Thailand Outlook 2021: Is it worth "revisiting"? - Fundsupermart

Thailand Outlook 2021: Is it worth
“revisiting”?
Despite being one of the countries who have successfully contained Covid-19, the
pandemic severely dented Thailand’s economy in 2020

iFAST Research Team Published on Dec 30, 2020, 10:07 AM Research 2021 Outlook , Thailand

Photo by Mathew on Unsplash

Pandemic severely dented Thailand's economy in 2020

Despite being one of the few countries that have successfully contained the Covid-19 pandemic,
Thailand’s economy is set to end 2020 as one of the worst hit South East Asian country with a -
6.6% YoY contraction.

Chart 1: Thailand was one of the worst hit South East Asian economies by the pandemic

Absence of tourists dealt a big blow to domestic economy

According to CEIC estimates, Thailand generated USD 62 billion of tourism revenue in 2019, up
from USD 14 billion in 2009. From 2009 to 2019, visitors have been flocking to Thailand at an
annual growth rate of 11%, playing a major part in boosting the domestic economy, see Chart 2.
Over the same period, sectors directly related to tourism (namely Accommodation and Food,
Wholesale and retail trade, Transport and storage) has grown in importance, accounting for more
than 30% of the country’s GDP in 2019 from less than 25% in 2009.

However, so far in 2020, due to the pandemic and travel restrictions, the number of visitors has
plummeted by -83% to only 6.7 million, compared to more than 40 million in 2019. In 2Q and 3Q
2020 when there were zero tourist arrivals, sectors directly related to tourism (namely
Accommodation and Food, Wholesale and retail trade, Transport and storage which accounted for
as much as 30% of the country’s GDP in 2019) suffered huge contractions, see Chart 3.

Accommodation and Food sector contracted -46.8% compared to the same period last year as
business for hotels and restaurants plummeted. Meanwhile, Transport and Storage and Wholesale
and Retail Trade sectors suffered a -33.3% and -8.3% YoY contractions respectively as lack of
tourists sapped the demand for transportation services like taxis and tours and emptied shopping
malls.

Chart 2: Thailand saw a -83% YoY drop in Visitor Arrivals in 2020 so far

Chart 3: GDP by industry (Second and Third Quarter 2019 vs Second and Third Quarter
2020)

Further exacerbated by slowdown in global demand and exports

Exports, which have seen a downtrend for the past few years (see Chart 4), have deteriorated
further this year due to slowdown in Global demand. Total exports in 2Q and 3Q 2020 dropped
another -10% compared to the same period in the previous year.

The impact of tourism and exports have resulted in higher unemployment, fall in private
consumption, weak retail sales and increased household debts, see Chart 5.

Chart 4: USDTHB vs Trade

Chart 5: Retail Sales and Private Consumption

The economy to recover in 2021 but needs 2 years to return to pre-pandemic levels

After contracting -6.6% YoY in 2020, Thailand’s GDP is expected to see some turnaround but at a
“relatively subdued” pace of only 3.9% and 4.5% in 2021 and 2022, despite the lower base in 2020,
see Chart 6.

Growth is set to be driven by exports, especially in petrochemical, electronic, and automobile
products, as the global economy starts to reopen from the lockdowns. However, the Baht’s strength
and weakening USD could be headwinds for exports, as it has over the past few years (see Chart 4).

In the near term, the crucial tourism sector would still be dragged by travel restrictions but should
recover as vaccination is rolled out globally and tourists return. That being said, it would take an
effective global vaccination for the tourism sector to fully recover to its former glory.

Coupled with the recovery in manufacturing and exports and tourism, domestic demand should
recover subsequently on the back of improving household and capital spending. However, an
unwanted prolonged tourist recession will deepen the damage on consumer confidence and private
consumption, further delaying the economic recovery.

Furthermore, any swift recovery could be delayed if political uncertainties in the country worsen.
Recently, there has been an increase in student-led protests calling for the resignation of the prime
minister and reforms to the monarchy and the protestors are planning more rallies, in a prolongation
of turbulence that could hamper domestic demand.

Chart 6: GDP YoY Growth Forecasts

Earnings to rebound strongly in 2021 across all sectors, led by cyclicals Energy, Industrials
and Commerce sectors

SET Index earnings expected to rebound 47.6% in 2021 after the -44.6% contraction in 2020,
mainly led cyclicals Energy & Utilities, Industrials and Commerce sectors (see Chart 7).

The Energy & Utilities sector is expected to grow earnings by 78.1% led by PTT PCL, the national
petroleum company and the biggest constituent of the SET index, which is expected to see earnings
growth of 52.9% in 2021, in line with the recovery in oil prices and demand for oil as mobility and
travel is rebounds.

Meanwhile, after the difficult 2020, Airports of Thailand PCL, the second biggest constituent of
SET Index, is expected to recover with a 2229% EPS growth in 2021 as global inoculation allows
more travelers to fly again, contributing to the 102% expected EPS growth for industrials sector in
2021.

The Commerce sector is expected to see EPS growth of 30.7% led by Central Retail Corp PCL, the
leading mall operator, which is expected to see earnings growth of 968.3% in 2021, in line with the
recovery in domestic demand and tourists.

Chart 7: SET Index and Sector Earnings Estimates

Despite strong earnings rebound, SET Index valuations are unattractive as prices have
outrun earnings upgrades

Referring to Chart 11, SET Index earnings estimates for 2020, 2021 and 2022 have continually
been downgraded despite recent positive vaccine news. Meanwhile, SET Index has rebounded 38%
from its 2020 lows, outrunning consensus earnings upgrades.

The SET Index is now trading at 14.0X P/E based on our adjusted 2022 estimated earnings, which
is above the fair P/E of 15X. With about 7% upside potential, this implies that Thai equities are less
attractive compared to other markets.

Chart 8: SET Index and Forward Earnings Estimates Trend

Table 1: SET Index Valuations

 SET Index               FY2019                  FY2020                  FY2021     FY2022

 PE Ratio (X)            18.10                   25.5                    16.7       14.0

 Expected Earnings       -                       -40%                    52.6%      19.0%
 Growth (YoY %)

 Earnings Per Share      91.67                   55                      83.9       99.99
 (EPS)

 Projected Fair Price    -                       -                       -          1500
 (Based on 15X Fair
 PE)

 Potential               -                       -                       -          7%
 Upside/downside

 Source: Bloomberg Finance L.P., iFAST compilations. Data as of 23 December 2020.

Conclusion: Due to its dull macro outlook and uninspiring upside potential, Thai equities are
probably not worth revisiting at this juncture. We maintain 2.5 star Neutral for Thailand.