DBSVS Sees a Perfect Time to Invest in Materials Stocks as Floodwaters Recede

DBS Vickers Securities (DBSVS) forecasts the SET Index will test resistance level between 1,650 and 1,660 this week, and recommends investing in stocks that benefit from the easing of flood threat; DCC, HMPRO and SCC.

Issues to keep an eye on:

– Coal prices fell as China’s government threatened to intervene in the country’s energy crisis. This would be disadvantageous to coal stocks, but beneficial to those in the cement, material, construction, and transportation sectors.

– COVID-19 situation showed signs of improvement across the world. Moreover, the US FDA and CDC have approved the use of Moderna and J&J as a vaccine booster shot.

– U.S. Purchasing Managers Index increased to 57.3 from 55.0 in September.

– China’s Evergrande has already succeeded its debt repayment on September 23, but has to keep an eye on the 2nd installment.

– A spike in inflation as a result of increased costs, and a sluggish recovery of the economy.

– Thailand’s government has continuously introduced new economic stimulus packages, and the IMF projects that Thai GDP would rise by 1% in 2021 and 4.5% in 2022.

– The Bank of Thailand raised the LTV cap from its previous range of 70–90%, to 100%, effective until the end of 2022. This would benefit property stocks, such as AP, LH, SPALI, SENA and SC.

– Widespread flooding in Thailand is easing.

Dynasty Ceramic Public Company Limited (DCC); “BUY” recommendation, with TP of 3.50 baht.

DCC’s operations and revenues are showing signs of recovery, and the company anticipates tangible growth in 2022.

DBSVS expects a drop in 3Q21 earnings due to the COVID-19 fourth wave, which results in a decline in sales and GPM. However, sales are expected to improve in 4Q21 as a consequence of the lockdown being lifted and rising demands for building supplies as flooding recedes.

Home Product Center Public Company Limited (HMPRO); “BUY” recommendation, with TP of 16.00 baht.

SSSG has returned to positive territory since September 21.

DBSVS forecasts HMPRO’s 3Q21 earnings of 1 billion baht (-27% YoY, -29% QoQ), which will be impacted by the new wave of COVID-19 and shop closures in dark-red zone provinces between July and August 2021.

Since September 2021, SSSG has recovered with the reopening of previously closed stores. Earnings are expected to rebound both YoY and QoQ in 4Q21 as a result of 1) pent-up demand, 2) the HomePro Super Expo, 3) demand for building materials for repairs following the receding of the flood, 4) economic recovery ahead of Thailand’s reopening, and 5) benefit from the Bank of Thailand raising the LTV cap.

The Siam Cement Public Company Limited (SCC); “BUY” recommendation, with TP of 496.00 baht. 

Chance for accumulating during SCC’s share price declines 

DBSVS anticipates flat earnings in 3Q21, a 40% fall YoY, due to a decline in spread petrochemical products and margins for cement and packaging owing to increasing raw material costs and transportation costs. Additionally, cement sales have dropped during nationwide lockdowns.

DBSVS sees a positive QoQ earnings outlook for SCC’s 4Q21, as cement and construction material sales are expected to recover following lockdown lifting and flooding improvement, combined with a good PVC spread. Additionally, SCC is projected to benefit from the weakening Thai baht.