Daily Strategy for Investors on April 13, 2020

Maybank Kim Eng (Maybank) released an analysis for the trading session on April 13, 2020, indicating the essential events in the stock market as follows:

 

Market Summary

The SET on Friday declined at first before gaining due to sell on fact after the OPEC+ meeting results came out. Strong buying pressure on power plants drove the market to close in a positive territory. The SET index closed at 1,228.03 (+17.55 points) with a trading value of THB53b (THB83b the previous day).  

 

Foreign investors net sold Thai shares by THB1.191b. Institutional investors net sold by THB1.155b. There were net Long on SET50 Index Futures by 3,722 contracts.

 

Stock Picks & Trading Idea

CPF (TP THB35.8): 1Q20 normalised profit would increase drastically due to a significant rise in Vietnamese swine prices and start to recognise profits from HyLife. This year’s earnings are likely to be healthy, driven by swine prices remaining high in Thailand and Vietnam. Maybank sees limited impact from the Covid-19.

 

Investment Theme

OPEC+ cut production by 9.7mbd, limited short-term oil price downside: In an emergency virtual meeting Sunday, OPEC+ arrived at a deal to slash oil production by 9.7mbd starting May 1. The cuts will remain in place through June, the source said. OPEC+ tried to reach a tentative deal at a meeting Thursday for a cut of 10mbd, but member country Mexico would not agree to that deal. 

Mexican President Andres Manuel Lopez Obrador said Friday his country would cut its output by 100,000 barrels per day and the United States would make up the rest of its contribution to the production cut. In the next phase, there will be a step by step production cut, where the OPEC+ cut production to 7.7mbd during June – Dec 20 and to 5.8mbd during Jan 21 – April 22. As for the energy ministers meeting of the G20, the meeting agreed to use various policy tools to help stabilise the energy market.

However, this meeting does not have a clear conclusion about the amount of production cuts of the G20 group, as the market has expected at around 5mbd. In summary, although the production cut is slightly lower than the market expected, it is still good to reach an agreement. Therefore, it is expected to help limit the short-term crude oil price downside.

However, the upside is still not significant because it is not able to compensate for the lost oil demand of about 20mbd due to the economic slowdown. So, investing in energy sector should be only speculation. 

 

The important factors this week, keep an eye on 1) the development of the number of infected cases in Thailand and abroad. 2) 1Q20 earnings results announcement. The first sector to report is the banking, Maybank expects the total profit to drop -13%YoY, 3) Valuation of the SET, which has recently seen a rebound of the SET in contrast to the market profit that has been continuously reduced by analysts. Therefore, SET is currently traded at 15.6x PE, which is considered to be a level that is not cheap compared to the average of the past 10 years of 14.4x.

 

Investment Strategy: Maybank assess the support level of the SET index today at 1200 and resistance at 1250.  Given the SET valuation is tightening, be more cautious when investing. Use 20% of portfolio to trading buy “CPF, GULF and PTTEP”.

 

Big Issue

1) US oil rig count falls by 58 to 504, Baker Hughes said in its regular weekly report on Thursday.

2) OPEC+ agrees to largest oil output cut of 9.7m bpd

 

Eyes on

14 Apr: China exports & trade balance (Mar), EU Industrial Production Index (Feb)

15 Apr: US Retail sales (Mar), US Industrial Production Index (Mar)

16 Apr: US unemployment claims

COVID-19 infected cases daily report

 

Technical View

SET    Support : 1200/1210 / Resistance : 1240/1260