The SET Index will probably remain volatile as the impact of the recent interest-rate increase by the US Federal Reserve may take a back seat to rising concerns about recession risk as numerous countries -- expected to be joined by Thailand next week -- tighten monetary policy.
Adding to the negative factors, the global energy crisis arising from the Russia-Ukraine war could worsen, though the two countries have agreed on a plan to export stranded grain, which could ease pressure on food prices.
On the domestic front, earnings speculation has kicked in, while rising Covid-19 infections and the weak baht continue to keep a lid on gains. With second-quarter earnings reporting set to end in mid-August, stocks with a strong growth outlook and those whose prices have declined sharply will be prime targets.
The tourism outlook continues to improve, with international arrivals rising steadily. Although government stimulus measures have helped the domestic tourism sector to a certain extent, we believe the biggest question the industry has is if and when China will reopen its borders and let its people travel.
Among the negative factors, foreign investors could pull money out of the Thai bourse if the baht depreciates further. It now stands at 36.63 to the US dollar.
While the market has digested the most recent Fed rate hike, US economic recession risk will continue to pressure investment sentiment globally and locally.
Oil prices are likely to surge again as Europe carries out an emergency plan to prevent an energy crisis resulting from its boycott of Russian gas. Upstream oil players stand to benefit, which we believe will be short-lived.
AUGUST OUTLOOK
The SET Index retreated at the start of July and hit a new low of 1,517 in mid-month, The index later broke above 1,563 which acted as a support. The index finished the month at 1,576.41, with a trading range between 1,596 and 1,517.
We see the index moving higher towards 1,620 if it can stay above the 1,595 resistance. If it fails to do so, a major downtrend could possibly test a new low.
In terms of investment strategy, stocks with strong growth stories that have suffered price declines look attractive. Our top picks are:
- CKP (Buy, target 7.40 baht): Our target price is based on discounted cash flow (DCF), assuming a weighted average cost of capital (WACC) of 5.5% and no terminal growth value. Based on historical eight-year trading data, the power company's share price has advanced by more than 30% in the second and third quarters when demand is high.
- JMT (Buy, target 100 baht): Our target price for the debt-management firm is equivalent to a 2023 price to book value (PBV) of 6.2 times. We project earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 26% from 2023-25 as the budget to buy bad debt reaches a record high and the company recognises a profit contribution from JKAM.
- KTB (Buy, target 18 baht): Our target price for the bank is pegged to a 2022 PBV of 0.66 times (0.75 standard deviation below its 10-year average). The shares currently trade at an attractive PBV of 0.58 times or 1.0 SD below its 10-year average (the banking sector's average is 0.8 times).
- MEGA (Buy, target 67 baht): Our target price for the healthcare product maker is based on a price/earnings (PE) ratio of 26 times compared to its peers' average of 32.6 and Blackmores' 2022 PE of 46.5 times. Key catalysts are baht weakness, the health consciousness trend, and new hemp products due to reach the market in the third quarter.
- PR9 (Buy, target 17.50 baht): Our target price for the hospital firm is based on a PE of 33 times (0.5 SD above its 5-year average). The possibility of an increase in Covid-19 hospital admissions will provide an upside to our earnings forecast.
- SAWAD (Buy, target 53 baht): Our target price for the financial services company is based on a 2022 PBV of 2.8 times (1.75 SD below its 5-year average). We forecast EPS to grow at a CAGR of 17%, while debt to equity is expected to decrease once organisational restructuring is completed, possibly late in the third quarter.
