We expect the SET Index to consolidate in a range of 1,600 and 1,620 points before breaking above 1,650 late this month. The third-quarter earnings reporting season, which is now winding down, will play an important role in influencing the market's direction.
Once all the results are in on Nov 15, the aggregate net profit of the SET Index is expected to be lacklustre, given the impact that Covid restrictions had on economic activity in the third quarter. However, we believe investors may have digested weak results to a certain extent and are now looking mainly to companies' guidance on the future business outlook.
Meanwhile, sentiment has grown more positive with the reopening of the country to international travellers and stimulus measures. The lifting of Covid quarantine requirements for vaccinated visitors from 63 countries paints a bright picture for the tourism sector and the economy. However, authorities have acknowledged that increased tourism activity could increase the risk of Covid infection rates rising again.
On the external front, the US Federal Reserve has finally ended the suspense about the scaling down of its stimulus. US Treasury yields subsequently decreased, while inflation and crude oil prices are expected to follow suit.
Among the negative factors, commodities are on a downturn after months of rapid price appreciation. We believe commodities may have already peaked, considering heavy profit taking. Thai equities tied to commodity markets appear to be feeling the pain as well.
Looking at the technicals, the support levels for the SET are at 1,591 and 1,593 points. A break below this level will open the way for a steeper decline towards 1,570, and possibly further to close the gap at 1,554 to 1,565 that opened earlier. The resistance is at 1,650 and any breakout could create a potential upside toward 1,680.
INVESTMENT STRATEGY
We recommend focusing on stocks with a strong growth outlook and those that have strong growth stories as the economy reopens. For big-cap stocks, we would rather wait until the index breaks above the 1,650 level. Our picks for November are:
- BANPU (Buy, target 15 baht): The target price reflects a 2022 EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation) of 4.4 times, or 2.5 standard deviations (SD) below its five-year average. We believe the energy company will continue to benefit from the sustained high prices of coal and natural gas, while its renewable energy business will be a long-term earnings growth engine.
- BEC (Buy, target 14.30 baht): Our target is pegged to a price-earnings ratio of 44 times. We forecast the media company's earnings to improve at a faster pace than those of its peers as BEC is ranked second in the industry and has abundant content on hand to attract advertising spenders.
- CBG (Buy, target 141 baht): We predict the energy drink maker's net profit this year will grow 25% to 3.92 billion baht. Total revenue is forecast to grow 16% on expectations of stronger sales across all business segments. Gross profit margin should improve as the cost of packaging is expected to decrease, and capacity utilisation should improve.
- CK (Buy, target 25 baht): We forecast a core loss of 44 million baht in 2021 given delays in bidding for construction projects and the shutdown of workers' camps to contain Covid outbreaks. However, earnings are projected to swing to a profit of 1.4 billion baht in 2022 on the back of a substantial backlog of 100 billion baht worth of projects and higher profit contributions, which we predict to soar 160%.
- KCE (Buy, target 90 baht): We forecast the electronics company's net profit will soar 97% to 2.23 billion baht in 2021 and a further 52% to 3.37 billion baht in 2022. Key growth drivers are increased production capacity, with plans to build a new plant in 2022, and a stronger gross profit margin on the back of an effective product mix strategy.
- KTC (Buy, target 75 baht): Our target for the credit-card operator is pegged to a 2022 price to book value of 6.3 times or 2 SD above its three-year average. We forecast earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 5% in 2019-21 as lending is expected to rise on expectations of economic recovery. As well, loan-loss provisions are forecast to decrease given a sizeable overlay of 1.0 billion baht, and bad debt recovery is expected to increase.
- ORI (Buy, target 13 baht): Key supporting factors for the developer include improving spending power, the transfer of new condominium projects, the relaxation of mortgage loan-to-value rules, and the reopening to tourism, which could lift demand from foreign buyers. All these factors should lend support to earnings from the fourth quarter of 2021. We forecast net profit to grow 20% to 3.2 billion baht in 2021 and a further 11% to 3.6 billion in 2022.
