After falling more than 18% over the first 11 months of last year, the SET index performed at its best in December with a 2.6% month-on-month gain of 35.67 points.
The main index closed the year at 1,415.85 points, a plunge of 15% year-on-year and the claiming the distinction of being one of the worst-performing markets in the world.
The first half of December was a struggle with Fed-related fears and Houthi attacks in the Red Sea raising concerns about trade with Europe. These factors pushed the SET down to its lowest point of the year at 1,354.73.
However, the market bounced back with the introduction of tax-deductible ThaiESG funds, closing the month up 2.6% from the end of November. Average trading turnover in December was 38 billion baht, down 14% month-on-month.
For 2024, we set a target of 1,550 points for the SET, which would be a 9.5% gain year-on-year. There are five key factors supporting our positive view of the market.
First, we believe economic conditions in Thailand will improve this year. Our economic team expects GDP growth of 3.5%, up from 2.6% projected for 2023. We anticipate significant gains in exports, tourism, and both private and public investment.
Second, SET earnings per share (EPS) are expected to grow year-on-year at 16% to 96.7 baht, based on the Bloomberg consensus.
Third, interest rates worldwide likely peaked last year and we do not expect a hard landing for the US economy. Therefore, we should expect a gradual decline in rates, led by the Federal Reserve. This will build positive sentiment for risky assets such as equity markets.
Although Thailand may not see a decline in interest rates in 2024, the return of risk-on sentiment coupled with a trend of lower rates should reinvigorate the SET.
Fourth, market valuations have become attractive. The SET's current price/earnings (PE) ratio of 14.5 times compares favourably to the long-term PE of 17 times, trading at -1 standard deviation (SD). The price-to-book value (PBV) of the SET is also at -1 SD, trading at 1.3 to 1.4 times.
Lastly, the SET hasn't fallen for two consecutive years in recent history. Following the decline last year, it is reasonable to assume the market could recover.
Although we have high hopes for a SET turnaround this year, the first half could be challenging.
Interest rates appear to have peaked, but they have yet to come down. The government budget for 2024 has yet to be finalised and the 10,000-baht digital wallet stimulus is still up in the air.
Top picksin early 2024
Consequently, our investment strategy for the beginning of 2024 is to remain cautious.
We like stocks that will benefit from the Easy E-Receipt tax refund campaign (up to 50,000 baht per person) and those that offer solid dividends. Our picks are Asian Property (AP), CP All Plc (CPALL), Central Retail Corp (CRC) and Thai Asphalt Plc (TASCO).
- We expect the property developer AP to report healthy profit growth for the fourth quarter of 2023 on higher bookings of its new condominiums (30% higher than expectations). AP also launched 23 new projects worth 36 billion baht in the fourth quarter of 2023, further enhancing its growth prospects for this year. The developer plans another 55 project launches this year with a total value of 75 billion baht. AP is an attractive dividend stock with a yield around 6%.
- The convenience store giant CPALL should benefit from both the E-Refund campaign and the recovery of the tourism industry. The fourth quarter is usually the high season for the company with the arrival of the festive season. CPALL should also benefit from the digital wallet, if it is approved, helping to stimulate consumption. The company planned to add 147 new 7-Eleven stores in the fourth quarter of 2023, bringing its total shop additions last year to 700 branches.
- Another beneficiary of the Easy E-Receipt campaign and improvement in tourism should be CRC. Total projected spending for the refund campaign is a hefty 175 billion baht and given CRC's network size, it should benefit from a big portion of that spending. Meanwhile, the company's investment in Italy is growing in the double digits, in addition to its domestic stores. We also note that CRC rebranded its wholesale business to GO Wholesale and these are doing well, with sales already exceeding the 2019 level (from three stores in total).
- For TASCO, as the US has lifted its sanctions on Venezuela for six months (ending on April 18 this year), access to cheaper heavy crude oil from Venezuela will help the company address raw material constraints. As a result, profitability is poised to jump in 2024 by 45%. Though full-year performance may not be as good as before the sanctions, TASCO will at least be able to enjoy lower costs and high-yield raw materials for a good chunk of 2024.
Note that fourth-quarter profit for TASCO could still be poor as negotiations with the Venezuelan state oil company PDVSA had some delays and the company had to import the crude in early 2024. As the company lost a bid for Colombian crude late last year, there could be additional shipment delays.
On the plus side, TASCO is one of the few stocks that could provide a yield of over 7% per year, possibly up to 8% for 2025.
