SET drop in excess of fundamentals

Economy April 09, 2018 01:00

Executive Vice President - Research

Late last week, the SET Index dropped sharply from a decrease in commercial banks’ non-interest income and concerns over international trade protection. Meanwhile, the market drops are seen are beyond the fundamentals.

Given no charge for electronic financial transactions, we cut our forecast for banks’ fee-based income by 6.4 per cent this year and 9.4 per cent next year and banks’ profit by 4.9 per cent this year and 6.8 per cent next year. As a result, this year’s estimated market earnings per share is cut by Bt1.04 to Bt111.35. The SET Index will likely see fundamental impact by 16-17 points, based on the market price-to-earnings ratio of 16-16.5 times. However, in reality, the SET Index fell more than such expected impact, given the sharp market sentiment. Besides, most of the banks’ stock prices are now below their fair value after the revision.

Trade protection between the US and China has pressured stock markets across the world and will continue this week until solutions are found. Meanwhile, impacts to the SET Index will be less.

Amidst this situation, we prefer domestic plays or stocks that gain from the situation. Stock pick for domestic play is MAJOR (fair value @Bt34) which will gain from high-income movies in April-May –based on statistics. We pick CPF (FV @ Bt30) as the stock will gain from trade protection due to the possibility of China importing chicken and swine products if there is a trade wall against US products.