The escalation of the Covid-19 epidemic will likely remain at the center of investors’ calculations. We see the SET index going down in August with a trading range between 1480 and 1570. Expect volatile trade with a low in mid-August.
However, earnings should come into play, especially for stocks which are expected to post strong earnings growth in the second quarter.
On the bright side, the Thai government is expected to announce more measures to contain the spread of the virus and other financial aid measures.
And as the earnings reporting season continues, we’re seeing earnings games take center stage, especially in stocks that have high growth stories.
But the pandemic will continue to put pressure on the SET index and the economy in general, while domestic political tensions could also affect market sentiment.
Most forecasters, including the Bank of Thailand, continue to cut their GDP outlook for 2021. The central bank this week cut its growth forecast to just 0.7%. Another forecast suggested the economy would grow 1.3%, down from a forecast of 2.3% earlier. This would reduce the overall 2021 net profit of the SET index by 3-6%.
Internationally, the US Federal Reserve is sending more signals that it is ready to think about how to start scaling back quantitative easing, which involved huge bond purchases of $ 120 billion per month. to support economic recovery. Given the uncertainty over its plans, the market is expected to be volatile until the next Fed meeting on September 21-22.
The SET index should remain on a downtrend. However, if the index finds support at 1,500 points, it may drift sideways. On the other hand, a break below support would pave the way for a deeper decline. We see support at 1490 and 1465 points and resistance at 1545 and 1570.
We would look to buy on weakness as the Covid situation will ease over the medium term. Attractive stocks are those that show strong growth. The stock choices for the month of August are:
HTECH (unrated): Shares of the precision tool maker have outperformed the SET Index by 41% over the past three months, which we believe is due to strong first quarter results. We expect a further increase in profits during the year, given the continued increase in component exports and the company’s strong chances of winning contracts as a supplier of electric vehicle (EV) projects.
KCE (Buy, target 90 baht): Our target price for the electronics company is set at a 2022 price-earnings ratio (PE) of 32.0 times, or +1.5 standard deviation (SD) above of its 5-year average. We anticipate an upward trend in profits over the next few years in light of the growing demand for electronic components, particularly from the electric vehicle segment.
SMD (Buy, target 17 baht): As a supplier of medical supplies, focusing on critical care equipment, the company is expected to benefit from strong demand which is increasing in parallel with the increase in Covi cases. The stock is currently trading at a 2022 PE of 17.9 times, which is cheap compared to our earnings per share (EPS) growth forecast for a 2020 compound annual growth rate (CAGR) of 34%. -23.
SUN (Buy, target 10 baht): Our target price is indexed to a PE 2022 of 19.6 times, or +0.75 SD above its 3-year average. Shares of the sweet corn producer are currently trading at an attractive PE 2022 of 14.9 times, well below its peer average of 18.4 times. We expect BPA to increase by a 30% CAGR from 2020 to 22, outnumbering its peers average by 24%.
TU (Buy, target 25 baht): Our target price for the manufacturer and exporter of seafood is set at a PE 2021 of 18.0 times, or -0.5 SD below its 6 year average. We expect continued earnings growth from new businesses, which should generate higher profit margins and reduce the risk of commodity dependency.
WICE (Buy, target 13.50 baht): Our target price for the logistics provider is indexed to 2021 PE by 25.0 times (close to its 5-year average). The stock is currently trading at an undemanding PE 2021 of 19.4x, implying -0.6 SD, and relatively cheap compared to its peer average of 30x. Profit is also expected to grow at a faster pace than its four peers (four companies) at 65% year-on-year.
XO (Buy, target 26 baht): The target price for the food producer is set at a 2021 PE of 23.0 times (close to its 5-year average). The stock is currently trading at an undemanding 2021 PE of 19.0 times, implying -0.5 SD, while EPS is expected to rise by a CAGR of 31.4% from 2020-22.