Krungsri Securities

Krungsri Securities has made an analysis for the trading session on July 12, 2019, stating that the SET Index on Thursday failed to break the previous high of 1,748, and closed up 1 point (+0.1%) at 1,740 in THB69,148 million turnover. Foreign investors were net buyers of That stocks for a 3rd day at THB1,243 million but sold net THB3,436 million worth of bonds and Net Short TFEX at 11,161 contracts. Market Outlook Krungsri is neutral on the market today after the SET Index failed to break the previous high. Today, Krungsri expects the index to move sideways within 1,735-1,750 supported by fund inflows. Oil and Refinery counters would be supported by higher crude prices and GRM as the approaching storm disrupts production in the Gulf of Mexico. Krungsri still like domestic plays in Commerce (CPALL, GLOBAL), IE (AMATA, WHA, FPT), Contractors (CK, STEC, STPI) and Agri-business (STA, NER, GCAP) as they will be the chief beneficiaries of the new economic plan which is expected to be announced in less than two weeks. Investment Strategy: Selective buy, focus on impressive 2Q results - Stocks that are expected to book impressive 2Q19 results (PTTEP, EA, BGRIM, GPSC, CKP, CPF, GFPT, TFG, CPALL, MTC, THANI, VGI, PLANB, MINT, VNT, WORK, MAJOR, JMT, PRM) - Shipping (PSL, TTA) as BDI hits 1,777 - Impressive dividends in 2H19 are INTUCH, ADVANC, KKP, TCAP, LH, QH. Recommend Stocks: PTTEP, Krungsri recommends “BUY” at the target price of THB50/share vs THB136 closed yesterday. - Crude oil prices have rebounded strongly. Meanwhile, PTTEP is expected to deliver strongest 2Q19 earnings growth within PTT Group, driven by higher capacity and sales volume after acquiring Murphy Oil assets (sales to grow 5% in 2019 and 14% in 2020). AMATA (Buy/ IAA Consensus target price at THB27.4 vs THB24.5 close) - New cabinets should continue to develop EEC project, while trade war will attract more foreign investments into Thailand. Krungsri Report Today: - CPALL: Recommend “BUY” with the target price at THB100/share vs THB87.75 closed yesterday. - MAKRO: Recommend “HOLD” with the target price at THB38/share vs THB39.50 closed yesterday. Today's Highlights: - DJIA hits a new high at 27,088 driven again by expectations of interest rate cuts: DJIA closed up 228 points (+0.8%)as the Fed's report to Congress (on the second day) suggests they would cut interest rates to boost the economy. The US dollar weakened but bond yield rose to 2.14% after the US reported core inflation had improved to 2.1% in June from 2% in May. - OPEC cuts 2020 forecast oil demand but a hurricane in the Gulf of Mexico will support oil prices: WTI price eased US$0.23 to US$60.2/bbl, depressed by profit-taking after surging the previous day. Moreover, OPEC has cut 2020 forecast oil demand to 29.27mn bpd from 30.61mn bpd, but maintained output forecast at 29.83mn bpd, which implies 500,000 bpd excess supply. However, approaching severe weather in the Gulf of Mexico has prompted the US energy industry to halt a third of production capacity there. - TISCO reports in-line 2Q19 earnings but NPL ratio inched up; other banks will report results next week, which could disappoint: TISCO Bt1,798mn net profit for 2Q19, up 5% YoY and QoQ. However, NPL ratio inched up to 3.2% from 3% in 1Q19, which is a main concern for the sector. Most banks, especially big banks (KBANK, KTB, SCB) are expected to report weaker earnings YoY. Report Today: CPALL- Expect 2Q19 core profit to grow YoY, Krungsri recommends “BUY” with the target price at THB100/share. Krungsri expects CPALL to book THB5.8 billion a core profit for 2Q19, increasing 20% YoY but decreasing 0.3QoQ on the back of 3.1% SSSG, improved gross margin for convenience store, and a low-base at MAKRO. A possible delay in wage hike would have only partial impact on earnings as CPALL will benefit from policies to support agriculture prices (45% positive correlation with paddy price). Krungsri has a BUY rating for CPALL with a target price of Bt100 based on DCF (7.8% WACC), implying 14.3% upside from last closing price. MAKRO - Expect 2Q19 core earnings to grow YoY, Krungsri recommends“HOLD” with the target price at THB38/share Krungsri expects MAKRO to book THB1.5 billion a core profit in 2Q19, increasing 36% YoY, flat QoQ on the back of 12% SSSG led by a surge in broiler and swine prices. SG&A expenses are expected to rise 12% yoy (8.3% of sales) due to pre-operating costs in Myanmar (open 2H19) and China (open 1H20). However, earnings momentum should soften in 2H19 as swine and broiler prices stabilize. Overseas expansion would be a long-term earnings driver. Krungsri has a HOLD rating for MAKRO with Bt38.0 TP based on DCF valuation (7.5% WACC, 2.0% LT-growth, and Rf 3.5%).