We expect the SET Index to advance in November to trade in a range of 1,580 and 1,630 points. This week's Federal Reserve meeting, which featured another big interest-rate increase and more hawkish comments, will dominate sentiment in the near term.
On the domestic front, we expect earnings plays, particularly among companies that benefit from the tourism recovery and/or a stronger baht, to help buoy the market. Also keep an eye on the G20 and Apec meetings at mid-month, the latter of which will be held in Thailand. Among the positive factors:
Third-quarter earnings: The curtain on earnings season is set to come down on Nov 15, and we expect foreign investors to return to Thai equities.
Weaker dollar: The modest retreat in the dollar reflects several market headwinds, while other currencies have strengthened. The baht has appreciated to around 37.60 to the dollar after falling as low as 38.30 last month.
Among the negative factors are the hawkish Fed policy. The Fed again raised its benchmark rate by 75 basis points this week and chairman Jerome Powell said it would be "premature" to ease up as US inflation is still a major problem. That suggests another significant hike will come at the final Federal Open Market Committee meeting of the year on Dec 13-14. Global equities will retreat dramatically if the Fed raises rates at a faster pace than expected.
In addition, Chinese authorities show absolutely no sign of letup in their zero-Covid policy and lockdowns that have curbed economic activity by millions of people and businesses. The toll on the economy, including tourism and exports, continues to be high.
Finally, global equities are expected to stage a rally if investors see any signs of diplomatic progress to resolve the Russia-Ukraine war when world leaders, possibly including Vladimir Putin, gather for the G20 and Apec meetings in Indonesia and Thailand, respectively.
NOVEMBER OUTLOOK
We expect the SET Index to test 1,630, which sits on the 200-day average. A break above that level would open the way for a further upside towards a range of 1,650 to 1,670. On the flip side, the index will likely consolidate if it fails to hold above 1,630.
As far as investment strategy goes, we recommend choosing stocks with a strong growth outlook, while some that have endured a steep decline also look attractive. Our stock picks for November include:
- BH (Buy, target 245 baht): Our rating and target price for the hospital operator are pegged to a 2023 price/earnings (PE) ratio of 45 times. The stock currently trades at 41.4 times expected 2023 PE, which implies -0.25 standard deviation (SD). We forecast earnings per share (EPS) to grow at a compound annual growth rate of 88.5% from 2021-23.
- KTB (Buy, target 20 baht): Our rating and target price for the bank are pegged to a 2023 price to book value (PBV) of 0.67 times (0.75 SD below its 10-year average). The valuation looks attractive, trading at 0.6 times PBV, which is below its peers' average of 0.7 times.
- THCOM (Bloomberg consensus target 10.40 baht): The Bloomberg consensus target price has yet to incorporate a potentially new orbital slot, with a possible launch in 2025. The size of this potential new satellite is expected to be triple that of Thaicom 4, and the allotted capacity can be shifted among users, which we believe will play a role in attracting both existing and new customers given the growing demand from India for satellite services.
- TOG (Buy, target 12 baht): We expect 2022 and 2023 core profit off the lens manufacturer to hit record highs, with fourth-quarter earnings to grow further on seasonally higher demand. We forecast core profit to grow 26% to 330 million baht, rising to 343 million next year, both record highs, on the back of capacity expansion. In the fourth quarter, we expect core earnings momentum to build up on the back of seasonally stronger demand ahead of the end-year for health insurance coverage.
- TU (Buy, target 24 baht): Our rating and target price for the seafood processor and exporter are pegged to a 2023 PE ratio of 14.0 times (-0.75 SD below its five-year average). We foresee brighter earnings prospects ahead, in particular in the pet and ambient food fields and value-added businesses, while the Red Lobster restaurant chain should see a narrower loss.
