SET volatility to persist but sell-offs ease

SET volatility to persist but sell-offs ease

The SET index is poised for volatility in November, driven by various uncertainties including the Israel-Hamas conflict and continuing concerns about US interest rates.

In addition, the outflow of foreign funds and the impact of crude oil prices on the global economy are factors to consider.

However, in light of recent earnings results for Thai listed companies, we anticipate a slowdown in sell-offs.

Despite our forecast for sluggish aggregate third-quarter earnings, several sectors have been reporting robust performance. The final reporting date is Nov 14.

The baht has strengthened slightly, currently standing at 35.90 to the dollar. Although this movement may potentially affect inflows of foreign funds, it presents a favourable outlook for Thai equities.

US interest rates continue to bear watching. The Federal Reserve left its benchmark rate unchanged at its meeting this week.

Chairman Jerome Powell offered a dovish outlook, but some market watchers believe the Fed might raise the rate at its final meeting of the year on Dec 12-13 to curb persistent inflation. This move could hurt global equities, including those on the Thai bourse.

Elsewhere, while the market has factored in the potential escalation of violence between Israel and Hamas, we do not anticipate a significant impact on global crude oil prices. Instead, we believe the market's focus will be on global economic growth.

China, meanwhile, has introduced several stimulus measures to boost consumption and the financial sector. However, the ongoing struggles in the property sector are likely to put downward pressure on the world's second-largest economy.

NOVEMBER OUTLOOK

We expect the prevailing downtrend to persist in November, with the SET index expected to approach a trough. Support levels are seen at 1,340, 1,300 and 1,280 points, while resistance levels are established at 1,420 and 1,460.

In terms of investment strategy, stocks of firms that are expected to report strong third-quarter earnings results, and those that have already experienced steeper declines, present attractive opportunities. Our picks for November include:

  • ADVANC (Buy, target 250 baht): Our target price for the mobile phone operator is based on a discounted cash flow (DCF) approach, using a weighted average cost of capital (WACC) of 8.7% and a terminal growth rate of 3%. In the short term, catalysts include optimism surrounding the proposed takeover of TTTBB and a plan to invest in JASIF. The successful conclusion of these transactions could provide upside potential to our earnings forecasts, particularly in terms of higher mobile data consumption in the long run.
  • AOT (Buy, target 84 baht): Our target price for the airport operator is based on a DCF approach, using a WACC of 7% and a terminal growth rate of 3.5%. There is a potential for upside to our earnings forecast, as the company is reportedly considering an increase in passenger service charges.
  • CK (Buy, target 27 baht): Our target price for the construction contractor is based on the sum of the parts method. CK stands out among our covered contractor stocks, boasting the sector's highest backlog. Pending a court ruling, further development of the Orange Line light rail project serves as a catalyst. Moreover, the company's double-deck highway project is anticipated to conclude by 2024.
  • CPALL (Buy, target 80 baht): Our target price for the 7-Eleven operator is based on a 2024 price/earnings (PE) ratio of 35 times, indicating 0.25 standard deviation (SD) below the five-year historical average. The current share price is undervalued at a PE of 24 times, and imminent government spending stimulus measures should serve as a catalyst.
  • EKH (Buy, target 9 baht): Our target price for the hospital operator is based on a 2024 PE of 21 times. We believe the current share price is undervalued, considering the promising third-quarter outlook, featuring seasonally stronger demand.
  • MASTER (Buy, target 99 baht): Our target price for the cosmetic surgery specialist is based on a 2024 PE of 45 times. MASTER deserves to trade at a premium to the healthcare sector's average due to its operation in the specialised aesthetics "blue ocean", signifying a unique position in the market.
  • SPRC (Buy, target 11 baht): Our target price for the oil refiner is based on a 2024 price to book value (PBV) of 1.1 times, implying 1.0 SD below the five-year historical average. The current share price offers an attractive dividend yield between 5.3% and 6.5% over the next two years.
  • TIDLOR (Buy, target 25 baht): We project net profit of the consumer finance company to grow by 16% to 4.2 billion baht in 2024, with forecast total loan growth of 17%. Our valuation is based on a 2023 PBV of 2.3 times, implying a 1.25 SD below the five-year historical average.
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