The SET index is poised for an upside, largely attributed to positive sentiment surrounding the newly formed government. The expected political stability is projected to not only boost investor confidence, but also to attract more foreign funds to Thai equities.
In addition, dividend plays are expected to dominate the market's direction.
On the external front, the US Federal Reserve is expected to keep its key short-term interest rate steady at its meeting later this month, while a further slowdown in the Chinese economy will likely continue to keep a lid on gains. Among the key factors affecting market direction:
Domestic political stability: The formation of a new cabinet, after more than three months of post-election drama, is expected to ensure political stability. An uptick in investor confidence should help propel the SET index towards the 1,590 level.
Eased concern over US rate hikes: The Fed meeting on Sept 20-21 is likely to maintain the current benchmark rate. This expectation reflects growing signs of weaker labour market conditions, which will reduce inflationary pressure. However, any escalation in the Russia-Ukraine conflict could have an impact on energy and commodities and drive inflation levels upward.
Dividend and earnings plays: Now that second-quarter results are in the books, investors will be looking ahead for earnings plays as well as dividend stocks. However, a sell-off is highly likely once stocks trade ex-dividend.
Optimism amid economic resurgence: Despite key economic indicators in China indicating growth deceleration, investors are pinning hopes on economic revival by way of stimulus measures from the Chinese government.
Oil price gains under pressure: Global crude oil prices have risen lately in response to decisions by Saudi Arabia and Russia to maintain output cuts until the end of the year. However, the market faces pressure stemming from sluggish global growth and subdued demand from China.
We foresee two scenarios, but are leaning towards the second one. The first scenario is that the SET index drifts sideways around current levels. Alternatively, the index moves upwards but with a potential pullback beforehand. The bottom line is that the index will probably need to find support at 1,530 points. The resistance levels are pegged at 1,600 and 1,620.
INVESTMENT STRATEGY
In addition to stocks with strong growth stories, those that will benefit from political stability look attractive. Our picks for September include:
- BBL (Buy, target 195 baht): Our target price for the bank is pegged to 2023 price to book value (PBV) of 0.7 times, representing a valuation of 0.75 standard deviation (SD) below the 10-year average. Historical trading patterns have positioned the share price near the 200-baht mark, coinciding with net profit levels of about 10 billion baht per quarter. This signifies that BBL shares are likely to continue outperforming the SET index.
- COM7 (Buy, target 36 baht): Our target price for the IT retail chain is pegged to a 2023 price/earnings (PE) ratio of 0.7 times, reflecting a valuation at its five-year average. Sales of IT products are expected to mirror economic resilience as consumer spending rebounds from the first half of 2023. COM7 shares are currently undervalued, trading at 23.1 times 2023 PE, equivalent to 0.25 SD below the average.
- GLOBAL (Hold, target 17 baht): Our target price for the construction materials and home improvement chain reflects a 2023 PE of 28 times, presenting a valuation of 0.8 SD below the five-year average. The recent outperformance relative to the SET Index can be attributed to market expectations for upcoming projects from the public and private sectors from the fourth quarter onwards. We are open to upgrading our recommendation and target price should there be an evident surge in project activity.
- MENA (Buy, target 2.50 baht): Our valuation for the transport and construction materials firm is based on discounted cash flow, assuming a weighted average cost of capital of 7.7% and a terminal growth rate of 2%. This is equivalent to a forward PE ratio of 27 times and a PE to growth ratio of 0.9 times based on a 2022-24 compound annual growth rate of 30%. A key catalyst is broader economic growth.
- SAPPE (Buy, target 120 baht): Our target price for the beverage producer reflects a 2024 PE of 25 times. SAPPE shares currently trade at 25 times 2023 PE, which is a discount relative to industry peers.
- SEAFCO (Buy, target 4.50 baht): Our 2023 core profit forecast of 120 million baht suggests a turnaround for the construction contractor the first time in three years. Revenue is projected to soar 131% on the back of a substantial backlog and normalisation in the labour market. Our target price is based on a 2023 PBV of 2.2 times, implying a valuation that is 1 SD below the five-year average. SEAFCO shares are currently undervalued, trading at 2 SD below the historical average.
- SJWD (Buy, target 17 baht): Our target price for the logistics provider is pegged to a 2023 core PE of 34 times, implying a valuation of 0.25 SD above the five-year average. SJWD shares are currently undervalued, trading at 30.1 times adjusted PE, which is 0.25 SD below the historical average.
- TOP (Buy, target 60 baht): The refiner has a solid 2023 earnings outlook despite a high base effect. Our 2023 net profit forecast of 13 billion baht reflects a significant 60% drop. Market gross refining margin and refinery utilisation remain notably high at $6.10 per barrel and 105%, respectively. Our target price is derived from a 2023 PBV of 0.81 times, indicating a valuation of 1.1 SD below the five-year average.