The SET index experienced a downtrend in June, trading within a range of 1,280 and 1,354 points and reaching the month's low in mid-June before rebounding to 1,323, which coincided with the 200-day moving average acting as a resistance.
Among the key factors expected to influence market activity in the near term:
- Earnings season: Banks are expected to report second-quarter earnings between July 15 and 20, with other listed companies to follow gradually until mid-August. Strong results could lift bank stocks. For Tisco, traditionally the first bank to report, we forecast a slight decline of 9% year-on-year and 3% quarter-on-quarter in second-quarter net profit to 1.69 billion baht because of a potential loan-loss provision increase against riskier loans.
- US interest rates: The Federal Reserve last month left its key rate unchanged at 5.25% to 5.5% as it said it wanted to see clearer signs that inflation could be brought down to its 2% target. Expect no change at the July 30-31 policy meeting, but everyone will be watching for signals about future decisions.
- Thai politics: More government stimulus measures -- for property and infrastructure -- are anticipated this month. The July 10 Constitutional Court hearing on the prime minister's ethics case will be a major focus, overshadowing concerns about the Move Forward Party's dissolution, though rulings in the two cases are not expected until some time in August.
- Geopolitical tensions: The Israel-Hamas war in Gaza drags on with no signs of progress towards a ceasefire, and Israel is also seeing an increased threat from Iran-backed Hezbollah on its northern border. The latter could provoke a wider regional conflict and disrupt crude oil supplies, affecting shipping stocks first.
JULY OUTLOOK
If the SET index can hold above 1,300 points, we could see a sideways-down drift. However, a clear break below 1,300 could open the way for a steeper decline towards 1,280. The next support levels could be 1,250 and 1,220. Resistance levels are set at 1,320 and 1,340.
In terms of investment strategy, a short-term trading approach is recommended to capitalise on market volatility. Thai ESG and Vayupak Fund investments are also considered attractive. Our stock picks for July are:
- AAI (Buy, target 9 baht): Our target price for the pet food maker represents a 2024 price/earnings (PE) ratio of 21 times, or 1.0 standard deviation (SD) below the 10-year average, in line with the pet food sub-sector average of 23 times. Key catalysts include potential for a large new customer acquisition by early 2025 and a positive outlook for Thai pet food exports.
- CKP (Buy, target 4.50 baht): Our target price for the power producer is based on a discounted cash flow (DCF) analysis with a 5.5% weighted average cost of capital (WACC) and no terminal growth value. Key catalysts include the potential end of El Niño in the second half and a strong electricity generation season in the third quarter.
- CPALL (Buy, target 84 baht): We see the 7-Eleven operator's net profit surging 23% to 23 billion baht in 2024 and another 19% to 27 billion in 2025. The convenience store market typically thrives during the second-quarter high season, with increased sales of ready-made meals and personal care products, potentially improving same-store sales and gross profit margins. Our target price is based on a 2024 PE of 34 times (0.3 SD below the five-year average).
- PTTEP (Buy, target 180 baht): Net profit for the petroleum explorer is forecast to reach 70.6 billion baht for 2024 and 71.1 billion in 2025, driven by increased sales volume projected at 509,000 barrels of oil equivalent per day, up from 462,000 in 2023, and higher average gas sales prices based on the Dubai crude price averaging $75-80 per barrel. Our target price is based on a DCF analysis with a 6.7% WACC and no terminal growth value. The expected dividend yield of 6% for 2024 and 2025 is also attractive.
- SAPPE (Buy, target 124 baht): Our target price for the beverage producer is based on a 2024 PE of 27.5 times (close to 2 SD above the three-year average). Key strengths are the company's status as a leading global beverage producer and consistent capacity. The valuation is attractive relative to impressive earnings per share (EPS) growth expected at 28% in 2024-25. The current share price reflects a PE ratio of 22.5 times.
- SAV (Buy, target 26 baht): Our target price for the air traffic control services provider is based on a DCF analysis with an 8.2% WACC and 2.5% terminal growth. Upside potential is seen in a recent joint venture and potential expansion in Laos.
- TTB (Buy, target 2.10 baht): Our target price for the bank is based on a 2024 price-to-book value (PBV) of 0.85 times, positioned at 0.75 SD below the 10-year average. The shares are undervalued, trading at a discount of 1.0 SD to the 10-year average. An attractive dividend yield of 7% is a plus.