The SET Index appears likely to extend its gains in January. We see the index holding above 1,500 points on expectations of foreign fund inflows and global economic resilience. Adding to the positive factors, we expect the government to effectively contain the new Covid-19 outbreak. Support is pegged at 1,450. Positive factors include:
- Further development of Covid-19 vaccines: Approvals of several vaccines by drug regulators and the start of inoculations in many countries should lead to the acceleration of production and distribution globally. However, partial lockdowns in many countries will likely continue to take a toll on the real economic sector, but this bodes well for equities, as we have seen in recent months, as investors who have money look for places to put it to work.
- Earnings plays: We expect speculation on earnings to come into play on the SET, as the fourth-quarter earnings reporting season is due to start in a few days. We forecast an aggregate fourth-quarter net profit for the SET of 200 billion baht.
Among the negative factors is Covid-19. Thai equities will react negatively if the number of local infections accelerates to the point where the government has to announce a widespread lockdown. Investors will also be monitoring the progress of vaccine programmes. If side effects or other complications emerge and pubic confidence in treatment declines, recovery sentiment and equities could be affected.
The domestic political situation also bears monitoring as lawmakers embark on attempts to amend the constitution, a process that could lead to conflict. Investors will also want to get a clear picture of US President-elect Joe Biden's foreign policy, both political and economic, for potential impact on Asia, especially China.
The SET Index extended its gains in December, but the pace of increase slowed. For the month, the index drifted sideways between 1,388 and 1,512 points, with relative strength indicators pointing to a downside.
The index looks likely to drift sideways to down in a range of 1,388 and 1,512 points in January. A break below 1,388 would open the way toward the next supports at 1,370 and 1,350. Resistance is pegged at 1,512 and 1,550.
INVESTMENT STRATEGY
Stocks that stand to benefit from domestic and global economic resilience and those that have lagged their peers look attractive. Stock picks for January are:
- COM7 (Buy, target 48 baht): We forecast the IT retail chain's 2021 net profit will grow a further 20% to 1.53 billion baht, with a 15% gain in total revenue on expectation of stronger demand for 5G-compatible devices, for which selling prices normally are 10-20% higher than for normal products. We also expect COM7 to extend its distribution network through both off- and online channels, while gross profit margin should improve to 13.3% on expectation of higher revenue from non-smartphone products.
- EKH (Buy, target 6 baht): We are increasingly positive about the hospital operator's earnings outlook from the fourth quarter of 2020 and into 2021. First, we expect a limited downside risk from the partial lockdown in Samut Sakhon, as inpatient and outpatient numbers have held steady, partly because of a respiratory syncytial virus (RSV) outbreak among children, which pushed capacity utilisation to 70% from 40% in the third quarter of 2020. Second, we expect a new revenue stream of 20 million baht from Covid laboratory tests, based on an estimated 500 processed tests per day from Dec 20-31. Finally, the company's IVF programme is expected to attract more patients. We forecast 2021 net profit to surge 85% to 96 million baht, reversing a drop of 68% in 2020.
- IIG (Buy, target 28.75 baht): The business and technology consulting group has set a 2021 core revenue growth target of 30%, focusing on financial institutions, particularly insurance companies. Additionally, it aims to acquire a data analytics company by mid-2021, which would lead to consolidation in the second half. The company expects new business to boost total revenue to 1 billion baht, up 43%, in 2022. According to a Bloomberg consensus, net profit is forecast to grow 33% to 80 million baht in 2021 and 28% to 102 million in 2022.
- IVL (Buy, target 32.48 baht): According to the Bloomberg consensus forecast, the chemical and plastics group is expected to register a net loss of 3.5 billion baht in 2020. However, earnings are expected to swing to a net profit of 2.6 billion baht in 2021 and 3.5 billion in 2022.
- MTC (Buy, target 65 baht): We forecast the micro-lender's 2021 net profit to grow 18% to 6.06 billion baht on a 13% increase in total loans and a plan to increase the number of outlets to 5,400. Loan yields will narrow to 21.4% to increase the customer base, and credit cost will decrease to 70 basis points given its high coverage ratio.
- XO (Buy, target 15.30 baht): We expect a limited impact on the food distributor and exporter from a stronger baht, which appreciated 2% in November from the month before, as domestic sales were high at 75% of the total, while US dollar sales are approximately 20%.
