Now that the US Federal Reserve has started to signal that interest rates will fall this year, funds have increasingly returned to equities.
However, substantial inflows of foreign funds to the Thai market may hinge on other factors such as stimulus measures, including the Easy E-Receipt tax deduction scheme.
Anticipation is building as the fourth-quarter earnings reporting season approaches, with a spotlight on earnings speculation and dividend plays.
The market's focus remains on key factors such as the Fed and Chinese economic indicators, especially in light of extensive stimulus measures by Beijing.
Among key factors affecting sentiment:
Resilient SET index performance: Since closing last year around 1,415 points, the SET has shown resilience. Anticipating a rebound rather than a retreat, the market is buoyed by favourable domestic and overseas factors, including expectations of Fed policy easing as soon as March.
January effect: Anticipating a brief sell-off in the first week of 2024 and near-term profit-taking, our target range for the month is between 1,420 and 1,430 points.
Earnings plays: Banks will open the 2023 fourth-quarter reporting cycle at mid-month. Key factors influencing fourth-quarter performance of many listed companies include a $10-per-barrel downturn in crude oil prices and a deceleration in global economic growth.
Domestic stimulus expectations: The market is poised for positive developments from the government. Investors are particularly focused on an investment package and the progress of the digital wallet handout scheme.
However, several factors pose potential risks to the equity market, including uncertainties related to China's economic indicators, fluctuations in crude oil prices, and geopolitical tensions such as the Israel-Hamas conflict.
JANUARY OUTLOOK
Technical analysis shows a break above the sideways channel on the SET could pave the way for upside momentum towards a range of 1,440 to 1,460 points.
On the flip side, a failure to breach the channel may lead to downside movement. We opt for the upside, supported by indicators on the daily chart crossing into positive territory. Our stock picks for January are:
- BH (Buy, target 300 baht): Our valuation for the hospital operator is pegged to a 2024 price/earnings (PE) ratio of 31 times. Currently trading at 22.5 times, BH shares are positioned at 1.25 standard deviations (SD) below the five-year average. Historical trading data indicates the share price peaked at 250 baht in 2015 when net profit was 3.44 billion baht. Profit reached 3.79 billion baht in 2019, pre-Covid pandemic. Anticipating a limited impact on travel from the Israel-Hamas conflict and a lift from an upcoming hospital launch in Phuket, an expanded customer base is foreseen.
- COM7 (Buy, target 30 baht): Our target price for the IT product retailer is pegged to a 2024 PE of 21 times, positioning it 1 SD above the five-year average. With a 17% decline in the last three months, COM7 shares are trading at 16 times the 2024 PE (-1.5 SD). We estimate 18% growth in earnings per share (EPS) for 2024 with an extended growth path into 2025.
- CRC (Buy, target 48 baht): Our target price for the retail group is pegged to a 2024 PE of 33 times, positioning it 0.25 SD above the three-year average. The shares are trading at a PE of 28 times, which is considered demanding, but investors are anticipating remarkable growth for 2024, supported by government stimulus measures.
- KBANK (Buy, target 155 baht): Our target price for the bank is pegged to a 2024 price-to-book value (PBV) of 0.65 times, positioning it 1.25 SD below the 10-year average. KBANK shares currently trade at an undemanding 0.59 times PBV (-1.5 SD), compared with the banking sector's average of 0.64 times and rival SCB's 0.71 times.
- MENA (Buy, target 2.90 baht): Our target price for the transport and construction materials firm is based on discounted cash flow (DCF) analysis with a weighted average cost of capital of 7.7% and a terminal growth rate of 2.0%, reflecting a forward PE ratio of 22 times. This aligns with estimated compound annual growth rate of 22% in net profit from 2023-25.
- PRM (Buy, target 7.70 baht): Our target price for the oil transport and offshore services specialist is pegged to a 2024 core PE ratio of 10 times, positioning the shares favourably at 1.0 SD below the five-year average. The shares are trading at an undemanding 7.1 times 2024 adjusted PE, reflecting a -1.5 SD valuation.
- TOG (Buy, target 14 baht): Our target price for the optical lens manufacturer, pegged to a 2024 PE of 13.5 times, positions TOG favourably at 1.0 SD below the five-year average. The prospect of securing a new customer by mid-2024 serves as a potential catalyst for further growth.