We expect the SET Index to move higher in September. On the external front, we believe investors have digested the prospect of more rate hikes from the US Federal Reserve and thus expect a limited impact from the next upward move, given the hawkish signals sent recently by Fed chairman Jerome Powell.
However, a meeting of the Opec+ alliance later this month could affect heavyweight energy stocks and thereby the global equity market, given that the group might consider cutting output to revive falling oil prices.
Back home, although the coming ruling on whether Prime Minister Prayut Chan-o-cha has reached the end of his eight-year term could be a turning point for the Thai equity market, a substantial improvement in tourism should provide a tailwind for equities and strengthen the baht against the US dollar. Among the key factors influencing trade:
- Tourism take-off: Stocks tied to the tourism sector and/or those that stand to benefit from border reopening are likely to thrive on a substantial improvement in the domestic tourism sector, which we project to generate up to 400 billion baht in the second half of 2022 in light of rising arrivals.
- Foreign fund inflows: Foreign institutional investors bought a net 54 billion baht worth of Thai shares in August and have a net-buy position for the year to date of 171 billion. This implies that Thai equities remain attractive to foreign funds.
- Domestic politics: It is difficult to tell if Parliament will be dissolved in the next few weeks. We, however, believe the Constitutional Court ruling on Gen Prayut's term will shed light on future domestic politics.
- US interest rates: The next Federal Open Market Committee meeting will take place on Sept 20-21. We believe investors have digested a potential rate hike of 50 to 75 basis points, as Mr Powell signalled at last week's Jackson Hole symposium for central bankers.
- Ukraine and Opec+ headwinds: Although investors have digested Ukraine issues to a certain extent, any significant development in the conflict could somewhat affect energy prices. In the meantime, a coordinated crude oil production cut by Opec+ members would spur crude oil prices, and hence energy stocks.
INVESTMENT STRATEGY
We expect the SET Index to consolidate, rather than retreating towards 1,600. Momentum has built up lately although the pace has slowed after a test of 1,650, which is two-thirds of the way from 1,517 to the 1,718 threshold.
If the index finds support at 1,620 points, which is the five-month average, there is a high chance the index will push higher. The trading range is expected to be between 1,670 and 1,690. On the flip side, a break below the 1,620 support would open the way for a decline back towards 1,600.
In terms of strategy, we recommend selective plays, focusing on stocks with strong growth stories. Our top picks are:
- BANPU (Buy, target 17 baht): Our recommendation and target price for the energy company are based on a sum-of-the-parts valuation. We predict second-half earnings to remain elevated given the high prices for both coal and gas. Additionally, gas sales volume is expected to increase given the acquisition of additional shares in the US-based gas producer XTO Energy.
- CPALL (Buy, target 68 baht): Our target price is pegged to 2023 price/earnings (PE) ratio of 33 times, which is 0.5 standard deviation (SD) below the retail giant's five-year average. The stock's valuation looks attractive, trading at a 2023 PE ratio of 29 times.
- ERW (Buy, target 4.80 baht): Our target for the hotelier is based on discounted cash flow (DCF), assuming a weighted average cost of capital (WACC) of 7.6% and terminal growth of 2.5%. The valuation remains attractive, trading at 14 times its 2022 EV/EBITDA. That's 0.5 SD below its 10-year average while peer CENTEL is at its historical average. The share price has underperformed the SET Index by 2% in the past month, lagging CENTEL which has beaten the benchmark index by 4% in the same period.
- ONEE (consensus target 11.93 baht): The consensus net profit forecast for the media and entertainment group is 955 million baht this year, up 15% from the year before, and 1.16 billion next year, up 21%. Revenue from licensing, production and artist management is forecast to grow further. The consensus target price of 11.93 baht represents an upside of 15%. We believe earnings will surge in the fourth quarter given the business high season.
- PRM (Buy, target 8.20 baht): Our target price for the marine transport and storage firm is pegged to 2022 core PE ratio of 17 times (0.25 SD below its five-year average). The stock's valuation remains attractive, trading at a 2022 core PE of 13.1 times.
- PTTEP (Buy, target 200 baht): Our target price for the petroleum exploration company is based on DCF, assuming a WACC of 6.7% and no terminal growth value. Our long-term Dubai crude oil price assumption is $65 a barrel.
- SNNP (Buy, target 20 baht): Our target price for the food and beverage company is pegged to a PE ratio of 38 times. The valuation remains attractive, trading at a 2022 PE of 31.2 times, while we project core profit to grow 63% this year and 30% next year.
- WHA (Buy, target 4.50 baht): Our target price for the warehouse and logistics facility developer is pegged to a 2023 estimated price to book value of 20 times (close to the five-year average). We forecast 2023 core profit to hit a record high since the acquisition of HEMRAJ in 2015, while the government's electric vehicle promotion campaign should also provide support.
