The Stock Exchange of Thailand experienced significant volatility in April. In the second week, the SET index broke above the key resistance zone between 1,400 and 1,405 after testing it for three months, reaching a monthly high of 1,411.
However, a swift reversal followed, with the index falling below the crucial support level of 1,350, which had held for six months, before finding support at 1,330.
The market has since found its way back to around 1,360, helped by anticipation of a pick-up in state spending and stimulus.
The rollout of the digital wallet later this year, and possibly more tourism promotions, should provide support to Thai equities, particularly benefiting retailers and tourism-related players.
While foreign activity might be uneventful during the earnings season, investors may seek opportunities to accumulate stocks with strong earnings potential.
Investors will also be monitoring interest rate trends, especially in the US, where the likelihood of two rate cuts before year-end by the Federal Reserve remains in doubt as inflation remains a challenge in the world's biggest economy.
The Middle East also bears watching, as US-led efforts to de-escalate the Iran-Israel conflict offer a glimmer of hope.
A successful ceasefire and prisoner release in Gaza could bode well for global equities and reduce inflationary pressures. This might create an environment conducive to Fed rate cuts.
MAY OUTLOOK
The 1,370 level is now a critical point for the SET. A break above 1,370 points could signal a potential upside move, with the possibility of closing the gap at 1,394.
Conversely, a break below the critical 1,350 support could lead to a steeper decline towards the recent low of 1,330, potentially even reaching a new low of 1,310.
In terms of investment strategy, focus on stocks with strong earnings growth prospects (SCB, PTT); undervalued stocks that have faced steep declines (BBL, AOT); and beneficiaries of global economic trends (KCE, ITC). Our picks include:
- AURA (Buy, target 18 baht): Our target price for the jewellery maker is based on a 2024 price/earnings (PE) ratio of 23 times, representing an attractive 0.5 standard differential (SD) below the 1.5-year average. An interest rate cut could significantly improve funding costs and boost profitability.
- CPALL (Buy, target 80 baht): Our target price for the retailer is based on a 2024 PE ratio of 34 times, an attractive 0.25 SD below the five-year average. Key catalysts are strong growth prospects in 2024 and upward momentum in the retail segment of subsidiary CPAXT.
- JPARK (Buy, target 7.50 baht): Our target price for the parking management specialist is based on a 2024 PE ratio of 29 times, implying a PE divided by growth rate of 1 time. Key catalysts are urbanisation and a rising vehicle population driving parking demand.
- KBANK (Buy, target 155 baht): Our target price for the bank is based on a 2024 price-to-book value (PBV) of 0.65 times, positioned at 1.25 SD below the 10-year average.
- MTC (Buy, target 52 baht): Our target price for the lender is based on a 2024 PBV of 3.0 times, or 2 SD below the 10-year average. Room exists for MTC to increase its vehicle title loan rates from the current 17-18% towards the central bank's 23% cap. As well, MTC shares trade at a significant discount, with a 2024 PBV of 2.6 times, representing 2.5 SD below the 10-year average.
- PTTEP (Buy, target 180 baht): Our target price for the petroleum explorer is determined through a discounted cash flow analysis, featuring a 6.7% weighted average cost of capital with no terminal growth value. The current share price offers a 5.9% dividend yield for 2024-25.
- SAPPE (Buy, target 106 baht): Our target price for the beverage maker is based on a 2024 PE ratio of 25.0 times, close to 2.25 SD above the five-year average. Key strengths include the firm's role as a leading global beverage producer and consistent capacity expansion (25-30% annually). As well, SAPPE shares trade at a significant discount. We forecast a healthy 33% compound annual growth rate in EPS from 2022-25.
- TU (Buy, target 20 baht): Our target price for the seafood multinational is determined through a sum-of-the-parts analysis. Key catalysts will be lower tuna costs starting in the second quarter, and continued favourable impact from a weaker baht.