Maybank Kim Eng Securities has made an analysis for the trading session on June 12, 2019, stating that the SET yesterday swung in a narrow range, driven by selling pressure on BEC while strong buying pressure was on power plants led by GULF, EGCO, RATCH and CKP. New listed MITSIB gained 1.6%, with a trading value of THB793m.
The index closed at 1,670.4 points (+5.6 points) with a trading value of THB50b (THB47b the previous day). Foreign investors continued to net buy Thai shares by THB2.91b. Institutional investors net sold by THB149m. There were net long on SET50 index future by 15,167 contracts.
Investment Theme: Trade negotiation on the way, maintain focusing on Domestic plays:
The 12th trade negotiation between China and the U.S. is approaching, to take place at the G20 Summit in Japan. Initially, both sides representatives Steven Mnuchin and Yi Gang unveiled during the weekend that they are in the process of negotiation. The result will be announced at the G20 Summit.
Recently, US president Trump expressed his confidence that China would agree to this talks. We believe that this round of negotiation is important to the investment sentiment for the rest of the year.
Maybank puts more weight on the base case which is the US is likely to postpone the tariffs hike to extend the negotiation over the 5G issue (Google, Huawei and others). The financial factors would come in to limit the downside risks to the market in the near term. We forecast that the US Fed has a chance to cut interest rate once in the second half of the year to 2.0-2.25%.
For the investment outlook, Maybank estimates that within the next few months, the domestic plays stocks remain attractive because of low risk from the trade negotiation results while 2Q19 earnings remain under pressure.
We estimate the SET index this week to swing in a range of 1,645-1670 points. Maybank still recommend accumulate PTTEP (global play) and speculate domestic play stocks led by WORK, CPALL and S.
Royal command appoints Gen Prayut Chan O Cha as Prime Minister.
Stock Pick and Trading Idea
Maybank are initiating coverage on S with a “BUY” rating and a TP of THB4.20/share (24% upside). After investing and restructure the business for more than a few years, we view that the company is entering a growth stage and this is a good time to gradually accumulate S shares. Maybank expects earnings this year to grow by 160% to THB1.6b from delivery of 2 large projects and continue growing by 30% in 2020 due to revenue recognition from JV. Moreover, in 2H19, the company prepares to spin off over 39 hotels (SHR) to be listed on the stock exchange, which will unlock important value and continue to invest in the future and relax the financial position as D/E decreases to 1.6x.
The target price is calculated by SOTP method, based on the property sector PER of 12x (sector’s premium at only 10% vs its growth of over 80%), hotel sector’s average at 24x. The current share price YTD is 12% laggard the property sector. Thus, Maybank recommends investors to BUY “S” with a target price at THB4.20.
The SET index swung sideways all day before the strong buying pressure taking place in the afternoon. That made the index to gain and test the resistance of Ascending Triangle at 1675 area but failed to breakout. Now, even though the main trend is an uptrend, the resistance area at around the 1675 and 1690 are a place that is good for profit taking for the cycle trading. It is because we expect the index may correct in the near term at those resistance levels.
1) With stocks, hold stocks if it manages to maintain above 1660, take profit at resistance 1675 and 1690. If dips below 1660, gradually lock profit.
2) Without stocks, if weakens to test the support 1660, accumulate stocks for trading.
Maybank sets a support line at 1653 points and 1660 points while setting a resistance line at 1675 and 1690 points
Keep an Eye On
1) OPEC meeting June 25-26.
2) G20 Summit June 28-29.
3) Government forming should complete within the next few weeks.