We expect the SET Index to improve significantly as investors move on from disappointing fourth-quarter earnings results.
Adding to the positive factors, the country is gearing up for an election in May, while the market has digested the prospect of more Federal Reserve interest rate increases to a certain extent.
Any improvement in the Russia-Ukraine conflict could provide support to global equities.
Among key positive factors in the near term will be the formal announcement of the House dissolution, which could come any time between now and March 23. Once the exact date of the general election is known, likely to be May 7, campaigners, the public and investors will respond accordingly.
Dividend plays also come into the picture now that 2022 results are in the books. We have experienced a "sell on facts" trend after the aggregate fourth-quarter net profit of the SET Index appeared to fall short of the consensus forecast by about 40%. We view such declines as an opportunity to accumulate shares, particularly those of companies that have strong growth stories in the first quarter of this year.
The conflict between Russia and Ukraine, meanwhile, will continue to influence the direction of global markets and the SET Index. Any positive development could send the index sharply higher towards 1,700 points. For example, Russia has said a Chinese peace plan for Ukraine deserves to be studied in detail, and reaction from other countries should be monitored. On the flip side, the index could correct towards 1,600 if the situation worsens.
The upcoming Federal Open Market Committee meeting on March 21-22 is going to rattle the equity markets, as recent upbeat US economic data might prompt the Fed to opt for a more hawkish approach to interest rates than earlier expected.
MARCH OUTLOOK
A major downtrend remains intact as the SET Index recorded lower lows after failing to pass 1,692 points in February. However, there is a potential for a rebound towards 1,660 and 1,690 as the index sits close to the psychological support level of 1,600, which is aligned with the medium uptrend line since July 2022. On the flip side, a break below the 1,600 level would open the way for a steeper decline towards the next support at 1,520.
We expect the index to hit rock bottom this month, which will influence investment strategy. Stocks with strong growth stories that have retreated markedly look attractive. In particular, we recommend industrial estate players. Our stock picks for March include:
CK (Buy, target 26 baht): Our target price for the contractor is based on a sum-of-the-parts (SOTP) analysis. Key catalysts are the upcoming signing of an agreement for the Luang Prabang hydropower plant project, likely in the first half, and profit contributions from BEM, which could exceed our assumption as tourism improves. A delay in the signing of the contract for the Orange Line rail line extension has no impact on our earnings forecast.
CPN (Buy, target 80 baht): Our target price for the commercial real estate developer is based on SOTP analysis. We value the core business at 79 baht a share using a discounted cash flow (DCF) method, assuming weighted average cost of capital (WACC) of 7.5% and terminal growth of 2.5%, and the residential business at 1 baht with the property sector's forward price/earnings (PE) ratio of 8.0 times.
GUNKUL (Buy, target 5.70 baht): Our target price for the engineering company is based on SOTP analysis. A key catalyst is a joint venture with GULF, which increases the prospect of winning more project bids. Bidding results for a 5.2 GW power plant are expected to be announced in the near term, while an updated power master plan in Vietnam could lead to more project opportunities in the medium term.
MAKRO (Buy, target 50 baht): Our target price for the cash and carry wholesale-retail group is pegged to a 2023 PE of 41 times (0.5 standard deviation above its five-year average). We forecast revenue to improve significantly from the first quarter on expectations of growing demand from the hotel, restaurant and catering sector and the retail business, particularly in tourist areas. As well, operating expenses are expected to decline year-on-year.
PR9 (Buy, target 22 baht): Our target price for the hospital operator is pegged to a 2023 PE of 28 times. We believe the company's aggressive marketing strategy and customer base expansion both in Thailand and abroad will play a role in boosting earnings growth. Moreover, a return of Chinese customers IVF treatments (3% of overall revenue before Covid-19) could provide an upside to our forecast.
PRM (Buy, target 10 baht): Our target price for the offshore oil storage and shipping specialist is pegged to a 2023 core PE of 15 times (0.5 SD below its five-year average). The stock's valuation looks attractive, trading at 11.2 times 2023 core PE, which is 1.0 SD below the average.
PTTEP (Buy, target 200 baht): Our target price for the energy exploration firm is based on DCF, assuming a WACC of 6.7% and no terminal growth value. We assume the long-term Dubai crude oil price at $65 a barrel. The stock currently trades at 1.12 times its 2023 price to book value (PBV) (0.25 SD below its five-year average).
SNNP (Buy, target 30 baht): Our target price for the beverage and snack maker is pegged to a 2023 PE of 40 times. We believe SNNP will likely continue to outperform as we project first-quarter earnings to hit a record high.
WHA (Buy, target 4.50 baht): Our target price for the warehouse and logistics firm is pegged to a 2023 PBV of 2.0 times (five-year average). Presales are forecast to remain elevated over the next few years on the back of the government's EV promotion measures, which we believe will encourage business expansion in 2023-24.
