Daily Strategy for Investors on January 7, 2020

Maybank Kim Eng (Maybank) has made an analysis for the trading session on January 7, 2020, pointing out some of the must-know events in the equity market as follows:

 

The SET yesterday sharply fell in response to the escalated tensions in the Middle East. Although there was strong buying pressure on energy stocks like PTTEP, PTT and defensive stocks GPSC and ADVANC, it failed to beat the strong selling pressure on most stocks. The market closed at 1,568.5 (-26 points) with a trading value of THB71b (THB61b the previous day).

Foreign investors net bought Thai shares by THB923m. Institutional investors net sold by THB2.603b. There were net Short on SET50 Index Futures by 22,549 contracts.

 

Stock Picks & Trading Idea

BDMS (TP THB28):  We expect 4Q19 core earnings to continue to expand from the low base in 4Q18 when its EBITDA margin grew only 17%. The current EBITDA margin growth is 21-22%. Earnings should continue growing strong in 2020 as it enters the harvest period after 5 years of investment period.

 

Investment Theme

US and Eurozone enjoy better than expected PMI services: The economic activity in the US service sector expanded at a more robust pace than initially forecasted in December with the IHS Markit’s Services PMI improving to 52.8 from 52.2 in the previous estimate and 51.6 in November. This reading also came in better than the market expectation of 52.2.

The IHS Markit Eurozone PMI Composite Output Index improved slightly during December, but still signaled weak economic growth. After accounting for seasonal factors, the index recorded 50.9, up from 50.6 in November and slightly better than the earlier flash reading. These readings are considered a moderate level.

If the direction of the global economy this year will gradually recover, it is expected to be a driving force for the economic indicators to adjust in the next period as well. Regarding tensions in the Middle East, we estimate the issue will continue for a while and we must keep an eye on the response from Iran. However, it is expected that it will not escalate into a war. Therefore, with the risky assets fall too much, it presents an opportunity to gradually accumulate.

As for the domestic factors, keep following the House of Representatives to consider the draft of the annual budget of 2020, a limit of THB3.2t, agenda 2-3 on 8-9 January. We expect this Act should pass in this time. The next process is the Senate’s consideration. Finally, if this Act is completed in all processes, it is expected to begin disbursement in February which will be an additional part to stimulate the confidence in investing in the country.

Today’s SET’s support level is at 1560 and resistance at 1580. We recommend gradually accumulate strong fundamental defensive stocks (BDMS, BEM, GPSC, PTTEP), good dividend (BBL, LH, AP, TISCO). Be more cautious on ICT, retail, small to medium sized hospitals.

 

Big Issue:
1) US Services PMI improved to 52.8 in Dec (estimated 52.2)
2) Eurozone Services PMI was 52.8 in Dec (estimated 52.4)
3) China Services PMI was 52.6 in Dec (estimated 53.2)

 

Eyes on:
8-9 Jan: 2020 Budget Act consideration
Mid-Jan: 4Q19 earnings results announcement
20-21 Jan: BOJ meeting
21 Jan: Constitutional Court to rule on Future Forward Party case
23 Jan: ECB meeting
28-29 Jan: FOMC meeting
30 Jan: BOE meeting

 

Maybank has set a support level at 1550/1565 and a resistance level at resistance 1580/1590.