We expect the SET Index to drift sideways up in January although earnings speculation may come into play, as will the looming dissolution of Parliament by March or earlier to make way for the election.
And while the resumption of travel from China will create positive sentiment, the surge in daily infections following the end of Covid restrictions in the country remains a concern. Among the key factors affecting sentiment:
Earnings plays: We forecast aggregate 2022 net profit of companies in the SET Index to reach 1.05 trillion baht. The strong earnings outlook might underpin the market until late February.
Domestic politics: While political parties are already actively campaigning, we expect Parliament will be dissolved in March, close to the end of its mandated term, with the general election on or before the scheduled May 7 date.
Chinese travel: Beijing will begin allowing non-essential overseas travel from tomorrow. This will provide positive sentiment to global equities but could also could lead to an upturn in Covid-19 cases in many countries.
Russia-Ukraine conflict: The current situation appears to be at a stalemate but some observers are seeing signs of positive developments. If the two countries can finally reach an accord, it will bode well for commodities and equities.
Hawkish Federal Reserve: Bloomberg forecasts that the the US central bank's benchmark interest rate will hit 5.0% in the first quarter, which we believe the market has digested to a certain extent. Any downside surprise could have a negative impact on equities.
JANUARY OUTLOOK
We expect the SET Index to hit 1,700 or 1,720 points this month after breaking a triangle pattern last year, which featured a high of 1,718 in February and a low of 1,517 in July. Adding to positive technical factors, the candlestick chart and the moving average convergence/divergence point to a bullish outlook. However, market volatility could be witnessed along the way.
Investment strategy: We recommend investing in big-cap stocks, particularly those that stand to benefit from foreign fund inflows. Earnings and dividend plays also look attractive but chasing the market should be watched closely since most of them have already rallied to a certain extent. Our picks for January include:
- BAFS (Buy, target 35 baht): Our target price for the aviation fuel provider is based on discounted cash flow (DCF). Key catalysts are a substantial improvement in tourism and capacity expansion at Suvarnabhumi airport.
- BANPU (Buy, target 17.50 baht): Our target price is based on a sum-of-the-parts valuation. We believe the energy company will continue to benefit from elevated oil prices, which may stretch into the first quarter of 2023.
- BBL (Buy, target 170 baht): Our target price for the bank is pegged to an estimated 2022 price to book value (PBV) of 0.6 times, or 1.0 standard deviation (SD) below its 10-year average. The stock's valuation appears relatively cheap compared to peers, trading at 0.56 times PBV, which implies 1.25 SD below its 10-year average.
- BH (Buy, target 265 baht): Our target price is pegged to an estimated 2022 price-earnings (PE) ratio of 40 times. We believe shares of the hospital chain will continue to outperform the SET Index given its robust growth outlook and bright earnings prospects following the expansion of its presence in Saudi Arabia, apart from pent-up post-pandemic demand for medical tourism.
- CPALL (Buy, target 75 baht): We expect the 7-Eleven operator to strong growth in the fourth quarter of 2022 despite a high base year-on-year. We estimate same-store sales rose 15% in the fourth quarter despite a high base in the same period a year earlier. We expect the gross profit margin to widen further alongside the improvement in the tourism sector.
- KTC (Buy, target 68 baht): Our target price for the credit card firm is pegged to an estimated 2022 PBV of 4.9 times (0.25 SD above its five-year average). We believe the company's cross-selling strategy for its Pee Berm loans through Krungthai Bank branches and hire-purchase loans through KTBL, as well as the government's tax deduction measure, will bode well for earnings growth.
- PRM (Buy, target 9 baht): Our target price for the marine transport and logistics provider is pegged to a 2022 core PE of 15 times (0.25 SD below its five-year average). The stock's valuation looks attractive, trading at 11.8 times 2022 core PE, which is 1.0 SD below its five-year average.
- SNNP (Buy, target 30 baht): Our target price for the beverage and snack producer is pegged to an estimated 2022 PE of 40 times. The stock currently trades at 36.3 times 2022 PE compared to an expected compound annual growth rate in core EPS of 32% from 2022-24.
- SSP (Buy, target 16 baht): Our target price for the renewable energy investment holding firm is based on DCF, assuming weighted average cost of capital (WACC) of 5% and no terminal growth value. Key catalysts are upcoming projects in Thailand and Vietnam. The stock looks undervalued, trading at 10 times PE compared to the sector's average of 20 times.
- WHA (Buy, target 4.60 baht): Our target price for the warehouse and logistics firm is based on an estimated 2022 PBV of 2.0 times (0.5 SD above its five-year average). Presales and transfers are forecast to exceed pre-Covid levels.
