The downtrend on the Stock Exchange of Thailand persisted in May, despite a temporary rebound when the SET index briefly surpassed 1,370 points early in the month. The index peaked at 1,389 points before pulling back below 1,370. Among the key factors expected to influence trading going forward:
- Chinese economic recovery: A potential rally in global equities is anticipated due to Chinese economic stimulus measures, including property market support and the establishment of the China Integrated Circuit Industry Investment Fund (ICF).
- Second-quarter earnings speculation: Speculative bets on second-quarter earnings are nearing their end. We expect the SET index to see a quarter-on-quarter decline in aggregate net profit to 270 billion baht attributed to longer holidays and potential headwinds from high US interest rates, domestic economic factors and the Middle East situation.
- Fed meeting: While investors are still hoping for a Federal Reserve rate cut in September, high US inflation (above the 2% target) and geopolitical tensions create uncertainty. Next week's Fed meeting might offers some clues to the direction.
- Thai politics: The government's "Ignite Thailand" initiative aims to attract foreign investment and position the country as an agriculture and food hub, among others. However, potential political overhang exists related to court cases against the prime minister as well as former PM Thaksin Shinawatra.
JUNE OUTLOOK
The market's earlier failure to close the gap at 1,394 points could trigger a sharp decline below 1,330, potentially leading to a steeper decline towards 1,320 and 1,308. Conversely, if support at 1,330 holds, the index might experience sideways movement within a range bounded by resistance at 1,380 and 1,400.
Consider a short-term trading approach to master market volatility. However, certain stocks remain attractive, particularly those with strong growth potential, robust second-quarter outlooks or exposure to ESG themes and the Chinese economic recovery. Our stock picks for June include:
- BBL (Buy, target 175 baht): Our target for the bank is based on a 2024 price-to-book value (PBV) of 0.6 times, 1.0 standard deviation (SD) below the 10-year average. The stock also has a compelling valuation at 0.5 times PBV (1.25 SD below the 10-year average). Strong risk management, with a sector-leading 292% coverage ratio, provides a buffer.
- CKP (Buy, target 4.50 baht): Our discounted cash flow (DCF) analysis, using a 5.5% weighted average cost of capital (WACC) with no terminal growth value, justifies a buy rating for the power producer. Key catalysts include the receding El Niño effect and the upcoming high season in the third quarter.
- CPALL (Buy, target 84 baht): Our target for the 7-Eleven operator is based on a 2024 price/earnings (PE) ratio of 34 times (0.3 SD below the five-year average). Currently trading at 23 times PE, the stock is undervalued considering the strong growth potential in the second quarter during the high season.
- NER (Buy, target 6.80 baht): Our target for the rubber manufacturer is based on a 2024 PE of 7 times (0.5 SD above the five-year average). Key catalysts include an upcoming overseas investment project, expected to be finalised in the second half of this year, and further development related to its new plant.
- PRM (Buy, target 9.70 baht): Our target for the offshore oilfield services firm is based on a 2024 core PE of 11 times (1.0 SD below the five-year average). A planned capital reduction for repurchased shares through a buyback programme is expected to further boost earnings per share (EPS) by an estimated 7.5%.
- SAPPE (Buy, target 106 baht): Our target price is based on a 2024 PE of 25 times (2.25 SD above the five-year average). Key strengths include a position as a leading global beverage producer, consistent capacity expansion (25-30% annually), and attractive valuation (2024 PE of 24.5 times) relative to impressive EPS growth (41% compound annual growth rate from 2022-24).
- TOP (Buy, target 65 baht): While we project a 22% year-on-year decline in the oil refiner's net profit to 15.2 billion baht in 2024 due to crack spreads returning to normal, overall performance is expected to remain strong. Gross refining margin is still estimated to be high at $7.70 a barrel, and refinery run rates are forecast to stay elevated at 104%. Our target is based on a 2024 PBV of 0.84 times (1.0 SD below the five-year average).