Earnings plays are expected to feature heavily in the near term as SET-listed companies start to report their first-quarter results. A downbeat surprise, however, could send equities down.
External factors, including ongoing concern about financial institutions, a possible slowdown in US interest rate increases and developments in Ukraine, as well as the long holidays in Thailand, might also put downward pressure on the market.
However, investors locally are looking forward to the May 14 election and the spending boost that campaign seasons typically bring.
On the earnings front, banks, as usual, will take the lead reporting their first-quarter results. Upbeat results will bode well for the Thai bourse, but performances short of expectations could lead to a selloff.
Elsewhere, the US Federal Reserve is widely expected to slow the pace of rate hikes as signs emerge of a slowdown in some parts of the US economy, while nervousness about the health of banks in Europe and the US appears to have abated for now.
Events in Ukraine continue to bear watching for their potential impact on markets. Some world leaders believe a peace plan promoted by China is worth listening to, but the US opposes any ceasefire that does not adequately address Ukraine's territorial and security concerns.
Volatile global oil prices also remain a factor, after the Opec+ alliance surprised the market by widening its production cuts to nearly 3.7 million barrels per day from 2 million earlier, in order to support prices. Crude prices could hold above $75 or $80 a barrel if there are no new negative factors.
APRIL OUTLOOK
The SET Index advanced in March after falling below the mid-term uptrend line of 1,600. The index rebounded strongly above 1,600 after finding support at 1,517, which was also the low for the month.
We expect the index to advance further in April with the potential to hit 1,630 and 1,640. A break above this level would open the upside towards 1,660.
Investment strategy: Stocks with strong fundamentals and those that stand to benefit from the coming election look attractive if several negative factors ease. Among our picks for April:
- BBL (Buy, target 187 baht): The target price for the bank is pegged to a 2023 price-to-book value (PBV) of 0.67 times, or 0.75 standard deviation (SD) below its 10 year average. The shares currently trade at an undemanding 0.58 times PBV, which implies an SD of 1.0 below its 10-year average.
- CK (Buy, target 26 baht): Our sum-of-the-parts target price for the construction contractor derives from three key catalysts: the coming signing of the agreement for the Luang Prabang hydropower project in Laos, possibly in the first half of this year; profit contribution from BEM, which could exceed our assumption on the back of rapid improvement in tourism; and a potential contract signing for the Orange Line rail project in the second half, which could add 5 baht to our target price.
- DOHOME (Buy, target 17 baht): The target price for the home improvement business is pegged to 2023 price/earnings (PE) ratio of 29 times (0.2 SD below its 3-year average). Key catalysts are rising steel prices and higher demand in the aftermath of flooding.
- GUNKUL (Buy, target 5.70 baht): Our target price for the engineering firm is based on a sum-of-the-parts analysis. A key catalyst is a joint venture with GULF, which increases the company's prospects for winning new project bids. The bidding results for a 5.2-Gigawatt power plant project are expected to be announced in the near term, while an updated energy master plan in Vietnam is expected to create new opportunities.
- NEX (Buy, target 24 baht): The target price for the electronic parts maker reflects a price/earnings growth (PEG) ratio of 1. This is equivalent to a 2023 PE of 32 times based on compound annual growth of 32% in net profit from 2023-25 and forecast earnings per share of 0.74 baht in 2023, which is on par with domestic and global peers. Shares of NEX have slumped 25% in the past three months, which we view as an opportunity to increase positions as we forecast net profit to grow markedly in 2023.
- OR (Buy, target 25 baht): The target price for the retail arm of PTT is pegged to a 2023 PE ratio of 25.4 times (1.25 SD below the retail subsector's 5-year average). We forecast first-quarter earnings to improve quarter-on-quarter in the face of a higher marketing margin.
- PLUS (Buy, target 12 baht): The target price is pegged to a PE ratio of 27 times. While we forecast the food and beverage company's earnings will outperform peers, the share valuation appears undervalued compared to beverage peers' average of 26.6 times.
- SAWAD (Buy, target 65 baht): The target price for the finance company is pegged to a 2023 PBV of 3.2 times (1 SD below its 5-year average). Key catalysts include stronger loan growth.
- SNNP (Buy, target 30 baht): The target price is pegged to a 2023 PE ratio of 40 times. We believe the food and beverage producer will likely continue to outperform the benchmark index as we expect core earnings to gain momentum with first-quarter profit likely to hit a record high.
