SET survives profit-taking, political risk

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The trading pattern in August on the Stock Exchange of Thailand was mixed. After a rally in July pushed the SET index up by 14%, there was some profit-taking.

Political uncertainty, as markets awaited the outcome of the court case against Prime Minister Paetongtarn Shinawatra, added to the market pressure.

The market moved sideways down between 1,212.68 and 1,283.55 points in August.

The SET reached its peak for the month at 1,283.55 in mid-August, but pressure from weak US economic figures and fear of inflation from US tariffs brought the index down.

News of a 10% reduction in South Korea's petrochemical capacity as part of a broader industry restructuring was positive for energy shares in Thailand, and helped the SET survive a steep drop in THAI shares following a big run-up after they resumed trading earlier in the month.

The SET closed the month at 1,236.61 points, down 0.5% from July, but average daily turnover jumped 18.6% to 49.9 billion baht.

Looking ahead, now that the US has confirmed a 19% tariff for imports from Thailand, we can expect exports to slow.

Much of the growth in recent months was the result of front-loading of shipments before tariffs kicked in.

Another big problem for Thailand is baht appreciation, which has reached around 31.70 to the US dollar, a gain of more than 7% for the year, while other Asian currencies pale in comparison.

The Vietnamese and Indonesian currencies even weakened by 6-7%, further affecting Thailand's competitiveness.

However, political uncertainty has receded with the rapid formation of a new government following the court-ordered dismissal of Ms Paetongtarn.

Prime Minister Anutin Charnvirakul already pledged to focus on tackling economic weakness, and his new cabinet should be sworn in soon. The SET has been increasing steadily as a result.

There is optimism the new government can deliver some quick wins within its short expected lifespan.

Given its focus on domestic consumption, our picks for this month are the mobile operator Advanced Info Service (ADVANC), the contractor Ch.Karnchang (CK), the wholesale and retail firm CP Axtra (CPAXT) and the finance firm Muangthai Capital (MTC).

ADVANC is a good defensive stock. Second-quarter net profit was 1.1 billion baht, up 3.4% quarter-on-quarter and 28% year-on-year. Earnings before interest, tax, depreciation and amortisation (Ebitda) reached 30.3 billion baht, in line with expectations, and we expect further growth in the third quarter. The company will start to realise cost savings of roughly 530 million baht per quarter from newly acquired slots on the 2100MHz spectrum in the third quarter. The English Premier League football season has begun, and ADVANC joined with 3BB to secure broadcast rights, offering potential to capture subscribers from previous holder TRUE. Fibre is another area the company is focusing on for growth in the near future.

CK has always been our preferred construction contractor stock. Its second-quarter net profit was 863 million baht, up 77% year-on-year and 206% on the quarter. A high project backlog worth 190 billion baht will help secure its revenue stream for the next few years. We also believe third-quarter net profit will outperform as it is the high earnings season for subsidiaries BEM and CKP, while it will realise a gain on investment from divesting 10% of its Luang Prabang project to Thai Tap Water (TTW). Moreover, with the election coming soon, more government spending on infrastructure can be expected, helping long-term sentiment for contractors.

CPAXT is in the spotlight again as the new government is preparing to revive the popular "Khon La Khrueng" consumption stimulus. The campaign subsidises 50% of the purchase price of selected daily-use goods, mostly small-ticket items. In its last iteration, modern trade stores were not eligible to participate. If this holds true again, CPAXT will benefit as it is a major wholesaler to traditional stores and street food providers. Although the government's budget for the campaign is expected to be only 25 billion baht, it will create positive sentiment and could be continued if the first phase is successful.

Finally, MTC reported its ninth consecutive record-high quarterly result in the second quarter with a net profit of 1.6 billion baht, up 14% year-on-year and 4.8% on the quarter. We see this trend continuing into the third quarter as the Bank of Thailand reduced its policy rate by another 25 basis points to 1.50%. We also believe the central bank will make at least one more cut this year and two in 2026, bringing the rate down to 0.75%. Finance companies will be the beneficiaries and MTC is our top pick in the sector.