We expect the SET Index to trade sideways this month, in a range between 1,470 and 1,540 points. The domestic economy is forecast to improve given the significant improvement in the Covid-19 situation and government stimulus measures.
On the external front, an increase in vaccinations across the globe, and progress on a massive US relief package should bode well for the global economy.
Equity trading volume, however, is expected to wane, as the curtain has come down on the earnings season and numerous stocks will line up for ex-dividend trading.
Positive factors: Covid vaccinations have now begun locally in the hardest-hit provinces as well as locations popular with foreign tourists, which should be a confidence-builder ahead of a hoped-for resumption of limited international arrivals. We expect investor confidence to improve significantly, which should bode well for the economy, if there are no serious side effects from the vaccines.
- Globally, investors are pinning their hopes on the $1.9-trillion US economic stimulus package lending support to the US economy and thereby equities. This should also fuel funds flowing into emerging markets, including Thailand.
Negative factors: As speculation on earnings ebbs now that companies have all reported their 2020 performance, overall trading volume is expected to fall, as shares go ex-dividend and amid a lack of a fresh catalysts.
- Rising bond yields. Markets worldwide are watching benchmark US Treasuries, for which yields have been climbing as concerns over inflation grow. Even though Federal Reserve chairman Jerome Powell has signalled that the central bank will maintain its ultra-low rates through next year and beyond, the bond yield uptrend could result in financial costs rising, thereby hampering foreign fund inflows to Thailand.
The sideways drift of the local bourse is expected to extend through March. The expected trading range between 1,450 and 1,530 is similar to the range of 1,456 to 1,531 seen in February. A break below the 1,455 support will open the way for a steeper decline towards 1,420 and 1,400, while a break above the downtrend line at 1,520 could signal a further climb towards 1,530 and 1,560.
INVESTMENT STRATEGY
The index is expected to consolidate now that earnings season is over. We view any pullback as an opportunity to increase positions, particularly in stocks tied to economic growth, those with a strong growth story and those that should rebound as the Covid situation improves. Our picks for March are:
- MINT (Buy, target 36 baht): The financial situation of the hospitality giant is improving, and it has total saleable assets worth about 35 billion baht. We expect it to book a gain of between 10 billion and 15 billion baht from sales on investment, thus improving liquidity while it awaits a more robust tourism recovery. We expect 2022 earnings to swing to positive territory, with a net profit of 5 billion baht, against a loss of 10 billion in 2021, if there are no entry or quarantine restrictions next year.
- NRF (Buy, target 8.27 baht): We see upside potential to the Bloomberg 2021 consensus forecast for the food producer, as it is expected to enjoy revenue contributions from recent investments in the second half of 2021. Key catalysts should be an upturn in US-based e-commerce, and strong performance from Prime Lab, whose products are top sellers on the Amazon platform. This should help NRF to extend its market presence.
- SAT (Buy, target 22 baht): We forecast 2021 net profit to jump by 115% to 800 million baht given recovering domestic auto production. Revenue for the parts supplier is expected to rise 16%, outperforming the sector, on the back of new orders. Gross profit margin should widen to 19.5% from 15.1% in 2020, on expectations of lower costs following improvements in production processes and an increase in capacity utilisation.
- STA (Buy, target 65 baht): The rubber producer's share price has significantly outperformed the SET Index by 82% in the past three months. The stock's valuation remains attractive and offers a dividend yield of 7%. Coupled with a potential to trade in the SET50, we expect STA to remain an outperformer in the near to medium term. Additionally, the hemp business is expected to create a new revenue opportunity in the foreseeable future.
- TTA (Buy, target 9 baht): We expect the "commodity super cycle" to continue into 2022, a boon for shipping firms serving strong global demand for commodities, including iron ore, coal and grains. TTA thus stands to benefit from rising freight rates.
- TU (Buy, target 17.60 baht): One of the world's biggest seafood processors, TU previously created growth through acquisition, which required massive funds. Management has recently shifted to seeking more partnerships, which requires relatively lower funds, with businesses that generate strong gross profit margins.