporter on our shortlist. The electronics company’s profit in the second quarter marked a new high with record sales of 6.1 billion baht. We expect the second half to be strong too. There could be a slight slowdown in the third quarter due to a Covid outbreak at the Ayutthaya factory, but the new manufacturing capacity that will start operating in the fourth quarter will help offset the decline.

We also note that the company is entering the power management industry with a focus on the electric vehicle market, a company that looks promising and positive to secure future growth. We assume that HANA will continue to grow in the next few years.

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