The SET index is expected to experience volatility this month. While the market awaits fresh economic stimulus measures from the government, earnings speculation, particularly in bank stocks, is intensifying as the reporting season approaches.
Furthermore, the continued depreciation in the baht has fuelled foreign fund outflows, and rising global crude prices are raising inflation concerns.
The Chinese economic outlook and US Federal Reserve policy decisions may also influence market direction. Among the key factors:
Earnings plays: Banks will be the first to announce their third-quarter results, starting at the end of next week, setting the stage for earnings season. Strong performances are expected from banks and energy players.
Rising crude oil prices: Upstream energy players like PTT and PTTEP are poised to benefit from the surge in crude oil prices. However, this uptrend may bring concerns about soaring inflation.
Fed signals: Keep a close watch on statements from Fed policymakers as their views on interest rates could sway market sentiment. The next Federal Open Market Committee meeting is on Oct 31 and Nov 1.
Chinese economic uncertainty: Investors continue to see mixed signals about Chinese manufacturing and consumption, while the health of the property market remains a big concern. Any signs of improvement may provide a lift to global equities.
Baht depreciation: The ongoing slide in the baht has led to foreign fund outflows. In September, foreign investors sold a net 20 billion baht, and the yearly total to date has now topped 160 billion.
For October, we anticipate the SET index to continue its retreat with the possibility of testing support levels at 1,460 and 1,430 points.
Watch for resistance at 1,530 and 1,550. These levels may present challenges during any upward moves.
In terms of investment strategy, stocks with strong growth potential and those with a robust earnings outlook are attractive.
Additionally, stocks that have retreated steeply could recover their losses. Our picks for October are:
- BBL (Buy, target 195 baht): Our valuation for the bank is based on a 2023 price-to-book value (PBV) of 0.7 times, indicating 0.7 times standard deviation (SD) below the 10-year average. Historical trading patterns suggest the share price is likely to approach the 200-baht mark, aligning with net profit levels of approximately 10 billion baht per quarter. This underscores the likelihood of BBL shares continuing to outperform the SET index.
- BEM (Buy, target 10.40 baht): Our target price for the transit company is based on a sum-of-the-parts valuation. A key catalyst is the expected signing of the Orange Line project, possibly in the first half of 2024. If realised, this project could add one to two baht to our target price. Additionally, a double-deck highway project is expected to progress significantly. Moreover, subsidiary TTW has a good chance of winning a treated water concession, covering Pathum Thani and Rangsit, this month.
- BH (Buy, target 300 baht): Our target price for the hospital operator is based on a 2023 price/earnings (PE) ratio of 31 times. A key catalyst for this valuation is the thriving medical tourism sector, with BH experiencing growing numbers of international patients. Moreover, the company is set to offer a deeper discount on medical treatment fees, increasing it to 11.4% from pre-Covid levels of 9.5%.
- MASTER (Buy, target 99 baht): Our target for the cosmetic surgery hospital is based on a 2023 PE of 45 times. The company deserves to trade at a premium to the healthcare sector's average due to its operation in the specialised blue ocean of aesthetics, signifying a unique position in the market.
- MENA (Buy, target 2.50 baht): Our target price for the inland transport company is based on discounted cash flow, assuming a weighted average cost of capital of 7.7% and a terminal growth rate of 2.0%. This valuation translates to a forward PE of 27 times and a PEG (PE divided by growth rate) of 0.9 times based on the 2022-23 compound annual growth rate of 30%. A key catalyst is broader economic growth.
- MOSHI (Buy, target 60 baht): Our target price for the retailer is based on a 2023 PE of 36 times, aligning with its historical average. We anticipate outperformance of the benchmark due to its exceptional same-store sales growth, which outpaces peers, even in the face of sluggish consumer spending power.
- ORI (Buy, target 13 baht): Our target price for the property developer is based on an adjusted PE of 8.5 times, aligning with its 5-year average. Currently, the share price trades at an undemanding adjusted PE of 6.7 times, which is 0.5 standard deviation below the average.
- SPRC (Buy, target 11 baht): Our target price for the petroleum refiner is based on a 2023 PBV of 1.1 times. This implies 1.0 SD below the five-year average, indicating the potential for further growth and strong performance.
- WHA (Buy, target 6.30 baht): Our target price for the warehouse and logistics firm is based on a 2023 PBV of 2.6 times. This implies 1.5 SD below the eight-year average, reflecting the exceptional presales prospects over the next two to three years and the potential for price increases driven by growing demand.