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Published on October 19, 2007

 With global oil prices expected to remain high for the next few years, stock analysts believe energy and petrochemical stocks will provide a strong lead for the Thai stock market during an upturn cycle that they expect will become a market rally after the upcoming general election.

With expectations of economic recovery, the banking sector is also seen as another rising star in the approach to 2008.

Analysts' top picks include PTT and PTT Chemical (PTTCH).

Nithi Wanikpun, Citibank's director and head of research in Thailand, believes the price of US light sweet crude West Texas Intermediate will remain high for another three or four years, at US$67.40 (Bt2,300) per barrel this year, $70 next year, $65 in 2009, $60 in 2010 and about $60 for a few years after that.

"I believe energy stocks will be the lead stocks for the Thai market, because they represent about 30 per cent of Thai market capitalisation. Our top pick over the next year is PTT, with a target price of Bt431 a share, upgraded from Bt349," he said.

Yesterday, PTT closed at Bt368, down by 2.65 per cent.

The correlation between global oil prices and the Stock Exchange of Thailand (SET) Index, at about 80 per cent, is another factor prompting Nithi's forecast. He believes tight demand in the refinery sector and rising production costs for large global refiners will prolong high oil prices.

Citibank Invest-ment Research expects the SET Index to reach 970 points by the end of next July. This is lower than the 1,000-point target forecast made earlier by Phatra Securities, Tisco Securities and Ayudhya Alliance CP, following the recent rally on expectation of an upturn after the December 23 general election.

The SET Index closed yesterday at 876.75 points, down 0.88 per cent.

Citibank also expects growth in earnings per share to accelerate to 15 per cent next year, following this year's growth of about 9.7 per cent and last year's negative growth of minus 2.1 per cent.

KGI Securities (Thailand) also offers positive advice about refiners, saying it expects gross refining margins to remain high.

"We believe refining businesses will benefit from strongly growing demand for refined products, especially from developing counties. On the supply side, several projects are expected to be delayed due to the length of time taken to deliver major equipment or cancelled because of surging construction costs," KGI said in a report.

KGI has maintained its overweight rating on the energy sector, with Thai Oil its top-pick refiner on the back of impressive earnings growth. Thai Oil closed yesterday at Bt89.50, down 2.19 per cent.

Phatra Securities says the energy sector represents 34 per cent of the SET Index, more than twice the size of banking, the next-largest sector and which represents less than 16 per cent.

"All other things being equal, the weighting of energy will be further boosted by the proposed listing of several large energy companies [estimated to happen] in 2008," Phatra said.

Citibank believes PTT subsidiary PTTCH will post an earnings turnaround in the second half of this year. With strong ethylene prices and higher production volume, the company should report a 90-per-cent increase in net profit after tax in the second half, it said.

It should post a record third-quarter net profit of Bt4.8 billion, up 63 per cent quarter on quarter and 8 per cent year on year.

 Jiwamol Kanoksilp

 The Nation