The roller-coaster ride for the SET is expected to continue on the back of both domestic and overseas factors. Russia's war on Ukraine is becoming protracted, while the next Federal Reserve meeting in mid-June has investors on edge given hawkish comments favouring a 50-basis-point rate increase.
We believe market sentiment will improve once investors digest the Fed's policy decision on June 15. As well, the lifting of entry restrictions for foreign tourists and the weak baht, which has attracted more foreign funds, will provide support for the Thai bourse.
Among the positive factors, authorities are moving closer to declaring Covid-19 an endemic disease. Relaxed entry rules will bode well for the tourism sector and hence Thai equities. Stocks that stand to benefit -- such as shopping mall operators, hotels and industrial estates -- are attractive.
Domestic politics look positive as the market has cheered the election of the new Bangkok governor. Investors were closely watching the budget debate in the House to gauge the support for the prime minister, who will also face another censure debate later this year.
China, meanwhile, is starting to send more signals that it will start easing stringent Covid lockdowns. Shanghai has already begun a cautious reopening. Eased Chinese curbs, coupled with an economic stimulus policy that Beijing says will be an "all-in" effort, will bode well for the Thai economy.
Events in Ukraine continue to have a negative impact on market sentiment. Sanctions on Russia and a broader EU embargo of Russian crude oil will intensify the supply squeeze and keep prices high. The risk of a global food crisis also remains high because if grain and fertiliser shortages.
The SET Index in June is likely to drift sideways in a range of 1,580 and 1,718 points. A break above the resistance levels of 1,658 and 1,670 will open an upside towards 1,695 and 1,720. But if the resistance levels cannot be breached, supports are seen at 1,630 and 1,580.
In terms of investment strategy, choosing stocks that have lagged their sector peers and the market seems wise. Also look for stocks with strong growth stories and those that stand to benefit from the post-Covid recovery. Our picks include:
BCH (Buy, target 24 baht): The 2022 net profit forecast for the hospital group is 3.33 billion baht based on a Bloomberg consensus, down 51% year-on-year due to the high base in 2021 when the company booked sizable Covid revenue. Nevertheless, three new hospitals are forecast to reach break-even this year, while a new laboratory will save costs of 20 million baht annually. The latest closing price reflects a 2022 price/earnings (PE) ratio of 14.7 times, which is well below its peers' average of 33.5.
CKP (Buy, target 7.40 baht): We expect the power company's 2022 core profit to grow 9% to 2.2 billion baht, with significant growth in the second and third quarters as they are peak seasons. Our Buy rating and target price are based on discounted cash flow, assuming a weighted average cost of capital of 5.5% and no terminal growth value. The probability that CKP shares will move higher in the second and third quarters is more than 30% based on eight-year historical trading data.
EA (Buy, target 91.36 baht): The alternative energy company is forecast to see 46% net profit growth to 8.9 billion baht based on a Bloomberg consensus. The electric vehicle business will begin generating a new stream of revenue this year, which we believe will take EA's earnings onto a new growth path. The prospect that Tesla will set up a sales showroom in Thailand has provided positive sentiment for the auto sector. In the meantime, deliveries of electric buses are on track amid higher orders.
GUNKUL (Buy, target 6.45 baht): We expect the engineering and construction company's 2022 core profit to surge 43% to 2.9 billion baht. We predict core earnings to improve from the second quarter because of three factors: the second quarter is the high season for the wind turbine business; the engineering, procurement and construction business will recognise higher revenue from the second to fourth quarters; and the hemp-cannabis division will begin generating revenue from the second quarter. Our Buy rating and price target are based on a sum-of-the-parts analysis. Key catalysts are contributions from the hemp-cannabis business and a gradual earnings improvement from the second to fourth quarters.
SCB (Buy, target 150 baht): Our Buy rating on the bank is pegged to a 2022 price to book value (PBV) of 1.1 times, or -1.0 standard deviation (SD) below its 10-year average. The stock has underperformed the SET Index by 12% in the past three months. The latest closing price reflects a PBV of 0.89 times or -1.25 SD, which is relatively cheap compared to the large commercial banks, which have outperformed by an average of 3%.
SINGER (Buy, target 60 baht): Our Buy rating on the appliance and financial services company is pegged to 2022 PE of 39 times (1 SD above its three-year average). We forecast earnings per share to increase at a compound annual growth rate of 31% from 2022-24 on the back of a stronger loan growth outlook amid lower cost of funds, and synergies from JMART, BTS, GUNKUL and JAYDEE.
