July was the worst month for Covid-19 in Thailand since the pandemic began and cases continue to rise by more than 20,000 daily. Total cases in the country have surpassed 830,000, with more than 200,000 infections and 2,100 deaths since the start of August alone.
The situation is being exacerbated by a vaccination rollout that is still relatively slow. Government agencies and private entities are trying to ramp up vaccinations, but the pace hasn't been enough to stem the spread of the Delta variant. At the moment, only 17 million people -- 24.5% of the population -- have received a first shot in Thailand. We need shots to ramp up to at least 50 million for herd immunity, a level we believe could be reached by early next year.
Worldwide, new cases also continue to increase. However, most countries -- especially those with high vaccination rates -- are still proceeding with reopening plans and resumption of social activities. Total cases globally now exceeded 205 million and total deaths have reached 4.3 million. New cases are between 600,000 and 700,000 with deaths at 8,000 to 9,000 per day.
Almost 30% of the world population has been vaccinated with at least one dose and the number is rising rapidly with almost 40 million receiving a dose each day. These numbers bode well for a worldwide recovery from the pandemic.
But the sharp deterioration in the Covid situation in Thailand has severely affected the SET. The index has plummeted from almost 1,600 points in early July to as low as 1,513 in early August. At present, the SET is trading between 1,510 and 1,550; we expect the index to stay in this range over the rest of the month. With a big gap remaining between daily cases and recoveries, concerns have risen as to whether the public health system can handle the load.
GDP CONTRACTION LOOMS
On the economic side, the recovery has again been pushed back. Many researchers have already revised down their 2021 GDP predictions for Thailand to negative territory, with forecasts ranging from -1% to 1%. We now have 29 provinces designated as dark-red zones, a category that includes a near-complete lockdown.
The prevailing headwinds make it quite challenging for GDP to improve materially over the remainder of the year, and hence we believe there is a good chance we see another contraction this year, after a 6.3% decline in 2020.
The weak economic conditions have taken a toll on the Thai baht with the currency having weakened to 33.40 versus the US dollar. This has coincided with foreign investors continuing to sell Thai shares in July at 20 billion baht net. Year-to-date, foreign investors have already sold 106 billion baht worth of shares.
Second-quarter results are still coming in, and we have seen a substantial number of lower-than-expected numbers. That said, we believe the results are not particularly important to investors as the focus has already turned to the end of the year.
With the lockdowns that have been imposed in July and August, it will be quite difficult for most companies to perform well in the third quarter. With this in mind, our picks are businesses that can buck the trend and perform well amid the current situation. These include BEC, BJC, HANA and MAKRO.
The broadcaster BEC, our top pick, has cut costs significantly and adopted a new business model to turn the company around in 2021 and generate bigger growth in 2022. Its new strategy to simulcast its dramas with Netflix should provide a boost to revenue. At the same time that news stations are getting a lot of traffic amid the pandemic, popular anchor Sorayuth Suthassanachinda has returned to Channel 3. The success of his programme should serve as a catalyst for BEC in the second half.
The commerce player BJC's overall operations have yet to normalise. With Thailand's prolonged third wave and the associated lockdowns in place, same-store sales are struggling to recover. However, the company is now importing Covid testing equipment to sell in BigC and we believe this product could generate significant demand in the second half of this year. Although this year has looked worse than last year, we now expect BJC to report better earnings year-on-year. Cost control and recovery in rental income have also improved profit. We expect net profit to grow 20% this year and 23% in 2022.
ELECTRONICS IN DEMAND
In the electronics space, one exporter still viable for investment is HANA, in our view. The company is now starting to make products for the energy sector and these products are expected to yield a higher margin. The testing process started in the second quarter and we expect material progress in the second half. Weakening of the baht should also help the company's profit over the rest of the year.
Other positives for HANA's margins are the expansion of its production area at the Ayutthaya plant and the shortage of electronic components worldwide. We expect its profit to grow 16% year-on-year this year and 13% in 2022. Note that HANA is also a good dividend play: it pays a dividend twice a year and has more than 9 billion baht in cash on hand.
While retail sales nationwide have been affected by the third wave, we see MAKRO benefiting from lockdowns as most competing markets have been closed since July and this situation could continue into September. In short, MAKRO benefits from its position as a supermarket alternative as consumers have increasingly limited shopping choices. We expect its profit to grow 9% this year and 14% next year with a yield of 3-4% per year.
