We expect the SET Index to continue to be volatile. Russia's war in Ukraine will remain in the spotlight, while investors will keep an eye on signals from the US Federal Reserve and the Covid-19 outbreak in China, which is forecast to peak soon. On the domestic front, earnings speculation will continue as the first-quarter reporting season winds down.
We forecast the aggregate first-quarter net profit of the SET to pale in comparison to the 270 billion baht recorded in the fourth quarter of 2021 once all results are in on May 17.
Among positive factors, the end of the Test & Go programme since May 1 is expected to boost tourist arrivals by making it easier to travel. Stocks of businesses that stand to benefit from more tourism look attractive, but we believe the market has digested this to a certain extent.
We also expect Covid-19 infections in China to peak soon. Coupled with the government's vow to make an "all-out" effort, the economy is forecast to improve at a rapid pace if and when authorities start easing disruptive lockdowns.
On the downside, Russia's war in Ukraine will likely continue to take centre stage, which has led to rising product prices and currency fluctuations.
The SET Index traded in a narrow range in April. The index hit a high of 1,708 in the first week of the month before retreating in a zig-zag pattern and reaching a low of 1,655 in the final week of the month.
In May the SET Index is likely to retreat, with support pegged at 1,630 and 1,600 points, while resistance levels are 1,685 and 1,700. We advise investors to bet on stocks with a strong first-quarter earnings outlook and those that endured steep declines in the market. Our top picks:
- ASIAN (Buy, target 21 baht): The 2022 net profit of the producer of seafood and other products is forecast to grow 6% to 1.1 billion baht. The pet food business will likely continue to grow given production capacity increases amid rising demand. A weaker baht may provide a further upside to our earnings forecast. Our target price is pegged to a 2022 price/earnings (PE) ratio of 15.5 times or 0.15 standard deviation (SD) below its five-year average. A key catalyst is the upcoming listing of its subsidiary AAI in late 2022.
- BDMS (Buy, target 26.50 baht): Our target price for the hospital group is based on discounted cash flow (DCF), assuming a weighted average cost of capital (WACC) of 7.3% and terminal growth of 2.5%. BDMS is a prime beneficiary of border reopening as more foreign patients will arrive, with the stock being targeted by foreign investors.
- CKP (Buy, target 7.40 baht): Our target price is based on DCF, assuming a WACC of 5.5% and no terminal growth value. We have incorporated the company's Luang Prabang hydropower plant into our forecasts, adding 1.70 a share to our target price. According to the three-year trading data, CKP's share price climbs in May by an average of 13%.
- LEO (Buy, target 22 baht): The latest closing price for the logistics provider reflected a PE of 16.4 times compared to its peers' average of 21.7, as the stock has declined 15% in the year to date. We believe the share price has priced in the impact of events in Ukraine and Chinese lockdowns to a certain extent and we recommend increasing positions in LEO, while first-quarter earnings are predicted to hit a record high.
- PR9 (Buy, target 14 baht): Our target price for the hospital operator is pegged to a PE of 33 times. PR9 deserves to trade at a premium of 8% to its peers, as Myanmar customer numbers are predicted to increase more than expected, which will provide an upside to our earnings forecast and target price.
- SCB (Buy, target 150 baht): Expect stronger growth year-on-year in the second quarter from the bank. We forecast 2022 net profit to grow 10% to 39 billion baht, with second-quarter earnings to rise further based on lower loan-loss provisions. NPL risk is low, as SCB restructured about 20% of total loans, helping to cut provision expenses and support earnings growth. Our target price is pegged to a 2022 price-to-book value of 1.1 times, or 1.0 SD below its 10-year average.
