We expect the SET Index to be volatile in May given the upcoming general election, earnings reporting season and market reaction to the Federal Reserve meeting.
On the external front, key Chinese reports have been positive, which raises market expectations for the broader economy.
Expect some earnings speculation as we forecast aggregate first-quarter net profit for SET-listed companies to surpass the 150 billion baht recorded in the fourth quarter of 2022 despite several headwinds.
We expect the Chinese government to introduce more stimulus measures to keep the recovery momentum going in the economy after three years of Covid-linked restrictions. Recent upbeat economic reports will bode well for equities.
The Fed, meanwhile, this week raised its benchmark interest rate by another 25 basis points as expected. And while it signalled that a pause is possible in June, it left the door open to another rate hike if inflation remains too high.
We believe global equities will react negatively if the Fed raises its key rate at a faster-than-expected pace.
In any case, a decline in interest rates this year is very unlikely.
The Russia-Ukraine conflict continues to weigh on sentiment. Chinese President Xi Jinping has offered to help facilitate peace talks and recently spoke with Ukraine's president, but response to the Chinese offer has been muted so far. Any positive outcome could lend support to global equities and the economy.
MAY OUTLOOK
The SET Index bounced off the low of 1,518 reached in March, but later failed to pierce the uptrend line, sitting at 1,615, in April. The moving average convergence/divergence reversed course to the downside, and thus the index moved downward, possibly heading for a new trough.
If the index breaks below the lower ends of the sideways channel at 1,500 and 1,518, it could retreat further towards 1,470 and 1,450. However, if the supports remain intact, the index will rebound towards 1,570 and 1,590.
Investment strategy: We recommend a wait-and-see approach as we believe the index will be quite volatile ahead of the May 14 election. For short-term investment, stocks that have retreated sharply look attractive. Our picks for May include:
- AMATA (Buy, target 30 baht): Our target price is pegged to a 2023 price to book value (PBV) of 1.6 times, or 0.25 standard deviation (SD) above the five-year average. We believe the industrial estate operator's presales will likely remain high over the next 2-3 years given rising demand for relocation from China by EV makers and their supply chains, as well as data centre players, which should bode well for the backlog and transfers in the foreseeable future.
- BAFS (Buy, target 35 baht): Our target price for the aviation fuel company is based on discounted cash flow (DCF) analysis. Key catalysts are booming tourism demand, the potential acquisition of ESSO from BCP, which could bode well for oil transport volume, capacity expansion of Suvarnabhumi airport in the fourth quarter of 2023, and an investment in a solar power plant abroad in the second half of this year.
- BDMS (Buy, target 36 baht): Our target price for the hospital operator is pegged to a price/earnings (PE) ratio of 44 times. We believe earnings momentum will build up, while the stock's valuation looks attractive. There is an upside to our earnings forecast given the reach of the company's chain hospitals, which could benefit if new Covid variants spread too swiftly.
- CPALL (Buy, target 75 baht): Our target price for the convenience store operator is pegged to a 2023 PE ratio of 35 times (0.25 SD below the five-year average). The convenience store business and the hotel, restaurant and catering segment stand to benefit from the improvement in the tourism sector and the economy. Additionally, the share price has gradually advanced on election-related optimism.
- MINT (Buy, target 37 baht): Our target price for the country's largest hospitality company is based on DCF analysis, assuming a weighted average cost of capital of 7% and terminal growth of 2.5%. On a valuation basis, the stock trades at an undemanding 2023 EV/Ebitda of 12 times, which is 1.25 SD below the 10-year average.
- PRM (Buy, target 10 baht): Our target price for the shipping and offshore oilfield services provider is pegged to a 2023 core PE ratio of 13.5 times (0.75 SD below the five-year average). The stock's valuation remains attractive, trading at a 2023 core PE of 8.2 times (1.25 SD).
- PTG (Buy, target 18.50 baht): Our target price for the oil product retailer is pegged to a PE ratio of 19 times (0.5 SD below the five-year average). Key catalysts are booming demand for leisure travel and rising economic activity, which should spur oil demand. Moreover, falling global crude prices should keep marketing margins high.
- SPRC (Buy, target 12.50 baht): Our target price for the petroleum refiner is pegged to 1.25 times PBV (0.5 SD below the five-year average). The latest closing price offered an attractive dividend yield of 7.8% to 9.4% for 2023-24 performance.
- SUN (Buy, target 7.00 baht): Our target price for the agricultural products company is pegged to a PE ratio of 18 times. The stock currently trades at an undemanding PE of 11.3 times, compared to a remarkable compound annual growth rate of 59% forecast for 2022-24. Moreover, an expanded market presence could provide an upside to our earnings forecast.