Sawasdee – October 11 , 2024

Highlights

• Israel's Security Cabinet met yesterday to vote on a plan to retaliate against Iran. The White House reported the President had a phone conversation with the Israeli Prime Minister regarding its response to Iran.
• Hurricane Milton passed through Florida, causing about 1 in 4 gas stations to run out of fuel. Over 3.4mn homes and businesses face power outages.
• US Headline CPI in Sep rose 2.4%YoY and Core CPI rose 3.3%YoY, both higher than market expectations. Initial jobless claims increased by 33,000 to 258,000, the highest since August 5, 2023, and above market forecasts.
• The UTCC reported the Consumer Confidence Index for Sep fell to 55.3, down for the seventh month to a 14-month low. Concerns include economic slowdown, flooding, rising energy prices, global economic slowdown and ongoing wars.
• The SEC has increased penalties for “naked short selling”, now considered a major offense. The new penalty is 3x the profit gained, with fines from Bt1mn to a maximum of Bt10mn.
• The World Bank lowered its forecast for Thailand's economic growth this year to 2.4% from 2.8%, citing a weak real estate market, low consumer confidence and challenges of an aging society. The forecast for next year is 3.0%.
• Thailand and Cambodia have opened a new round of negotiations on overlapping territorial claims. The Thai PM indicated this is an urgent policy matter and mentioned the idea of negotiating with Chevron, the former concessionaire of five blocks, to find a solution for energy exploration and production rights.

Strategy today

In the short term the SET is expected to move sideways with limited upside as there are no new domestic catalysts; it is waiting for clarification of interest rate direction from BoT and stimulus from the government, which may be offset by short-term baht fluctuation. Global stock markets are in risk-off mode due to Middle East tension, causing funds to flow out of the Thai capital market. Externally, US inflation does not significantly affect the money market on expectations the Fed’s interest rate direction for the rest of the year will be unchanged. Our strategy is “selective buy”.

Trading today

The SET has limited upside, with no new catalyst and rising Middle East tension. We recommend “Selective Buy” with four main themes:

• Earnings plays for mid-term investors who want strong fundamentals with strong 3Q24 profit momentum, with growth both YoY and QoQ – BEM, BCH, BDMS, GULF and TRUE.
• Stocks expected to benefit from the Vayupak Fund buying stocks in SET100 with the following characteristics: 1) minimum dividend yield of 3.5%, 2) high SETESG ratings from A to AAA and 5-star CG, and 3) strong financial position with profit growth expected in 2025 – KTB, BBL, BCP, ADVANC and HMPRO.
• Desire to speculate in stocks poised to benefit when the interest rate cycle starts down - Leasing (MTC TIDLOR), Property Development (AP SIRI), Commerce (CPALL), Utilities (GULF) and REITs (LHHOTEL and DIF).
• Rising Brent price on concerns of spreading Middle East conflict. We expect price to average US$75-85/bbl. Oil stocks are able to hedge the risk. For investors who can take risks, we recommend an upstream oil stock – PTTEP.

Daily top picks

BCH: 3Q24 profit is expected to grow QoQ and YoY, supported by high season, opening new excellence centers, completion of hospital renovations and better profit at new hospitals. Valuation is attractive, trading at 2025F PER of 21x (-2SD), against expected core profit growth in 2024-2026 of 13% annually, the strongest of the hospitals offering social security services.

CPALL: 3Q24 core profit is expected to grow 39%YoY, the lead performer in its sector, supported by higher sales and margin in CVS and CPAXT. 4Q24 is expected to be the best quarter in 2024 as it is high season; valuation is attractive, trading at 2024F PER of 25x (-2SD).