delta electronics (thailand)...the firm’s revenue is expected to grow by 8% p.a., driven by...

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Delta Electronics (Thailand) Underperform (16E TP Bt85.50)

Close Bt86.50 Electronic Components

April 20, 2016 Growing alongside the global trend Price Performance (%)

Source: SET Smart

FY16 FY17

Consensus EPS (Bt) 5.737 6.110

KT ZMICO vs. consensus ‐0.6% 0.5%

Share data

Reuters / Bloomberg DELT.BK/DELTA TB

Paid‐up Shares (m) 1,247.38

Par (Bt) 1.00

Market cap (Bt bn / US$ m) 108.00/3,091.00

Foreign limit / actual (%) 100.00/87.29

52 week High / Low (Bt) 98.00/69.50

Avg. daily T/O (shares 000) 1,487.00

NVDR (%) 8.54

Estimated free float (%) 36.88

Beta 0.71

URL www.deltathailand.com

CGR

Anti‐corruption Level 3A (Established)

Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273

Ruchanon Chiemkarnkit Assistant analyst [email protected] 66 (0) 2624‐6268

Earnings growth outlook already priced in

DELTA is a producer of power supplies used in applications for telecommunication and data centers, which are becoming more significant in the ‘Internet‐of‐things’ era. The firm has also expanded its business portfolio towards the electric vehicle (EV) market and also offers solution services. All of these businesses should continue to drive the firm’s earnings growth. Nonetheless, the current share price seems to have factored in its earnings growth prospects while no short‐term catalysts are seen; we thus initiate our coverage on DELTA with an Underperform rating and the 2016E target price of Bt85.50/share. This target price is based on 15x PER, which is justified when considering its major strength as an ODM operator who focuses on value‐added products. Finally, with its current cash of Bt20bn on hand, the firm is likely to grow further from potential M&A deals. Strong earnings to continue thanks to wide‐margin products We expect DELTA’s earnings to achieve a CAGR of 9% during 2016‐18 thanks largely to its high‐end customers who focus on high value‐added products. Its gross profit margin (GPM) is expected to be maintained at 27%‐27.4%. Meanwhile, a variety of product lines should help to diversify risks amid the current economic downtrend. The firm’s revenue is expected to grow by 8% p.a., driven by increasing orders for power supplies used for data centers and telecommunication (70% of revenue), as well as the industrial, medical and electric vehicle sectors.

Expanding business towards solution services With its product strength in regard to power supplies, DELTA has added value to its products by providing solution services in India, Slovakia, and Brazil. This business contributed 23% of total sales in 2015. We preliminarily expect that the sales contribution from this business will rise by 24‐27% in 2015‐2018 vs. the firm’s LT sales target of 50% by 2020. If the firm manages to gain more clients, this would provide upside to our earnings projections.

EV market to drive long‐term growth expectation

DELTA develops high‐value power supplies used in the EV industry, with this segment contributing around 3% of the firm’s total revenue in 2015. We believe this product line will grow further alongside the potential growth in EV technology. In particular, it should grow well in the future because battery prices have continued to decline and CO2 emission regulations have become tighter. Finally, we expect the revenue contribution from this business to rise to 4%‐7% in 2016‐17.

Financials and Valuation FY Ended 31 Dec 2014 2015 2016E 2017E 2018E

Revenues (Bt mn) 44,121 46,938 51,416 54,832 60,382

Net profit (Bt mn) 5,962 6,714 7,115 7,659 8,521

EPS (Bt) 4.78 5.38 5.70 6.14 6.83

EPS growth (%) 10% 13% 6% 8% 11%

Norm. Profit (Bt mn) 5,535 6,302 7,115 7,659 8,521

Norm. Profit growth (%) 13% 14% 13% 8% 11%

Dividend (Bt) 2.70 3.00 3.22 3.47 3.86

BV (Bt) 22.12 24.50 26.98 29.65 32.62

FY Ended 31 Dec 2014 2015 2016E 2017E 2018E

Norm. PER (x) 19.5 17.1 15.2 14.1 12.7

EV/EBITDA (x) 14.4 12.9 11.6 10.8 9.8

PBV (x) 3.9 3.5 3.2 2.9 2.7

Dividend yield (%) 3.1% 3.5% 3.7% 4.0% 4.5%

ROE (%) 20.9% 21.7% 22.2% 21.7% 21.9%

Net Gearing (%) ‐59% ‐61% ‐62% ‐64% ‐65%

Company Initiation


Investment Theme and Valuation With growing mobile data traffic, demand for data storage and processing has also expanded accordingly. This trend is positive to DELTA’s business, especially in regard to its power supplies used for applications in telecommunication systems and cloud computing. Given its strength in terms of value‐added power supplies, DELTA also offers solution services for telecommunication power systems. This strategy has been successful in India, the world’s second biggest cellular phone market. Furthermore, DELTA has also expanded its investment in 3G/4G services while enlarging its business towards power supply technology used in the EV industry. While this EV business segment contributed a mere 3% to its total revenue during its early stage, the contribution is expected to grow further alongside potential growth in the sales of electric vehicles. Ultimately, this business is expected to contribute significantly to DELTA’s earnings in the next 2‐5 years. Figure 1: Peer comparison

Peer company Price Mkt Cap EPS Growth (%) PER (x) Yield (%) ROE (%) CAGR (%) PEG

(Local) (mn) 58 59E 60E 58 59E 60E 59E 57 58 59E 60E 59E‐61E 59E

DELTA 86.50 107,899 13.8 12.9 7.7 17.1 15.2 14.1 3.7 21.7 22.2 21.7 21.9 9.4 1.57

KCE 75.25 42,905 21.9 35.5 9.6 19.6 14.9 13.6 2.0 37.5 31.4 33.8 30.0 9.0 1.65

SVI 5.45 12,348 ‐3.0 15.4 12.8 17.7 15.4 13.6 2.3 18.2 14.9 12.6 12.3 13.2 1.17

SMT 13.9 5,813 67.09 529.2 26.0 n.a. 17.3 12.1 n.a. ‐6.0 ‐3.1 7.6 8.5 26.6 0.58

HANA 35.75 28,774 ‐39.95 21.61 10.9 14.0 12.2 11.6 5.4 19.5 10.6 12.6 12.4 11.2 1.20

THAILAND'S AVERAGE 17.0 15.0 12.8 3.4 18.2 15.2 20.2 17.0 12.7

Source: Bloomberg, KT ZMICO Research

We initiate our coverage on DELTA with an Underperform rating and the 2016E target price of Bt85.50/share. This target price is based on 15x PER. The current share price is now being traded close to our target price, implying that the future earnings prospects have already been priced in. Faster‐than‐expected economic recovery and possible huge success in power supplies in the EV industry will offer upside to our earnings projections. Figure 2: PER (average 13.5x) and PBV band (average 2.7x)

6

8

10

12

14

16

18

20

Jan-1

3

Apr-

13

Jul-

13

Oct

-13

Jan-1

4

Apr-

14

Jul-

14

Oct

-14

Jan-1

5

Apr-

15

Jul-

15

Oct

-15

Jan-1

6

Avg.

PER(X)

+2.0 S.D.

+1.0 S.D.+0.5 S.D.

-2.0 S.D.

+1.5.0 S.D.

-0.5 S.D.-1.0 S.D.

-1.5.0 S.D.-2.0.0 S.D.

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan-

13

Apr

-13

Jul-

13

Oct

-13

Jan-

14

Apr

-14

Jul-

14

Oct

-14

Jan-

15

Apr

-15

Jul-

15

Oct

-15

Jan-

16

PBV(X)

+2.0 S.D.

-1.0 S.D.

Avg.

-2.0 S.D.

+1.0 S.D.

+3.0 S.D.

Source: Bloomberg, KT ZMICO Research

R&D: a key to adding value to the firm’s products DELTA has long been the world’s leader in power supplies with the biggest market share. Its huge growth story occurred after the firm acquired ASCOM in 2003. The acquisition enabled the firm to gain a patent for production and engineering teams working on design, research and development in Germany. This move allowed DELTA to develop power supplies for desktop computers before developing further to advanced power supplies used in the computer systems for data centers, the telecommunication industry, medical equipment, the EV industry and devices used in renewable energy, e.g., solar energy and wind energy. Furthermore, the firm became an original design manufacturer (ODM) in a bid to add value to its own products. DELTA’s investment in R&D facilities at around 4‐5% of total sales is one of its success factors for its business where the technological competitive atmosphere has been changing. Therefore, the firm’s profitability has been maintained at an average of 26‐27% over the past few years.


Figure 3: R&D Center Figure 4: Investment in R&D

15.9%

27.3%

5%

14.30%

5% 6% 5% 5% 5% 6% 5% 5% 5% 5% 5% 4% 4%0%

5%

10%

15%

20%

25%

30%

2546 2547 2548 2549 2550 2551 2552 2553 2554 2555 2556 2557 2558

Gross profit margin Net profit margin % R&D to sale

ป46 ผลิตเพาเวอรซพัพลายขั้นสูงในอุตสาหกรรม อยางเชน โทรคมนาคม อุปกรณการแพทย

ป49 ผลิตพัดลมอิเล็กทรอนกิสสําหรับรถยนต

ป53 ผลิตอุปกรณชารจพลังงานสําหรับรถยนตไฮบริด และ Solar invertor

ป55 ผลิต Windinvertor

Source: DELTA, KT ZMICO Research Source: DELTA, KT ZMICO Research

The emergence of cloud computing brings business opportunities to DELTA The continued investment in R&D facilities has enabled DELTA to enter the supply chain of data centers since 2008. Data centers are among the key elements for business operation as operators need them for storing important data. The increase in big data as well as advanced information technology has led to the emergence of cloud services. For these, the firm does not have to establish its own data centers (thus reducing costs), but instead uses outsourced service providers who possess specialized expertise. Although the service is provided by outsourced providers, the efficiency is as high as DELTA’s own data centers. We believe cloud service will grow further to support the business growth of DELTA. Note that the firm is a producer of power supplies and devices used in the computer systems in data centers (accounting for 40‐45% of total sales).

Figure 5: DELTA’s data center system Figure 6: Global Data Center Traffic

Data Center Traffic Growth (Zettabytes/ Year)

Workload Distribution (in Millions)

Source: DELTA, IBM, KT ZMICO Research Source: DELTA, CISCO, KT ZMICO Research


EV technology: another goal for long‐term growth DELTA has collaborated with major carmakers to conduct research and development of EV technology since 2010. We believe the plug‐in hybrid electric vehicle (PHEVs) market and battery electric vehicle (BEVs) market will continue to grow, supported by the government’s focus on higher efficiency vehicles and lower emissions. Hence, DELTA will enjoy huge benefits thanks to its expertise in the production of power supplies that come in a greater variety of forms compared to its competitors in the market. Note that most of DELTA’s clients are Tier 1 automakers in the US and Europe. In 2015, this business segment began to contribute revenue at around 3% of the firm’s total revenue for the year, with the figure expected to rise to 4%, 5% and 7% of total revenue in 2016‐2018, respectively. The firm’s management expects to raise the sales contribution from this business to 30%, according to its five‐year business plan. We view that the growth in the number of EVs is a factor worth monitoring. Should the number continue to grow, DELTA’s production of power supplies used in the auto industry will act as a significant driver to its earnings growth in the next 2‐5 years. Figure 7: EV/PHEV stock in 2014 Figure 8: Growth in EV/PHEV

Source: IEA, DELTA, KT ZMICO Research Source: IEA, DELTA, KT ZMICO Research

Revenue contribution from business in India becoming more significant with 10% YoY growth in 2015 With its strength in advanced power supplies used in the telecommunication industry, DELTA has attempted to add value to its products by offering solution services, especially in India where the telecommunication market is the second biggest in Asia. The telecommunication market in India is likely to grow further in line with the growing number of cellular phone users and the development of 3G/4G networks, which require telecommunication towers to support growing data usage. The demand for telecommunication towers will grow particularly in rural areas where transmission lines and telecommunication towers remain scarce. The energy system management and control systems for telecommunication stations will be essential for maintaining network stability. We believe DELTA will reap maximum benefits as it is the biggest provider of solution services for the energy systems for telecommunication systems in India.


Figure 9: Sales growth in India Figure 10: Off‐grid Solar Inverter for Telecom Base Station in India

10387

116

154170

201

241

293

0

50

100

150

200

250

300

350

2011 2012 2013 2014 2015 2016E 2017E 2018E

Regional Business ‐ India revenue

USD million

Source: DELTA, KT ZMICO Research Source: DELTA, KT ZMICO Research To benefit from baht depreciation amid the intensely competitive atmosphere In 2012‐13, DELTA saw its average sales in US$ terms grow by an average of 2% p.a.; nonetheless, its sales in baht terms showed average growth of over 5% p.a. due to continued depreciation of the baht (Bt31.21/US$ in 2012 vs. Bt34.4/US$ in 2015). The main growth driver came from the sales of power supplies used in telecommunication systems, industry and medical equipment, which were able to offset the deterioration of the sales of products used in server systems and data storage devices due to more intense competition and the economic slowdown. However, the firm’s core profit growth achieved a 15% CAGR during 2012‐15 given that: i) baht depreciation helped to push up the gross profit margin by approximately 0.3% ‐ 0.8%; ii) greater exposure to the sales of products coupled with solution services (its regional business) for which the firm did not incur R&D costs, helping it to control SG&A expenses. 2016‐18 earnings to be boosted further by growth in regional business as well as high‐margin products Our forecasts call for DELTA’s earnings to achieve a CAGR of 9% during 2016‐18 and we expect sales in baht terms to grow by an average of 8.4% p.a. (vs. management’s target of 10%), driven by expected increases in orders for high value‐added products, e.g., power supplies used in the telecommunication system, industry, medical equipment and the EV industry. This high value‐added product line is projected to account for 45% of expected total sales. Meanwhile, about 50% will be from major power supplies used for server systems and data storage equipment; this business segment is expected to recover thanks to growing demand from the cloud service business. With slight baht depreciation and expected growth in core products, DELTA is expected to maintain its gross profit margin at 27.0‐27.4%. However, given the fact that the firm does not need R&D facilities to expand its business toward solution services, its SG&A/sales should be reduced; thus, its net profit margin is projected to rise to 13.8%‐14.1% during 2016‐18.


Figure 11: Revenue growth by currency in 2011‐18E Figure 12: Profitability and SG&A in 2011‐18E

12.6%

3.6%2.2%

1.4% 1.0%

6.0%

8.2%

10.1%

7.6%

6.1%

1.0%

7.1%6.4%

9.5%

6.6%

10.1%

0%

2%

4%

6%

8%

10%

12%

14%

2011 2012 2013 2014 2015 2016E 2017E 2018E

US$ revenue growth Thai revenue growth

%YoY

23.5%

26.5% 26.3% 26.8% 27.3% 27.4% 27.3% 27.2%

8.9%

12.5%13.7% 14.4% 15.1% 15.3% 15.4% 15.4%

6.9%

10.3%11.9% 12.5% 13.4% 13.8% 14.0% 14.1%

0%

5%

10%

15%

20%

25%

30%

2011 2012 2013 2014 2015 2016E 2017E 2018E

GPM EBITDA margin Core profit margin

30.48 31.21

30.87

32.61

34.37

35.535 35

27

28

29

30

31

32

33

34

35

36

2011 2012 2013 2014 2015 2016E 2017E 2018EAverage exchange rate

Avg.Ex.rate (baht/$)

16.8%16.2%

14.8% 14.4% 14.1% 13.9% 13.7% 13.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2011 2012 2013 2014 2015 2016E 2017E 2018E

%SG&A


Strong financial position to drive future growth As of 2015, DELTA’s debt‐to‐equity ratio and interest bearing debt to equity stood at 0.4x and 0.06x and we expect the figures to fall to 0.36x and 0.05x, respectively, in 2018. DELTA is holding cash on hand of over Bt20bn, allowing the firm to acquire some companies with weak financial positions amid the economic slowdown or to take market shares away from weaker firms. This should enhance the firm’s business expansion potential to support future growth. Figure 13: Debt to equity and interest bearing debt to equity ratios

Figure 14: DELTA’s total assets in 2015

0.50 0.47 0.46

0.39 0.43

0.40 0.38 0.36

0.12 0.09 0.08

0.06 0.06 0.06 0.05 0.05

‐

0.10

0.20

0.30

0.40

0.50

0.60

2011 2012 2013 2014 2015 2016 2017 2018Debt to Equity ratio Interest bearing debt to equity ratio

Cash and equivalents

47%

Account receivable

22%

Inventories14%

Other current assets2%

Investments1% PP&E‐net

13%

Other non‐current assets

1%



Company’s Profile Delta Electronics (Thailand) PCL. (DET) is one of the world's leading producers of power supplies. The firm owns two plants in Thailand, located in Bangpu Industrial Estate and Wellgrow Industrial Estate, and three plants overseas, two in India and one in Slovakia. The firm’s operation is divided into two lines as follows:

1) Original Design Manufacturing (ODM): DELTA produces high‐end power supplies designed by the R&D team in Germany who is committed to the development of products with greater efficiency and the ability to reduce global warming effects. The developed products are widely used in applications for server systems, telecommunications, workstations, data storage, office supplies, medical equipment and industrial devices. Moreover, DELTA also produces some electronic components, such as cooling fans, EMI filters and solenoids used for applications in the automotive industry, telecommunications, IT electronic devices for consumption and other industries. Figure 15: ODM

DC‐DC Convertor High end Power supplies Power supplies for workstation, storage and industrial

Power supplies for Automotive Cooling Fan EMI Filter Solenoid

Source: DELTA, KT ZMICO Research

DELTA has collaborated with big automakers to develop battery charging devices to support the growing EV industry, e.g., PHEVs and BEVs, which have been available in the market since 2011. Products in this line include on/off board charger modules, DC‐DC converters, DC‐AC motor drive inverters and AC‐DC battery chargers. The firm has also expanded its cooling fan products to automaker clients. Figure 16: Regional (Trading Business) Figure 17: Regional (Solutions Business)

1. Power supplies for Telecom, Network and Data Centers

2. UPS, Solar inverters and Wind converters


2) Regional Business: After having penetrated regional business by acting as an authorized local distributor of power supplies in many countries, DELTA began to add value by offering sales and after‐sales services linked to the solutions business and power solutions. This service enables clients to reduce energy costs as well as enhance energy usage efficiency, e.g., solar and wind energy as sources of energy for telecom power solutions. With its new strategy as an integrated service provider for the entire system, DELTA has become a leading telecom power solutions provider in India and Brazil. DELTA


has a long‐term target to raise the revenue contribution from its regional business to 50% of its total sales vs. 25% in 2015. Figure 18: Product mix in 2015 Figure 19: Long‐term product mix target

Cloud related (Storage, Servers,

Networking)45%

Telecom (OEM and standard markets)

25%

Industrial & medical

equipment

15%

Automotive (Fan, Power charger)

5%

Solar inverters5%

Others5%

25%

75%

2015

Regional ODM

Cloud related (Storage, Servers,

Networking)30%

Telecom (OEM and standard markets)

30%

Automotive (Fan, Power charger)

30%

Others10%

50%

50%

2020

Regional ODM


Industry Outlook IHS Research Institute projects that revenue from the world market for merchant power supplies will grow from US$21.6bn in 2011 to US$25.1bn in 2018, implying a CAGR of 3.9%. Among other merchant power supplies, those used for telecommunications, data communication, and industrial equipment will likely expand at the fastest pace in line with growing demand in the server market and data centers to support cloud computing and the ‘Internet of Things’, for which the market value currently stands at US$8.3bn with the likelihood of rising to US$12.4bn (projected 8% CAGR during 2011‐18). Figure 20: The World Market for Merchant Power Supplies

Source: IHS, KT ZMICO Research

In 2013, DELTA managed to maintain its market share and its leading position in the merchant power supply market, with a market share of 17%. The firm is the biggest merchant power supply producer in the EMEA region.


Figure 21: The World Market for Merchant Power Supplies by Application

Figure 22: Total Merchant Power Supply market shares

Source: IHS, KT ZMICO Research Source: IHS, Powerguru.org, KT ZMICO Research

Rapid growth has been seen in the digital power market and wireless power market. The digital power market value was US$3.3bn in 2014, accounting for 13% of the global power supply market. IHS projects that in 2019 this market will be valued at US$11.8bn, equivalent to 37% of the global power supply market, with estimated growth of 37.5% CAGR during 2014‐19. DELTA has the biggest market share in the digital power market (i.e., 19%; this is inclusive of ELTEK, which was acquired by DELTA, and who sees the second biggest market share at 9%).

Figure 23: The World Market for digital power supplies Figure 24: The World Market for Wireless Power

Source: IHS, KT ZMICO Research Source: IHS, KT ZMICO Research


Upside/Downside Risk Technological changes The electronic industry is very dynamic with rapid changes in technologies; players in the industry are thus at risk of losing competitiveness. Aware of this risk, DELTA has continued to invest in research and development in order to produce high‐value products and enhance its solution services. Therefore, the firm has become the world’s leading designer and producer of power supplies and has been able to maintain its existing clients. FX rate fluctuation Over 71% of DELTA’s revenue is in US$ terms while 12% and 11% are in euro and rupee terms, respectively. The firm has engaged in hedging to a certain degree as approximately 68% of raw material and R&D costs are in US$ terms; 6% are in euro terms and 4% are in rupee terms. The firm employs net position hedging in order to ensure that the actual expenses versus risk levels are appropriate and acceptable. The fluctuation of FX rates definitely has an impact on the company’s profit/loss. Note that every Bt1/US$ variance from our FX rate assumption will have an impact on our net profit projections for DELTA by 3.6%.


FINANCIAL TABLE

PROFIT & LOSS (Btmn) 2013 2014 2015 2016E 2017E 2018E

Revenues 41,201 44,121 46,938 51,416 54,832 60,382 Cost of sales and service (30,367) (32,304) (34,127) (37,330) (39,858) (43,981) Gross profit 10,834 11,817 12,811 14,085 14,973 16,401 SG&A (6,110) (6,348) (6,599) (7,134) (7,496) (8,122) EBITDA 5,642 6,349 7,089 7,867 8,444 9,299 Depreciation & amortization 918 880 878 916 966 1,019 EBIT 4,724 5,468 6,212 6,951 7,478 8,280 Interest expense (63) (73) (39) (75) (75) (75) Other income / exp. 271 222 404 347 373 446 EBT 4,932 5,618 6,577 7,223 7,776 8,651 Corporate tax (67) (85) (275) (108) (117) (130) Gain (loss) from affiliates 18 2 ‐ ‐ ‐ ‐ Extra Items 261 195 ‐ ‐ ‐ ‐ Non‐controlling ‐ ‐ ‐ ‐ ‐ ‐ Net profit 5,416 5,962 6,714 7,115 7,659 8,521 Reported EPS 4.34 4.78 5.38 5.70 6.14 6.83 Core net profit 4,883 5,535 6,302 7,115 7,659 8,521 Core EPS 3.91 4.44 5.05 5.70 6.14 6.83 Dividend (Bt) 2.40 2.70 3.00 3.22 3.47 3.86 BALANCE SHEET (Btmn) 2013 2014 2015 2016E 2017E 2018E

Cash and equivalents 14,953 17,931 20,488 22,564 25,381 28,337 Accounts receivable 8,254 8,371 9,654 9,770 10,420 11,474 Inventories 5,949 5,320 6,141 6,750 7,207 7,953 Investment 483 245 230 230 230 230 PP&E‐net 5,718 5,251 5,807 6,522 6,786 6,797 Other assets 1,507 1,126 1,281 1,281 1,281 1,281 Total assets 36,865 38,245 43,602 47,117 51,305 56,071 ST debt & current portion 913 389 346 346 346 346 Long‐term debt 1,176 1,187 1,518 1,518 1,518 1,518 Total liabilities 11,539 10,646 13,044 13,464 14,319 15,380 Paid‐up shares 1,247 1,247 1,247 1,247 1,247 1,247 Shareholder equity 25,326 27,598 30,558 33,653 36,984 40,691 Total liab. & shareholder equity 36,865 38,245 43,602 47,117 51,304 56,071 CASH FLOW (Btmn) 2013 2014 2015 2016E 2017E 2018ENet income 5,483 6,046 6,989 7,115 7,659 8,521Non‐cash adjustment (132) (31) 118 ‐ ‐ ‐Depreciation & amortization 918 880 878 916 966 1,019Change in working capital (1,320) 359 (971) (305) (251) (740)Cash flow from operations 4,949 7,255 7,013 7,725 8,375 8,800Capex (Invest)/Divest (586) (681) (1,376) (1,630) (1,230) (1,030)Others 221 467 4 ‐ ‐ ‐Cash flow from investing (365) (214) (1,372) (1,630) (1,230) (1,030)Debt financing (repayment) 5 (417) (60) ‐ ‐ ‐Equity financing ‐ ‐ ‐ ‐ ‐ ‐Dividend payment (2,994) (3,368) (3,742) (4,020) (4,327) (4,814)Others 575 (277) 717 ‐ ‐ ‐Cash flow from financing (2,413) (4,062) (3,085) (4,020) (4,327) (4,814)Net change in cash 2,171 2,979 2,557 2,076 2,817 2,956Free cash flow 4,584 7,041 5,641 6,095 7,145 7,770 FCF per share (Bt) 3.68 5.64 4.52 4.89 5.73 6.23

PROFITABILITY 2013 2014 2015 2016E 2017E 2018E

Revenue growth (%) 1.0% 7.1% 6.4% 9.5% 6.6% 10.1% EBITDA growth (%) 10.7% 12.5% 11.7% 11.0% 7.3% 10.1% EPS growth (%) 24.6% 10.1% 12.6% 6.0% 7.7% 11.3% Gross margin (%) 26.3% 26.8% 27.3% 27.4% 27.3% 27.2% EBITDA margin (%) 13.7% 14.4% 15.1% 15.3% 15.4% 15.4% Operating margin (%) 11.5% 12.4% 13.2% 13.5% 13.6% 13.7% Net margin (%) 13.1% 13.5% 14.3% 13.8% 14.0% 14.1% Core profit margin (%) 11.9% 12.5% 13.4% 13.8% 14.0% 14.1% Effective tax rate (%) 1.4% 1.5% 4.2% 1.5% 1.5% 1.5%


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Anti‐corruption Progress Indicator

Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws.

Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives

Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes

Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.)

Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases

Insufficient or not clearly defined policy

Data not available / no policy

DISCLAIMER

This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.

KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.

KT•ZMICO Securities Company Limited 8th, 15th-17th, 19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500

Telephone: (66-2) 695-5000 Fax. (66-2) 631-1709

Phaholyothin Branch 3rd Floor, Shinnawatra Tower II,

1291/1 Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66-2) 686-1500

Fax. (66-2) 686-1666

Ploenchit Branch 8th Floor, Ton Son Tower,

900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 626-6000

Fax. (66-2) 626-6111

Sindhorn Branch 2nd Floor, Sindhorn Tower 1, 130-132

Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 627-3550

Fax. (66-2) 627-3582, 627-3600

Viphavadee Branch G Floor, Lao Peng Nguan 1 Bldg.,

333 Soi Cheypuand, Viphavadee-Rangsit Road, Ladyao, Jatujak, Bangkok 10900

Telephone: (66-2) 618-8500 Fax. (66-2) 618-8569

Chachoengsao Branch 108/34-36 Mahajakkrapad Road,

T.Namuang, A.Muang, Chachoengsao 24000

Telephone: (038) 813-088 Fax. (038) 813-099

Chonburi Branch 4th Floor, Forum Plaza Bldg.,

870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287-635

Fax. (038) 287-637

Pattaya Branch 382/6-8 Moo 9, T. NongPrue,

A. Banglamung, Cholburi 20260 Telephone: (038) 362-420-9

Fax. (038) 362-430

Khon Kaen Branch 5th Floor, Charoen Thani Princess Hotel,

260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000

Telephone: (043) 389-171-193 Fax. (043) 389-209

Sriworajak Building Branch1st – 2nd Floor, Sriworajak Building, 222

Luang Road, Pomprab, Bankgok 10100

Telephone: (02) 689-3100 Fax. (02) 689-3199

Central World Branch 999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan,

Bangkok 10330 Telephone: (66-2) 673-5000,

(66-2) 264-5888 Fax. (66-2) 264-5899

Chiang Mai Branch 422/49 Changklan Road, Changklan

Subdistrict, Amphoe Meuang, Chiang Mai 50100

Telephone: (053) 270-072 Fax: (053) 272-618

Phuket Branch 22/61-63, Luang Por Wat Chalong Road,

Talat Yai, Mueang Phuket, Phuket 83000

Tel. (076) 222-811,(076) 222-683 Fax. (076) 222-861

Pak Chong Branch 173 175, Mittapap Road, Nong Sarai, Pak Chong,

Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574

Hat Yai Branch 200/301 Juldis Hatyai Plaza Floor 3,

Niphat-Uthit 3 Rd, Hatyai Songkhla 90110

Telephone: (074) 355-530-3 Fax: (074) 355-534

Phitsanulok Branch Krung Thai Bank, Singhawat Branch

114 Singhawat Road, Muang, Phitsanulok 65000 Telephone: 083-490-2873

Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our

views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in

securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are

made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.

Bangkhae Branch 6th Floor The Mall Group Building Bangkhae

275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160

Tel. (66-2) 454-9979 Fax. (66-2) 454-9970

Nakhon Ratchasima Branch 624/9 Changphuek Road, .

Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222

Fax: (044) 247171

Cyber Branch @ North Nana Krung Thai Bank PCL, 2 Floor,

North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua

Subdistrict , Wattana District, Bangkok 10110

Telephone: 083-490-2871

Nakhon Pathom Branch1156 Petchakasem Road, Sanamchan Subdistrict,

Amphoe Meuang , Nakhon Pathom Province 73000

Telephone: (034) 271300 Fax: (034) 271300 #100

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