The SET index drifted sideways up in August. After finding support at 1,273 points early in the month, marking the month's low, the index broke above the upper end of the sideways trend of its two-month range (June-July), reaching the month's high of 1,370. Key factors affecting market movements include:
- Fed rate cut signal: As the Federal Reserve meeting on Sept 17-18 approaches, chairman Jerome Powell's recent comments suggesting a possible interest rate cut have ignited speculation about the magnitude of the adjustment. A reduction of 50 basis points could indicate growing concerns about the potential for recession in the US economy.
- Domestic economic policies: The new government's stimulus measures are expected to support the economy. Areas of focus include investment promotion, agriculture and strengthening of small and medium-sized enterprises.
- Chinese yuan carry trade: With the recent easing of the Japanese yen carry trade, investors are increasingly turning to the Chinese yuan for opportunities. Beijing's accommodative monetary policy has contributed to a stronger yuan, making it an attractive option for carry trade strategies. However, the near-term outlook for China's economy remains uncertain.
- Geopolitical tensions: While a resolution to conflicts between Iran and Israel and Israel and Hamas could have a positive impact on global equities, it could also lead to increased volatility in gold and crude oil prices.
SEPTEMBER OUTLOOK
While a short-term pullback in the Thai market is highly likely given the recent breach of the 1,350 support (which serves as a key support from October 2023 to November 2024), the SET index is expected to advance towards 1,400 and 1,430 if the 1,350 or 1,330 support levels hold.
In terms of investment strategy, focus on domestic plays, particularly retailers benefiting from the government's digital wallet scheme. Our stock picks for September are:
- IVL (Buy, target 21 baht): Net profit for the petrochemical producer is projected to rebound to 7.3 billion baht in 2025, recovering from a forecast loss of 18.7 billion in 2024. This estimate is based on an adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) of US$106 a tonne and sales volume of 14.1-14.2 million tonnes in 2024-25 (compared with $99 and 13.9 million tonnes in 2023). Our target price is based on an enterprise value (EV) to Ebitda ratio of 6.45 times, which is 1.6 standard deviations (SD) below the five-year average.
- KTB (Buy, target 21 baht): Our target price for the bank reflects a 2024 price-to-book value (PBV) ratio of 0.68 times, which is 0.75 SD below the 10-year average. The current stock valuation of 0.63 times PBV offers a significant discount (-1.0 SD) compared with the historical average. Moreover, even the previous peak of 21 baht does not fully reflect the bank's quarterly record-breaking performance.
- MAGURO (Buy, target 21.40): Our target price for the restaurant operator is based on a 2025 core price/earnings (PE) ratio of 22 times. The current stock valuation of 17.8 times core PE is undervalued compared with peers' average of 19.7 times. MAGURO's lower penetration rate, strong earnings outlook and the recent bottoming out of earnings make it a compelling investment opportunity.
- NER (Buy, target 6.80 baht): We project 22% growth in core profit for the rubber producer in 2024, reaching 1.9 billion baht. This marks a turnaround in three years, supported by rising rubber prices, export growth and the acquisition of new customers. Our target price is based on a 2024 PE of 6.5 times (0.25 SD above the five-year average). Progress on the company's new plants in Thailand and Côte d'Ivoire could act as catalysts.
- SAV (Buy, target 26 baht): Our target price for the air traffic control firm is based on a discounted cash flow (DCF) valuation, assuming a weighted average cost of capital (WACC) of 8.2% and a terminal growth rate of 2.5%. The company's expansion plans into Laos and recent business related to airport equipment procurement could provide an upside to our earnings forecasts.
- SISB (Buy, target 40 baht): We estimate 2024 profit for the international school operator at 914 million baht, representing 35% year-on-year growth. This is based on our projected enrolment growth of 10% to 4,600 students and the annual 5% tuition fee increase. Our target price is based on a DCF valuation using a WACC of 7.2% and a terminal growth rate of 3%. Increasing student enrolments and annual tuition fee adjustments are expected to be key catalysts.
