Foreign investors remain underweight on Thai stocks due to concerns over slowing economic growth and declining loan expansion in the banking sector, though sentiment has gradually improved, says Maybank Securities (Thailand).
Following meetings with more than 20 foreign funds in Kuala Lumpur and Singapore last week, Maybank found most investors still hold an underweight stance on Thailand due to a weak economic recovery, limiting loan growth and revenue expansion.
However, Thai banking stocks remain a preferred sector because of their attractive dividend yields and improving return on equity (ROE) outlook.
"While many funds had a negative view of the sector for years, sentiment has gradually improved, particularly with declining credit costs and effective capital management, which could drive valuation re-ratings. Nevertheless, concerns persist over asset quality and political uncertainties," the brokerage said in a research note.
Thai banks are prioritising capital management over aggressive loan expansion, as increasing risky assets may not be beneficial in the current economic climate, said Maybank Securities.
Analysts also have a positive outlook on sustainable dividend growth, supported by stable earnings. In addition, some investors seek higher fee-based income from wealth management and capital market activities, which could enhance ROE without additional credit risk.
Thai banks are trading at a price-to-book value ratio (P/BV) of 0.75 times for 2025, which remains attractive given the expected ROE improvement over the next two years.
"Despite the optimism in the banking sector, some investors maintain a negative outlook on Thailand's economic prospects, citing weak loan growth, declining net interest margins and asset quality risks," said Maybank Securities.
Moreover, some global funds continue to favour Indonesian and Singaporean banks, with Indonesia offering higher growth potential and Singapore benefiting from strong balance sheets and stable earnings, noted the brokerage.
Krungthai Bank (KTB) has attracted increasing investor interest following its earnings and dividend announcements, while investors raised concerns over Siam Commercial Bank's (SCB) ability to justify its premium valuation in terms of profit growth and dividend payouts.
Some investors expressed disappointment with Bangkok Bank (BBL), believing its low dividend payout could make it a value trap.
Overall, Maybank has maintained a neutral view on Thai banks, expecting the sector to move in line with the market after outperforming by 15% year-to-date. While revenue growth remains weak, lower credit costs are expected to support a 4% earnings growth this year.
Maybank's top pick remains Kiatnakin Phatra Bank (KKP), which is expected to deliver the highest earnings per share growth of 11%, driven by lower funding costs and efficient capital management.
Among large banks, KTB is the most attractive, given its low-risk loan portfolio, stable earnings and increasing dividend payout.