KGI Securities released an analysis for the trading session on August 3, 2020, indicating the essential events in the stock market as follows:
In August, some market pullback is possible, pressured by negative news flow on COVID-19, rising concern about global growth momentum and further downgrades in Thai EPS. However, ample liquidity supports, both globally and locally, coupled with the US dollar weakness, could result in stronger risk appetite in Asian equities, indirectly limiting the Thai market downside.
Hence, KGI Securities recommend buy on the dip. Focus on the bottom-up stories like i) sectors which passed bottom in 2Q20, ii) stocks with solid 2Q20 result outlooks, and iii) the beneficiaries from more economic stimulus from the new cabinets.
August model portfolio: Continue to focus on bottom-up stories
July model portfolio down 1.2%, still slightly outperforming the SET Index
During July, KGI Securities model portfolio dropped 1.2%, but still slightly outperformed the SET Index which declined by 2.1% (data as of July 30, 2020). The Food sector was a sweet spot; Osotspa (OSP)* rallied 10.5% to reflect a solid earnings outlook in 2H20 and a specific event, as investors expect one of its competitors to face more social resistance.
Charoen Pokphand Foods (CPF)* moved up 3.2% as swine prices both in Thailand and Vietnam soared. Meanwhile, KGI Securities stock ideas related to the medical tourism theme were stalled by a worsening COVID-19 situation.
Lastly, political uncertainties at home, regarding the cabinet resignation and reshuffle, also weighed on industrial estate/EEC plays like Amata Corporation (AMATA)* (-7.8%).
August market view: Some price pullback likely and mid-caps to remain in focus
For August, KGI Securities are slightly negative to the market and expect further pullback, notably during the first half of the month, due to i) possibility of negative news flow on the US’s coronavirus stimulus package as Congress seems to be struggling to reach a deal.
ii) COVID-19 infections continued to worsen; not only in the US but also a few key countries like Japan, UK and Hong Kong.
iii) Despite relatively resilient 2Q20 results so far, further cuts in Thai EPS is likely given shaky views on global growth and further downside risk to Thai tourism recovery/GDP.
Meanwhile, KGI Securities expect a more solid market after results revisions and Thai 2Q20 GDP release mid-August, as there is still liquidity support from both global and local perspectives while Asian equity inflows look stronger, starting in North Asia, amidst a weak US dollar and resilient Chinese economy.
Based on KGI Securities quantitative model which predicts fair 12-month forward PE at 17.3x, the SET Index could slip below 1,300 this month but it would be a buying opportunity, in their view.
August stock picks: Continue to focus on bottom-up stories, and avoid the general market plays
As KGI Securities expect the market to remain under some pressure in August from the global COVID-19 situation, possible Thai EPS cut and relatively unattractive market valuations, KGI Securities recommend investors to avoid general big caps in conventional sectors as they are unlikely to outperform at least in the near-term.
KGI Securities continue to focus on bottom-up stories like i) Commerce and Healthcare sectors, as their operations have a very high chance of passing the bottom in 2Q20 (C.P. All (CPALL)*, Bangkok Dusit Medical Services (BDMS)*), ii) mid-cap stocks with solid 2Q20 earnings outlooks YoY (AP (Thailand) (AP)*, PTG Energy (PTG)*), iii) beneficiaries from more government stimulus on private consumption and public investment/infrastructure (Dohome (DOHOME)*, Siam Global House (GLOBAL)*, Siam City Cement (SCCC)).
Although DOHOME and GLOBAL have no upside to our current target prices, KGI Securities view that their trading themes look very solid in the near-term and price overshooting is likely.