JPMorgan had held a meeting with nine Thai banks and consumer finance companies as well as the Bank of Thailand this week and note that there are three broad takeaways from the discussion: 1) rate hikes are likely this year, but banks will be selective in passing it to borrowers, 2) asset quality is not deteriorating in any meaningful way, and 3) almost every bank is taking some degree of higher credit risk to make up for weak Pre-Provision Operating Profit (PPoP) growth.
The financial firm expects that higher tourism and policy rate hikes should lead to a degree of rebound in Thai bank stocks this year as the current position is in the midst of a tradable rally.
Meanwhile, the mid-term view for 2023-24 has become even more cautious, as banks will likely end up with limited PPoP growth and rolling NPL cycle, as they go lower down the credit curve in search of yields. That is, unless the Thai economy witnesses a sharp revival.
JPMorgan stated that it does not expect any re-rating for the sector, despite its value. In this environment, movement of the banking stocks will likely be driven by EPS growth and revisions, as well as direction of the Thai Baht.
The firm noted that BBL remains as its preferred pick in the near term among large banks, and TTB and SAWAD among smaller names.
Meanwhile, KBANK and SCB should move in line with the broader banking sector, while KTB and TISCO remain funding sources in the sector.