cimb navigating thailand 2015 dec 2014.pdf

8/9/2019 CIMB Navigating Thailand 2015 Dec 2014.pdf

1/212

Navigating Thailand2015

December 12, 2014

1


2/212


December 12, 2014

2

Table of Contents

Tighten your seatbelts ................................................................................................................................. 6

1. REVIEW ........................................................................................................................................... 6

1.1 Political developments before the coup .............................................................................. 6

1.2 Then came the May 2014 coup ........................................................................................... 6

1.3 Long honeymoon period ..................................................................................................... 7

2. Themes for Thai market in 2015 ...................................................................................................... 9

2.1 No election in 2015 means less noise in 1H15, but.......................................................... 9

2.2 Political labyrinth ................................................................................................................ 9

2.3 Government needs to deliver infrastructure projects ...................................................... 10

2.4 Tourism recovery ............................................................................................................... 13

3. 2015 ECONOMIC OUTLOOK ........................................................................................................ 16

3.1 2015 Macro outlook ........................................................................................................... 16

3.2 The recovery so far ......................................................................................................... 16

3.3 Exports not making the cut ............................................................................................... 18

3.4 Liquidity conditions stable ................................................................................................ 18

3.5 Inflation and interest rate outlook .................................................................................... 20

3.6 Risks and issues to watch .................................................................................................. 20

4. RISKS .............................................................................................................................................. 22

4.1 Strong economic headwinds ............................................................................................. 22

4.2 Weak farm prices and lack of major stimulus measures .................................................. 23

4.3 Further cuts in earnings forecasts likely ........................................................................... 25

4.4 Further delay in auction of 1800 MHz licences likely ...................................................... 25

4.5 Energy reform and impact on retail gas prices ................................................................. 26

4.6 Capital outflow? ................................................................................................................. 30

5. VALUATION AND RECOMMENDATIONS .................................................................................. 35

5.1 Remain cautious with an unchanged 1,610 index target by end-2015 ............................. 35

5.2 Sector allocation strategy .................................................................................................. 37

5.3 Top picks............................................................................................................................ 38

Sector Briefs .............................................................................................................................................. 43

Company Briefs ......................................................................................................................................... 69

Appendices .............................................................................................................................................. 201


3/212


December 12, 2014

3

THAILAND NAVIGATING THAILAND

Tighten your seatbeltsWe believe that the market has priced in a V-shaped recovery, while aU-shaped one is more likely. The economy is slowing down and moreearnings cuts are likely. Valuations are not cheap given the 20% riseYTD. A stronger US$ and higher overseas rates could trigger outflows.

Figure 1: SET's forward P/E band

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

12M Fwd Core P/E

+2SD : 17.0

+1SD : 14.5

-2SD : 7.2

-1SD : 9.6

Mean : 12.1

SOURCES: CIMB, COMPANY REPORTS

We remain cautious on the marketwith an unchanged end-CY15 indextarget of 1,610, based on 12.1x CY16P/E (5-year mean). Our regionalstrategist, Mr Jason Todd, remainsUnderweight on Thailand. We preferdefensive counters (healthcare,alternative energy and utilities) andsectors that are less exposed todomestic demand (hotels). Our toppicks are AOT, BGH, GUNKUL, KCE,MINT, RATCH and THCOM.

Laying the foundationThe government plans to introduceinheritance tax and raise value-addedtax by 1% pt to 8% in Oct 15. Theenergy reform programme is likely toraise retail NGV prices by about 16%over the next couple of quarters.

If the government were to bring theexcise tax on diesel to be on par withthat for other types of gasoline, dieselprice should rise by 17%. Fewer farmsubsidies are likely to cap the reboundin consumption in upcountry.Although these structural changes aregood for the long term, we believe thatthe adjustment process will be painful

and the market has not factored thisin yet. Therefore, near-term risks arehigh.

Themes: focus on defensiveand tourismWe believe that the weak economywill continue to weigh on domesticdemand. Therefore, we focus ondefensive sectors such as healthcare,which also benefits from medicaltourism and utilities. They are lesssensitive to a slow domestic recovery.

Moreover, we believe that tourism willsee strong rebound not only fromhigher tourist arrivals, but also fromhigher margins as occupanciesapproach optimum levels.

Infrastructure a long shotThe progress on governmentinfrastructure projects has beendisappointing. However, it seems tobe the only hope for 2015 if thegovernment can really speed up itsinfrastructure plans. We believe thatcontractor stocks have already priced

in more government projects.

CIMB Analyst(s)

Kasem Prunratanamala, CFAT(66) 2 [email protected]

Julia GOHT(60) 3 2261 [email protected]

Show Style "View Doc Map"

Highlighted Companies

Bangkok Dusit Medical (BGH)

A prime beneficiary of the ASEAN EconomicCommunity (AEC), as patients from neighbouringcountries are able to cross borders more easily toseek medical treatment in Thailand, thanks to itsgrowing hospital network nationwide.

Gunkul Engineering (GUNKUL)

Gunkul has recurring income from two large 60mwwind farm projects in 2015-16 for both engineering,procurement and construction (EPC) andoperations. This would account for an estimated80% of its earnings by 2017. Its Myanmar exposureprovides more earnings upside.

Ratchaburi Electricity (RATCH)

Its solid earnings growth of over 30% in 2014-2016,will stem from additional capacity of 750MW (13%)for its 40%-owned Hongsa coal-fired power plant in2015-16.

Thaicom (THCOM)

New customer contracts and satellite projects willincrease the upside potential to our earningsforecasts, which are already 11% higher thanconsensus in 2014 and 18% higher in 2015.


4/212

Navigating Thailand2015December 12, 2014

4

KEY CHARTS

18% market EPS growth for 2015 way too

high

To date, consensus EPS forecasts have been lowered by14% for 2014 and 11% for 2015, although the StockExchange of Thailand (SET) Index has moved up 20%YTD.

400.00

600.00

800.00

1,000.00

1,200.00

1,400.00

1,600.00

1,800.00

85

90

95

100

105

110

115120

125

130

SET EPS 2014 SET EPS 2015 SET Index

SET is at 13.6x CY15 P/E

The SETs valuation is close to 1 s.d. above its 5-year meanwhich is not attractive, in our opinion.

5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

Jan-04Jan-05 Jan-06Jan-07 Jan-08Jan-09 Jan-10Jan-11Jan-12 Jan-13Jan-14

12M Fwd Core P/E

+2SD : 17.0

+1SD : 14.5

-2SD : 7.2

-1SD : 9.6

Mean : 12.1

Local institutions supporting the marketDomestic institutional investors have been net buyers ofTHB47bn YTD, while retail investors were net sellers ofTHB55bn.

0

200

400

600

800

1000

1200

1400

1600

1800

-30000

-20000

-10000

0

10000

20000

30000

40000

40179

40238

40299

40360

40422

40483

40544

40603

40664

40725

40787

40848

40909

40969

41030

41091

41153

41214

41275

41334

41395

41456

41518

41579

41640

41699

41760

41821

41883

41944

Local Inst itutes(LHS) SET Index (RHS)

Ne t Bu Se ll SET

Sector allocation strategyWe focus on sectors with less exposure to domesticdemand, such as hotels and petrochem, as well asdefensive counters, such as healthcare, utilities andalternative energy. Our top picks are AOT, BGH,GUNKUL, KCE, MINT, RATCH and THCOM.

Weighting in

SET

Rec.

Weighting

OW/UW

(ppt) OW/UW

Hotel 1.3% 2.5% 124 OW

Healthcare 3.0% 4.0% 98 OW

Utilities 1.7% 2.6% 92 OW

Petrochem 6.4% 7.2% 78 OW

Alternative Energy 0.9% 1.5% 60 OW

Technology 0.9% 1.4% 54 OW

Transportation 4.2% 4.5% 34 OW

Property 4.4% 4.8% 33 OW

Mining 0.5% 0.8% 27 OW

Construction 0.9% 1.0% 14 N

Food 0.6% 0.7% 6 N

Auto 0.2% 0.2% (1) UW

Construction Materials 0.1% 0.0% (12) UW

Oil & Gas 12.2% 12.0% (22) UW

Agro 0.3% 0.0% (29) UW

Banking 17.1% 16.3% (78) UW

Media 1.4% 0.2% (109) UW

Telecom 10.9% 9.5% (142) UW

Retail 4.8% 2.6% (227) UW

Total 71.7% 71.7% -

SOURCE: CIMB, COMPANY REPORTS


5/212


5

Figure 2: Top picks

Price Target Price

(local curr) (local curr) CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015

Airports of Thailand AOT TB Add 285.0 258.0 12,402 31.7 25.9 15.4% 4.08 3.69 13.5% 15.0% 18.3 16.2 1.2% 1.5%

Bangkok Dusit Med Service BGH TB Add 18.20 23.80 8,588 36.5 30.7 17.2% 6.23 5.57 18.0% 19.2% 25.9 22.9 1.1% 1.4%

Gunkul Engineering GUNKUL TB Add 30.00 32.00 804 44.4 36.6 56.8% 7.33 6.24 18.6% 18.4% 51.5 37.3 0.3% 0.5%

KCE Electronics KCE TB Add 38.75 45.00 666 11.3 10.3 27.1% 3.67 2.93 35.7% 31.5% 11.0 9.0 2.2% 2.6%

Minor International MINT TB Add 36.75 42.00 4,479 32.5 25.6 17.0% 5.23 4.60 17.0% 19.1% 24.0 19.1 1.0% 1.3%

Ratchaburi Electricity RATCH TB Add 61.25 69.00 2,705 13.1 12.1 20.3% 1.53 1.43 12.0% 12.2% 8.5 8.4 3.7% 3.9%

Thaicom THCOM TB Add 35.75 52.00 1,193 21.1 15.5 26.0% 2.32 2.12 11.5% 14.3% 7.5 6.0 2.4% 4.8%

Average 27.2 22.4 25.7% 4.34 3.79 18.0% 18.5% 21.0 17.0 1.7% 2.3%

P/BV (x ) Re curring ROE (%) EV/EBITDA (x ) Divi de nd Yie ld (%)Company Bloomberg Ticker Recom.

Market Cap

(US$ m)

Core P/E (x) 3-year EPS

CAGR (%)


Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends


6/212


6

Tighten your seatbelts1. REVIEW

1.1 Political developments before the coupThe conflict started when the Yingluck government had amended the AmnestyBill in its second reading in Oct 2013 to allow former prime minister Thaksinand protest leaders, among other individuals, to gain amnesty. Protestorsthought that the bill would allow him to get back his seized assets of THB46bn.The government was late in responding to the protests.

Even though the government later dissolved the House, the rallies stillcontinued. The government then set the date for the general election on 2 Feb2014, but the Democrat Party boycotted the election. Voting was disrupted inmany constituencies, and the election was later nullified by the ConstitutionalCourt on the grounds that the Election Commission (EC) had failed to holdpolls across the entire country on the same day, since the eligible voters in 28constituencies failed to cast their ballots due to disruptions by anti-governmentprotesters. The Election Commission and caretaker government were forced toset a new election date.

The National Anti-Corruption Commission (NACC) resolved in early May 2014to bring impeachment proceedings against Yingluck over the rice-pledgingscheme. Thus, she was compelled to step down from being the caretakerpremier, with Mr Niwatthamrong Boonsongpaisan becoming an actingcaretaker prime minister.

Figure 3: Political events leading up to the May 2014 coup and SET index

Aug 4: Protest starts

Aug 8: House pass firstreading of amnesty bill

Oct 31: House Passes 2nd/3rd reading

Nov 11: Senate rejects bill

Nov 20: Court says Senatebill amendment breaches

Constitution

Dec 2: Election; but withdisruption; Yingluck

continues as caretaker PM

Dec 9: PM dissolves House,call for snap poll

Dec 21: Democrats toboycott election

Jan 13: Bangkok Shutdowncampaign begins Jan 21: State of emergency

Feb 2: Election

Feb 28: End of Bangkokshutdown

Mar 21: Feb 2 election wasruled unconstitutional

May 7: Court orderedYingluck to step down

May 20: Martial law isdeclared

May 22: Military coup

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1,550

1,600

31/05/2013

14/06/2013

28/06/2013

12/07/2013

26/07/2013

09/08/2013

23/08/2013

06/09/2013

20/09/2013

04/10/2013

18/10/2013

01/11/2013

15/11/2013

29/11/2013

13/12/2013

27/12/2013

10/01/2014

24/01/2014

07/02/2014

21/02/2014

07/03/2014

21/03/2014

04/04/2014

18/04/2014

02/05/2014

16/05/2014

30/05/2014

SOURCE: CIMB

1.2 Then came the May 2014 coupAfter almost seven months of political deadlock between the anti-governmentPeoples Democratic Reform Committee (PDRC), led by former DemocratPartys secretary general Mr Suthep Thaugsuban, and the Yingluck government;the military, led by the then-army chief General Prayuth Chan-o-cha, staged a

If in 2016 there is a general

election and I am still qualified tostand, I intend to run for

arliament.

Yingluck Shinawatra, former Prime Minister


7/212


7

coup on 22 May 2014. This was Thailands 12thcoup after the country turnedinto a constitution monarchy in 1932.

The coup came as no surprise to us, as we believe that Mr Suthep had escalatedthe crisis, including setting up roadblocks, organising the Bangkok Shutdown inearly Jan 2014, and blocking constituencies in many provinces in the South sothat candidates could not register their applications, etc., in order to trigger amilitary intervention.

But we were surprised that the Yingluck government did not see it coming,despite the fact that the military announced martial law on 20 May withoutinforming the government in advance and that it refused to withdraw soldiersand their shelters even though the situation was calmer in early 2Q14.

Both red shirt leaders and PDRC leaders walked into a trap, and they werelocked up in a military barrack following two days of failed negotiations tosettle their differences, after which the army chief declared a military coup. Itwas an easy coup on the part of the military, as leaders of both sides werelocked up and their supporters could not do much without their leaders.

Having learnt from the past coups, especially the one in 2006, the military thistime round used stronger arm tactics. It has tried to disperse any politicalprotests before ramping up the momentum. And even more than six monthsafter the coup, the military still refused to lift martial law, despite the fact thatthere were few protests on the street. However, the curfew was liftedthroughout the country on 13 Jun, about one month after the coup.

Figure 4: Khon Kean University students were arrested when holding out threefingers as a sign of protest against the military coup in front of Prime MinisterPrayuth while he was giving a speech in Khon Kean province. The students werelater released

SOURCE: Twitter@WassanaNanuam

1.3 Long honeymoon periodAs the political crisis prior to the coup lasted longer than prior deadlocks, manyThais (generally from middle- and high-income segments) welcomed the coupas they thought that the coup would end the deadlock and allow the country tomove forward. And thanks to the use of stronger arm tactics, the political

situation after the coup has been calm. Therefore, the market has been positiveon the political development and jumped 13% after the coup.

Businesspeople were also positive as the political turmoil has created too muchtrouble for businesses over the past few years. Thus, they were happy that thesepoliticians would have to lie low over the next couple of years.


8/212


8

With the surge in economic activities in early 3Q14, many people thought thatthe economy had undergone a V-shaped recovery following a more stablepolitical environment. They have forgotten that many people withheld theirspending during the 7-month political stalemate. Thus, when political situationremained calm after the coup, many Thais started to spend money and this

caused a big jump in economic activities. However, we believe that once thispent-up demand is exhausted, economic activities will cool down again. Andthe 3Q14 GDP growth of only 0.6% yoy confirmed our belief.

Figure 5: Long honeymoon period after the coup

Jan 13: BangkokShutdown campaign

begins

Jan 21: State ofemergency

Feb 2: Election

Feb 28: End of Bangkokshutdown

Mar 21: Feb 2 election

was ruled unconstitutional

May 7: Court orderedYingluck to step down

May 20: Martial law isdeclared

May 22: Military coup

Oct 6 All 250 NationalReform Council members

appointed

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1,550

1,600

1,650

1,700

Jan-14

Jan-14

Jan-14

Feb-14

Feb-14

Mar-14

Mar-14

Apr-14

Apr-14

May-14

May-14

Jun-14

Jun-14

Jul-14

Jul-14

Jul-14

Aug-14

Aug-14

Sep-14

Sep-14

Oct-14

Oct-14

Nov-14

Nov-14

Nov11 LTF tax breaks to end in 2016

SOURCES: CIMB

Figure 6: The Thai market EPS has been revised down 14% this year and 11% nextyear, but the market has risen 20% YTD

400

600

800

1,000

1,200

1,400

1,600

1,800

85

90

95

100

105

110

115

120

125

130

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14




9/212


9

2. Themes for Thai market in 2015

2.1 No election in 2015 means less noise in 1H15, but It is unlikely that a general election can take place in 2015, as a newconstitution is not drafted yet and it may need to go through a referendum,

which could take some time. Moreover, it is likely that the reform process willtake a longer time than originally thought.

The fact that Thailand is highly unlikely to have an election in 2015 may betaken positively by the market, as politics have created many negative noisesover the past decade. However, we believe that the market expectation hasalready run too high and it should already have given the government thebenefit of the doubt in managing the economy. Therefore, we believe that thedisappointment on the governments economic management is more likely tooutweigh the positives arising from the calm political climate. And with moredisappointments on the economic front, we believe that the resistance againstthe military government will be stronger and those who had earlier supportedthe coup may start changing their minds.

And since a general election is not likely to be held in 2015, rural economies willnot be able to benefit from election campaigning activities. And if farm pricesstay weak in 2015, it will be difficult to see a strong rebound in privateconsumption in the upcountry.

Figure 7: Real GDP (% yoy) and general elections

Northeastern Northern Greater Bangkok Election

1996 8.0% 9.6% 2.8% Y

1997 0.9% -1.1% -6.5%

1998 -6.3% -5.0% -9.5%

1999 5.8% 5.8% 4.3%

2000 0.5% -0.5% 6.1%

2001 1.1% 1.7% 5.4% Y

2002 5.7% 8.9% 3.8%2003 8.9% 9.1% 5.7%

2004 2.7% 0.8% 6.9%

2005 1.9% 4.7% 4.5% Y

2006 5.5% 1.3% 4.3% Y

2007 5.4% 3.6% 4.9% Y

2008 -0.9% 0.8% 0.7%

2009 6.3% 1.9% -1.7%

2010 5.7% 3.5% 8.6%

2011 6.4% 4.6% 0.1% Y

2012 5.5% 6.2% 8.1% SOURCES: CIMB, COMPANY REPORTS

2.2 Political labyrinthSome may think that Gen Prayuth may want to contest in the next election togain legitimacy. However, we think that the several policies that thegovernment plans to implement over the next few months are not likely to winhim popular support. For instance, higher NGV, LPG and diesel prices will hurtlow-income people and businesses, while property and inheritance taxes willhurt middle- and high-income segments. Moreover, a higher VAT will affecteveryone. Therefore, it is difficult to imagine that he would gain support fromenough people to continue as an elected prime minister after the next election,even though the policies he plans to implement will be good for the countryover the longer term.

Thus, if it is not Gen Prayuth, who will then be the next prime minister or form

the next government. Many still believe that the Pheu Thai Party will still winthe next election. The Democrat is still too indecisive to become a crediblecompetitor for Pheu Thai, even though the Democrat seems to be the preferredchoice for the military to run the country, in our view.


10/212


10

This would lead us back to the question on whether the election in early 2016 isstill likely. The concern that Pheu Thai Party will win the election and become anew government will make the military government think twice about handingpower back to the public. That said, the government may want to stay in powerlonger. But since we believe that the current government's economic

performance is likely to be weak, there will be growing resistance in 2015.Therefore, the military government may not be able to stay very long either,even though it may still want to maintain martial law.

We expect the pressure to mount in 2H15. Therefore, it may have to reach acompromise with Pheu Thai so as not to encroach on each other's turf. With hisyounger brother being an assistant army chief, Gen Prayuth can still havestrong support in the army after his retirement in Sep 2014. Therefore, webelieve that this would be a better exit strategy for the current government,rather than incurring the risk of facing more resistance by staying longer.

Although the Constitution Drafting Committee is likely to design a newconstitution in such a way that there will be more appointed senators andprobably some appointed members of Parliament as well, we believe that it will

still be difficult to gain the necessary support from the general public.

2.3 Government needs to deliver infrastructure projectsGovernment infrastructure spending is probably the only hope to boost Thaieconomy in 2015, in our opinion. But the progress so far has been quitedisappointing. One of the reasons is that due to efforts to fight graft in thesystem, the military government has set up a committee, called the BudgetMonitoring and Scrutinising Committee, to review all major government andstate enterprises projects that are worth more than THB1bn (US$30m). Andsince all government infrastructure projects are worth a lot more than THB1bn,they have to undergo the scrutiny of this committee. The committee has alreadyasked some government agencies to review some of these projects, which

caused some delay in the rollout of these projects.

The first major government project that is likely to be awarded first is the NorthGreen Line project (Mo Chit-Sapanmai-Ku Kot) worth THB26.4bn (US$0.8bn).Based on our channel checks, the bidding results are likely to be known by Dec2014, even though the Mass Rapid Transit Authority of Thailand (MRTA)announced earlier that the results will be known in Feb 2015. We believe thatall major contractors will get their share of the project as it will be divided intofour contracts. CH Karnchang (CK), which we believe is closest to thegovernment, is likely to secure the biggest contract, i.e. contract 1, whileItalian-Thai Development (ITD) is likely to get the second largest one, contract2, followed by a joint venture between Sino-Thai Engineering (STEC) and ASAssociates, i.e. STEC-AS for contract 3, and a JV of Uniq Engineering (UNIQ),

Sino-Hydro Corp and China Harbour Engineering, i.e. UN-SH-CH for the forthone.

But after the North Green Line, we believe that Orange Line (Taling Chan Min Buri) worth THB115bn (US$3.5bn) is likely to be the next one. The biddingprocess may start in 2Q15.

Although contractors are hopeful that the Pink Line (Khae Rai Min Buri)worth THB59bn (US$1.8bn) can also roll out within this year, there is some riskthat the project may be redesigned as the existing design is based on a light railplatform, which is not compatible with other mass transit lines that are heavylines. The government may want the Pink Line and Yellow Line (Lad Prao Samrong), worth THB57bn or US$1.78bn, to switch to heavy lines, thus makingthem compatible with the rest and more efficient for mass transit. If the

authorities decide to change the design, then the Pink and Yellow Lines willhave to go back to the drawing board, which would mean a few years of delay.

In addition, the government is reported to have a plan to create a newgovernment agency, the Rail Transport Authority of Thailand, to oversee bothrailway and electric trains. The Transport Minister, ACM Prajin Juntong,


11/212


11

expects the new agency to be up-and-running in Jun 2015. This new agency willbe tasked with the bidding process of all rail mass transits and maintainingthem, while the State Railway Authority of Thailand (SRT) and the Mass RapidTransit Authority of Thailand (MRTA) will be providing services to the public.This could also mean further delays in the bidding process of future mass

transit systems, in our opinion.

Figure 8: North Green Line (Mo Chit-Sapanmai-Ku Kot)


Figure 9: Other mass transit systems by MRTA in the pipeline

Line Length (km) Stations Development plan

Orange 37.5

Taling Chan Cultural Center 17.5 13 By 2019

Cultural Center Bang Kapi 9.0 6 By 2019

Bang Kapi Min Buri 11.0 8 By 2019

Pink 36

Khae Rai Pak Kret 6.0 5 By 2019

Pak Kret Lak Si Circle 12.0 10 By 2019

Lak Si Circle Outer Ring Road 10.5 9 By 2019

Outer Ring Road Min Buri 7.5 6 By 2019

Yellow 30.4

Lat Phrao Phatthanakan 12.6 10 By 2019

Phatthanakan Samrong 17.8 11 By 2029 SOURCES: MRTA, CIMB

ContractDescriptionDistance

(km)Value

(THB bn) Bidders

1Civil work (Mor Chit-Sapanmai) 12.0 14.0CK, STEC, ITD, UN-SH-CH*2Civil work (Sapanmai-Ku Kot) 7.5 6.1CK, STEC, ITD, UN-SH-CH

3Civil work (depot, park & ride) - 3.7STEC-AS, CK, ITD, UN-SH-CH**

4Rail system - 2.6STEC-AS, CK, ITD, UN-SH-CH

Total 19.5 26.4

* UN-SH-CH is a JV between Unique Engineering, Sino-Hydro Corp and China Harbour Engineering

** STEC-AS is a JV between STEC and AS Associates


12/212


13/212


13

Figure 12: Private investments and capacity utilisation

-30%

-20%

-10%

0%

10%

20%

30%

40%

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

Capacity uti lisation Private investment (%yoy)


Figure 13: BOI applications submitted down 19% yoy in 10M14

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

-

200

400

600

800

1,000

1,200

1,400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 9M14

BOI appl ications submit ted (THB bn) %yoy


2.4 Tourism recoveryNo thanks to the political uncertainties in Thailand, tourist arrivals droppedsignificantly. Basically, tourist arrivals just turned positive by growing 6% yoyin Oct 14, following the government's measure to grant the exemption of visafees to Chinese and Taiwanese tourists for three months, starting from 9 Aug2014. As such, Chinese tourist jumped 67% yoy in Oct.

From our channel checks with the Airports of Thailand (AOT), the number ofpassengers who went through its six airports had gone up 11% yoy during 1-23Nov 2014. Therefore, it remains to be seen whether the surge in Chinesetourists can be sustained after the end of the visa fee exemption in early Nov2014. Furthermore, the rebound in tourist arrivals because of the exemption ofvisa fee to Chinese and Taiwanese tourists may not be as healthy as it seems, aswe believe that most of these tourists come from lower-income segments, whichwould not really benefit the listed hotels that we cover, i.e. MINT and CENTEL.

However, European and American tourists were still down by 11% yoy and 7%yoy, respectively, in Oct 2014. Although curfews were lifted in late Jun 2014,many foreigners that we met while we were on the road thought that there arestill curfews in Thailand. This is because the government has not lifted martial


14/212


14

law, which was put in place since 20 May 2014. In addition, the ongoing martiallaw is also the reason that many countries still have Thailand on travel alert.

Specifically, 58 countries still have Thailand on travel alert, despite the calmpolitical climate, vs. 66 countries in June after the coup. With travel warnings,many tourists are reluctant to travel to Thailand as their insurance may notcover accidents that are caused by political turmoil in Thailand. Thus, thetourist arrival recovery may take a longer time than expected and the reboundmay be short-lived if the government still maintains martial law. But since Thaihoteliers have maintained a tight ship and have been through many crises overthe past decade, we believe that they are prepared to cope with the prospects ofa fragile recovery.

On the contrary, hotels in upcountry are not affected much by political turmoil.Thus, if tourist arrivals pick up, they should be running at close to optimaloccupancy, i.e. around 75-80%. This should allow them to raise their roomrates more aggressively. In addition, at the optimal occupancy level, hotelsnormally do not hand out many freebies, such as free breakfast, free Wi-Fi, or afree night after two or three paid nights. As such, their margins should increase

nicely in 2015.

Figure 14: Tourist arrivals and political crises

600,000

1,100,000

1,600,000

2,100,000

2,600,000

3,100,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2008 2009 2010 2011 2012 2013 2014

AirportshutdownMay 10 unrest

Emergency decree

May 14 coup


Figure 15: Tourist arrival breakdown YTD

ASEAN27%

China19%

Japan6%

Other EastAsia10%

Russia6%

Other Europeans16%

USA3%

OtherAmericas

1%

South Asia5%

Oceania4% Middle East2% Af rica1%

ASEAN China Japan Other East Asia Russia Other Europeans

USA Other Americas South Asia Oceania Middle East Africa



15/212


15

Figure 16: Travel warnings

#countries

putting

Exercise

caution Reconsider need

Thailand on

travel alert

(Level 1-3) to travel (Level 4-5) Special events

Apr-14 50 46 4

May-14 62 47 15 Declare martial law on 20 May, coup on 22 May

Jun-14 66 48 18 Lifted nationwide curfew on 13 Jun

Jul-14 60 54 6 Vietnam, Nigeria and Kenya lifted travel

Aug-14 60 54 6

Sep-14 58 54 4 UAE and Iran lifted travel warnings

Oct-14 58 54 4

Nov-14 58 54 4

SOURCES: Bank of Thailand


16/212


17/212


17

Hopes are pinned on a revival in government stimulus to boost growth but littlehas been done so far and given the governments poor track record of projectexecution, we think that the risk of delays remains high. Understandably, themilitary government has taken a more conservative approach on fiscal spendingin order to clean up corruption in the public sector. As such, a new committee

the State Budget Monitoring and Scrutinising Committee has been set up toreview any government projects worth more than US$30m. However, we thinkthat this is likely to create bottlenecks in launching government projects.

Moreover, private investors are unlikely to make large commitments pendingfurther clarity on government policies and effective execution of fiscal plans.The government is in the process of amending the Foreign Business Act (FBA),which has the unintended consequences of creating anxiety among foreigninvestors surrounding the investment environment.

Figure 20: Central government expenditure in FY2014 remainsunchanged from previous years

Figure 21: Actual rate of capital expenditure spent continued todecline

0

50

100

150

200

250

300

350

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

THB bn

FY 2014 FY 2013 FY 2012

50

60

70

80

90

100

110

FY 2005 FY 2008 FY 2011 FY 2014

% spent

Current Capital Total

SOURCES: BANK OF THAILAND (BOT), CIMB RESEARCH SOURCES: MINISTRY OF FINANCE (MOF), CIMB RESEARCH

Figure 22: Total investment applications received Figure 23: Total investment applications approved

0

50

100

150

200

250

300

350

400

450

500

1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14

THB bn

Investment applications Investment applications - foreign

0

50

100

150

200

250

300

350

400

1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12 2Q13 1Q14

THB bn

Investment approved Investment approved - foreign

SOURCES: BOARD OF INVESTMENTS (BOI), CEIC, CIMB RESEARCH SOURCES: BOI, CEIC, CIMB RESEARCH


18/212


18

3.3 Exports not making the cutDespite early signs of a turnaround in domestic demand, exports which are akey pillar of the Thai economy remain slack. Exports of goods never fullyrecovered from the 2011 flood crisis. Reports also suggest that orders werediverted elsewhere for fear of interruptions to production and logistics during

the political crisis that started in Nov 2013. We believe that aside from cyclical,interim and exogenous factors that have prolonged the muted exportperformance, underlying these problems are structural issues.

On the whole, Thailand appears to have diversified extensively its range ofagriculture products to include rice, rubber, sugar, cassava, shrimps, cannedpineapple and soy. It has also done well in terms of diversification ofmanufactured exports into sectors, ranging from textiles to electrical &electronics and automobiles. Thailands target export markets are also equallywell diversified between the G3 countries, China, Australia, core ASEANmarkets and CLMV (Cambodia, Laos, Myanmar, Vietnam).

However, its stagnant export performance has revealed underlying weakness inits industrial base and other structural impediments. Weakening growth of

labour-intensive manufactured exports indicates a loss of comparativeadvantage in the low-wage and labour-intensive sectors. Thai enterprises invarious industries are also adjusting their investment plans in preparation forthe loss of Generalised System of Preferences (GSP) privileges in the EU. Theseinclude relocation of factories to countries that still enjoy the tariff privileges orthose that have free trade agreements (FTAs) with the EU. Mid- and high-techproducts suffer from limited local inputs and high trade dependency asThailand remains an assembler and does not specialise as a manufacturer inresearch, design and innovation.

The entire export-oriented sector has been built on capital investment and alarge pool of cheap labour, which is easily replicated in other low-cost countries.Instead, the country needs more durable technological capacities on the part of

local producers and workers. As such, prospects for future development dependupon industrial restructuring through the creation of new growth industries, beit in agriculture or manufacturing.

Figure 24: Thailand's exports not picking up with globalrecovery, manufacturing production and OECD CompositeLeading Index (CLI)

Figure 25: Thailand's major exports components

-6

-4

-2

0

2

4

6

-40

-30

-20

-10

0

10

20

30

40

50

Jan-07 Feb-08 Mar-09 Apr-10 May-11 Jun-12 Jul-13 Aug-14

3MMA, % yoy3MMA, % yoy

Exports, US$ terms MPI OECD CLI (RHS)

-60

-40

-20

0

20

40

60

80

100

120

Jan- 07 Feb- 08 Mar- 09 Apr -10 May-11 Jun- 12 Jul -13 Aug- 14

3MMA, % yoy

Agriculture products Agro industrial products

Manufacturing products Mineral products

SOURCES: OECD, CEIC, CIMB RESEARCH SOURCES: CEIC, CIMB RESEARCH

3.4 Liquidity conditions stableA current account surplus of US$7.3bn or 2.6% of GDP in 9M14 helped to offsetoutflows in the financial account, though the surplus came about due to acollapse in imports (-9.4% yoy) relative to exports (-0.7% yoy). Overall foreign


19/212


20/212


20

3.5 Inflation and interest rate outlookThe GDP deflator eased further to 1.0% yoy in 3Q14 (2.0% in 2Q) and theconsumer price index (CPI) rate also moderated to 2% (2.5% in 2Q), while theproducer price index (PPI) rose 0.1% yoy (1.4% in 2Q). In 10M14, headline CPIrose 2.1% yoy (10M13: 2.3%).

The Bank of Thailand (BOT) proposed an average headline inflation targetrange of 1.5-4.5% in 2015, in the minutes of the Sep Monetary PolicyCommittee (MPC) meeting. We project average annual headline inflation of 2%in 2015 (vs. estimated 2% in 2014). Given that the inflation risks have abatedamid lower oil prices and ample excess capacity, there is room for the centralbank to lower rates if needed. If the fiscal stimulus is delayed and the risk ofstagnation rises, we think that the BOT will be compelled to ease rates.

As at 26 Nov, the baht has declined 0.3% to THB32.8 against the US dollar vs. a0.82% gain to 32.44 at end-Jun. We expect the THB/US$ to rise further to 36by end-2015 as the dollar rebounds. Key support factors for the baht in the nearterm include calmer politics, an improved growth outlook and ample foreignreserves.

Figure 30: Inflation and interest rate Figure 31: Baht spot vs. trade weighted baht (Real EffectiveExchanger Rate, REER)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14

% yoy; %

Headline CPI Core CPI Poli cy rate

85

90

95

100

105

110

115

27.0

28.0

29.0

30.0

31.0

32.0

33.0

34.0

Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14

IndexTHB/US$

THB/USD REER

SOURCES: CEIC, CIMB RESEARCH SOURCES: BIS, CEIC, CIMB RESEARCH

3.6 Risks and issues to watchFarm prices have fallen sharply this year, thus depressing both export valuesand farm incomes. A new scheme to give cash handouts to the rice farmers

based on the area under paddy cultivation instead of the harvest-linked subsidyby the former government is underway. However, the first tranche of paymentshas barely started to trickle down by mid-Nov with only 10% payments madewell short of the 30% earmarked. Aside from this, the government has notannounced any other concrete policy to restructure the agriculture sector whichemploys over 42% of the countrys labour force and remains the largestemploying sector but accounts for only 4% of the total wage bill. We believe thatthis is the root cause of Thailands large income disparity, wide political andsocial divisions, and risks Thailand being caught in the middle-income trap.

With energy reforms in the pipeline, the government will soon raise the excisetax on diesel. However, thanks to the decline in global oil prices, the increase inretail fuel prices should be manageable. But the government is looking into

other avenues to boost revenue streams, including the introduction of aproperty tax, inheritance tax, and may also raise the VAT next year, which doesnot bode well for consumption.

Although the share of household debt to GDP remains high at 82.3% as atend-2Q14 (vs. 61% in 2009), growth has moderated from double-digit pace over


21/212


21

the last four years to 8% as at mid-2014. Given the high percentage of indebtedhouseholds and muted economic growth, the debt servicing ability ofhouseholds remains an important risk factor that could dent potentialconsumption. As at end-2Q14, the debt servicing ability of householdsdeteriorated slightly and the delinquency and NPL ratios of consumer loans

edged up to 6% (vs. 5.8% in 1Q14) mainly due to auto leasing and otherpersonal loans. The upside is household liquidity remains high as reflected bythe ratio of household financial assets to household debt, which stabilised at 2x.

Ultimately, the sustainability of the recovery rests on continued politicalstability and private sector participation. Greater clarity on government policiesand effective execution of fiscal plans will help to restore investor confidenceand drive private investment. After the last coup in 2006, the militarygovernment stayed for a year. But there is a growing possibility is that it maystay for longer this time.

Figure 32: Nominal farm income and farm production Figure 33: Thailands primary commodity prices

-40

-20

0

20

40

60

80

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

% yoy

Nomi nal far m i ncome Farm producti on

0

100

200

300

400

500

600

700

0

10

20

30

40

50

60

70

80

90

100

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

PricePrice

Rubber (THB/kg) Sugar (US$/lb) Rice (US$/M T) (RHS)

SOURCES: BOT, CEIC, CIMB RESEARCH SOURCES: BLOOMBERG, CIMB RESEARCH

Figure 34: Thailand household debt Figure 35: Ratio of household financial assets to debt

0

10

20

30

40

50

60

70

80

90

0

2

4

6

8

10

12

1Q03 2Q04 3Q05 4Q06 1Q08 2Q09 3Q10 4Q11 1Q13 2Q14

%THB tr

H ousehold debt % of GDP (RHS)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0

5

10

15

20

25

30

1Q11 4Q11 3Q12 2Q13 1Q14

TimesTHB tr

Household debt Household financial assets

Financial assets to debt (RHS)

SOURCES: BOT, CIMB RESEARCH SOURCES: BOT, CIMB RESEARCH


22/212


22

4. RISKS

4.1 Strong economic headwindsExports is Thailands biggest economy driver, forming 73% of GDP in 9M14. Atthe beginning of this year, the authorities expected exports to expand by 4% yoy

in 2014. A few months later, the government lowered its 2014 export growthforecast to 3% and subsequently to 2%. It now projects zero export growth in2014, after exports contracted by 1% in 9M14.

In our view, there are structural reasons for Thailands weak exportperformance, including:

1) Thailand is not part of the major supply chain for high-end electronic parts,which are used in mobile gadgets such as the iPhone and iPad. As such,Thailands exports of computers and parts have underperformed total exportsover the past decade (Figure 35). Exports of computers and parts accounted for12% of Thailands total exports in 2000 but only comprised 7% in 2013.

Thailands failure to move into the higher value-added computers and parts

supply chain could be due to the series of political crises. It would takesignificant time and effort for Thailand to attract foreign investment in newtechnology. It would also require a more stable political environment.Therefore, we do not expect Thailands exports of computers and parts to turnaround in the near term.

In addition, an economic slowdown in China will also hurt Thailand's exportperformance. Note that Thailands exports to China contracted 5% vs. flatgrowth for total exports in 10M14. A further slowdown in China will also weighdown Thailand's export growth in 2015.

Figure 36: Exports of computers and parts vs. total exports

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20139M14

Thai exports (%yoy) Exports of computer and parts (%yoy)


2) Thailands auto exports, which were strong in the past decade, have startedto face competition from its neighbouring countries in 2014. The weaker autoexports could also be attributable to the countrys political problems, which areforcing the carmakers to diversify their investments away from Thailand.Indonesia appears to be a natural choice, given its large domestic market. Autoexports only contributed 5% of Thailands total exports in 2000 but rose to 14%in 2013 and 9M14.


23/212


23

Figure 37: Thailands auto exports facing more competition from neighbouringcountries

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20139M14

Thai exports (%yoy) Auto expor ts (%yoy)


3) Thailands farming subsidies have reduced the competitiveness of certainagricultural exports such as rice. This, in turn, has weighed down exportperformance over the past few years.

Figure 38: Weak farm exports weighed down export growth

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20139M14

Thai exports (%yoy) Agriculture exports (%yoy)


4.2 Weak farm prices and lack of major stimulus measuresAlthough the political situation remained calm after the coup, the major changein government policies the elimination of farming subsidies sent ashockwave through the rural economy, in our opinion. The farmers havebecome dependent on farming subsidies as the previous governments providedsupport to upcountry farmers. The sudden change in government policy,without a proper plan to cushion the blow, makes it difficult for the upcountrypopulation, especially given the weak farm prices. The price of paddy rice hasfallen 13% YTD, while the price of smoked rubber third grade has plunged 25%YTD.

Thailand produced 37.7m tonnes of paddy rice last year. Assuming that thepaddy rice price falls 13% in 2014, the farmers would lose revenues of aroundTHB28bn. In an attempt to compensate the farmers, the government will paysubsidies of THB1,000/rai (or THB2,500/acre) to farmers who own landmeasuring 1-15 rai (0.4-6 acres). The government expects total compensation to


24/212


24

amount to around THB40bn in 2014. However, the subsidy disbursement hasbeen very slow in 2014, as the government aims to minimise corruption in thedisbursement process.

As for rubber, Thailand produced about 4.4m tonnes last year. Thus, a 25%decline in rubber price would translate into farmers lost revenues of aroundTHB82bn in 2014. The government tries to compensate the rubber farmers byproviding subsidies similar to those for rice farmers, as well as setting up aTHB6bn fund to support rubber prices. However, the governments measureshave failed to prop up rubber prices in 2014. Therefore, the rural economy hassuffered badly in 2014, as reflected in the weak retail same-store-sale growth(SSSG).

Figure 39: Paddy rice price fell 13% YTD Figure 40: Rubber price dropped more than 20% YTD

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

-

2,000

4,000

6,000

8,000

10,000

12,000

THB/ton %y oy

-40%

-20%

0%

20%

40%

60%

80%

100%

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

THB/k g %yoy

SOURCES: Office of Agricultural Economics SOURCES: Office of Agricultural Economics

The rice subsidies gave farmers an incentive to grow more rice and thecountrys rice output has increased from about 30m tonnes in 2005 to 37.7mtonnes in 2013. Given the 18m tonnes of rice inventory under the Yingluckgovernments rice-pledging scheme, Thailands huge rice stockpile is likely tocontinue to put pressure on rice prices next year.

The high rubber prices a few years ago encouraged farmers to plant morerubber trees, causing the mushrooming of rubber plantations beyond theSouthern region (traditional rubber-growing area in Thailand). Hence, therewas a big spike in rubber output over the past couple of years. In our view, thehigher rubber output will continue to weigh on rubber prices in 2015 as well.

Figure 41: Thailand's annual output of paddy rice and rubber

2.0

2.5

3.0

3.5

4.0

4.5

20.0

25.0

30.0

35.0

40.0

45.0

2005 2006 2007 2008 2009 2010 2011 2012 2013

Paddy rice output (m tonnes) Rubber output (m tonnes) (RHS)



25/212


25

4.3 Further cuts in earnings forecasts likelyThe market consensus for EPS growth was 11% for this year and 14% for nextyear at the beginning of the year and had been quite stable even after the May2014 coup. However, after the release of disappointing 2Q14 corporate results,market consensus for EPS growth this year was revised down to 7% but next

years growth was revised up to 17%.

Analysts may just cut 2014 forecasts but did not slash 2015 numbers in Aug2014, as they hoped that the economy would see a V-shaped recovery after thecoup as the economic activities seemed to have picked up nicely. However, theymay have forgotten that during the 7-month political stalemate, people may notbe in the mood to spend money, and the roadblocks and political protests maymake it difficult for people to come out to shop. As such, when the politicalsituation calmed down after the coup, any pent-up demand was released. Oncethis demand was exhausted, economic activities have slowed down again. As aresult, the market consensus for EPS growth this year is now revised down to2% and that for next year stands at 18%. We believe that the market is stilloptimistic about next years outlook and that the EPS growth number could be

revised down to single digits.

Figure 42: Thai market EPS has been revised down 14% this year and 11% next year,but the market has risen 20% YTD

400

600

800

1,000

1,200

1,400

1,600

1,800

85

90

95

100

105

110

115

120

125

130

Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14



4.4 Further delay in auction of 1800 MHz licences likely

We have become less optimistic about the visibility of spectrum auctions takingplace as per scheduled in Jul-Aug 15 as the government still has manymilestones to hit before proceeding with the auctions. Based on the existingregulatory structure, the National Broadcasting and TelecommunicationsCommission (NBTC) will have to resume the spectrum auction process in Feb15 or not later than Mar 15 in order to hold an auction in Jul 15. However, theongoing transition from the ICT Ministry into the Digital Economy Ministry hasled to more uncertainties regarding the NBTCs authority to allocate spectrum.


26/212


26

Figure 43: Digital Economy Ministry framework Figure 44: Digital Economy Ministry structure

SOURCES: CIMB, Bangkok Post, COMPANY REPORTS SOURCES: CIMB, Bangkok Post, COMPANY REPORTS

In Jul 14, the NCPO ordered the NBTC to postpone the planned spectrumauction for 1800MHz for 12 months in order to give SOE telcos (TOT and CAT)a longer grace period to come up with their survival plans. On 21 Jul 14, DeputyPrime Minister General Prawit Wongsuwan set up the Digital Economyworking group, with Deputy Prime Minister MR Pridiyathorn Devakula as the

chairperson alongside eight other members. The group is tasked with draftingthe ministry bill. The military government has proposed a digital economypolicy framework that will involve 1) the transition of the ICT Ministry to theDigital Economy Ministry, 2) the amendment of the Frequency Allocation Actto restructure the NBTC and place it under the supervision of the DigitalEconomy Ministry, and 3) the amendment of the Telecoms Business Act.

The market is likely to be confused with the misalignment of the juntagovernments Digital Economy Policy and the NBTCs mandate to auction1800MHz spectrum in Jul-Aug 15 as planned. This implies higher uncertaintieswith regard to the spectrum auction. The visibility of the spectrum auction iscertainly the key swing factor to determine mobile operators' share priceperformances in FY15.

True will be a prime beneficiary of the lengthy delay in the 4G spectrum auction,as the award will weaken its now superior competitiveness in spectrum holding,regulatory cost and 3G/4G first-mover advantage. On the contrary, AIS willclearly benefit the most if the spectrum auctions can happen on time as AISsbandwidth limitation will be resolved, thus allowing it to regain itscompetitiveness.

4.5 Energy reform and impact on retail gas pricesWith the recent appointment of Energy Committees of the National ReformCouncil, we believe that the government is likely to continue to removesubsidies for NGV and raise the excise tax on diesel. The military governmenthas raised NGV prices by THB1/kg to THB11.50/kg on 1 Oct 2014 and another

THB1/kg on 3 Dec 2014 to THB12.50/kg. Meanwhile, the government alsoraised the LPG prices by THB1.03/kg to THB24.16/kg, thereby removing theremaining subsidy for LPG.

With recent sharp plunge in oil prices as well as gas prices, we believe that NGVprices will not have to rise much following the subsidy removal. That said, the


27/212


27

cost of NGV should now be about THB8/kg vs. THB9/kg before the sharpplunge in oil prices. The cost to transport gas should remain stable at aboutTHB5.56/kg. So, the new cost of NGV should be about THB14.5/kg, including7% value-added tax, down from THB15.58/kg previously. With the currentmarket price of THB12.50/kg, the retail NGV price would have to rise by

another THB2.00/kg or about 16%.Which one has higher impact on the public? (LPG vs. NGV)BetweenLPG and NGV, we believe that the LPG price increase will impact the publicmore than the NGV price increase. This is due to 1) the number of vehiclesusing LPG accounts for 3.27% of Thailands total 35.4m vehicles. This compareswith only 1% for NGV; and 2) LPG price increase will impact not only thetransportation sector but other segments like cooking gas, industrial, andpetrochemicals as well, while NGV is used only in the transportation sector.

Figure 45: Thailand's energy reforms by EPPO

Energy reform Party impacted Impact Date

1 Acceleration and restructure of solar power sector EA, GUNKUL, SOLAR, SPCG Positive 18-Aug-14

Clarification of gas pipeline separation PTT Positive

2 Restructuing of petroleum price for diesel, gasoline, gasohol Oil fund, Ministry of Finance Negative 28-Aug-14

3* Price lifting for LPG and/or NGV PTT, PTTGC PTT (+) 4Q14F

PTTGC (-)

4* New Power Development Plan 2015 (PDP 2015) announcment RATCH, GLOW, EGCO Positive Nov-14

Including new potential bidding capacity for coal and gas-fired power plant BANPU, IRPC

Including potential increase in alternative energy capacity in PDP 2015

Note: 3* and 4* are the expected announcement assumed by CIMB SOURCES: CIMB, COMPANY REPORTS

Figure 46: Brent vs. Gasohol 95 Figure 47: Brent vs. diesel prices

30

32

34

36

38

40

42

44

60

70

80

90

100

110

120

130

140THB

USD

Brent (USD) Gas ohol 95 (THB)

25

26

27

28

29

30

31

60

70

80

90

100

110

120

130

140 THBUSD

Brent (USD) Diesel (THB)

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

The retail prices of diesel are likely to move up as well. Prior governments triedto cap diesel prices below THB30/litre to limit the impact on transportationcost and the cost of living. To date, Brent oil prices have plunged more than30%, but the retail prices of gasoline in Thailand have not come down as much,since the government levies various taxes on gasoline. As such, gasoline priceshave fallen by about 13-15%, while diesel prices have declined by only 2% as thegovernment starts collecting contributions to the Oil Fund from diesel, ratherthan providing subsidies from the Oil Fund for diesel. However, excise tax andmunicipal tax on diesel are still way below other gasoline prices. Therefore, webelieve that the current government will start raising these taxes on diesel. Webelieve that ultimately retail diesel prices will be closer to Gasohol 95 E10 or


28/212


28

about THB33.20/litre, representing a 17% increase (+THB4.81/litre) from thecurrent level. Again, we believe that the government will split the increases intoseveral instalments. However, if oil prices move up significantly in the future,retail gasoline prices in Thailand will become more volatile.

Figure 48: Price structure of petroleum products (28 Nov 2014)

UNIT:BAHT/LITRE EX-REFIN. TAX M. TAX OIL CONSV. WHOLESALE VAT WS&VAT MARKETING VAT RETAIL

(AVG) B./LITRE B./LITRE FUND FUND PRICE(WS) MARGIN

ULG 19.1895 5.6000 0.5600 9.6500 0.2500 35.2495 2.4675 37.7170 3.4047 0.2383 41.36

GASOHOL95 E10 20.2928 5.0400 0.5040 4.1500 0.2500 30.2368 2.1166 32.3534 1.8192 0.1273 34.30

GASOHOL91 20.0649 5.0400 0.5040 2.4500 0.2500 28.3089 1.9816 30.2906 1.8593 0.1302 32.28

GASOHOL95 E20 21.3051 4.4800 0.4480 0.7000 0.2500 27.1831 1.9028 29.0859 1.7702 0.1239 30.98

GASOHOL95 E85 26.9844 0.8400 0.0840 -8.2300 0.2500 19.9284 1.3950 21.3234 1.4548 0.1018 22.88

H-DIESEL 20.3479 0.7500 0.0750 4.3000 0.2500 25.7229 1.8006 27.5235 1.7444 0.1221 29.39 SOURCES: CIMB, COMPANY REPORTS

Figure 49: Price structure of petroleum products (27 Dec 2013)

UNIT:BAHT/LITRE EX-REFIN. TAX M. TAX OIL CONSV. WHOLESALE VAT WS&VAT MARKETING VAT RETAIL

(AVG) B./LITRE B./LITRE FUND FUND PRICE(WS) MARGIN

ULG 25.9942 7.0000 0.7000 10.0000 0.2500 43.9442 3.0761 47.0203 0.9623 0.0674 48.05

GASOHOL95 E10 26.2972 6.3000 0.6300 3.3000 0.2500 36.7772 2.5744 39.3516 1.1013 0.0771 40.53

GASOHOL91 26.0681 6.3000 0.6300 1.2000 0.2500 34.4481 2.4114 36.8595 1.1406 0.0798 38.08GASOHOL95 E20 26.5090 5.6000 0.5600 -1.3000 0.2500 31.6190 2.2133 33.8324 1.6333 0.1143 35.58

GASOHOL95 E85 26.9851 1.0500 0.1050 -11.6000 0.2500 16.7901 1.1753 17.9654 5.9015 0.4131 24.28

H-DIESEL 27.3249 0.0050 0.0005 -0.7000 0.2500 26.8804 1.8816 28.7620 1.1477 0.0803 29.99


Figure 50: Brent vs. LPG and NGV retail prices

5

7

9

11

13

15

17

19

21

23

25

20

30

40

50

60

70

80

90

100

110

120

130

140THB

USD

Brent (USD) LPG (THB) NGV (THB)



29/212


30/212


31/212


31

Figure 54: Foreign inflows into bond market

(2,000)

(1,000)

-

1,000

2,000

3,000

4,000

5,000

6,000

0

0.5

1

1.5

2

2.5

3

3.5

4

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Outright (TTM > 1 Y) Outright (TTM


32/212


32

Figure 56: Low participation from foreign investors

0

200

400

600

800

1000

1200

1400

1600

1800

-80000

-60000

-40000

-20000

0

20000

40000

60000

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Foreign Investors(LH S) SET Index (RHS)

Net Buy/Sell (Btmn) SET Index


Figure 57: Foreign holdings by sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Nov-14

BANK 30.9% ENERG 13.6% PROF 13.6% ICT 13.6% PERSON 13.6% OTHER 13.6%


Figure 58: Local institutions supporting the market

0

200

400

600

800

1000

1200

1400

1600

1800

-30000

-20000

-10000

0

10000

20000

30000

40000

Jan-1

0

Mar-1

0

May-1

0

Jul-1

0

Sep-1

0

Nov-1

0

Jan-1

1

Mar-1

1

May-1

1

Jul-1

1

Sep-1

1

Nov-1

1

Jan-1

2

Mar-1

2

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-1

3

Mar-1

3

May-1

3

Jul-1

3

Sep-1

3

Nov-1

3

Jan-1

4

Mar-1

4

May-1

4

Jul-1

4

Sep-1

4

Nov-1

4

Local Inst itutes(LHS) SET Index (RHS)

Net Buy/Sell (Btmn) SET Index



33/212


33

Figure 59: Retail investors still selling (THB m) Figure 60: Brokers' proprietary desks enjoy punting (THB m)

0

200

400

600

800

1000

1200

1400

1600

1800

-50000

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

60000

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Local Investors(LHS) SET Index (RHS)

Net Buy/Sell SET

0

200

400

600

800

1000

1200

1400

1600

1800

-15000

-10000

-5000

0

5000

10000

15000

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Nov-12

Jan-13

Mar-13

May-13

Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

ProprietaryTrading(LHS) SET Index (RHS)

Net Buy/Sell SET

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Figure 61: Market activities by type of investors

Local Institutes10%

ProprietaryTrading9%

Foreign Investors22%

Local Investors59%

Local Institutes ProprietaryTrading Foreign Investors Local Investors

2014


Selling pressure from local institutions could come from the redemptions ofLong-term Equity Fund (LTF) and Retirement Mutual Fund (RMF). Thais canreduce their taxable income if they invest in LTF and RMF, up to 15% of theirtaxable income or a maximum of THB0.5m for each fund. For LTF funds,investors can redeem their investment after holding these funds for fivecalendar years. And the investment must be in equity. We estimate that thereare normally inflows of about THB25bn into LTF funds annually.

For RMF, the amount that a person can invest to enjoy tax deductions iscalculated after taking into account the amount he/she invests in a providentfund. Unlike LTF funds, RMF funds can be invested in equity or fixed income,but they can only be redeemed after the investor reaches the age of 55. Wecalculate that there are inflows of about THB10bn into RMF funds annually,

one quarter of which is likely to be invested in equity, with the remaining infixed income.

The strong market rally in 2014 could lead to big redemptions by LTF holdersin Jan 15, similar to what happened in 2012 and 2013 when the SET index rose36% in 2012. Although the market was flat in 2011, it jumped 12% in 4Q11


34/212


34

which led to big redemptions of LTF funds in Jan 12, in our opinion. We believethat this could trigger negative sentiments in the market. And once the marketsentiment turns sour, we believe that it is more difficult to turn it around as thejunta government's performance so far has not been very impressive, especiallyon the economic front. Therefore, we would not rush into the market at this

point in time.

Figure 62: Expect THB10bn redemptions for LTF in Jan 2015

-15,000

-10,000

-5,000

-

5,000

10,000

15,000

20,000

25,000

0

200

400

600

800

1000

1200

1400

1600

1800

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

LTF flows (THB m) SET index

Big redemption


Figure 63: Redemptions for RMF could be smaller, at about THB1bn

0

200

400

600

800

1000

1200

1400

1600

1800

-6,000

-4,000

-2,000

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

RMF flows (THB m) SET Index



35/212


35

5. VALUATION AND RECOMMENDATIONS

5.1 Remain cautious with an unchanged 1,610 index target byend-2015Despite the disappointing corporate earnings performance in 2Q14 and 3Q14,

the market seems to have shrugged off the poor results and expects a V-shapedrecovery in 2015 with a market consensus EPS growth of 18%. We believe thatthe 2015 earnings growth forecast will be revised down significantly tosingle-digit growth.

Given the weak economic outlook, we believe that there will be more consensusearnings downgrades, especially for CY15. Therefore, we do not think that thecurrent market level is sustainable. Certain investors think that the ampleliquidity will support the market but Figure 53 shows that foreign inflows intothe bond market have dried up.

We remain cautious on the market with an unchanged end-2015 index target of1,610, based on 12.1x CY16 P/E (5-year historical average). Our regionalstrategist, Mr Jason Todd, maintains his Underweight call on Thailand.

Figure 64: SET valuations

SET CY2012 CY2013 CY2014 CY2015 CY2016

Core P/E (x) 15.2x 13.5x 16.1x 13.6x 12.1x

FD Core P/E (x) 15.1x 13.5x 16.1x 13.6x 12.1x

Core EPS growth (%) 11% 5% 3% 19% 12%

Core Net Profit Growth (%) 17% 2% 6% 20% 12%

P/BV (x) 2.4x 2.1x 2.4x 2.2x 2.0x

Dividend yield (%) 3.2% 3.6% 3.0% 3.5% 3.9%

EV/EBITDA (x) 9.0x 8.8x 9.8x 8.5x 7.8x

P/FCF (x, equity) 47.7x 32.3x 34.6x 19.4x 13.4x

P/FCF (x, firm) 49.4x 115.0x 20.8x 14.6x 10.2x

Net gearing (%) 35.2% 38.2% 33.0% 27.1% 20.5%

ROE (%, recurring) 17.1% 15.7% 15.5% 16.8% 17.1%

SET level 1,392 1,299 1,594 1,594 1,594CIMB/consensus (x) 1.03 1.05 1.04

SOURCES: CIMB Research

Figure 65: SET's forward P/E band

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

12M Fwd Core P/E

+2SD : 17.0

+1SD : 14.5

-2SD : 7.2

-1SD : 9.6

Mean : 12.1



36/212


37/212


37

5.2 Sector allocation strategyOur model portfolio has outperformed the SET 50 index marginally, but hasunderperformed the SET index slightly due to the strong rally for small-caphigh beta stocks.

Figure 71: Our model portfolio performance

-10

-5

0

5

10

15

20

25

30

31-Dec 31-Jan 28-Feb 31-Mar 30-Apr 31-May 30-Jun 31-Jul 31-Aug 30-Sep 31-Oct

CIMBKP SET SET50

Total Return (%) - (YTD)


We prefer sectors that are less exposed to domestic demand (hotels) as well asdefensive counters (healthcare, utilities and alternative energy). Our top picksare AOT, BGH, GUNKUL, KCE, MINT, RATCH and THCOM.

However, as some of them may have spiked up significantly of late such as AOTand GUNKUL, we would prefer to wait and buy on any share price weakness ina market correction.

We are massively Underweight on the retail, telco and media sectors as webelieve that retail and media will be affected directly by weak domestic demandon the back of higher retail energy prices, introduction of a new inheritance tax,potentially higher VAT and weak farm prices.

For telcos, we are less confident that the 1800 MHz licences will be auctionedoff in Jul 15, as it seems that the military government would like to take theauthority to issue the licences back from the National Broadcasting andTelecommunications Commission (NBTC). Therefore, this could mean furtherdelays for the auctions. The NBTC's intention to proceed with the spectrumauctions are not aligned with the military government's digital economy policy,implying that there are uncertainties regarding the spectrum auction. Note thatthe visibility of the spectrum auction is the key swing factor in determining themobile operators' share prices in 2015. Meanwhile, we think that there is abrighter earnings outlook for the non-mobile space, including satellite and fixedbroadband. For the satellite space, the key positive factor is the still tight supplythat is fuelled by rising demand for TV broadcasting channels, especially thoseof high-definition (HD) quality. Fixed broadband demand will remain strong inFY15 on the back of asymmetric digital subscriber line (ADSL) to fibre-to-the-x(FTTx) service upgrades and greater ADSL penetration in untapped provincialareas.


38/212


38

Figure 72: Sector allocation strategy (20 Nov 2014)

Weighting in SET Rec. Weighting OW/UW (ppt) OW/UW

Hotel 1.3% 2.5% 124 OW

Healthcare 3.0% 4.0% 98 OW

Utilities 1.7% 2.6% 92 OWPetrochem 6.4% 7.2% 78 OW

Alternative Energy 0.9% 1.5% 60 OW

Technology 0.9% 1.4% 54 OW

Transportation 4.2% 4.5% 34 OW

Property 4.4% 4.8% 33 OW

Mining 0.5% 0.8% 27 OW

Construction 0.9% 1.0% 14 N

Food 0.6% 0.7% 6 N

Auto 0.2% 0.2% (1) UW

Construction Materials 0.1% 0.0% (12) UW

Oil & Gas 12.2% 12.0% (22) UW

Agro 0.3% 0.0% (29) UW

Banking 17.1% 16.3% (78) UW

Media 1.4% 0.2% (109) UW

Telecom 10.9% 9.5% (142) UW

Retail 4.8% 2.6% (227) UW

Total 71.7% 71.7% -


5.3 Top picksAirports of Thailand (AOT, Add, TP: THB258)

Most major airlines that use Thailand as their base still have ambitious fleetexpansion plans.

AOT looks attractively priced, at an EV/EBITDA discount of 10% or more

to its peers.

The anticipated rebound in tourist arrivals in 2015 should catalyse its shareprice.

Figure 73: Airport of Thailands (AOT) financial summary

Dec-12A Dec-13A Dec-14F Dec-15F Dec-15F

Revenue (THB m) 30,405 36,810 38,001 43,833 49,026

Operating EBITDA (THB m) 15,325 19,839 20,917 25,139 28,718

Operating EBITDA margin 50.4% 53.9% 55.0% 57.4% 58.6%

Net profit (THB m) 6,500 16,347 12,071 15,215 17,374

Core EPS (THB) 4.57 7.98 8.45 10.65 12.16

Core EPS growth 80.7% 74.6% 5.8% 26.0% 14.2%

FD Core P/E (x) 60.80 34.82 32.90 26.10 22.86DPS (THB) 1.80 4.60 3.30 4.20 4.80

Dividend yield 0.6% 1.7% 1.2% 1.5% 1.7%

EV/EBITDA (x) 27.54 20.15 19.23 16.72 15.00

P/FCFE 67.0 61.2 161.0 (29.4) (90.4)

Net gearing 31.9% 2.7% 5.0% 21.4% 28.1%

Recurring ROE 8.7% 13.5% 12.8% 14.9% 15.3%

% Change In Core EPS Estimates 0% 0%

CIMB/consensus EPS (x) - 1.01 1.00 SOURCES: CIMB, COMPANY REPORTS

Bangkok Dusit Medical (BGH, Add, TP: THB23.80)

Prime beneficiary of regional integration under the ASEAN EconomicCommunity (AEC) at end-2015, as patients from the neighbouring

countries are able tocross borders more easily to seek medical treatment inThailand.


39/212


39

BGHsstrong network expansion strategy and good execution track recordwill support its long-term earnings growth.

BGHs valuation is more attractive than its smaller peers. Our target price isTHB23.8, still based on 34x forward P/E (1.5 s.d. above the 5-yearhistorical mean).

Figure 74: Bangkok Dusit Medical's (BGH) financial summary


Revenue (THB m) 45,478 50,615 56,922 64,580 73,072



Net profit (THB m) 7,849 6,261 7,732 9,184 10,768

Core EPS (THB) 0.41 0.40 0.50 0.59 0.70

Core EPS growth 38.2% -1.5% 23.3% 18.7% 17.2%

FD Core P/E (x) 44.99 45.69 37.04 31.20 26.61

DPS (THB) 0.18 0.20 0.20 0.25 0.30

Dividend yield 1.0% 1.1% 1.1% 1.3% 1.6%

EV/EBITDA (x) 29.76 29.72 26.36 23.21 20.41

P/FCFE 121.0 107.0 91.0 77.7 58.1

Net gearing 41.8% 43.7% 44.3% 42.6% 39.8%

Recurring ROE 17.6% 16.2% 18.0% 19.2% 20.1%

% Change In Core EPS Estimates 0% 0% 0%

CIMB/consensus EPS (x) 1.06 1.05 1.06 SOURCES: CIMB, COMPANY REPORTS

Gunkul Engineering (GUNKUL, Add, TP: THB32.0)

Gunkul has recurring income from two large 60mw wind farm projects in2015-16 for both engineering, procurement and construction (EPC) andoperations. This will account for an estimated 80% of its earnings by 2017.

The company also has ongoing Myanmar power projects and is one of thefirst Thai firms to successfully secure projects in Myanmar. This shouldprovide earnings growth potential.

Gunkul does not face downside risks from dilution, thanks to its cleanbalance sheet. We raised our target price from THB29.5 to THB32 as werollover our valuation to 2016.

Figure 75: Gunkul Engineering's (GUNKUL) financial summary


Revenue (THB m) 4,306 2,025 3,121 4,653 5,212

Operating EBITDA (THB m) 746 131 508 800 1,366


Net profit (THB m) 780 883 602 729 979

Core EPS (THB) 1.09 0.43 0.78 0.82 1.10

Core EPS growth 383.9% -60.4% 79.9% 5.4% 34.3%

FD Core P/E (x) 27.49 69.48 38.63 36.64 27.28

DPS (THB) 0.07 0.05 0.08 0.16 0.28

Dividend yield 0.2% 0.2% 0.3% 0.5% 0.9%

EV/EBITDA (x) 30.66 155.97 38.56 29.04 19.43

P/FCFE 7,606.9 (32.6) 5.2 (12.4) (32.3)

Net gearing 129.2% 12.6% -11.3% 72.9% 127.4%

Recurring ROE 28.9% 9.8% 18.5% 18.4% 20.9%

% Change In Core EPS Estimates 0% 0%



40/212


41/212


41

Figure 77: Minor International's (MINT) financial summary

Dec-11A Dec-12A Dec-13A Dec-14F Dec-15F Dec-15F

Revenue (THB m) 26,220 31,310 34,678 39,243 47,239 54,320

Operating EBITDA (THB m) 4,089 5,406 6,090 6,519 8,132 9,667

Operating EBITDA margin 15.6% 17.3% 17.6% 16.6% 17.2% 17.8%Net profit (THB m) 2,880 3,243 4,101 4,524 5,753 7,021

Core EPS (THB) 0.56 0.93 1.07 1.13 1.44 1.75

Core EPS growth 46.5% 66.8% 14.5% 6.0% 27.2% 22.0%

FD Core P/E (x) 63.99 38.37 33.51 31.62 24.86 20.38

DPS (THB) 0.15 0.28 0.34 0.37 0.47 0.58

Dividend yield 0.4% 0.8% 0.9% 1.0% 1.3% 1.6%

EV/EBITDA (x) 37.87 29.17 25.04 23.37 18.61 15.51

P/FCFE 204.1 82.5 (44.5) 106.9 82.7 64.6

Net gearing 109.2% 95.0% 60.3% 54.5% 46.3% 38.2%

Recurring ROE 13.4% 20.1% 19.1% 17.0% 19.1% 20.5%



Ratchaburi Electricity (RATCH, Add, TP: THB65.00)

We project solid core net profit growth of over 20% in FY14-16 for RATCH,driven by the additional capacity of 750MW (13%) for its 40% stake in theHongsa coal-fired power plant in FY15-16.

There is further earnings growth potential from potential acquisitions inThailand, Australia and Japan (ongoing negotiations). We estimate thatthese transactions could result in RATCHs total capacity rising 10-30%over the next few years.

Its valuation remains attractive, at 11x CY15 P/E and 9x CY16 P/E,

compared to its peers 13x CY15 P/E.

Figure 78: Ratchaburi Electricity's (RATCH) financial summary


Revenue (THB m) 55,591 50,850 56,382 55,681 55,387



Net profit (THB m) 7,726 6,187 6,780 7,369 9,436

Core EPS (THB) 3.68 3.50 4.68 5.08 6.51

Core EPS growth 9.8% -5.1% 33.7% 8.7% 28.0%

FD Core P/E (x) 16.76 17.66 13.21 12.15 9.49

DPS (THB) 2.27 2.27 2.27 2.40 2.80

Dividend yield 3.7% 3.7% 3.7% 3.9% 4.5%

EV/EBITDA (x) 10.50 10.91 8.55 8.44 7.24

P/FCFE 50.1 (77.6) 9.1 8.9 7.5

Net gearing 33.3% 23.5% 10.5% -1.1% -13.2%

Recurring ROE 10.6% 9.4% 12.0% 12.2% 14.5%



Thaicom (THCOM, Add, TP: THB52)

Thaicom 6 is expected to boost Thaicoms FY15 earnings. Thaicom 6 hasbeen in operation since 2Q14 and we forecast that the utilisation uptake

will increase to the presales level of 68% in 3Q14. This implies that therewill be volume growth and margin expansion from this project in FY15.

Thaicom 7, which was launched in early-Sep 2014, is expected to post autilisation rate of 55% in FY15. This indicates that this project will providevolume growth and margin expansion in FY15.


42/212


42

The concerns about the military governments investigation into Thaicomsconcession irregularities and proposed national satellite project are not new.The junta government in 2007-08 carried out similar actions, but to noavail. Therefore, we view its share price weakness as a buying opportunity.

Figure 79: Thaicoms (THCOM) financial summary


Dec-12A Dec-13A Dec-14F Dec-15F Dec-16FRevenue (THBm) 7,266 7,896 9,769 10,832 11,287Operating EBITDA (THBm) 3,892 3,750 5,198 5,813 5,916Operating EBITDA Margin 53.6% 47.5% 53.2% 53.7% 52.4%Net Profit (THBm) 174 1,128 1,723 2,524 2,666Core EPS (THB) 0.40 1.14 1.70 2.30 2.43Core EPS Growth NA 186% 49% 36% 6%FD Core P/E (x) 94.78 33.18 22.24 16.39 15.52DPS (THB) 0.40 0.45 0.85 1.73 1.82Dividend Yield 1.06% 1.19% 2.25% 4.58% 4.83%EV/EBITDA (x) 11.78 12.04 7.93 6.39 5.72P/FCFE (x) NA NA NA 10.39 9.93Net Gearing 34.4% 31.5% 7.0% (14.6%) (30.1%)ROE 3.1% 8.4% 11.5% 14.3% 14.1%% Change In Core EPS Estimates (0.000%) 0.000% 0.000%CIMB/consensus EPS (x) 0.97 1.11 1.03


43/212


December 12, 2014

43

Sector Briefs


44/212

Financial ServicesBanks

December 12, 2014

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.Designed by

cimb navigating thailand 2015 dec 2014.pdf

Documents