The Stock Exchange of Thailand exhibited a sideways trend during July, with the SET Index fluctuating within a narrow range of 1,286 to 1,330 points. Despite the limited upside, the index held above the prior low of 1,281.
Key catalysts in August will include second-quarter earnings reporting, with all results due by Aug 14. We forecast a strong 27% year-on-year increase in the aggregate net profit of the SET Index.
As well, investors will continue to monitor the US interest-rate outlook, after the Federal Reserve indicated this week that a reduction in September is possible. Recent economic and inflation reports point to the potential for as many as three cuts by year-end. Such moves could boost economic growth and attract foreign inflows to the Thai market.
Local politics are a factor as always. The Constitutional Court will rule on the dissolution of the Move Forward Party on Aug 7 and on the ethics complaint against Prime Minister Srettha Thavisin on Aug 14. An outcome favourable to the PM could provide positive sentiment for the SET. On the economic front, in addition to the digital wallet programme, the government is expected to roll out more stimulus packages.
Keep an eye on China as well. Following a once-every-five-years plenum gathering of top officials, Beijing has reaffirmed its commitment to economic stimulus, targeting 5% GDP growth in 2024. Increased consumption is a key focus.
AUGUST OUTLOOK
A break above 1,330 points could open an upside towards 1,340 or 1,360. However, given the historical significance of the 1,350 level as a strong support, a break above this level is seen as challenging for the SET. Should the index fail to breach the 1,330 level, a return to the 1,280-1,332 range is likely.
In terms of investment strategy, the short-term focus will be on stocks with strong earnings growth stories. Our top picks for August are:
- AURA (Buy, target 18.50 baht): We forecast 27% year-on-year growth in full-year net profit for the jewellery maker to 1.1 billion baht. Earnings momentum is expected to persist in the second half, fuelled by ongoing expansion and the thriving pawning segment. Notably, the pawning portfolio is projected to reach 4.2 billion baht by the end of 2024, compared with 2.7 billion a year earlier. Our target price is based on a 2024 price-earnings (PE) ratio of 23 times, or 0.5 standard deviation (SD) below the two-year average. An interest rate cut could further enhance profitability.
- CK (Buy, target 29 baht): We anticipate 25% year-on-year profit growth for the construction contractor to 1.8 billion baht in 2024, driven by core business and project execution. Looking ahead, we project continued growth of 17% to 2.1 billion baht in 2025. Large-scale projects like the Orange Line and Purple Line South rail projects in Bangkok, the Luang Prabang hydropower plant in Laos, and the Denchai-Chiang Rai-Chiang Khong double-track rail project offer significant upside for 2025.
- CKP (Buy, target 4.50 baht): We project a solid 21% year-on-year increase in core profit for the power producer to 1.8 billion baht in 2024, driven by the end of the El Niño influence and potential La Niña impact. Our target price is based on a discounted cash flow analysis using a 5.5% weighted average cost of capital with no terminal growth value. Key catalysts include a strong electricity generation season in the third quarter.
- CPAXT (Buy, target 36 baht): Our target price for the retail and wholesale operator is based on a 2024 PE ratio of 37 times (0.25 SD above the five-year average). Key catalysts include continued retail segment improvement.
- KTB (Buy, target 21 baht): Our target price for the bank is based on a 2024 price to book value (PBV) of 0.68 times, or 0.75 SD below the 10-year average. The current valuation of 0.57 times PBV is below its 10-year historical average, and the sector average of 0.6 times. Moreover, we believe the recent share price peak of 21 baht doesn't fully capture the bank's potential for future growth.
- MASTER (Buy, target 86 baht): We project robust 39% year-on-year growth in net profit to 579 million baht in 2024. Ongoing merger and acquisition exploration by the cosmetic surgery hospital operator could create an upside to our earnings forecast. Our target price is based on a 2024 PE of 45 times. Given the expected upward trend in earnings, the recent 23% stock price decline offers a compelling entry point.
- SPRC (Buy, target 10.50 baht): The refinery operator is poised for a big turnaround, with projected net profit of 4.9 billion baht in 2024, compared to a loss of 1.2 billion in 2023, driven by a higher gross refining margin, increased refinery intake and substantial oil stock gains. Our target price is based on a 2024 PBV of 1.13 times, positioned at 1.0 SD below the five-year average. The current stock price also offers an attractive dividend yield of 5.4% to 6.1% for the next two years.
