Strategy Note /

Thailand (Bualuang): Thai Market Strategy - Bumpy ride before post-COVID glide

  • Equity yield gap for 2022 is half-way into expensive space

  • 2Q22 focus on value with earnings quality and price discounts

  • Scanning for companies with relatively good pricing power

Poramet Tongbua
Poramet Tongbua

Equity Research Analyst

Bualuang Securities
23 March 2022

Assuming that the Russia-Ukraine war ends relatively soon, the market will shift focus back to post-COVID normalization. None-theless, the SET uptrend will probably play out in fits & starts, due to the risk of steeper FFR-raising and the early start of Quantita-tive Tightening (QT) by May or June. Post-Songkran festival COVID infections need to be monitored in order to gauge the risk of tighter disease-control measures being imposed. We prefer stocks with bullish profit recovery stories for a normalizing economy, but with prices that are still discounted to pre-COVID levels.

Our base-case YE22 SET target is 1793, implying a PER of 18.3x (1SD above the SET’s long-term mean), pegged to EPS of 98.

Equity yield gap for 2022 is half-way into expensive space

The SET’s current 2022 equity yield gap (versus the TH10Y bond) of 3.4% (0.67SD below the mean since 2010) is moderately expensive (versus an unambiguously expensive gap of 2.9%). A steeper surge in bond yields, possibly triggered by a more hawkish US Federal Reserve, may cause market dips during the year. Our SET target of 1793 (pegged to BLS forecast 2022 EPS of 98) assumes a TH10Y bond yield rise of 36bps from the current level (and only 16bps if using the more subdued consensus EPS forecast of 94.4).