Former Prime Minister Thaksin Shinawatra’s proposal to slash electricity tariffs has introduced new regulatory uncertainties for energy and utility stocks, a sector representing 18% of the Stock Exchange of Thailand’s (SET) market capitalisation. This has led CGS International Securities to revise its year-end stock index forecast, reducing the target by 100 points to 1,530.
As the SET index has fallen below the psychologically significant 1,350 mark early in 2025, CGS International adjusted its year-end target from 1,630 points, citing factors including regulatory risks, the sluggish domestic economy, and potential shifts in U.S. trade policies under the new administration.
Thaksin proposed earlier this month that the government reduce electricity tariffs to 3.70 baht per unit, down from the current rate of 4.15 baht. Plans for discussions with both government agencies and private sector representatives aim to reach consensus on the proposed reductions. However, the timeline for achieving the new rate remains uncertain.
Kasem Prunratanamala, head of research at CGS International Securities, expressed concerns about the heightened regulatory risks for energy and utility companies, especially considering the significant market share of these sectors. “Energy and utility stocks, which represent 18% of the SET’s market cap, face increased regulatory pressures, which could dampen market sentiment,” Kasem stated.
While CGS anticipates the government may shoulder the cost of the tariff reduction, Kasem pointed out the financial challenges it poses. A full subsidy for the 0.45 baht per unit tariff cut could cost the government approximately 104 billion baht annually. Given Thailand’s high public debt, which stood at 64% of GDP in November 2024, this subsidy could further strain fiscal resources, raising public debt by 0.5 percentage points annually.
In addition to domestic concerns, CGS warned of potential downside risks from rising tariffs imposed by the U.S. administration. Thailand’s trade surplus with the U.S. has increased significantly in recent years, reaching nearly 6.7% of GDP in the first 11 months of 2024. This growing surplus, particularly in the context of the U.S. being Thailand’s largest export market, adds another layer of vulnerability to the Thai economy.
For the final quarter of 2024, CGS forecasts a robust 44% year-on-year increase and 39% quarter-on-quarter growth in the net profits of companies it covers. Key sectors expected to perform well include transport, petrochemicals, and food, while sectors like construction, agriculture, and consumer staples are expected to see weaker profit growth.
Given the challenges posed by the domestic economic slowdown, CGS predicts a volatile market in the coming months. “We recommend focusing on defensive domestic sectors, such as consumer, retail, healthcare, banking, and consumer finance, which are less exposed to regulatory risks and more likely to benefit from government stimulus measures,” Kasem added.
Related Topics:
Treasury Yields Reaching 5% Pose Threat to Stock Rally
US Stock Futures Steady Ahead of Earnings and Inflation Data
