Sawasdee – October 07 , 2024

Today’s highlights

• The Ministry of Finance proposes adjusting next year's inflation target from 1-3% to 1.5-3.5%, giving the BoT more room to reduce policy interest rates. It will discuss the 2025 inflation management framework with the BoT in late October.
• Wheat futures closed below US$6/bushel for the first time since June 2023, pressured by news that Egypt, a major wheat importer, will change its bread formula to use more corn and sorghum flour, potentially reducing wheat demand.
• US nonfarm payrolls for Sep increased by 254,000 jobs, higher than market expectations. The unemployment rate fell to 4.1%, lower than anticipated, indicating economic recovery and potentially reducing the need for significant the Fed interest rate cuts this year.
• European inflation in Sep slowed to 1.8% YoY, reaching the 2% target. This may lead to another ECB interest rate cut at the October 16-17 meeting.
• The EC voted to increase import taxes on Chinese EVs, with a maximum rate at 45%, while leaving room for negotiations with China, particularly regarding minimum import prices.
• The Thai Rice Exporters Association reported rice exports of 6.5mt (+24% YoY) in 8M24, generating revenue of about Bt150bn (+41% YoY). However, exports are expected to slow in 4Q24 as India resumes exports.
• On Oct 8, the Ministry of Interior will send to the cabinet criteria for providing financial assistance of Bt9,000 per household for victims of floods, landslides, flash floods, and overflowing rivers lasting no more than 7 days.

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 the 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 is seen to have 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 of the Middle East conflict, setting expected price at 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

BBL: Our top pick in the bank sector. Valuation (PBV/ROE) is the most interesting, and asset quality risk is lower than at other banks. 3Q24 core profit is expected to grow 5%YoY and 1%QoQ, supported by lower provisions (credit cost), while loans and non-NII (gain from financial instruments) are still growing.

CPF: 3Q24 core profit is expected to grow the most in the food sector, supported by higher overseas and domestic livestock prices. It also has the highest upside from the upcoming onset of a downward interest rate cycle, the least downside from a minimum wage raise compared to peers, and is not affected by the baht appreciation.