Daily Strategy for Investors on October 28, 2019

Maybank Kim Eng has made an analysis for the trading session on October 28, 2019, stating the must-know events in the equity market and things to focus as follows:

 

Market Summary

The SET on Friday heavily fell alongside the regional markets driven by strong selling pressure on construction, power plant and consmat stocks.

The index closed at 1,593.3 points (-27.7 points) with a trading value of THB76b (THB70b the previous day). Foreign investors net bought Thai shares by THB1.466b. Institutional investors net sold by THB2.517b. There were net Short on SET50 Index Futures by 23,405 contracts.

 

Stock Picks & Trading Idea

MCS (TP raised to THB11.50 from THB10): Maybank expects strong 3Q19 profit of THB170m, a jump of +43% QoQ and +257% YoY. This is mainly due to more delivery of structural steel to Japan. This year MCS has won 7 steel structure projects, totalling 135,823 tonnes. It is likely to gain new jobs continuously in the future as Dr Naiyuan Chi has returned as CEO, which helped boost Japanese customer’s confidence.

Therefore, Maybank raised our earnings projections for FY2019 to as high as THB505m, a jump of 21% and THB598m in FY2020 (+19%). MCS share trades at low P/E, P/BV and high dividend. Maybank maintains BUY call, TP for FY2020 is THB11.50 from THB10.

 

Investment Theme: External factors improving, while domestic are still chaotic

Over the weekend there was a mix of both positive and negative news as follows: the US-China trade war began to show more positive signs after the Office of the US Trade Representative revealed that negotiations on trade agreements between the US and China in Phase 1 are almost finalised. This may lead to a signing at the APEC in mid-November, as Donald Trump said earlier.

This is considered a slight positive factor to support the investment in the short term. On the European Union front, Brexit remains an issue to be watched. Early this week, keep an eye on the British Parliament’s decision on whether or not a new election will be held and when, which is what the EU’s closely following to conclude Brexit’s deadline.

For domestic factors, they are considered slightly negative following the United States announced the omission on the Generalized System of Preferences (GSP) on Thai exports to the US, totalling about 573 items. There were 355 items, (from 573) granted GSP in 2018, equivalent to the value of exports of about USD1.279b.

The Office of Trade Policy and Strategy expects the tax on these products to increase 4.5% on average, resulting in a decrease of USD28.8-32.8m, or 0.01% of Thailand’s total export value. Initially, we believe there will be limited impact. The termination will come into effect April 25, 2020.

The SET index this week is forecast to swing in a range of 1560-1620 points. Maybank expects support level at 1580 and resistance at 1600. Accumulate strong 3Q19 earnings with good dividend stocks (MCS, MAJOR), safe haven: Big caps (AOT, BDMS, BEM, BTS, GPSC) and Mid-Small Cap (JMT, CHG, VGI)”

 

Big Issue
1) US scraps GSP on 573 items of Thai products
2) IMF cuts 2019 GDP forecast for Thailand to 2.9% from 3.5%, while growing 3% in 2020.

 

Keep an Eye on
1) 29-30 Oct: FOMC meeting, expecting 0.25% rate cut
2) 30-31 Oct: BOJ meeting
3) 31 Oct: Chinese PMI Manufacturing Index for October
4) 31 Oct: Eurozone 3Q19 GDP
5) ASEAN Summit in Thailand 31 Oct to 4 Nov
6) Listed companies report 3Q19 earnings

 

SET Index: SET index dipped through 1600, downside widening due to inverted H&S. The index sharply plunged driven by strong selling pressure on all sectors, especially energy, retail, transports, construction materials and ICT. As a result, the index slipped through the low 1600 and closed below. This led to the widening downside as it formed an inverted head and shoulders pattern, targeting to fall to 1580-1550. If it rebounds intraday, sell stocks to reduce portfolio.

 

Investment strategy
1) With stocks: If dips below 1617, stop loss as previously recommended. Use the low 1590 for stop loss.
2) Without stocks: Wait & See until it stops slipping or starts to rebound.