thailand: 3q16 outlook - scbs research

Market Strategy July 2016

Thailand: 3Q16 Outlook

Bet the farm!

Research Group

SCBS Market Strategy Reports

2015

2014

2013

See the end of this report for important disclaimer

Head of Research Andy Jenwipakul, CFA [email protected], (662) 949-1022

Office Manager Kanyarat Kawiya [email protected], (662) 949-1011

Fundamental Research

Automotive, Healthcare, Tourism, Transportation Raweenuch Piyakriengkai [email protected], (662) 949-1002

Banks, Finance, Insurance, Securities Kittima Sattayapan, CFA [email protected], (662) 949-1003

Building Materials, Commerce, Food, Transportation Sirima Dissara, CFA [email protected], (662) 949-1004

Energy, Petrochemical Pitchaya Janyaroj [email protected], (662) 949-1008

Property, Industrial Estate, Property Fund Sirikarn Krisnipat [email protected], (662) 949-1020

Telecom, Media Phatipak Navawatana [email protected], (662) 949 1007

Electronic Components, Utilities Solaya Na Songkhla [email protected], (662) 949 1006

Research Assistant Chananthorn Pichayapanupat [email protected], (662) 949-1016

Research Assistant Wipawan Meesiri [email protected], (662) 949-1019

Investment Strategy

Head of Investment Strategy Isara Ordeedolchest [email protected], (662) 949-1009

Investment Strategy Pornthep Jubandhu [email protected], (662) 949-1015

Investment Strategy Varorith Chirachon [email protected], (662) 949-1014

Retail Strategy and Technical Ekpawin Suntarapichard [email protected], (662) 949-1029

Derivatives Strategy Banyart Kongkachan [email protected], (662) 949-1088

Research Assistant Mueanmas Boonngork [email protected], (662) 949-1018

Research Support

Database Sureeporn Charoenchongsuk [email protected], (662) 949-1025

Database Amornrat Kakanankul [email protected], (662) 949-1023

English Editor Riki Kongtong [email protected], (662) 949-1034

Thai Editor Pongkanit Paocharoen [email protected], (662) 949-1027

Production Saranjit Onaree [email protected], (662) 949-1028

July 2016

Table of Contents Bet the farm! ....................................................................................................................... 1

Stock Picks

Aeon Thana Sinsap (Thailand) PLC (AEONTS) ............................................................ 29

CPALL PLC (CPALL) ........................................................................................................ 33

Charoen Pokphand Foods PLC (CPF) ........................................................................... 37

Siam Global House PLC (GLOBAL) ............................................................................... 41

P.C.S. Machine Group Holding PLC (PCSGH) ............................................................... 45

Somboon Advance Technology PLC (SAT) ................................................................. 49

Sector updates

Airline .............................................................................................................................. 53

Automotive .................................................................................................................... 55

Banks ............................................................................................................................... 57

Commerce ...................................................................................................................... 59

Construction Material ................................................................................................... 61

Electronics ...................................................................................................................... 63

Finance ............................................................................................................................ 65

Food ................................................................................................................................ 67

Healthcare Service ......................................................................................................... 69

Industrial Estate ............................................................................................................ 71

Insurance ........................................................................................................................ 73

Media .............................................................................................................................. 75

Residential Property ...................................................................................................... 77

Securities ........................................................................................................................ 79

Telecommunications .................................................................................................... 81

Tourism ........................................................................................................................... 83

SCBS Stock Universe ........................................................................................................... 85

July 2016

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1

Bet the farm!

Our 2Q16 investment strategy based on domestic recovery appears to have been a good call, despite the SET’s being range-bound. While uncertainties linger about the health of the global economy, international political risks and timing of US rate hike, we believe an improving Thai economy on both internal and external fronts will help mitigate potential impact. We remain selective on stocks that benefit directly from consumer spending recovery.

Sideways trading with decent upside. Without clear improvement in global economic and financial markets, we continue to expect the SET to move sideways. During this, firming global energy prices should limit market downside. As Thai market valuations have become markedly richer, it would be wise to stick with stocks with promising earnings growth. Macroeconomic supports are also important for stock selections this quarter.

Expect limited impact from obsession with Fed. The Fed factor has been one of the most prominent factors leading to market volatility. In our view, the creep up in funding cost in and of itself does not directly jack up volatility. Rather, it has been the divergence between economies and policies that have led to economic and financial market fluctuations. We are now seeing some signs that lead us to believe the divergence is narrowing while the Fed rate hike trajectory is flattening. This implies the market will be less sensitive to the Fed factor going forward.

Finally, the Thai economy is actually gaining better traction. We see our economic condition as key to our market movement. The unexpected beat in Thailand’s GDP growth in 1Q16 of 3.2% YoY in 1Q16 was a welcome sign. While we believe that the core growth drivers, i.e. tourism income and government investment, will continue fueling economic momentum, private consumption is very likely gearing up to secure a more stable growth path, backed by stronger farm income.

3Q16 top pick list is based on domestic demand growth, driven by improving farm income, wage growth, and the shift of the labor force toward higher paid sectors. Our domestic-demand top picks includes: AEONTS, CPALL, CPF, GLOBAL, PCSGH, and SAT.

AEONTS: Loan growth to pick up from 7% in 2015 to 8% (2016) and 10% (2017). Cost of funds to fall on rating upgrade. Target 10% revenue contribution from CLMV by 2020.

CPALL: Sector laggard. Gain from stimulus, farm income improvement, and global sport events (UEFA cup Jun-Jul; Olympics Aug). Expect earnings growth of 20% in 2016.

CPF: Recent drop provides buying opportunity. Over-punished by Brexit (expect minimal impact) and rising feed cost (locked in 6 months in advance).

GLOBAL: To deliver the sector’s best growth in 2016 and 2017 from stimulus package and better farm income outlook. Gross margin to expand to 18.6% (180 bps).

PCSGH: Improving domestic demand suggests the tail end of the cyclical downtrend. Attractive risk/reward with 32% upside to TP and dividend yield 5-6% in 2016-2017.

SAT: Up-cycle in domestic demand implies 7% auto production growth in 2017, 27% earnings growth. Current price offers 36% gain to our mid-2017 TP and 5% dividend yield

3Q16 Top picks – Valuation Summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F

AEONTS Buy 95.25 115.0 24.7 9.7 8.9 8.1 1 9 10 2.0 1.7 1.5 22 21 20 3.6 3.9 4.3 0.0 0.0 0.0 CPALL Buy 49.25 60.0 23.7 32.3 27.0 22.4 39 20 21 10.6 8.8 7.2 36 36 35 1.8 1.9 2.2 18.5 16.7 14.8 CPF Buy 27.75 38.0 39.5 80.5 22.7 18.9 (63) 255 20 1.2 1.1 1.1 2 5 6 2.7 2.6 2.6 18.5 14.1 13.8 GLOBAL Buy 13.50 15.0 11.6 56.9 40.5 33.9 24 40 20 3.3 3.1 2.9 6 8 9 0.3 0.4 0.5 27.5 21.6 18.7 PCSGH Buy 5.30 7.0 37.0 15.4 16.4 12.7 (29) (6) 29 1.7 1.6 1.6 11 10 13 7.5 4.9 6.3 6.5 6.7 5.7 SAT Buy 13.20 18.0 40.7 8.8 9.3 7.3 (1) (6) 27 1.0 1.0 0.9 12 11 13 4.5 4.3 5.5 4.1 4.0 3.1

Average 33.9 20.8 17.2 (5) 52 21 3.3 2.9 2.5 15 15 16 3.4 3.0 3.6 12.5 10.5 9.4 Source: SCBS Investment Research

SCBS Strategy

Isara OrdeedolchestFundamental Investment

Analyst on [email protected]

(66-2) 949-1009

Pornthep JubandhuFundamental Investment

Analyst on Securitiespornthep.jubandhu @scb.co.th

(66-2) 949-1015

Varorith ChirachonFundamental Investment

Analyst on [email protected]

(66-2) 949-1014

Mueanmas BoonngorkResearch Assistant

[email protected] (66-2) 949-1018

Chananthorn PichayapanupatResearch Assistant

[email protected]

(66-2) 949-1016

SCBS Strategy July 2016

2

Global perspectives

The International Monetary Fund (IMF) made another economic forecast downgrade in April. The current global growth forecasts for 2016 and 2017 stand at 3.2% YoY (revised from 3.4%) and 3.5% (from 3.6%). The latest round was concentrated in advanced economies and Latin America where growth momentum was cut to 1.9% (from 2.1%) and to -0.5% (from -0.3%). Outlook for Asia emerging markets is more encouraging, as the fund upgraded growth projections to 6.4% this year and 6.3% next. The major change was a 0.2% upward revision for China. Prospects for global trade remain dull: the IMF expects global trade growth of 3.1% (2016F), slowing from 3.4% predicted back in January.

Figure 1: World economic growth & global exports

Source: International Monetary Fund (IMF), SCBS Investment Research

Recall that a key reason behind the global market turmoil at the start of the year was a global divergence where US economic growth was far stronger than for the other world powerhouses (EU, Japan and China). Inevitably, a higher return from higher US interest rates caused capital to flee towards US dollar-denominated assets. This then generated financial stress among emerging market economies, especially those who carry high foreign currency debt. It turned out that the previous round of global financial turmoil was enough to lead the FOMC to flatten its rate hike trajectory from four rate hikes in the year to one or two now. Setting outlook for monetary policy aside, another interesting issue is the convergence of economic cycles among the four major world economies. Our Figure 2 below suggests that EU, Japan and China economies have gained better traction in recent months, helping narrow the growth gap with the US. If this continues, we could see less impact on currency fluctuations, capital flows and market corrections after the next Fed rate hike.

Figure 2: World powerhouse surprise indices

Source: Bloomberg, SCBS Investment Research

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US EU JP CNIndex

Still on the downgrading path …

…but there are signs of convergence…


3

We view that a gradual interest rate hike should not have much of an impact on financial markets, or if it does, it will not last long. At the same time, the path of the US dollar is normally the key to determining the direction of stock markets as well as financial condition. This is especially true for emerging markets. There is a good chance the US dollar will gain strength ahead of the next policy rate hike as investors will tend to take a higher position in US-denominated assets. We suspect, however that the medium-term upside for the US dollar is relatively limited compared to the previous rate hike in 2015. Why? Because, first, the Fed is expected to raise its key rate much slower than initially planned, at most only twice in 2016 rather than the four previously suggested. More importantly, the 19% appreciation of the US dollar index (DXY) since its rock bottom level in 2014 might already take into account the Fed’s normal upward interest rate trajectory, which is much steeper than the current cycle. Additionally, the Fed’s monetary policy will aim at keeping the job market at the full-employment level (NAIRU). Historical data shows that the Fed managed to allow the unemployment gap to rise to only ~0.7% (the average for three cycles). More interestingly, Fed rate hikes normally peaked out along with the job market.

Figure 3: US unemployment hits NAIRU level Figure 4: Unemployment gap vs. USD index

Source: FRED, SCBS Investment Research Source: FRED, SCBS Investment Research

Figure 5: Fed rates normally peak along with unemployment gap

Source: FRED, CEIC, SCBS Investment Research

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NAIRU (Short-term)Actual unemployment rate

% labor force

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Unemployment gap* (RS)DXY (RS)

% Index

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13Fed funds rate Unemployment gap* (RS)

% %

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853Q

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US REER

…and the key is reaction of the US dollar


4

In order to get a sense of the potential for financial market volatility triggered by an overly steep US dollar appreciation, we use the unemployment gap (Figure 5) and bond spread (Figure 6) models to estimate the path of the USD. Interested readers can see the full research on this in SCBS Strategy: Should we fear the Fed published on May 30. Both models suggest that the US dollar index will hover around 97-99 over the next six to nine months. This represents upside of 2-4% from the current point, which implies somewhat limited potential market volatility from the USD rally.

Figure 6: UST10Y and EU10Y spread vs. US dollar index

Source: CEIC, SCBS Investment Research

While it is true that each commodity price has its own determinant (mostly demand & supply balance), USD movement has been one of the most influential factors in commodity prices in recent years. If our assumption on the USD outlook is accurate, then downward pressure on commodity prices should be limited in coming periods. We believe ongoing development will restore balance in commodity-dependent economies. This is especially true for those in emerging markets, Thailand included.

Figure 7: Commodity price index vs. DXY index Figure 8: Crude oil vs. commodity price index

Source: Bloomberg, SCBS Investment Research Source: Bloomberg, SCBS Investment Research

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The US DXY will hover at 97-99 over the next 6-9 months

Limited upside for USD means less downside risk for commodity prices


5

Figure 9: Global GDP forecast

Projections

Difference from January

2016 WEO Update1

Difference from October 2015

WEO1

2015 2016 2017 2016 2017 2016 2017World Output 3.1 3.2 3.5 –0.2 –0.1 –0.4 –0.3

Advanced Economies 1.9 1.9 2.0 –0.2 –0.1 –0.3 –0.2United States 2.4 2.4 2.5 –0.2 –0.1 –0.4 –0.3Euro Area 1.6 1.5 1.6 –0.2 –0.1 –0.1 –0.1

Germany 1.5 1.5 1.6 –0.2 –0.1 –0.1 0.1France 1.1 1.1 1.3 –0.2 –0.2 –0.4 –0.3Italy 0.8 1.0 1.1 –0.3 –0.1 –0.3 –0.1Spain 3.2 2.6 2.3 –0.1 0.0 0.1 0.1

Japan 0.5 0.5 –0.1 –0.5 –0.4 –0.5 –0.5United Kingdom 2.2 1.9 2.2 –0.3 0.0 –0.3 0.0Canada 1.2 1.5 1.9 –0.2 –0.2 –0.2 –0.5Other Advanced Economies2 2.0 2.1 2.4 –0.3 –0.4 –0.6 –0.5Emerging Market and Developing Economies 4.0 4.1 4.6 –0.2 –0.1 –0.4 –0.3Commonwealth of Independent States -2.8 –1.1 1.3 –1.1 –0.4 –1.6 –0.7

Russia -3.7 –1.8 0.8 –0.8 –0.2 –1.2 –0.2Excluding Russia -0.6 0.9 2.3 –1.4 –0.9 –1.9 –1.7

Emerging and Developing Asia 6.6 6.4 6.3 0.1 0.1 0.0 0.0China 6.9 6.5 6.2 0.2 0.2 0.2 0.2India3 7.3 7.5 7.5 0.0 0.0 0.0 0.0ASEAN-54 4.7 4.8 5.1 0.0 0.0 –0.1 –0.2

Emerging and Developing Europe 3.5 3.5 3.3 0.4 –0.1 0.5 –0.1Latin America and the Caribbean -0.1 –0.5 1.5 –0.2 –0.1 –1.3 –0.8

Brazil -3.8 –3.8 0.0 –0.3 0.0 –2.8 –2.3Mexico 2.5 2.4 2.6 –0.2 –0.3 –0.4 –0.5

Middle East, North Africa, Afghanistan, and Pakistan 2.5 3.1 3.5 –0.5 –0.1 –0.8 –0.6Saudi Arabia 3.4 1.2 1.9 0.0 0.0 –1.0 –1.0

Sub-Saharan Africa 3.4 3.0 4.0 –1.0 –0.7 –1.3 –0.9Nigeria 2.7 2.3 3.5 –1.8 –0.7 –2.0 –1.0South Africa 1.3 0.6 1.2 –0.1 –0.6 –0.7 –0.9

Memorandum European Union 2.0 1.8 1.9 –0.2 –0.1 –0.1 –0.1Low-Income Developing Countries 4.5 4.7 5.5 –0.9 –0.4 –1.1 –0.6Middle East and North Africa 2.3 2.9 3.3 –0.6 –0.2 –0.9 –0.8World Growth Based on Market Exchange Rates 2.4 2.5 2.9 –0.2 –0.1 –0.5 –0.3

World Trade Volume (goods and services) 2.8 3.1 3.8 –0.3 –0.3 –1.0 –0.8Imports

Advanced Economies 4.3 3.4 4.1 –0.3 0.0 –0.8 –0.4Emerging Market and Developing Economies 0.5 3.0 3.7 –0.4 –0.6 –1.4 –1.7

Exports Advanced Economies 3.4 2.5 3.5 –0.4 –0.1 –0.9 –0.4Emerging Market and Developing Economies 1.7 3.8 3.9 0.0 –0.5 –1.0 –1.4

Commodity Prices (U.S. dollars) Oil5 -47.2 –31.6 17.9 –14.0 3.0 –29.2 7.8Nonfuel (average based on world commodity export weights) -17.5 –9.4 –0.7 0.1 –1.1 –4.3 –1.0Consumer Prices Advanced Economies 0.3 0.7 1.5 –0.4 –0.2 –0.5 –0.2Emerging Market and Developing Economies6 4.7 4.5 4.2 0.2 0.1 0.2 0.0London Interbank Offered Rate (percent) On U.S. Dollar Deposits (six month) 0.5 0.9 1.5 –0.3 –0.7 –0.3 –0.7On Euro Deposits (three month) 0.0 –0.3 –0.4 0.0 –0.2 –0.3 –0.5On Japanese Yen Deposits (six month) 0.1 –0.1 –0.3 –0.2 –0.4 –0.2 –0.5Source: International Monetary Fund Note: Real effective exchange rates are assumed to remain constant at the levels prevailing during February 2–March 1, 2016. Economies are listed on the basis of economic size. The aggregated quarterly data are seasonally adjusted. 1Difference based on rounded figures for the current, January 2016 World Economic Outlook Update, and October 2015 World Economic Outlook forecasts. 2Excludes the G7 (Canada, France, Germany, Italy, Japan, United Kingdom, United States) and euro area countries. 3For India, data and forecasts are presented on a fiscal year basis and GDP from 2011 onward is based on GDP at market prices with fiscal year 2011/12 as a base year. 4Indonesia, Malaysia, Philippines, Thailand, Vietnam.


6

United States

After a brief period of sputtering data, US economic readings have shifted towards a solid path of stronger growth. For the short-term growth outlook, the Federal Reserve Bank of Atlanta’s GDPNow model suggests the US will expand as much as 2.9% QoQ (SAAR) in 2Q16. This is much stronger than the street forecast, where Blue Chip consensus expects growth of around 2.3%. It is safe to say that the US economy is currently at a sweet spot as growth appears to be broader-based. It is worth noting that even the growth contribution from net exports is not expected to weigh down growth (Figure 11). This also implies that currency strength is no longer a threat to economic health. The bottom line is that the economy is approaching its growth potential and any level above that would certainly attract the Fed’s attention for possible unprecedented inflation pressure.

Figure 10: Real time GDP advancing at a very quick pace

Source: Federal Reserve Bank of Atlanta, SCBS Investment Research

Figure 11: Growth is now broader-based Figure 12: Negative output gap is closing

Source: Federal Reserve Bank of Atlanta, SCBS Investment Research Source: CEIC, SCBS Investment Research

Given the acceleration of economic growth, the Fed’s mandate of sustainable inflation growth (core PCE) at 2% is likely to be achieved over the next few months. Our Figure 13 shows that inflation expectation (5Y5Y swap forward) has already hit 2% and actual core PCE will soon follow suit. As the economy is operating at close to its potential, the traditional monetary policy model (Taylor’s rule) suggests that the US economy needs to move up its interest rate path (Figure 14). An interesting point is that Taylor’s suggests that the Fed should have raised its key rate to ~4.6% by now but the actual rate currently stands at 0.5%. The simplest way to explain this is that the model can only cover the state of the US economy while in real life the Fed has to take global dynamics into account when setting its interest rate policy. Given the magnitude of economic instability at the global level, which could still have adverse impact on the US economy, the FOMC appears to prefer to be cautious. This is seen in the Fed’s own flattening interest rate predictions (Figure 15).

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Chg. REER (3M lag)

US OPG (RS)

Index % YoY

Growth momentum resumes…

…with inflation building


7

Figure 13: Inflation is moving toward the Fed’s desired level of 2%

Figure 14: Taylor’s rule suggests higher interest rate

Source: CEIC, Bloomberg, SCBS Investment Research Source: Bloomberg, SCBS Investment Research

Figure 15: Fed’s rate path keeps flattening

Source: Federal Reserve, SCBS Investment Research

11.11.21.31.41.51.61.71.8

1.51.71.92.12.32.52.72.93.1

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14

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4

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US inflation expectation

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FED Rate Taylor Rule Estimate

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03/1

8/15

06/1

7/15

09/1

7/15

12/1

6/15

03/1

6/16

FOMC Dots Median The Median of the Federal Open Market Committee's DotsDataOIS as of Meeting Date The Overnight Index Swap Implied Interest Rate as of theMeeting Date

%


8

Eurozone

The eurozone equity market appears to be decoupling from global peers, recovering from global market turmoil at a snail’s pace. This is despite the fact that the European Central Bank (ECB) opted to use a bigger gun on the monetary front. It is interesting that two markets – the eurozone and Japan - that adopted stronger monetary policy stimulus by using negative interest rates are underperforming those without a monetary boost (Figure 16). Scientifically speaking, the slowing economic momentum in the eurozone could be the major factor to blame for the underperforming market. According to a Markit survey, eurozone manufacturing PMI fell to a three-month low in May at 51.5. The slowdown appears to be broad-based, as eight economies included in the survey were slowing. France and Greece were the two economies that fell back into contraction with PMIs dropping below 50. It is possible that the concern about Britain’s leaving the EU has put considerable pressure on the eurozone economy and financial markets (see later section).

Figure 16: Eurozone equity markets have markedly underperformed global key markets this year


As predicted in our last quarterly report, eurozone growth actually fell back below its long-term trend in 1Q16 (Figure 17). Growth is likely to stay in sub-par mode a while longer as key high-frequency data such as the Purchasing Manager Index continues to edge down. Our trusted leading indicator for eurozone growth, real M1 growth, also points towards slower momentum in the near term (Figure 19). This is consistent with the recent softness of the eurozone surprise index (Figure 20). As far as nominal GDP is concerned, the recent pick up could be only temporary since regional inflation has been falling in recent months.

Figure 17: Falling below potential growth Figure 18: Nominal GDP picked up but durability remains questionable

Source: CEIC, Bloomberg, SCBS Investment Research Source: Bloomberg, SCBS Investment Research

7580859095

100105

03-0

1-16

10-0

1-16

17-0

1-16

24-0

1-16

31-0

1-16

07-0

2-16

14-0

2-16

21-0

2-16

28-0

2-16

06-0

3-16

13-0

3-16

20-0

3-16

27-0

3-16

03-0

4-16

10-0

4-16

17-0

4-16

24-0

4-16

01-0

5-16

08-0

5-16

15-0

5-16

22-0

5-16

29-0

5-16

MSCI World MSCI AXJ S&P Nikkei EuroStoxxIndex

-4-3-2-1012345

Mar

-97

Mar

-98

Mar

-99

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

EU real GDP

Potential GDP

% YoY

-25-20-15-10-5051015202530

-6

-4

-2

0

2

4

6

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

EU real GDPEU nominal GDP (RS)

% YoY

Hitting speed bump even before Brexit referendum…

…with growth shifting back below trend…


9

Figure 19: Flattening real M1 growth suggests slower GDP growth ahead…

Figure 20: …which is consistent with the eurozone surprise index

Source: CEIC, SCBS Investment Research Source: Bloomberg, CEIC, SCBS Investment Research

The ECB’s asset purchase program was effective for battling the economic malaise and disinflation environment. Unhappily, the magic appears to be fading as QE expansion was unable to push up real M1 growth (Figure 21) and bring economic recovery, as noted earlier. More importantly, the QE program has also failed to generate inflation growth as shown in Figure 22 below. The reason behind this is quite straightforward: the eurozone has been unable to generate sufficient investment. This means unused current account surplus is piling up (Figure 23). Without sufficient domestic boost, inflation will keep on falling despite the ECB’s attempt to buy more assets. Again, we think it has come to the point where the government must push public investment.

Figure 21: M1 has not responded to ECB’s balance sheet expansion…

Figure 22: … and neither has inflation


Figure 23: Falling investment means too much untapped liquidity in the system…

Figure 24: …which provides no support for the much-needed inflation growth


-6-5-4-3-2-101234

-8

-3

2

7

12

Mar

-07

Oct

-07

May

-08

Dec

-08

Jul-0

9

Feb-

10

Sep-

10

Apr-

11

Nov

-11

Jun-

12

Jan-

13

Aug-

13

Mar

-14

Oct

-14

May

-15

Dec

-15

Real M1 Growth (lead 3Q)GDP (RS)

% YoY % YoY

-6-5-4-3-2-101234

-200

-150

-100

-50

0

50

100

Mar

-07

Oct

-07

May

-08

Dec

-08

Jul-0

9

Feb-

10

Sep-

10

Apr-

11

Nov

-11

Jun-

12

Jan-

13

Aug-

13

Mar

-14

Oct

-14

May

-15

Dec

-15

Surprise index (Lead 2Q)

GDP (RS)

% YoY % YoY

1000

1500

2000

2500

3000

-8

-3

2

7

12

17

Jan-

07Au

g-07

Mar

-08

Oct

-08

May

-09

Dec

-09

Jul-1

0Fe

b-11

Sep-

11Ap

r-12

Nov

-12

Jun-

13Ja

n-14

Aug-

14M

ar-1

5O

ct-1

5M

ay-1

6

Real M1ECB balance sheet (RS)

% YoY Euro, bn

1000

1500

2000

2500

3000

3500

-1.0-0.50.00.51.01.52.02.53.03.5

Jan-

07

Aug-

07

Mar

-08

Oct

-08

May

-09

Dec

-09

Jul-1

0

Feb-

11

Sep-

11

Apr-

12

Nov

-12

Jun-

13

Jan-

14

Aug-

14

Mar

-15

Oct

-15

May

-16

EU CPI

ECB balance sheet (RS)

% YoY Euro, bn

-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.018

19

20

21

22

23

24

Mar

-99

Apr-

00

May

-01

Jun-

02

Jul-0

3

Aug-

04

Sep-

05

Oct

-06

Nov

-07

Dec

-08

Jan-

10

Feb-

11

Mar

-12

Apr-

13

May

-14

Jun-

15

Investment % GDP

Current account (%GDP, RS, Inverted)

% GDP % GDP-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.0-0.5

0.00.51.01.52.02.53.03.54.04.5

Dec

-99

Jan-

01

Feb-

02

Mar

-03

Apr-

04

May

-05

Jun-

06

Jul-0

7

Aug-

08

Sep-

09

Oct

-10

Nov

-11

Dec

-12

Jan-

14

Feb-

15

Mar

-16

EU CPICurrent account (%GDP, RS, Inverted)

% YoY % GDP

…QE might have lost its touch…


10

BOX: Brexit and its implications

Final decision: ‘Brexit’. The vote was close, at 52% to 48%, but the majority of voters in the UK voted to leave the European Union. After votes were counted, Prime Minister David Cameron resigned (effective October). The Conservative party will now decide who will be the new PM. As noted in our prior report, Brexit will rock financial markets initially, as investors shy away from uncertainty, but the UK has two years to sort out its affairs and make some bilateral trade agreements. During that period, it will continue to have the same trade privileges as it has now. This period can also be extended if both parties agree.

Impact to UK economy could be varied; as international economic institutes forecast that the impact of UK leaving EU could be ranged from -5% to +1%. The mean of median we have collected show that economic houses expect -1.7 ppt impact to UK economy if it divorces from EU. Visually, Britain’s exit from the EU will most directly impact international trade, as British exports to the EU will again face tariffs. Given that about half of UK exports go to the EU, there are worries that the net impact on the country’s exports will be severe.

BoE to take action, Fed may delay hike. We expect the BoE to take the lead in taking care of the country’s economy and financial institutions. The BoE may provide policy assistance if needed but we believe it will prefer to voice its guidance before stepping into actual monetary policy stimulus. A weaker GBP would help increase the country’s competitiveness. On the other side of the Atlantic, Brexit and volatility may mean the Fed ends up raising its rate only once this year (fewer than the dot-plot suggested at its last meeting).

Impact on Thai economy: Three main channels - trade, tourism, FDI.

Trades - The UK by itself accounted for only 1.5% (or US$6bn) of Thailand’s total trade value in 2015 (exports + imports, US$417bn), meaning little direct impact from lower exports to the UK. However, a bigger piece of the trade pie could be in jeopardy if Brexit proves contagious and hits European Union growth. The EU as a whole (including the UK) accounted for nearly 10% of Thailand’s trade value; making the EU Thailand’s third largest trading partner after China (15.5%) and Japan (12.3%).

Tourism - Chinese tourists might be the key driver for growth in the Thai tourism industry, but European tourists are a major source of income. A slowing in EU economic growth could hurt Thai service sector income, especially at hotels and restaurants. European tourist arrivals account for just 19% of total arrivals (or around two-thirds that of tourists from China). However, in aggregate, tourists from Europe spend slightly more than their Chinese counterpart (28% vs 27% of Thailand tourism income). They tend to stay longer than Chinese tourists (16 days vs 8 days per stay).

FDI - Japan is the major source of FDI in Thailand, accounting for an average of 50% of total net FDI inflows. The US and China (including Hong Kong) account for 15% and 9%, respectively. Net FDI flow from Europe fluctuates, swinging from an outflow of US$1.1bn in 2013 to an inflow of US$2.1bn in 2014, averaging US$0.6bn or 6.7% of total net FDI inflows. UK alone accounts for a tiny 0.8%.

Brexit will impact UK+EU economies, but we expect limited impact on Thailand …


11

Japan

Japan’s preliminary GDP data for 1Q16 came out at 0.4% QoQ (SAAR), which was much stronger than market estimates of 0.1%. This was also far better than the contraction of 0.3% in the previous quarter. This helped the economy dodge a technical recession (back-to-back growth contraction). Among the key concerns, the reversal in the country’s current account (Figure 26) from -1% of GDP to a 4% of GDP could be a sign that investment will slow down going forward. Meanwhile, inflation growth has lost steam, falling back to around zero percent growth. Given the relatively gloomy medium-term outlook, we were not surprised that the government decided to postpone the next VAT hike for another two and a half years. Although the decision will not help growth, it (at least) has eased investor concerns on fiscal policy tightening.

Figure 25: Returning to zero Figure 26: Rising domestic savings suggest slowing investment

Source: CEIC, SCBS Investment Research Source: CEIC , SCBS Investment Research

Without a boost from government fiscal policy and/or meaningful progress on the reform of the demand side to increase real wage growth, monetary policy by the Bank of Japan (BoJ) seems the only viable option. Unlike the eurozone, where we suspect non-traditional policy might no longer be very effective, we think the BoJ’s QQE program could very possibly put more life back into economic growth and inflation via yen depreciation. As we wrote in our last strategy report, in order to jump-start economic activity and inflation, the BoJ needs to put its asset purchasing program in higher gear. Figures 27-28 below show clearly that an acceleration of QQE (impulse QQE) is required in order to boost both the business cycle and inflation expectation as well as actual inflation. Unfortunately, the BoJ has not signaled a step onto this path yet.

Figure 27: Impulse QQE points toward slowing of business cycle…

Figure 28: …as well as inflation

Note: QQE impulse is the 2nd derivatives of BoJ’s QQE program Source: Bloomberg, CEIC, SCBS Investment Research

Source: Bloomberg , SCBS Investment Research

-2.0-1.5-1.0-0.50.00.51.01.52.02.5

-10.0-8.0-6.0-4.0-2.00.02.04.06.08.0

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

Real GDPCPI (RS)

% YoY % YoY-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.018

19

20

21

22

23

24

Jun-

06Ja

n-07

Aug-

07M

ar-0

8O

ct-0

8M

ay-0

9D

ec-0

9Ju

l-10

Feb-

11Se

p-11

Apr-

12N

ov-1

2Ju

n-13

Jan-

14Au

g-14

Mar

-15

Oct

-15

Investment % GDPCA % GDP (RS, Inverted)

% GDP % GDP

-30000-20000-10000010000200003000040000500006000070000

-40-30-20-10

01020304050

Oct

-10

Mar

-11

Aug-

11

Jan-

12

Jun-

12

Nov

-12

Apr-

13

Sep-

13

Feb-

14

Jul-1

4

Dec

-14

May

-15

Oct

-15

Mar

-16

Industrial production

QQE impulse (RS, 3-month lead)

% YoY Yen,bn

-30000-20000-10000010000200003000040000500006000070000

-0.6-0.4-0.20.00.20.40.60.81.01.21.41.6

Jan-

10

Jun-

10

Nov

-10

Apr-

11

Sep-

11

Feb-

12

Jul-1

2

Dec

-12

May

-13

Oct

-13

Mar

-14

Aug-

14

Jan-

15

Jun-

15

Nov

-15

Apr-

16

Inflation expectationQQE impulse (RS)

Yen ,bn% YoY

Growth beats estimates in 1Q16 but…

…the economy is not out of the woods yet


12

It was a bit surprising to see the BoJ stay on the sidelines given the current level of risk the economy is facing, especially since the yen has been very strong. One possibility is that the central bank is already holding a very high level of government debt securities (Figure 29) and a decision to increase the position beyond current levels may have some undesired implications to the private market. An exception would be if the government decided to increase its borrowing, which would add to bond supply to the market. The government may be reluctant to do this since its outstanding debt is already at more than 200% of GDP. Pushing the borrowing forward could trigger fears of government fiscal instability.

Figure 29: BoJ’s holding of government bonds heading to the roof

Figure 30: Government debts skyrocketed

Source: Bloomberg, CEIC, SCBS Investment Research Source: Bloomberg , SCBS Investment Research

China

The China factor is still a prime focus for investors as its economic slowdown and currency depreciation could trigger global market jitters at any time. On the economic front, overall growth has been slightly below the official target of 6.5%, but we are not too worried about this, as our trusted leading indicator (M2 growth) points towards higher economic momentum (Figure 31). As far as the Purchasing Manager Index is concerned, the manufacturing sector continues to underperform, standing below 50, the threshold of contraction. The service sector is running the show despite a recent slight weakness. At this point there is no alarm sounding suggesting the service sector may fall to a contraction.

Figure 31: China GDP & M2 Growth Figure 32: China PMI (manufacturing vs. services)

Source: CEIC, SCBS Investment Research Source: Bloomberg, SCBS Investment Research

05

101520253035

Mar

-00

Dec

-00

Sep-

01Ju

n-02

Mar

-03

Dec

-03

Sep-

04Ju

n-05

Mar

-06

Dec

-06

Sep-

07Ju

n-08

Mar

-09

Dec

-09

Sep-

10Ju

n-11

Mar

-12

Dec

-12

Sep-

13Ju

n-14

Mar

-15

Dec

-15

BoJ's holding of government bonds (% of total)

% total

0

50

100

150

200

250

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

Jan-

12

Jan-

14

Government Debt: % Nominal GDP: Japan…% GDP

1012141618202224262830

6789

10111213141516

Mar

-00

Feb-

01Ja

n-02

Dec

-02

Nov

-03

Oct

-04

Sep-

05Au

g-06

Jul-0

7Ju

n-08

May

-09

Apr-

10M

ar-1

1Fe

b-12

Jan-

13D

ec-1

3N

ov-1

4O

ct-1

5

Real GDP M2 growth (leads 6M, RS)% YoY % YoY

46474849505152535455

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep-

14

Nov

-14

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep-

15

Nov

-15

Jan-

16

Mar

-16

May

-16

China PMI China Service PMI

Index

Still muddling through…

Reaching policy limits?


13

It appears the financial stress in China has eased with some assistance from policymakers. Despite the fall in national current account surplus to 2% GDP, the rate of decline in foreign reserves appears less (Figure 33). This is a favorable sign for financial and currency stability. There is also no sign of duress from the short-term money market as seen in the stability of the Shibor rate (O/N) at ~2%. Another factor that we suggest investors keep an eye on is the spread between RMB onshore and offshore. This is because on many occasions, a sudden spike in offshore rate sends negative waves to the Chinese equity market – and then ripples out to other markets.

Figure 33: The risk of capital flight is easing

Source: CEIC, SCBS Investment Research Figure 34: Exchange rate market appears stabilizing


-1000-800-600-400-200

0200400600

Jan-

03

Aug-

03

Mar

-04

Oct

-04

May

-05

Dec

-05

Jul-0

6

Feb-

07

Sep-

07

Apr-

08

Nov

-08

Jun-

09

Jan-

10

Aug-

10

Mar

-11

Oct

-11

May

-12

Dec

-12

Jul-1

3

Feb-

14

Sep-

14

Apr-

15

Nov

-15

Yuan, bn

6.06.16.26.36.46.56.66.76.8

RMB onshore

RMB offshore

yuan: USD

150020002500300035004000450050005500

Oct

-14

Nov

-14

Dec

-14

Jan-

15Ja

n-15

Feb-

15M

ar-1

5M

ar-1

5Ap

r-15

May

-15

May

-15

Jun-

15Ju

l-15

Jul-1

5Au

g-15

Sep-

15O

ct-1

5O

ct-1

5N

ov-1

5D

ec-1

5D

ec-1

5Ja

n-16

Feb-

16Fe

b-16

Mar

-16

Apr-

16Ap

r-16

China A share

Index

…but overall stability has improved


14

Thai economy

Thailand ended the first quarter of 2016 on a high note, with the economy advancing 3.2% YoY, far exceeding market forecasts of only 2.8%. Although economic recovery remains far from unassailable, it appears likely that most pundits may have underrated Thailand’s economic recovery. A clear example is that actual GDP reports have beat (average 0.35% higher) market consensus forecasts for three quarters in a row. This provides clear support to the Thai stock market, where the index tends to respond positively (with 2Q lag periods) to stronger than expected data (Figure 35). Interestingly, Thailand’s equity market has been outperforming most key indices such as MSCI World and MSCI Asia ex. Japan (Figure 36). It appears only two assets outperform Thailand equities: gold and oil, which is not surprising.

Figure 35: Better than expected GDP growth provides positive impetus for the market


Figure 36: Thai market head-to-head with other markets


-500-400-300-200-1000100200300400500

-4-3-2-1012345

Mar

-06

Sep-

06

Mar

-07

Sep-

07

Mar

-08

Sep-

08

Mar

-09

Sep-

09

Mar

-10

Sep-

10

Mar

-11

Sep-

11

Mar

-12

Sep-

12

Mar

-13

Sep-

13

Mar

-14

Sep-

14

Mar

-15

Sep-

15

Mar

-16

GDP surprise (lead 2Q) SET changes (RS)

% YoY Index

708090

100110120130140

Jan-

16Ja

n-16

Jan-

16Ja

n-16

Jan-

16Ja

n-16

Feb-

16Fe

b-16

Feb-

16Fe

b-16

Feb-

16M

ar-1

6M

ar-1

6M

ar-1

6M

ar-1

6M

ar-1

6M

ar-1

6Ap

r-16

Apr-

16Ap

r-16

Apr-

16Ap

r-16

May

-16

May

-16

May

-16

May

-16

May

-16

Jun-

16Ju

n-16

MSCI world MSCI AXJ SET IndexWTI Gold spot

Index

Jan 3, 2016 = 100

133.8

117.4112.6101.0100.0

Despite better than expected 1Q16 data, the economy remains handicapped…


15

The country’s key weakness has been the protracted slowdown in export growth, which leads to a poor performance in the manufacturing sector. The condition is bad enough for investors to hold off investment. We are now, however, seeing some light coming back to the sector, with world exports beginning to pick up speed (Figure 37). Even though there is no sign of a truly robust recovery in exports, we believe it is safe to conclude that the worst is behind us. It is also noteworthy that both price and volume of exports are bottoming. The positive momentum of global commodity prices (led by crude oil) should help foster Thailand export price going forward. At the same time, we would not bet on a quick and strong recovery, as global demand growth outlook remains highly uncertain.

Figure 37: Some signs of exports bottoming out… Figure 38: …on both price and volume

Source: World Trade Organization (WTO), CEIC, SCBS Investment Research Source: WTO, CEIC , SCBS Investment Research

Figure 39: Expect some tailwinds from global commodity prices


Though we do not have high hopes for a strong recovery in exports, there is a good chance that the sector will cease to be as heavy a drag on growth in coming quarters. This assumes that the current momentum continues intact. In our view, the real factors that will drive Thailand in coming years are home-based. We also need to remember that domestic spending is the largest portion (90%) of the national account. However, the growth paths for domestic components will continue to be largely uneven. The most likely scenario is that private consumption will lead the way to recovery in tandem with government spending. Private investment will remain lackluster for a while longer as capacity utilization remains far too low to require additional investment.

-40-30-20-10

01020304050

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16

World exports

Thai exports

% YoY

-10

-5

0

5

10

15

20

Mar

-01

Nov

-01

Jul-0

2M

ar-0

3N

ov-0

3Ju

l-04

Mar

-05

Nov

-05

Jul-0

6M

ar-0

7N

ov-0

7Ju

l-08

Mar

-09

Nov

-09

Jul-1

0M

ar-1

1N

ov-1

1Ju

l-12

Mar

-13

Nov

-13

Jul-1

4M

ar-1

5N

ov-1

5

Export price Export volume% YoY

-40-30-20-1001020304050

-5

0

5

10

15

20

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Jan-

14M

ay-1

4Se

p-14

Jan-

15M

ay-1

5Se

p-15

Jan-

16

Export priceGlobal commodity price index (RS)

% YoY % YoY

…due to weakness in exports

Stick with home grown recovery


16

Figure 40: Composition of domestic economy

Source: NESDB, SCBS Investment Research

Private consumption appears to be a stable growth engine as it has been contributing close to 0.6-1.3% to GDP growth since 2Q14 (Figure 41). Admittedly, momentum has been partially induced by government economic policies such as tax incentives and lending via state-owned financial institutions. Meanwhile, the engines for sustained positive consumption momentum (wage growth and farm income) remain subdued (Figure 42-43). Although the government’s financial stability remains intact, the government can do only so much to boost consumption via special policies as any fiscal policy will eventually yield diminishing returns. Thus, we need to see new factors that will lead to sustained consumption growth.

Figure 41: Contribution to GDP growth

Source: NESDB, SCBS Investment Research

51.6

17.2

24.9

11.3Private consumption

Government spending

Investment

Net exports

% of GDP

-6

-4

-2

0

2

4

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Private consumption expenditure Private investment Public consumption expenditurePublic investment Real GDP Domestic demand CTG

Contribution to real GDP growth(percentage points)

Real GDP

Domestic demand CTG

2.6 2.5 0.5 -0.5 0.8 0.9 2.1 3.0 2.7 2.9 2.8 3.2

2.7 -0.3 -4.9 --3.7 -0.5 1.8 2.4 3.8 1.7 0.8 4.4 3.5

Consumer spending will be the main pillar…


17

Figure 42: Real wage growth vs. private consumption Figure 43: Farm income vs. private consumption

Source: CEIC, SCBS Investment Research Source: CEIC, SCBS Investment Research

We see signs that the landscape for farmers’ income is about to green up. On the broadest basis, firming of global oil price is a key support for most commodity prices. Our prime focus here is the outlook for soft commodities, which directly impacts Thailand’s farm income (Figure 44). If we are correct, then we should soon see stronger consumer spending, as illustrated in Figure 45. A sustainable growth in farm income will help push consumer spending growth above its long-term trend (as measured by consumption gap), as was seen in past periods. Note, however, there are risks that cannot be controlled – such as the movement of the US dollar. A sudden appreciation of the US dollar will put direct pressure on oil and other commodity prices. Given the Fed’s rhetoric on its interest rate path, the probability of a sudden surge in the US dollar remains low at the moment.

Figure 44: Firming commodity prices support Thai farm income…

Figure 45: …which will foster consumer spending going forward

Source: Bloomberg, SCBS Investment Research Source: CEIC, SCBS Investment Research

For farm income growth to gain traction in a sustainable fashion, we need to see both production and price make a meaningful recovery. While our main argument for price recovery is robust, as just discussed, the expected production outlook is far more challenging as it is by nature unpredictable. However, we assume that agricultural production will grow as the drought ends. Figure 46 indicates that production already hit rock bottom and is now making its way up to a decent recovery. We should be able to see this more clearly within a couple months.

-2024681012141618

-5-3-113579

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Commodity price indexFarm income (RS)

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Consumption gapFarm income (RS)

% YoY % YoY

Prices vs. production

…with additional support from revival of farm income


18

Figure 46: Price and production have made a favorable recovery

Source: CEIC, SCBS Investment Research

One of the most painful side effects of slowing export growth has been deterioration of private investment. Figure 47 slows very clearly that private investment has been weakening steadily since 3Q14. As it works to counter the cyclicality, the government has been trying to use public investment to stabilize economic growth, with public investment outpacing private sector investment. Unfortunately, the size of public investment remains too small (26.3% of total investment or 6.8% of GDP) to single-handedly push the economy back to a stable growth path.

Figure 47: Public investment has been outpacing private investment

Figure 48: Spending by private sector is losing share in total investment

Source: NESDB, SCBS Investment Research Source: NESDB, SCBS Investment Research

Due to the fact that spending by the private sector remains largely unbalanced, we need to make sure that the government is able to deliver on its promises, especially with regards to investment. As far as the disbursement rate is concerned, the government has disbursed 38% of its investment budget in the first seven months of FY2016 (Figure 49). This is not great but is acceptable. It is important to note that the amount of investment was actually the highest it has been since 2013 and thus will make a meaningful contribution to economic growth this year. As for the government’s fiscal health check, data compiled by the Fiscal Policy Office (FPO) suggests that Thailand’s fiscal stability remains solid despite rising spending (Figure 51).

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Private investment % of total investment

Capacity Utilization (3MMA, RS)

% %

Private investment remains the ugly duckling…

…so keep leaning on the government’s shoulder for a while longer


19

Figure 49: Disbursement rate might not be outstanding compared to past years…

Figure 50: …but the amount disbursed is the highest

Source: FPO, SCBS Investment Research Source: FPO, SCBS Investment Research

Figure 51: Fiscal stability remains solid

Source: FPO, SCBS Investment Research

Figure 52: Key economic forecasts – EIC

Key indicators 2015 Unit Actual EIC forecast Consensus BOTShare (%) 2015 15Q4 16Q1 16Q2 16Q3 16Q4 2016 2016 2016

Real GDP growth % YOY 2.8% 2.8% 3.2% 2.9% 2.7% 2.5% 2.8% 2.9% 3.1%Demand-side

Private consumption 52% % YOY 2.1% 2.6% 2.3% 1.9% 1.7% 1.9% 2.0% 2.1% 1.8%Public consumption 17% % YOY 2.2% 4.8% 8.0% 2.9% 2.7% 2.5% 3.9% 3.3%Private investment 19% % YOY -2.0% 1.9% 2.1% 1.5% 5.8% -1.8% 1.8% 2.4%Public investment 6% % YOY 29.8% 41.2% 12.4% 19.4% 13.4% -1.6% 11.0% 10.7%

Supply-side Agriculture 9% % YOY -3.8% -2.1% -1.5% -3.1% 0.1% 0.2% -1.0% Manufacturing and Services 91% % YOY 3.6% 4.0% 3.7% 3.5% 2.9% 2.8% 3.2%

Of which Manufacturing % YOY 0.9% 0.7% Of which Services % YOY 4.4% 4.3%

External sector Export of Goods (USD) % YOY -5.8% -8.1% 0.9% -3.3% -2.9% -1.4% -1.7% -0.8% -2.0%Import of Goods (USD) % YOY -11.0% -12.6% -12.0% -1.6% 3.2% 0.8% -2.5% 2.1% Current account USD bn 31.6 10.2 16.4 6.1 4.8 11.3 38.7 26.5 34.8Key rates Headline inflation % YOY -0.9% -0.9% -0.5% -0.1% 0.5% 1.6% 0.4% 0.4% 0.6%Core inflation % YOY 1.1% 0.8% 0.7% 0.8% 0.8% 0.9% 0.8% 0.8%Policy rate (RP-1D) (end period) % p.a. 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% THB/USD (end period) THB/USD 36.1 36.1 35.5 36.0 36.5 37.0 37.0 Oil prices –Brent (period avg.) USD/bbl 52.4 43.4 35 44 45 48 43 As of May-16 As of Mar-16

Source: Sources: EIC forecasts, Asia Pacific Consensus Forecasts (May 2016), March 2016 Bank of Thailand’s Monetary Policy Report, and Foreign research houses.

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% of total investment budget

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

FY2013FY2014FY2015FY2016

Btmn

0

20

40

60

80

100

0.000.200.400.600.801.001.20

Jan-

91

Mar

-92

May

-93

Jul-9

4

Sep-

95

Nov

-96

Jan-

98

Mar

-99

May

-00

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1

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02

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-03

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05

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-06

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-07

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8

Sep-

09

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12

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5

Probability of fiscal crisisFiscal warning (RS)

Index Index


20

Do we deserve that premium? Yes, we do. The SET Index has been one of the region’s top performers in 1H16, with 12-month forward PE ratio now hovering around 14.5X, +1.5 standard deviations above 10-year average. Does the SET deserve this premium? We believe the answer is a “yes” for three reasons.

First, the above-average valuation is more of a global symptom of yield seeking, than a country-specific issue. Second, the earnings collapse in 2015 has created a low base and thus strong YoY growth in 2016 and 2017, making the SET’s PE-to-growth relatively more attractive than peers. Third, Thailand has shifted gears toward domestic consumption, which is a more stable growth driver than exports, while maintaining a strong current account balance (fundamental buffer for THB to weather a Fed rate hike)

Our 3Q16 top picks are based on a domestic demand growth story, driven by improving farm income, wage growth, and a fundamental shift in labor force to higher paid sectors. The sectors benefiting the most from these fundamental changes are Commerce, Auto, and Consumer Finance and this makes AEONTS, CPALL, CPF, GLOBAL, PCSGH, and SAT our top picks.

Figure 53: SET Index is a top performer this year Figure 54: Momentum continues in 2Q16 despite external turmoil (Fed swings and UK referendum)

Source: Bloomberg, SCBS Investment Research Source: Bloomberg, SCBS Investment Research

The SET has been one of the region’s top performers in 1H16. Year-to-date, the Thai equity market has gained 11% in local currency terms, second only to the Philippines, driven by Petrochemical at +24%, Energy at +23%, Commerce at +19%, Food at +22%, Bank at +8% and ICT at +7%. This could be the result of a very under-owned position for foreign investors, who have been net sellers of Thai equity by a total of Bt414bln for the past three years, with nearly Bt50bn in outflows in 4Q15 alone. Foreign outflows have now reversed to an inflow of Bt19bn in 1Q16 and Bt9bn in 2Q16 (as of mid-June 2016).

Trading at a premium, but not alone. The strong performance in 1Q16 brought the SET Index’s 12-month forward price-to-earnings ratio (PER) to ~14.5X or 1.5 times standard deviation above its 10-year historical average (see Figure 55 ). The Thai equity market is no longer cheap, but we do not see high valuation as a problem, especially when compared to other markets in the world. We believe the SET deserves to be trading at a premium (above its historical average and along with other markets) for three reasons.

-20 -10 0 10 20

CHJPEUSKUSPHMYIN

TWIDTH

% Gain 2015 % Gain YTD

Last year top performer

This year

-20 -10 0 10 20

CHJPEUINUSMYSKPHTWIDTH

2Q16 QTD 1Q16

1Q16 top performer


21

Figure 55: Thailand equity market is not cheap, but we are not alone

Source: SCBS analysis based on data from Bloomberg (28 June 2016) Note: US = S&P500, Japan = NKY225, EU = STOXX600, CH = SHCOMP

3 reasons supporting premium valuation

Firstly, the above-average PE ratio is more a symptom of global yield-seeking than a country-specific issue. Over the past five years, the world enjoyed a post-crisis recovery and global liquidity flood (from QE, QQE, targeted-QE, and the like). The PE ratios of several major equity markets have been re-rating upwards, along with signs of improving risk appetite and developing yield-seeking behavior. (See Figure 56)

Figure 56: Forward PE re-rating upward is a global symptom of liquidity flood during long period of low yield


-0.62 -0.28 -0.23 -0.21

0.23 0.32 0.42 0.60 0.651.15 1.44 1.45

JP CH TW MXASJ SK MY IN EU ID US PH TH

12-month forward PER (times of EPS)

Z-Score of current forward PER (times of SD)

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JP CH TW MXASJ SK MY IN EU ID US PH TH

2006-2016 average forward PER [+/- 1SD]Current forward PER

2006-2016 Max and Min__


22

Secondly, the strong earnings growth outlook makes the Thai equity market relatively attractive versus peers. The earnings collapse in 2015 (especially toward the end of the year) made 2015 a low base, supporting a strong growth outlook for the following couple years. From the PE-to-growth perspective, the Thai equity market lines up well with other markets, as shown in Figure 57. The earnings collapses in 2015 came from specific and probably one-off causes such as commodity inventory write-downs and huge NPLs from a steel company bankruptcy and thus earnings will improve going forward.

Figure 57: 1-year forward PE ratio and earnings growth outlook (2016-2017 CAGR)


Thirdly, Thailand has already shifted gears toward domestic consumption… As shown in Figure 41, the lion’s share of GDP growth has come from domestic demand lately. Consumption and investment by private and public sectors contributed ~2.7 percentage points (pp) to the 2.9% real GDP growth in 2015, and contributed more than 3 pp. to the growth of 3.2% in 2016. Domestic demand as a driver is something other nations such as China have been trying to achieve. Countries with strong domestic demand drivers are likely to be more resilient to global turmoil than countries with trade-driven economies.

…while maintaining a strong current account balance, important to support THB stability. Despite all the headlines about the export slowdown, Thailand’s current account surplus (comprised trade balance, service balance, income, and current transfers) was at 16% of GDP in 1Q16, the highest level in more than 16 years. Slowing exports means less need to import components. Lower oil prices reduce the trade deficit of energy-related items. Strong growth of tourists leads to a strong net service balance. Taking these bits and pieces together gives a strong current account surplus and are expected to bring this year’s current account to around 10% of GDP, among the top in the region. This will support THB stability, making Thailand attractive as an investment destination for foreign investors (especially this year, with the risk of regional portfolio outflows in reaction to the US Fed rate hike).


23

3Q16 Top-pick theme and strategy Brexit vote signals a long-term headwind for global trade. While we do not expect the decision by UK to explore a new growth path outside the EU will lead to outright economic crisis, global trade could face headwinds from rising nationalism, conservatism, and protectionism. There are signs that other EU members are beginning to muse over staging exit referendums in their countries. Even on the other side of the Atlantic, the trend for nationalism is gaining momentum, as seen by the rising popularity of protectionist policies proposed by candidates for US president.

The market will have to focus on what we have left: an economy driven by domestic demand. Thai GDP is on a new growth path of 3-4% (post-crisis), compared to 5-6% (pre-crisis). This should be no surprise since China’s GDP growth rate also dropped to 6-7% from double-digit growth before the financial crisis. Thailand has been forced to rely more on its domestic demand. While we believe domestic demand will not be sufficient to offset the fall in exports, it is probably the only growth engine that can stand up against global turmoil. So far, our household consumption has done quite well given the high level of debt, the negative impact from the drought and the low crop prices.

2016 is likely to be a year in which domestic demand leads growth. The latest forecast from SCB Economic Intelligence Center (EIC) is for GDP growth of ~2.8% in 2016. Private consumption (52% of GDP) is expected to grow by 2%, which implies a contribution of around 1 percentage point (pp) to headline growth. Private investment (19% of GDP), public consumption (17% of GDP), and public investment (6% of GDP) are expected to grow by 1.8%, 3.9%, and 11%, respectively, and imply a contribution to headline growth of 0.3pp, 0.7pp, and 0.7pp, respectively. Together, these four domestic demand components will contribute around 2.7 percentage points to the full-year growth of 2.8% in 2016. The forecast figures from market consensus and the Bank of Thailand reveal a similar story.

It is reasonable to expect a farm income recovery. There are reasons to believe that farm income will recover with rising output quantity and improving prices.

(1) Increasing rainfall should boost crops. Crop size has been hit hard by the drought in the 2015/2016 harvesting season. However, we believe the tide is about to turn in favor of farmers. The US National Oceanic and Atmospheric Administration (NOAA) recently predicted a 50-75% chance of weak form La Nina starting from July 2016. Therefore, we expect rainfall to increase throughout 2H16, definitely good news for this year’s harvest.

Figure 58: Chance of La Nina (more rainfall) around 50% by July and 75% by yearend, based on NOAA forecast published in June 2016

Source: US NOAA


24

Figure 59: US Department of Energy (EIA) forecast a closing supply-demand gap by mid-2017

Source: EIA (US Department of Energy), SCBS Investment Research

Figure 60: Sugar, rubber, and rice prices tend to move in the same direction as crude prices


-70%

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World Sugar Price (%YoY) Domestic sugar price 9-month lag (RHS)

(%YoY) (%YoY)


25

(2) Rising oil price good news for agricultural prices. We expected crude price to average US$55/bbl by end-2016 (+20% from 2Q16 average), slightly higher than market consensus of US$50-55/bbl. Our forecast is based on declining excess supply and rising final demand as a result of low oil prices. The Energy Information Administration, US Department of Energy, expects excess supply to decline toward the end of 2016 and close the supply-demand gap by mid-2017. Global oil demand growth has shown a tight relationship with global GDP growth. However, when oil prices fall, global demand will tend to outpace GDP-implied demand. This finding is supportive of the idea that the supply-demand gap will close. We believe that Thailand’s major agricultural product prices (rubber, sugar and rice) will improve, as they have shown strong correlation with oil prices in the past.

(3) Labor migration away from farming should help improve overall income. Since 1H14, there has been a clear trend of labor force relocation from the agricultural sector toward non-farm sectors. The good news is that laborers in the non-farm sector not only enjoy a higher wage but also faster wage growth compared to the agricultural sector.

Figure 61: Labor moving away from the agricultural sector

Source: Bank of Thailand, National Statistical Office, SCBS Investment Research

Figure 62: Non-farm sectors provide higher monthly wages and faster wage growth

Source: Bank of Thailand, National Statistical Office, SCBS Investment Research

11,00011,50012,00012,50013,00013,50014,00014,50015,00015,500

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13Au

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Agricultural Labor Force (12 MMA)Unit: Thousand persons

5,0005,2005,4005,6005,8006,0006,2006,4006,600

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13Au

g-13

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3,5003,7003,9004,1004,3004,5004,7004,9005,1005,3005,500

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Agricultural Services-producingactivities of

households forown use

Construction Accommodationand food service

activities

Wholesale andretail trade

Manufacturing

2011 2012 2013 2014 2015

Wagegrowth

(%CAGR)6.0 10.2 8.1 9.2 8.6 9.0

Unit: THB/month


26

Wage growth for non-farm sectors also positive. Tourism has been a strong growth engine for the Thai economy. Despite growth normalization, the tourist arrival headcount is expected to grow by more than 10% this year. Service sector wages are likely to benefit from this growth, especially those related to tourism (i.e. hotel, restaurant, retail). Manufacturing sector wage growth tends to reflect growth of export of goods and services in THB terms. The export growth in USD terms seems to have bottomed out. Most research houses expect the THB to depreciate further in 2016. These trends should imply a recovery in manufacturing sector wage growth.

The private sector is also showing signs of improving confidence, another key support for domestic demand. The Business Sentiment Index (BSI) has been improving since 3Q15, getting closer to the level last seen before the equity market decline in 1H13. The bottoming of rice price will also help boost the Consumer Confidence Index going forward.

Figure 63: Service sector wage growth and tourist arrival growth

Figure 64: Manufacturing wage growth and export income in THB terms

Source: Bank of Thailand, Tourism Authority of Thailand, SCBS Source: Bank of Thailand, Ministry of Commerce, SCBS Investment Research

Figure 65: Weaker THB is positive for workers in export-oriented industries

Source: Bank of Thailand, Ministry of Commerce, SCBS Investment Research

Figure 66: Business Sentiment Index on the rise Figure 67: Improving farm income is likely to help boost consumer confidence

Source: Bank of Thailand, SCBS Investment Research Source: Bank of Thailand, UTCC, SCBS Investment Research

-30%-10%10%30%50%70%90%

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Number of foreign tourist arrivals(%YoY)

300-baht minimum wagepolicy implementation

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Exports value (Exc. Gold) (Millions THB) 3MMA (%YoY)Manufacturing Wage Growth 3MMA (%YoY) RHS

Export in THB excl. gold (%YoY)

Manufacturing wage (%YoY)

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Export growth in THB and Export growth in USD (%YoY)

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Thailand Consumer ConfidenceUnit: Index

Thailand FOB rice price 5%Unit: USD/Ton

Consumer Confidence

Rice price


27

The most reliable and sustainable source of private consumption growth is income. Private consumption growth is normally driven by three elements: income (farm income and non-farm wages), borrowings (loan growth, quasi-fiscal soft loans) and confidence. We believe the high level of household debt will be an issue that could take a long time to digest. However, the latest trend of income improvement (most important driver for sustainable growth) will lend support to the domestic consumption-led growth story, including demand for durables goods such as commercial cars.

Figure 68: Private consumption and wage growth by sector

Source: Bank of Thailand, NESDB, SCBS Investment Research

Figure 69: Sales of commercial cars driven by farm income and manufacturing wages

Source: Bank of Thailand, NESDB, SCBS Investment Research

Our 3Q16 top picks are based on domestic demand growth, driven by improving farm income, wage growth, and the fundamental shift in labor force toward higher paid sectors. The sectors benefitting the most from these fundamental changes are Commerce, Automotive and Consumer Finance. With this in mind, our top picks are AEONTS, CPALL, CPF, GLOBAL, PCSGH, and SAT.

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Farm Income Growth (%YoY) Sales of Commercial cars (Units) 3MMA %YoY RHS

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Manufacturing Wage Growth (%YoY) 3MMA %YoY Sales of Commercial cars (Units) 3MMA %YoY RHS

(%YoY) (%YoY)


28

Top picks

29

Climate becoming more promising AEONTS’s key drivers for growth are firming as farm income picks up and the government provides farmer assistance and raises minimum wage across five industries. Easing cost of funds and opex will boost the bottom line. Growing contribution from CLMV supports L-T growth. AEONTS is trading at an attractive valuation of 9x PER. Buy Better outlook: recovering farm income, farmer assistance measures and wage hike. We expect AEONTS’ business volume to pick up in the second half of this year, backed by the start of a recovery in farm income, plus government measures to help farmers and a rise in wages. Farm income growth returned to positive at 5% YoY in April, the first month since 2015, and we expect farm income to continue to get better as crop prices improve. Additionally, the cabinet just approved a budget of Bt45bn to help farmers via: 1) support for small business production (Bt38bn); 2) debt moratorium (Bt5.4bn) and 3) rice insurance (Bt2.1bn). It also approved a hike in minimum wage to Bt360-550/day from Bt300/day in five industries, which is expected to take effect in August. We expect loan growth to pick up from 7% in FY2015 to 8% in FY2016 and to 10% in FY2017. Rising L-T growth from big steps in Cambodia and Myanmar. Its Cambodia subsidiary started a credit card business this year and the subsidiary in Myanmar reported a profit of Bt11mn in FY2015 with faster loan growth in the next few years since it can now access bank loans as an alternative to equity after the Myanmar government gave banking licenses to foreign banks. AEONTS targets 10% revenue contribution from its CLMV subsidiaries by FY2020 from ~1% now with a 5-year CAGR of 43%. We expect strong growth in its CLMV subsidiaries to raise loan growth over time. Further fall in cost on funds from credit rating upgrade. With big thanks to the prolonged low interest environment, its cost of funds is expected to fall to below 4% for the first time ever in 1QFY16 vs. 4.13% in 4QFY16 and 4.41% in FY2015. A recent upgrade in credit rating to A- will help this come down even more. We thus forecast a widening in its net interest margin of 16 bps in FY2016. S-T opex tightening with L-T benefit from national e-payment. We expect opex growth to fall to 6% in FY2016 from 7% in FY2015 and 10% in FY2014, thanks to a tighter policy and no more impact from April 2015’s outsourcing of debt collection. AEONTS plans to freeze its staff count in FY2016 and has negotiated cost savings with vendors. Effective at the end of October this year, the BoT is kicking off the National e-Payment Master Plan with a new e-money transfer program called “PromptPay” which will allow money transfer for individuals by using a registered ID or phone number that is tied to a selected deposit account instead of deposit account number. The transaction fees for “PromptPay” of no more than Bt10 are well below fees on normal transactions of up to Bt120. PromptPay for transactions between companies and bill payment will be the next phase, which will benefit AEONTS in the form of lower transaction costs both for itself and its clients. Buy with good valuation on recovery mode. We see its valuation as undemanding at 9x PER and 1.7x PBV relative to 21% ROE for FY2016 with loan growth picking up, cost of funds and opex coming down and high growth potential at its CLMV subsidiaries.

Forecasts and valuation FY Feb of the following year Unit FY2014 FY2015 FY2016F FY2017F FY2018F Net profit (Btmn) 2,418 2,446 2,678 2,955 3,400 EPS (Bt) 9.67 9.79 10.71 11.82 13.60 BVPS (Bt) 41.8 48.1 55.2 63.2 72.6 DPS (Bt) 3.45 3.45 3.75 4.14 4.76 PER (x) (x) 9.8 9.7 8.9 8.1 7.0 EPS growth (%) -3 1 9 10 15 PBV (x) 2.28 1.98 1.72 1.51 1.31 ROE (%) 25.0 21.8 20.7 20.0 20.0 Dividend yields (%) 3.62 3.62 3.94 4.34 5.00 Source: SCBS Investment Research

AEON Thana Sinsap PLC

BUY Stock Data Last close (Jun 28) (Bt) 95.25 12-m target price (Bt) 115.00 Upside (Downside) to TP (%) 20.73 Mkt cap (Btbn) 23.81 Mkt cap (US$mn) 676 Bloomberg code AEONTS TB Reuters code AEONTS.BK Risk rating H Mkt cap (%) SET 0.17 Sector % SET 2.06 Shares issued (mn) 250 Par value (Bt) 1.00 12-m high / low (Bt) 107 / 80.3 Avg. daily 6m (US$mn) 0.10 Foreign limit / actual (%) 49 / 49 Free float (%) 29.9 Dividend policy (%) ≥ 30 Price Performance

020406080

100120140

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

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-15

Mar

-16

Jun-

16

AEONTS — Stock PriceAEONTS — Rel. to SET (rebased)

Stock Price (Bt)

Source: SET, SCBS Investment Research Share performances 1M 3M 12M Absolute 3.8 (1.0) 0.5 Relative to SET 2.9 (4.1) 5.7 Source: SET, SCBS Investment Research

Kittima Sattayapan, CFA Fundamental Investment

Analyst on Securities (66-2) 949-1003

[email protected]

AEON Thana Sinsap July 2016

30

Financial statement Profit and Loss Statement (Btmn) FY Feb 20 of the following year 2014 2015 2016F 2017F 2018F Interest & dividend income 15,248 15,527 16,646 18,151 20,061 Interest expense 2,358 2,303 2,310 2,487 2,751 Net interest income 12,890 13,225 14,336 15,664 17,309 Non-interest income 1,960 1,904 1,851 1,844 1,947 Non-interest expenses 6,827 7,294 7,731 8,195 8,769 Earnings before tax & provision 8,022 7,835 8,455 9,313 10,488 Tax 611 625 668 738 849 Equities & minority interest 21 (9) 4 4 4 Core pre-provision profit 7,433 7,200 7,791 8,579 9,643 Provision 5,015 4,754 5,113 5,625 6,243 Core net profit 2,418 2,446 2,678 2,955 3,400 Extra item 0 0 0 0 0 Net profit 2,418 2,446 2,678 2,955 3,400 EPS (Bt) 9.67 9.79 10.71 11.82 13.60 DPS (Bt) 3.45 3.45 3.75 4.14 4.76

Profit and Loss Statement (Btmn) FY Feb 20 of the following year 4Q14 1Q15 2Q15 3Q15 4Q15 Interest & dividend income 3,929 3,808 3,972 4,001 3,747 Interest expense 598 574 583 579 567 Net interest income 3,332 3,234 3,389 3,421 3,180 Non-interest income 334 380 571 527 425 Non-interest expenses 1,693 1,805 1,843 1,986 1,659 Earnings before tax & provision 1,972 1,809 2,117 1,962 1,946 Tax 150 132 182 143 168 Equities & minority interest 4 2 (1) (5) (5) Core pre-provision profit 1,826 1,679 1,935 1,814 1,772 Provision 1,236 1,155 1,204 1,265 1,131 Core net profit 590 524 731 550 642 Extra item 0 0 0 0 0 Net profit 590 524 731 550 642 EPS (Bt) 2.36 2.09 2.93 2.20 2.57

Balance Sheet (Btmn) FY Feb 20 of the following year 2014 2015 2016F 2017F 2018F Cash 2,769 2,925 3,049 3,059 3,144 Gross loans 58,914 63,127 68,177 74,994 83,244 Loan loss reserve 2,428 2,403 2,915 3,477 4,101 Net loans 56,485 60,723 65,262 71,517 79,142 Total assets 64,392 70,721 75,432 81,747 89,510 Borrowings 49,452 56,051 58,972 63,294 68,716 Total liabilities 53,947 58,616 61,537 65,859 71,281 Paid-up capital 250 250 250 250 250 Total Equities 10,444 12,021 13,811 15,804 18,144 BVPS (Bt) 41.78 48.08 55.24 63.22 72.58

Balance Sheet (Btmn) FY Feb 20 of the following year 4Q14 1Q15 2Q15 3Q15 4Q15 Cash 2,769 2,366 2,542 2,658 2,925 Gross loans 58,914 59,725 61,134 62,504 63,127 Loan loss reserve 2,428 2,431 2,574 2,672 2,403 Net loans 56,485 57,294 58,560 59,832 60,723 Total assets 64,392 65,209 68,146 69,731 70,721 Borrowings 49,452 51,094 54,167 56,207 56,051 Total liabilities 53,947 54,248 56,849 58,266 58,616 Paid-up capital 250 250 250 250 250 Total Equities 10,444 10,961 11,228 11,386 12,021 BVPS (Bt) 41.78 43.84 44.91 45.55 48.08

Key Financial Ratios & Key assumptions 2014 2015 2016F 2017F 2018F Loan growth (%) 7.5 7.2 8.0 10.0 11.0 Yield on earn'g assets (%) 26.82 25.45 25.36 25.36 25.36 Cost on int-bear'g liab (%) 4.85 4.41 4.06 4.11 4.21 Spread (%) 21.96 21.03 21.29 21.24 21.14 Net interest margin(%) 22.67 21.67 21.84 21.88 21.88 ROA (%) 3.87 3.62 3.66 3.76 3.97 ROE (%) 24.99 21.78 20.73 19.95 20.03 NPLs/ Total Loans (%) 3.38 3.34 3.40 3.44 3.47 Provision/Total loans (%) 8.51 7.53 7.50 7.50 7.50 LLR/NPLs(%) 121.9 114.1 125.6 134.9 142.0 Cost to income ratio (%) 46.0 48.2 47.8 46.8 45.5 D/E (x) 5.2 4.9 4.5 4.2 3.9

Key Financial Ratios

4Q14 1Q15 2Q15 3Q15 4Q15 Yield on earn'g assets (%) 26.69 25.68 26.29 25.89 23.86 Cost on int-bear'g liab (%) 4.82 4.67 4.58 4.34 4.13 Net interest margin(%) 22.64 21.81 22.44 22.14 20.25 NPLs/ Total Loans(%) 3.38 3.30 3.50 3.67 3.34 Provision/Total loans (%) 8.39 7.74 7.88 8.09 7.16 LLR/NPLs(%) 121.90 123.35 120.13 116.54 114.13 Cost to income ratio (%) 46.18 49.95 48.88 51.73 46.02

Loan breakdown 2014 2015 2016F 2017F 2018F Hire purchase 2.6 2.6 2.6 2.6 2.6 Personal loans 59.4 56.9 56.9 56.9 56.9 Credit card loans 37.7 40.2 40.2 40.2 40.2

PBV Band

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Price (Bt) PBV Band — AEONTS

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12-Month Cumulative directors trade 12 Month cumulative chg in foreign ownership versus cumulative chg in SET index

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Cumulative SET (LHS)

Cumulative AEONTS (RHS)

Cumulative Change in SET index Cumulative Change in Foreign Ownership

Source: SET, SCBS Investment Research


31

Figure 1: AEONTS’ loan growth vs. consumption Figure 2: AEONTS’ loan growth vs. wage growth

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Source: AEONTS, BoT and SCBS Investment Research Source: AEONTS, BoT and SCBS Investment Research

Figure 3: Farm income Figure 4: Yield on earning assets, funding cost, NIM

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Source: AEONTS and SCBS Investment Research Source: AEONTS and SCBS Investment Research

Figure 5: CLMV subsidiaries’ contribution Figure 6: Cost to income ratio

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Figure 7: NPLs/Total loans Figure 8: LLR coverage and credit cost

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32

Figure 9: PBV vs Standard Deviation Figure 10: PE vs Standard Deviation

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PE (x) AEONTS — PE vs Standard Deviation

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Source: AEONTS, BoT and SCBS Investment Research Source: BoT and SCBS Investment Research

Figure 11: PBV/ROE vs Standard Deviation Figure 12: ROE

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ROE (%) AEONTS — ROE

Avg. = 24.9 %

+2STD = 42.9 %

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+1STD = 33.9 %

-1STD = 15.9 %


33

A laggard play on consumption revival CPALL has lagged its sector for the past three months, (+12% vs. +15% for the sector and +3% for the SET). This is a chance to accumulate, as it is positioned to do very well off the return of consumption in the provinces (government stimulus and better farm income) and higher consumer spending around the sporting events in Jun-Aug. Valuation is attractive, trading at 2016PE of 27x (vs. 30x for the sector) and 1.3x 2-year PEG (below the sector’s 1.8x). BUY with mid-2017 DCF PT of Bt60.

Gain on stimulus and better farm income. Contribution from its convenience stores upcountry is 55% with 75% from cash&carry, meaning it will do well off the revival of provincial consumption brought by government stimulus and better farm income in 2H16F. Since Sep 2015, the government has used stimulus measures worth a total of Bt645bn. Of this, Bt354bn (55%) was disbursed in 4Q15-1Q16, and Bt116bn (18%) will be disbursed in 2Q16-4Q16F. Based on the latest forecast by the Thai Meteorological Department, La Nina will bring agricultural production back up in 2H16.

Gains from global sporting events. CPALL always does well from higher spending during global sporting events – and this year brings the UEFA Euro football cup running from June 10 to July 10, followed by the Olympics from August 5-21. Consumers stock up on food and beverages, boosting SSS in convenience stores and cash& carry outlets.

Stronger SSS. In 2Q16TD, CPALL’s SSS growth improved to close to the mid-single digits (vs. +2.6% in 1Q16 and 1.1% in 2Q15), backed by: 1) hot weather boosting its food and beverage sales (72% of sales); 2) better sentiment from government stimulus; 3) an increase in tobacco selling price after a hike in excise tax in Feb 2016 (tobacco contributes close to 10% of sales). CPALL targets SSS growth of at least 3% in 2016F.

Continued expansion. CPALL is keeping its 2016 store expansion target at 700 stores (vs. 211 stores in 1Q16), raising total stores to above 9,500 by end-2016, putting it well on the way to reaching 10,000 stores in 2017, ahead of its targeted 2018.

More gross margin improvement. In 1Q16, convenience store gross margin surged +70bps YoY, thanks to: 1) a +30bps improvement from a drop in logistics costs from lower oil price and a new distribution center; 2) a +40bps improvement from a better product mix. The margin improvement for convenience stores should be seen through the rest of 2016, with continued benefits from lower logistics costs and better product mix (normally +20-30bps p.a. on average).

2016 growth driver. Of its 2016F core earnings growth of 20%, 16% is set to come from its convenience store segment (better SSS growth, expansion and wider margin), 2% from cash&carry (in 2Q16-4Q16, from better SSS growth, expansion and wider margin), and 2% from lower funding costs (in 1H16, from the completion of its LT debt refinancing with low-cost debentures in mid-2015).

Financial status. We estimate its net D/E (adjusted by subtracting deferred tax assets and liability) will drop from 2.8x at 1Q16 to 2.7x in 2016F and 2.1x in 2017F, well below its bond covenant ceilings of net DE (adjusted) of 3.5x in 2016 and 2.5x in 2017.

Forecasts and valuation Year to 31 Dec Unit 2014 2015 2016F 2017F 2018F Revenue (Btmn) 357,766 391,817 430,429 469,850 510,807 EBITDA (Btmn) 27,040 32,831 36,059 40,064 44,618 Core profit (Btmn) 9,823 13,687 16,378 19,767 23,572 Reported profit (Btmn) 10,200 13,682 16,437 19,767 23,572 Core EPS (Bt) 1.09 1.52 1.82 2.20 2.62 DPS (Bt) 0.80 0.90 0.91 1.10 1.31 P/E, core (x) 45.04 32.32 27.01 22.38 18.77 EPS growth, core (%) (10.71) 39.33 19.66 20.70 19.25 P/BV, core (x) 12.62 10.62 8.84 7.18 5.88 ROE (%) 28.88 35.67 35.72 35.41 34.44 Dividend yield (%) 1.62 1.83 1.85 2.23 2.66 EV/EBITDA (x) 22.46 18.55 16.70 14.81 13.05 Source: SCBS Investment Research

CPALL PLC

BUY Stock Data Last close (Jun 28) (Bt) 49.25 12-m target price (Bt) 60.00 Upside (Downside) to TP (%) 21.83 Mkt cap (Btbn) 442.42 Mkt cap (US$mn) 12,562 Bloomberg code CPALL TB Reuters code CPALL.BK Risk rating L Mkt cap (%) SET 3.23 Sector % SET 9.00 Shares issued (mn) 8,983 Par value (Bt) 1.00 12-m high / low (Bt) 51.8 / 39 Avg. daily 6m (US$mn) 32.25 Foreign limit / actual (%) 49 / 36 Free float (%) 59.5 Dividend policy (%) 50 Price Performance

0102030405060

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CPALL — Stock PriceCPALL — Rel. to SET (rebased)

Price (Bt)


Share performance 1M 3M 12M Absolute 0.5 11.9 7.1 Relative to SET (0.4) 8.5 12.6 Source: SET, SCBS Investment Research

Sirima Dissara, CFA Fundamental Investment


[email protected]

CP ALL PLC July 2016

34

Financial statement Profit and Loss Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018F Total revenue 357,766 391,817 430,429 469,850 510,807 Cost of goods sold -281,443 -306,519 -336,322 -366,133 -396,965 Gross profit 76,323 85,299 94,107 103,716 113,842 SG&A -68,750 -73,901 -81,143 -88,585 -96,090 Other income 13,158 14,076 15,517 17,128 18,826 Interest expense -8,518 -8,586 -8,291 -7,915 -7,554 Pre-tax profit 12,212 16,888 20,189 24,344 29,024 Corporate tax -2,270 -3,066 -3,674 -4,431 -5,282 Equity a/c profits 0 0 0 0 0 Minority interests -119 -135 -137 -146 -169 Core profit 9,823 13,687 16,378 19,767 23,572 Extra-ordinary items 377 -4 59 0 0 Net Profit 10,200 13,682 16,437 19,767 23,572 EBITDA 27,040 32,831 36,059 40,064 44,618 Core EPS (Bt) 1.09 1.52 1.82 2.20 2.62 Net EPS (Bt) 1.14 1.52 1.83 2.20 2.62 DPS (Bt) 0.80 0.90 0.91 1.10 1.31

Profit and Loss Statement (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total revenue 95,554 97,292 96,364 102,608 104,969 Cost of goods sold -75,125 -76,135 -75,068 -80,191 -82,253 Gross profit 20,429 21,158 21,296 22,417 22,716 SG&A -17,085 -18,454 -18,906 -19,455 -19,420 Other income 3,227 3,384 3,673 3,792 3,758 Interest expense -2,263 -2,167 -2,074 -2,082 -2,054 Pre-tax profit 4,307 3,920 3,989 4,671 5,000 Corporate tax -842 -716 -718 -790 -960 Equity a/c profits 0 0 0 0 0 Minority interests -37 -29 -39 -30 -34 Core profit 3,428 3,176 3,232 3,851 4,006 Extra-ordinary items -19 -36 26 26 59 Net Profit 3,408 3,140 3,258 3,877 4,065 EBITDA 8,123 7,730 7,772 8,541 8,818 Core EPS (Bt) 0.38 0.35 0.36 0.43 0.45 Net EPS (Bt) 0.38 0.35 0.36 0.43 0.45

Balance Sheet (Btmn) FY December 31 2014 2015 2016F 2017F 2018F Total current assets 64,684 56,973 59,489 65,490 65,345 Total fixed assets 261,726 272,110 281,666 291,007 300,140 Total assets 326,410 329,083 341,155 356,497 365,485 Total loans 198,420 189,406 182,645 176,708 161,961 Total current liabilities 92,015 101,131 123,685 125,141 133,852 Total long-term liabilities 199,337 186,276 167,442 169,750 156,338 Total liabilities 291,352 287,407 291,127 294,891 290,190 Paid-up capital 8,983 8,983 8,983 8,983 8,983 Total equity 35,058 41,676 50,028 61,606 75,295 BVPS (Bt) 3.90 4.64 5.57 6.86 8.38

Balance Sheet (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total current assets 50,433 46,904 46,556 56,973 56,340 Total fixed assets 263,967 265,817 268,872 272,110 274,220 Total assets 314,400 312,721 315,428 329,083 330,561 Total loans 187,975 192,246 189,028 189,406 191,258 Total current liabilities 77,900 81,864 80,698 101,131 105,159 Total long-term liabilities 198,045 196,293 196,778 186,276 179,787 Total liabilities 275,945 278,157 277,476 287,407 284,946 Paid-up capital 8,983 8,983 8,983 8,983 8,983 Total equity 38,455 34,564 37,952 41,676 45,614 BVPS (Bt) 4.28 3.85 4.22 4.64 5.08

Cash Flow Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018F Core Profit 9,823 13,687 16,378 19,767 23,572 Depreciation and amortization 6,310 7,357 7,578 7,806 8,040 Operating cash flow 20,462 23,232 32,625 34,002 38,270 Investing cash flow -17,889 -17,840 -16,395 -17,147 -17,172 Financing cash flow 4,998 -16,078 -14,846 -14,126 -24,631 Net cash flow 7,572 -10,686 1,384 2,729 -3,533

Main Assumptions 2014 2015 2016F 2017F 2018F SSS growth (%) - CPALL -2.6% 0.9% 3.0% 3.0% 3.0% No. of new stores - CPALL 698 705 700 700 700 No. of stores (year end) - CPALL 8,127 8,832 9,532 10,232 10,932 SSS growth (%) - MAKRO 4.4% -0.6% 3.0% 3.0% 3.0% No. of new stores - MAKRO 82 98 112 125 138 No. of stores (year end) - MAKRO 13 16 14 13 13

Key Financial Ratios 2014 2015 2016F 2017F 2018F Gross margin(%) 21.3 21.8 21.9 22.1 22.3 Operating margin(%) 2.1 2.9 3.0 3.2 3.5 EBITDA margin(%) 7.6 8.4 8.4 8.5 8.7 EBIT margin(%) 5.8 6.5 6.6 6.9 7.2 Net profit margin(%) 2.9 3.5 3.8 4.2 4.6 ROE (%) 29.1 32.8 32.9 32.1 31.3 ROA (%) 3.1 4.2 4.8 5.5 6.4 Net D/E (x) 4.7 4.0 3.2 2.5 1.9 Interest coverage (x) 3.2 3.8 4.3 5.1 5.9 Payout Ratio (%) 70.5 59.1 50.0 50.0 50.0

PE Band Chart

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PE Band — CPALLPrice (Bt)

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Source: SEC Source: SET, SCBS Investment Research


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Figure 1: CPALL’s historical PE band Figure 2: Sector’s 2-year PEG

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PE vs S.D. — CPALL

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MAKRO HMPRO BIGC ROBINS GLOBAL CPALL

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Source: SCBS Investment Research Source: SCBS Investment Research

Figure 3: CPALL’s earnings in 2016-18F Figure 4: CPALL’s quarterly earnings recap

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11.011.0 9.8

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Figure 5: SSS growth in 2016-18F Figure 6: Consolidated gross profit margin in 2016-18F

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Figure 7: CPALL’s store expansion in 2016-18F Figure 8: MAKRO’s store expansion in 2016-18F

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Figure 9: Series of government measures to boost economy, positive to domestic consumption in 2016 Stimulus package Size Disbursement (Btbn) (Bt bn) 2015 1Q16 Total Disbursement

(%) To be disbursed for the

rest of 2016 Stimulus package announced in Sep-Dec 2015 1) Assistance measures for low income earners and small public investment 139.7 58.4 41.7 100.1 71.6% 27.5

1.1) Soft loan via the village fund program 60.0 47.6 0.3 47.9 79.8% 0.0 1.2) Quick-spending budget for local government (Bt5mn per sub-district) 39.7 0.6 21.7 22.3 56.0% 17.5 1.3) Local government mini investment projects (Bt1mn per project) 40.0 10.2 19.7 30.0 74.9% 10.0

2) Monetary and fiscal measures for SMEs Promotion 256.0 141.9 71.5 213.4 83.4% 42.6 3) Monetary and fiscal measures for a real estate sector promotion 25.0 12.0 7.7 19.7 78.8% 5.3 4) Tax incentive for domestic investment promotion measure 5) Board of Investment (BOI)’s speeding up investment measure 6) Assistance Measure for Rubber Farmers 13.1 0.1 9.1 9.1 69.6% 4.0 7) tax deduction up to Bt15,000 for purchases made from Dec 25-31 Subtotal 433.9 212.4 130.0 342.4 78.9% 79.4 Stimulus package announced in 2016 to date 1) Strengthening Glass Root Economy Measure following Pracha Rat Approach 35.0 4.2 4.2 11.9% 30.8 2) Baan Pracha Rat 70.0 3) Assistance measures for drought experiencers in agricultural sector 93.0 7.2 7.2 7.7% 5.4 4) Credit Guarantee program for Micro Entrepreneurs (Phase 2) 13.5 0.0 0.0 0.1% n.a. 5) tax deduction of up to Bt15,000 for dining and travel expenses from Apr 9-17 6) Extended tax deduction up to Bt15,000 of hotel expenses by 1 year to end-2016

Subtotal 211.5 0.0 11.4 11.4 5.4% 36.3 Total 645.4 212.4 141.3 353.7 54.8% 115.7

Source: NESDB and SCBS Investment Research Figure 10: Farm income turned to positive growth in April

Figure 11: Agricultural price growth picked up in April, with anticipation of better output in 2H16

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Figure 12: Estimated spending during 2010/2014 world cup and 2012 Euro Categories World cup 2010 EURO 2012 World Cup 2014 EURO 2016 Olympic (Btmn) 11 Jun-11 Jul 2010 8 Jun - 1 Jul 2012 12 Jun - 13 Jul 2014 10 Jun - 10 Jul 2016 5-21 Aug 2016 Consumer products and parties 19,025 19,671 21,917

Electrical appliances and TV reception equipment 2,205 2,254 2,497

Others (lotteries, souvenirs) 1,235 1,293 1,301

Total general spending 22,465 23,218 25,715 N/A N/A Source: UTCC and SCBS Investment Research Figure 13: Store contribution in Bangkok and upcountry

Figure 14: Sales contribution in Bangkok and upcountry

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UPC BKK and other countries Source: Company data and SCBS Investment Research Source: Company data and SCBS Investment Research

37

1Q16 just a good start, better momentum ahead CPF’s share price corrected 7% over past month, as market is overly concerned about Brexit and the potential rise in feed costs. With its small exposure to the UK/EU and its policy to lock in feed costs in advance, earnings impact, if any, will be minimal over the next few quarters. This is a buying opportunity ahead of stronger earnings in 2Q16-3Q16F from seasonality, better livestock and aquatic units in local and regional markets, and higher equity contribution from CPALL. BUY with mid-2017 SOTP TP of Bt38.

Livestock unit improved. In 2Q16TD, swine and broiler spreads have widened 28% YoY and 8% YoY, backed by better product prices (+11% YoY and flat YoY for swine and broiler prices) as supply adjusts and feed costs drop (-12% and -2% YoY for corn and soybean meal costs). A shortage of swine in China from environmental issues and weather change pushed swine prices up in China and the region. This is positive for CPF’s operations in Thailand as well as its farm operations in Vietnam, Cambodia, and Laos and its feed operations in China. As it will take time to adjust supply, CPF expects swine price to stay high for the rest of 2016. The surge in local swine price widened the gap for swine and broiler price to Bt38/kg (above the 3-year average of Bt29/kg). If this continues, we may see a pickup in broiler price. On the feed cost side, there is concern about lower crop production from the weather change in South America, but given the prospects of abundant supply from the next US next crop season in late 2016, CPF believes the rise will be manageable. To alleviate any adverse impact, CPF has begun to lengthen raw material inventory to 3-6 months in advance from 2-3 months. Thus, if feed spot prices go up, it will be seen in actual costs in 4Q16 at the earliest.

Aquatic unit on the recovery. In 2Q16TD, shrimp price has picked up 2% YoY, which may entice local shrimp farmers to raise production. This, together with a better shrimp survival rate using new technology for shrimp farming to prevent EMS, should bring more shrimp to domestic markets. In 2016, Thai shrimp production is poised to rise 15% YoY to 300K tons, supporting better sales volume and margin for players.

Better earnings momentum. Following its outstanding 1Q16 earnings, CPF is set to show better earnings momentum and the sector’s best growth in 2Q16-3Q16F, backed by: 1) high season for sales volume and margin; 2) improving livestock units (wider spreads); 3) continued revival of aquatic units (better volume and wider margin).

Brexit. On June 24, Britain voted to leave the EU. This is not yet legally binding since it must be passed by the UK parliament. Markets are worried that this will damage economies and trade. Of CPF’s 2015 sales, less than 1% came from the UK and 8% came from Europe (2.5% from Thai exports and the rest from its operations in non-EU members Turkey and Russia). With its small exposure to the EU and the natural resilient demand for food products, any ST impact will be minimal. As new trade pacts among the UK, EU and Thailand must be made in the two years before the UK’s exit takes effect, CPF has time to adjust its strategy to cope with new policies over the LT.

Forecasts and valuation Year to 31 Dec Unit 2014 2015 2016F 2017F 2018F Revenue (Btmn) 426,039 421,355 457,867 472,529 494,016 EBITDA (Btmn) 24,433 22,686 30,571 31,580 33,575 Core profit (Btmn) 6,850 2,548 9,044 10,854 12,928 Reported profit (Btmn) 10,562 11,059 10,509 10,854 12,928 Core EPS (Bt) 0.93 0.34 1.22 1.47 1.75 DPS (Bt) 0.75 0.75 0.71 0.73 0.87 P/E, core (x) 29.93 80.45 22.67 18.89 15.86 EPS growth, core (%) 3,594.01 (62.80) 254.91 20.02 19.11 P/BV, core (x) 1.25 1.18 1.13 1.10 1.06 ROE (%) 4.67 1.51 5.10 5.91 6.80 Dividend yield (%) 2.70 2.70 2.56 2.65 3.15 EV/EBITDA (x) 14.80 18.47 14.08 13.76 13.00 Source: SCBS Investment Research

Charoen Pokphand Foods PCL

BUY Stock data Last close (Jun 28) (Bt) 27.75 12-m target price (Bt) 38.00 Upside (Downside) to TP (%) 36.94 Mkt cap (Btbn) 214.87 Mkt cap (US$mn) 6,101 Bloomberg code CPF TB Reuters code CPF.BK Risk rating M Mkt cap (%) SET 1.57 Sector % SET 0.41 Shares issued (mn) 7,743 Par value (Bt) 1.00 12-m high / low (Bt) 30.3 / 16.4 Avg. daily 6m (US$mn) 19.34 Foreign limit / actual (%) 40 / 23 Free float (%) 47.3 Dividend policy (%) ~ 50 Price Performance

Source: SET, SCBS Investment Research Share performance 1M 3M 12M Absolute (5.9) 17.1 15.6 Relative to SET (6.8) 13.5 21.6 Source: SET, SCBS Investment Research



[email protected]

Charoen Pokphand Foods PCL July 2016

38

Financial statement Profit and Loss Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018F Total revenue 426,039 421,355 457,867 472,529 494,016 Cost of goods sold (368,760) (363,287) (388,777) (399,098) (415,154) Gross profit 57,280 58,068 69,089 73,431 78,862 SG&A (42,812) (46,889) (51,167) (55,286) (59,381) Other income 2,800 2,725 3,045 3,142 3,285 Interest expense (8,903) (9,614) (9,974) (10,038) (10,128) Pre-tax profit 8,366 4,290 10,993 11,250 12,638 Corporate tax (2,717) (1,964) (3,298) (3,375) (3,791) Equity a/c profits 4,869 5,221 6,355 7,643 8,978 Minority interests (3,668) (4,998) (5,006) (4,663) (4,896) Core profit 6,850 2,548 9,044 10,854 12,928 Extra-ordinary items 3,712 8,510 1,465 0 0 Net Profit 10,562 11,059 10,509 10,854 12,928 EBITDA 24,433 22,686 30,571 31,580 33,575 Core EPS (Bt) 0.93 0.34 1.22 1.47 1.75 Net EPS (Bt) 1.43 1.50 1.42 1.47 1.75 DPS (Bt) 0.75 0.75 0.71 0.73 0.87

Profit and Loss Statement (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total revenue 96,224 103,677 111,877 109,576 105,513 Cost of goods sold (84,068) (89,696) (95,050) (94,473) (88,987) Gross profit 12,156 13,981 16,828 15,103 16,526 SG&A (10,194) (11,797) (11,949) (12,949) (10,903) Other income 648 798 578 702 628 Interest expense (2,174) (2,364) (2,837) (2,238) (2,600) Pre-tax profit 435 618 2,619 617 3,651 Corporate tax 30 (260) (967) (768) (1,514) Equity a/c profits 1,267 1,230 1,238 1,486 1,553 Minority interests (1,019) (1,144) (1,367) (1,468) (1,391) Core profit 714 444 1,524 (133) 2,299 Extra-ordinary items 2,243 2,538 2,048 1,681 1,465 Net Profit 2,956 2,983 3,571 1,548 3,764 EBITDA 4,539 4,940 7,829 5,378 8,769 Core EPS (Bt) 0.10 0.06 0.21 (0.02) 0.31 Net EPS (Bt) 0.40 0.40 0.48 0.21 0.51



Cash Flow Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018F Core Profit 6,850 2,548 9,044 10,854 12,928 Depreciation and amortization 8,963 10,031 11,172 11,958 12,618 Operating cash flow 24,971 36,074 (7,490) 23,601 25,957 Investing cash flow (42,293) (76,796) (23,517) (22,296) (22,677) Financing cash flow 25,419 43,631 29,416 (7,255) 573 Net cash flow 8,097 2,909 (1,591) (5,949) 3,853

Main Assumptions 2014 2015 2016F 2017F 2018F Total sales growth (%) 9.5% -1.1% 8.7% 3.2% 4.5% GPM from Thailand (%) 12.7% 11.6% 14.0% 14.7% 15.2%

GPM from Thai-livestock (%) 15.9% 12.7% 14.5% 14.8% 15.0% GPM from Thai-aquatic (%) -3.3% 6.0% 11.5% 14.0% 16.0%

GPM from overseas (%) 13.9% 15.2% 15.8% 16.1% 16.5% FX (Bt/US$) 32.5 34.2 36.0 35.0 35.0


PE Band Chart

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PE Band — CPFPrice (Bt)

5.0x10.4x15.8x21.2x26.6x32.0x


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02,0004,0006,0008,000

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'000

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res

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hare

-4.5%-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%

-20.0%-18.0%-16.0%-14.0%-12.0%-10.0%-8.0%-6.0%-4.0%-2.0%0.0%

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Cumulative SET (LHS) Cumulative CPF (RHS)


Source: SEC Source: SET, SCBS Investment Research


39

Figure 1: CPF’s earnings outlook Figure 2: CPF’s quarterly earnings recap

9.511.8

14.7

5.10.2

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13.7

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10.012.014.016.018.020.0

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Bt bn

Core profit Extra item

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Bt bnCore profit Extra item

Source: Company data and SCBS Investment Research Source: Company data and SCBS Investment Research Figure 3: CPF’s gross profit margin Figure 4: CPF’s gross profit contribution

18% 17%16%

12%10%

13% 14%15% 16% 16%

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11%

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2009 2011 2013 2015 2017FTotal GPM GPM from Thailand - RHSGPM from overseas - RHS

(10)0

1020304050607080

2009 2010 2011 2012 2013 2014 2015 2016F2017F2018F

Bt bn Gross profit from other overseas

Gross profit from CPP

Gross profit from Thai-Aqua

Gross profit from Thai-Livestock

Source: Company data and SCBS Investment Research Source: Company data and SCBS Investment Research Figure 5: CPF’s gross profit margin from Thailand Figure 6: CPF’s gross profit margin from overseas

18% 19% 19%

11%9%

13% 12%14% 15% 15%

18% 18% 18%

9%

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2009 2011 2013 2015 2017FGPM from Thailand Thai-Livestock - RHSThai-Aqua - RHS

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2009 2011 2013 2015 2017FGPM from overseas GPM CPP HK- RHSGPM other overseas - RHS

Source: Company data and SCBS Investment Research Source: Company data and SCBS Investment Research Figure 7: CPF’s sales breakdown by business units Figure 8: CPF’s 7-year core PE band

Overseas (Others),

18%

Overseas (CPP HK),

42%

Thai-Domestic, 34%

Thai-Export, 6%

Overseas-Aqua,

9% Thai-livestock,

33%

Thai-Aqua, 6%

Overseas-Livestock,

52%

-10

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PE (x)

Avg.= 22.7x

+2SD = 50.8x

-1SD = 8.7x

-2SD = -5.4x

+1SD =36.8x

Core PE vs S.D. — CPF



40

Figure 9: In 2Q16TD, broiler and swine spreads widened

Figure 10: In 2Q16TD, swine price jumped YoY while broiler price was flat

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Broiler price

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Source: Company data and SCBS Investment Research Source: Company data and SCBS Investment Research

Figure 11: In 2Q16TD, corn and soybean meal costs slid Figure 12: Shrimp price rose slightly YoY in 2Q16TD

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Figure 13: Thailand exported broiler and seafood to EU of 34% and 9% to total broiler and seafood export

Figure 14: Sector’s revenue contribution from each market

Japan51%

EU34%

Asean8%

Others7%

Broiler

US24%

Japan20%

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Seafood

8%33%

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TU CPF GFPT

Thailand US Europe Asia & others

Source: MOC and SCBS Investment Research Source: MOC and SCBS Investment Research

41

A proxy for the return of provincial consumption GLOBAL’s price outperformance over the past three months (+38% vs. +15% for the sector and +3% for the SET) reflects its outstanding margin expansion and SSS revival. This will continue as it benefits directly from the return of consumption in the provinces brought by government stimulus and better farm income. This, together with its moves to develop its high-margin private brand will give GLOBAL the sector’s best growth in 2Q16F and 2016F. GLOBAL is still trading at 1.3x 2-year PEG (below the sector’s 1.8x). BUY with mid-2017 DCF PT of Bt15.

Gain on stimulus and better farm income. With all of its sales coming from the provinces, GLBOAL will lead its sector in terms of gaining from the return of provincial consumption brought by stimulus and better farm income in 2H16F. Since Sep 2015, the government has used economic stimulus measures worth a total of Bt645bn. Of this, Bt354bn (55%) was disbursed in 4Q15-1Q16, and Bt116bn (18%) will be disbursed in 2Q16-4Q16F. Meanwhile, based on the latest forecast by the Thai Meteorological Department, the impact of El Nino (bringing the drought) will abate in May-July 2016 and will be followed by La Nina, bringing agricultural production back up in 2H16.

Positive SSS in 2016F. In 2Q16TD, SSS growth was relatively flat (vs. +2.5% in 1Q16 and +4.4% in 2Q15), due to higher volume offsetting lower construction material prices (steel and cement-related products, accounting for 30% of sales). In 2016F, it targets SSS growth of 2-3% (vs -0.8% in 2015), with higher sales volume in tandem with economic revival and less of a hit from the fall in construction material prices this year.

More aggressive expansion. GLOBAL plans to open eight new stores in Thailand in 2016: Salaya, Chiang Rai, Kanchanaburi, Surat Thani, Nakhon Si Thammarat, Singburi, Samut Songkram, and Patum Thani. The competitive landscape appears better, with competitors slowing expansion. It does not anticipate cannibalization from this year’s new locations. Its investment overseas is progressing, after it took on Souvanny Home Center (with four stores) in Laos in Sep 2015. It is negotiating with locals that own existing and profitable stores, namely Pro 1 Home Center, in Myanmar (operating three stores, planning to open three more), expecting to wind this up in 2016.

Continued margin expansion. In 1Q16, its gross margin jumped to 19.6% (+470bps YoY) or to 18.0-18.5% (+320-370bps YoY), if excluding the benefits of higher steel product prices. In 2Q16TD, its gross margin was even better QoQ (+290bps YoY), backed by better private brand management and more bargaining power with suppliers and relatively unchanged steel price QTD. By adding new products and appointing more direct salespersons, GLOBAL hopes to lift the portion of private brand to sales to 15% in 2016 (vs. 12% in 2015). With continued aggressive expansion (adding 5-7 stores in 2012-15 and 8 stores in 2016F), GLOBAL will become market leader in terms of store numbers for Thai modern trade construction material retailers (GLOBAL, Thai Wasadu, and Mega Home) this year, enhancing its bargaining power with suppliers.

Forecasts and valuation Year to 31 Dec Unit 2014 2015 2016F 2017F 2018F Revenue (Btmn) 15,561 16,864 19,242 21,932 24,606 EBITDA (Btmn) 1,691 1,950 2,441 2,806 3,169 Core profit (Btmn) 699 868 1,220 1,459 1,734 Reported profit (Btmn) 702 881 1,221 1,459 1,734 Core EPS (Bt) 0.19 0.24 0.33 0.40 0.47 DPS (Bt) 0.01 0.04 0.06 0.07 0.09 P/E, core (x) 70.61 56.87 40.48 33.85 28.49 EPS growth, core (%) (25.95) 24.16 40.47 19.58 18.83 P/BV, core (x) 3.51 3.31 3.09 2.87 2.64 ROE (%) 5.74 5.99 7.90 8.79 9.66 Dividend yield (%) 0.10 0.32 0.44 0.53 0.63 EV/EBITDA (x) 31.53 27.50 21.62 18.71 16.41 Source: SCBS Investment Research

Siam Global House Plc

BUY Stock Data Last close (Jun 28) (Bt) 13.50 12-m target price (Bt) 15.00 Upside (Downside) to TP (%) 11.11 Mkt cap (Btbn) 49.39 Mkt cap (US$mn) 1,402 Bloomberg code GLOBAL TB Reuters code GLOBAL.BK Risk rating L Mkt cap (%) SET 0.36 Sector % SET 9.00 Shares issued (mn) 3,658 Par value (Bt) 1.00 12-m high / low (Bt) 14 / 7.6 Avg. daily 6m (US$mn) 1.38 Foreign limit / actual (%) 49 / 2.17 Free float (%) 32.2 Dividend policy (%) ≥ 30 Price Performance

02468

10121416

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GLOBAL — Stock PriceGLOBAL — Rel. to SET …

Stock Price (Bt)


Share performance 1M 3M 12M Absolute 12.5 37.8 61.1 Relative to SET 11.5 33.5 69.3 Source: SET, SCBS Investment Research



[email protected]

Siam Global House PLC July 2016

42

Financial statement Profit and Loss Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018F Total revenue 15,561 16,864 19,242 21,932 24,606 Cost of goods sold (13,205) (14,019) (15,659) (17,789) (19,891) Gross profit 2,356 2,845 3,583 4,143 4,715 SG&A (1,842) (2,125) (2,506) (2,847) (3,192) Other income 494 509 571 651 731 Interest expense (133) (144) (140) (142) (105) Pre-tax profit 875 1,084 1,508 1,806 2,148 Corporate tax (176) (219) (302) (361) (430) Equity a/c profits 0 3 14 14 15 Minority interests 0 0 0 0 0 Core profit 699 868 1,220 1,459 1,734 Extra-ordinary items 2 12 1 0 0 Net Profit 702 881 1,221 1,459 1,734 EBITDA 1,691 1,950 2,441 2,806 3,169 Core EPS (Bt) 0.19 0.24 0.33 0.40 0.47 Net EPS (Bt) 0.19 0.24 0.33 0.40 0.47 DPS (Bt) 0.01 0.04 0.06 0.07 0.09

Profit and Loss Statement (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total revenue 4,515 4,435 3,796 4,118 5,155 Cost of goods sold (3,846) (3,693) (3,108) (3,372) (4,147) Gross profit 669 742 688 746 1,008 SG&A (492) (537) (533) (564) (574) Other income 149 130 114 117 163 Interest expense (34) (33) (38) (40) (37) Pre-tax profit 292 302 232 258 560 Corporate tax (54) (66) (53) (46) (112) Equity a/c profits 0 (0) 0 3 3 Minority interests 0 0 0 0 0 Core profit 238 236 179 215 451 Extra-ordinary items (21) 27 33 (27) 1 Net Profit 217 263 212 189 452 EBITDA 499 513 450 487 788 Core EPS (Bt) 0.07 0.07 0.05 0.06 0.13 Net EPS (Bt) 0.06 0.08 0.06 0.05 0.13



Cash Flow Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018F Core Profit 699 868 1,220 1,459 1,734 Depreciation and amortization 683 721 793 859 916 Operating cash flow 1,600 1,459 2,958 2,225 2,541 Investing cash flow (5,312) (1,903) (1,737) (1,767) (1,766) Financing cash flow 3,832 698 (1,182) (420) (763) Net cash flow 120 254 39 39 11

Main Assumptions 2014 2015 2016F 2017F 2018F SSS growth (%) -6.1% -0.8% 2.5% 3.0% 3.0% No of new stores (stores) 5 6 8 7 7 No of stores, ending (stores) 32 38 46 53 60 % private brand/sales 10.0 12.4 13.4 14.4 15.4


PE Band Chart

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PE Band — GLOBALPrice (Bt)

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Cumulative GLOBAL (RHS)




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Figure 1: GLOBAL’s historical PE band Figure 2: Sector’s 2-year PEG

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PE vs S.D. — GLOBAL

2.402.16

1.74 1.661.35 1.34

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MAKRO HMPRO BIGC ROBINS GLOBAL CPALL

Times

2-year PEG

Average = 1.8x


Figure 3: GLOBAL’s earnings in 2016-18F Figure 4: GLOBAL’s quarterly earnings recap

491619

942

699868

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-60%-40%-20%0%20%40%60%80%100%120%

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Figure 5: GLOBAL’s SSS to revive in 2016-18F Figure 6: GLOBAL’s store expansion in 2016-18F

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Stores

GLOBAL's old storesGLOBAL's new stores


Figure 7: GLOBAL’s gross margin in 2016-18F Figure 8: GLOBAL’s quarterly gross margin recap

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GP margin (%)

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Quarterly GP margin (%)



44


(%) To be disbursed for

the rest of 2016 Stimulus package announced in Sep-Dec 2015 1) Assistance measures for low income earners and small public investment 139.7 58.4 41.7 100.1 71.6% 27.5



Subtotal 211.5 0.0 11.4 11.4 5.4% 36.3 Total 645.4 212.4 141.3 353.7 54.8% 115.7

Source: NESDB and SCBS Investment Research

Figure 10: Farm income turned to positive growth in April


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Figure 12: Store contribution in Bangkok and upcountry

Figure 13: Sales contribution in Bangkok and upcountry

59% 55%

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100%

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UPC BKK and other countries

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0%10%20%30%40%50%60%70%80%90%

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UPC BKK and other countries Source: Company data and SCBS Investment Research Note* Only big store format for BIGC

Source: Company data and SCBS Investment Research Note* Only big store format for BIGC

45

The worst is past

PCSGH’s 2015 earnings more than halved from the exceptionally high 2012 by weaker sales and margin. A normalizing Thai auto industry with rising auto production plus the production start-up of its new orders will help lift PCSGH’s sales and margin from the expected bottom in 2016 to a strong rebound in 2017. PCSGH’s share price has plummeted 50% from peak and the over-penalized share price offers attractive investment return with 33% upside to our TP plus dividend yield at 5-6% p.a. in 2016-17. We rate PCSGH as a BUY with mid-2017 TP at Bt7 and place it as our top pick in the auto sector.

All sales to the commercial vehicle market, which is leading recovery. The domestic auto market has been poor since 2013, but May’s auto sales turned to positive growth of 16% YoY, driven primarily by strong commercial vehicle sales. We believe this segment is in the forefront of recovery, as it is related to agricultural and business activities, for which some factors point to better days: rising farm income, strong retail sales and upwardly revised up GDP growth forecast. PCSGH is positioned to benefit directly from this, since its products are components for the powertrain system - the engine, transmission and final drive – of commercial vehicles.

Investment is paying off. According to company guidance, PCSGH has Bt2.2bn in new orders covering the next four-ten years. To serve future orders, PCSGH has invested in more production lines in advance of actual production. This means PCSGH has had to shoulder the cost before revenue flows in, pressuring margin. This was clearly evident in the weak gross margin of only 10.5% in 4Q15 and 15.3% in 1Q16 from 18% in 9M15. The production of these new orders was slated to begin in late 2Q16 and we expect this investment to pay off, raising sales and gross margin.

Earnings to mark bottom in 2016. PCSGH’s 2012 earnings were exceptionally high at Bt1.7bn, then plummeted 70% to Bt532mn in 2015 as sales and gross margin were dragged down by negatives that included a fall in Thai auto production from a weaker domestic market and its cost burden from developing new production lines. We expect 2016 to be the end of its earnings downtrend, backed by a normalizing Thai auto industry with rising auto production plus the production start-up of its new orders. We expect earnings to grow 29% YoY in 2017 and 21% YoY in 2018 driven by sales growth of 10% YoY in 2017 and 9% YoY in 2018 and a widening in gross margin from 15.2% in 2016 to 17.0% in 2017 and 18.5% in 2018.

Top pick. Rate BUY with mid-2017 TP at Bt7/share. PCSGH is our top pick in the auto sector and we rate it BUY with mid-2017 TP at Bt7/share based on 17x PE, which is +0.5SD of its historical average. In our view, it deserves a premium valuation because of its production of high-value added products, i.e. elements of the powertrain system, giving it a high return on assets (ROA) at 11% in 2017, above 4-9% for peers. PCSGH’s share price has plummeted 51% from peak and the over-penalized share price offers an attractive investment return with 33% upside to our TP plus dividend yield of 5-6% p.a. in 2016-17.

Forecasts and valuation Year to 31 Dec Unit FY2014 FY2015 FY2016F FY2017F FY2018FRevenue (Btmn) 4,014 4,092 4,251 4,690 5,129 EBITDA (Btmn) 1,249 1,128 1,052 1,201 1,390 Core profit (Btmn) 709 532 500 643 777 Reported profit (Btmn) 717 542 500 643 777 Core EPS (Bt) 0.48 0.34 0.32 0.42 0.50 DPS (Bt) 0.37 0.40 0.26 0.33 0.40 P/E, core (x) 11.0 15.4 16.4 12.7 10.5 EPS growth, core (%) (58.9) (28.6) (6.0) 28.7 20.7 P/BV, core (x) 1.6 1.7 1.6 1.6 1.6 ROE (%) 20.9 10.6 10.2 12.8 15.0 Dividend yield (%) 7.0 7.5 4.9 6.3 7.6 EV/EBITDA (x) 5.8 6.5 6.7 5.7 4.6

Source: SCBS Investment Research

P.C.S. Machine Group Holding PLC

BUY

Stock Data

Last close (Jun 28) (Bt) 5.3012-m target price (Bt) 7.00Upside (Downside) to TP (%) 32.08Mkt cap (Btbn) 8.19Mkt cap (US$mn) 232

Bloomberg code PCSGH TBReuters code PCSGH.BKRisk rating HMkt cap (%) SET 0.06Sector % SET 0.49Shares issued (mn) 1,545Par value (Bt) 1.0012-m high / low (Bt) 7.9 / 5Avg. daily 6m (US$mn) 0.07Foreign limit / actual (%) 49 / 1Free float (%) 23.9

Dividend policy (%) ≥ 50

Price Performance


Share performance 1M 3M 12M Absolute 0.0 (0.9) (32.1)Relative to SET (0.9) (4.0) (28.6)Source: SET, SCBS Investment Research

Raweenuch Piyakriengkai Fundamental Investment


[email protected]

P.C.S. Machine Group Holding PLC July 2016

46

Financial statement

Profit and Loss Statement (Btmn) FY Dec 31 2014 2015 2016F 2017F 2018FTotal revenue 4,014 4,092 4,251 4,690 5,129Cost of goods sold (3,206) (3,426) (3,607) (3,893) (4,183)Gross profit 808 666 644 797 946SG&A (173) (171) (179) (197) (215)Other income 73 44 45 56 62Interest expense 3 0 0 0 0Pre-tax profit 704 538 510 657 793Corporate tax (5) 7 10 13 16Equity a/c profits 0 0 0 0 0Minority interests 0 0 0 0 0Core profit 709 532 500 643 777Extra-ordinary items 8 10 0 0 0Net Profit 717 542 500 643 777EBITDA 1,249 1,128 1,052 1,201 1,390Core EPS (Bt) 0.48 0.34 0.32 0.42 0.50Net EPS (Bt) 0.49 0.35 0.32 0.42 0.50DPS (Bt) 0.37 0.40 0.26 0.33 0.40

Profit and Loss Statement (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total revenue 1,102 987 1,071 932 1,055Cost of goods sold (871) (827) (893) (834) (894)Gross profit 231 160 178 98 161SG&A 40 44 48 39 39Other income 13 14 7 10 10Interest expense 0 0 0 0 0Pre-tax profit 204 129 137 68 131Corporate tax 2 4 1 0 (0)Equity a/c profits 0 0 0 0 0Minority interests 0 0 0 0 0Core profit 202 126 136 68 131Extra-ordinary items 0 0 11 (1) (2)Net Profit 202 126 146 67 130EBITDA 349 276 287 217 268Core EPS (Bt) 0.13 0.08 0.09 0.04 0.09Net EPS (Bt) 0.13 0.08 0.09 0.04 0.08

Balance Sheet (Btmn) FY Dec 31 2014 2015 2016F 2017F 2018F Total current assets 2,064 2,174 2,591 2,966 3,491Total fixed assets 3,373 3,168 2,956 2,742 2,405Total assets 5,465 5,371 5,577 5,737 5,925Total loans 0 0 0 0 0Total current liabilities 314 455 559 589 619Total long-term liabilities 0 0 0 1 2Total liabilities 346 496 602 634 666Paid-up capital 1,545 1,545 1,545 1,545 1,545Total equity 5,118 4,875 4,975 5,104 5,259BVPS (Bt) 3.31 3.16 3.22 3.30 3.40

Balance Sheet (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total current assets 2,234 2,164 2,124 2,174 2,297Total fixed assets 3,272 3,232 3,142 3,168 3,093Total assets 5,532 5,427 5,297 5,371 5,431Total loans 0 0 0 0 0Total current liabilities 350 422 448 455 383Total long-term liabilities 0 0 0 0 0Total liabilities 385 459 487 496 426Paid-up capital 1,545 1,545 1,545 1,545 1,545Total equity 5,147 4,968 4,809 4,875 5,005BVPS (Bt) 3.33 3.22 3.11 3.16 3.24

Cash Flow Statement (Btmn) FY Dec 31 2014 2015 2016F 2017F 2018F Core Profit 709 532 500 643 777 Depreciation and amortization 542 590 542 544 597 Operating cash flow 1,590 1,072 1,118 1,156 1,312Investing cash flow (216) (385) (400) (400) (300)Financing cash flow (882) (750) (400) (515) (621)Net cash flow 480 (64) 318 241 390

Main Assumptions 2014 2015 2016F 2017F 2018F Auto production (000 units) 1,881 1,912 1,927 2,072 2,207 % growth (23.5) 1.7 0.8 7.5 6.5 Domestic sales (000 units) 882 799 799 864 919 % growth (33.7) (9.4) 0.0 8.1 6.4 Auto export (000 units) 1,126 1,205 1,220 1,300 1,380 % growth 1.8 7.0 1.2 6.6 6.2

Key Financial Ratios FY Dec 31 2014 2015 2016F 2017F 2018F Gross margin(%) 20.1 16.3 15.2 17.0 18.5 Operating margin(%) 15.8 12.1 11.0 12.8 14.3 EBITDA margin(%) 31.1 27.6 24.7 25.6 27.1 EBIT margin(%) 18.5 19.5 20.5 21.5 22.5 Net profit margin(%) 17.9 13.2 11.8 13.7 15.1 ROE (%) 20.9 10.6 10.2 12.8 15.0 ROA (%) 12.9 9.8 9.1 11.4 13.3 Net D/E (x) net cash net cash net cash net cash net cashInterest coverage (x) 425.7 n.m. n.m. n.m. n.m. Debt service coverage (x) 425.7 n.m. n.m. n.m. n.m. Payout Ratio (%) 75.9 114.1 80.0 80.0 80.0

PBV Band Chart

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Price (Bt) PBV Band — PCSGH

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Figure 1: Auto demand is tied to the economy Figure 2: Better economy with growing farm income

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Figure 3: Commercial vehicle segment recovers first Figure 4: Commercial car sales: early in an uptrend

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Figure 5: Domestic auto market to return to anuptrend with 8% YoY growth in 2017

Figure 6: Thai auto production to be back to an uptrend in 2017

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Tsunami in JapanFlooding in Thailand

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48

Figure 7: Sales forecast Figure 8: Gross margin trend

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Figure 11: Project timeline Starting up period

Project Project life (years)

Value(Bt mn)

2Q16 Pick up: Pan Oil 4-6 990 Big truck: Bracket spring, Bracket steering, Adaptor turbo, Shackle, Duct EGR Passenger car: Pressure plate 3Q16 Big truck: Trunnion shaft, Bracket converter Big bike: Chain side crankcase, Clutch side crankcase 5-6 7904Q16 Pick up: Pan Oil Non auto: Base, Stand 1Q17 Pick up: Pressure plate, Front housing 5-10 2502Q17 Big truck: Flywheel housing, Cover cylinder head 5-6 210 Passenger car: Bracket, Drive shaft, Engine mounting bracket, Hook Source: Company data and SCBS Investment Research

Figure 12: PE band Figure 13: PB band

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PE vs S.D. — PCSGH

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+0.5SD =16.7x

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PBV vs S.D. — PCSGH

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Source: SET and SCBS Investment Research Source: SET and SCBS Investment Research

49

Best pick

SAT’s share is trading at a 4-year low, tagging the downtrend of the Thai auto industry, which we view as nearly over. As the Thai economy gets back on its feet and farm income rises, we expect commercial and agricultural vehicles - 80% of SAT’s sales – to lead demand recovery. Rising sales and margin expansion will boost SAT’s earnings to grow 27% YoY in 2017, ending the downtrend seen since 2014. We see risk/reward as attractive, with a 35% upside gain to our mid-2017 TP at Bt18/share and high dividend yield at 4-5% p.a. in 2016-17. SAT is our top pick in the Thai auto sector.

Thai auto demand is hitting a cyclical low. Thai auto production nosedived in 2014, dragged down by the downtrend in the domestic auto market after the first-car buyer stimulus program ended, with the plunge in the demand amplified by the sinking of Thailand’s economy. After a lengthy downtrend, we believe domestic auto demand is returning and this will put Thailand’s auto production back on uptrend path. May’s domestic auto sales turned to positive growth of 16% YoY, driven primarily by strong commercial vehicle sales, and this trend will be further supported, as some data is hinting at economic improvement: rising farm income, strong retail sales and upwardly revised GDP forecasts. In this environment, SAT is best placed, since commercial vehicles contribute a large ~60% of its total sales with tractors at ~20%, both of which do better as farm income rises.

Better industry prospect to support earnings growth. We expect Thai auto production to grow 7% YoY to 2.1mn units in 2017. Better Thai auto industry prospects with rising auto production should help boost SAT’s sales by 10% YoY in 2017 and 9% in 2018 and gross margin will widen from 14.1% in 2016 to 15.5% in 2017 and 16.0% in 2018. Driven by both the top line and margin expansion, we expect SAT’s earnings to grow 27% YoY to Bt768mn in 2017 and 20% YoY to Bt919mn in 2018, turning back up from the downtrend seen since 2014.

Low-hanging fruit valuation. SAT’s share price has plummeted 59% from its peak in 2013 and it is trading at a 4-year low, dragged down by the downtrend of the Thai auto industry and its earnings – but we see these as nearly ended. With a firm earnings turnaround, SAT’s valuation in terms of PE will come down to 7.4x in 2017, 26% below its historical average of 10x. SAT’s dividend yield is attractive; in 2015, it paid a dividend of Bt0.60/share implying 3% dividend yield during a period of earnings weakness and we expect it to offer attractive dividend yield at 4-5% p.a. in 2016-17.

Top pick of the sector; Buy at mid-2017 TP of Bt18/share. Our view on the Thai automotive sector is positive and SAT is our top pick because of its high exposure to the commercial and farm vehicle markets, which will lead demand recovery. SAT’s current low valuation gives an attractive entry point since this implies the market has not priced in the upcoming positives. We place a BUY on SAT with mid-2017 TP at Bt18/share based on 10x PE, its historical average, to which the stock offers 35% upside.

Forecasts and valuation Year to 31 Dec Unit 2014 2015 2016F 2017F 2018F Revenue (Btmn) 8,084 8,644 8,889 9,765 10,648 EBITDA (Btmn) 1,646 1,619 1,501 1,672 1,803 Core profit (Btmn) 650 641 603 768 919 Reported profit (Btmn) 650 642 603 768 919 Core EPS (Bt) 1.53 1.51 1.42 1.81 2.16 DPS (Bt) 0.60 0.60 0.57 0.72 0.86 P/E, core (x) 8.6 8.8 9.3 7.3 6.1 EPS growth, core (%) (19.9) (1.5) (5.9) 27.4 19.7 P/BV, core (x) 1.1 1.0 1.0 0.9 0.8 ROE (%) 12.9 11.9 10.6 12.5 13.9 Dividend yield (%) 4.5 4.5 4.3 5.5 6.6 EV/EBITDA (x) 4.5 4.1 4.0 3.1 2.5 Source: SCBS Investment Research

Somboon Advance Technology PLC

BUY

Stock Data Last close (Jun 28) (Bt) 13.20 12-m target price (Bt) 18.00 Upside (Downside) to TP (%) 36.36 Mkt cap (Btbn) 5.61 Mkt cap (US$mn) 159 Bloomberg code SAT TB Reuters code SAT.BK Risk rating H Mkt cap (%) SET 0.04 Sector % SET 0.49 Shares issued (mn) 425 Par value (Bt) 1.00 12-m high / low (Bt) 18.8 / 12.4 Avg. daily 6m (US$mn) 0.15 Foreign limit / actual (%) 49 / 23 Free float (%) 53.8 Dividend policy (%) ≥ 30

Price Performance

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SAT — Stock PriceSAT — Rel. to SET (rebased)

Stock Price (Bt)


Share performance 1M 3M 12M Absolute 3.9 (8.3) (29.4)Relative to SET 3.0 (11.2) (25.8)Source: SET, SCBS Investment Research

Raweenuch Piyakriengkai Fundamental Investment


[email protected]

Somboon Advance Technology PLC July 2016

50

Financial statement Profit and Loss Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018FTotal revenue 8,084 8,644 8,889 9,765 10,648Cost of goods sold (6,667) (7,392) (7,635) (8,255) (8,942)Gross profit 1,417 1,252 1,254 1,510 1,707SG&A (705) (680) (696) (787) (848)Other income 95 172 133 146 160Interest expense (147) (116) (110) (100) (91)Pre-tax profit 660 627 581 769 928Corporate tax (69) (43) (41) (69) (84)Equity a/c profits 59 56 62 68 75Minority interests 0 0 0 0 0Core profit 650 641 603 768 919Extra-ordinary items (0) 1 0 0 0Net Profit 650 642 603 768 919EBITDA 1,646 1,619 1,501 1,672 1,803Core EPS (Bt) 1.53 1.51 1.42 1.81 2.16Net EPS (Bt) 1.53 1.51 1.42 1.81 2.16DPS (Bt) 0.60 0.60 0.57 0.72 0.86

Profit and Loss Statement (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total revenue 2,429 1,820 2,263 2,133 2,194Cost of goods sold (2,052) (1,605) (1,912) (1,823) (1,889)Gross profit 377 215 351 309 304SG&A (177) (169) (171) (164) (178)Other income 27 49 25 71 30Interest expense (33) (31) (28) (24) (24)Pre-tax profit 195 63 178 192 133Corporate tax (13) (10) (13) (8) (11)Equity a/c profits 10 13 13 21 23Minority interests 0 0 0 0 0Core profit 192 66 178 205 145Extra-ordinary items 2 (1) (0) 0 6Net Profit 194 65 177 205 151EBITDA 227 95 205 216 157Core EPS (Bt) 0.45 0.16 0.42 0.48 0.34Net EPS (Bt) 0.46 0.15 0.42 0.48 0.35

Balance Sheet (Btmn) FY December 31 2014 2015 2016F 2017F 2018FTotal current assets 3,145 3,428 4,055 4,797 5,621Total fixed assets 6,209 5,705 5,235 4,850 4,483Total assets 9,814 9,634 9,828 10,192 10,658Total loans 2,911 2,242 2,002 1,763 1,524Total current liabilities 2,185 2,333 2,404 2,547 2,701Total long-term liabilities 2,411 1,769 1,528 1,289 1,050Total liabilities 4,596 4,103 3,933 3,836 3,750Paid-up capital 425 425 425 425 425Total equity 5,217 5,531 5,893 6,353 6,905BVPS (Bt) 12.27 13.01 13.86 14.94 16.24

Balance Sheet (Btmn) FY December 31 1Q15 2Q15 3Q15 4Q15 1Q16 Total current assets 3,675 3,190 3,492 3,428 3,414Total fixed assets 5,965 5,828 5,697 5,705 5,785Total assets 10,230 9,627 9,786 9,634 9,733Total loans 2,803 2,667 2,479 2,242 2,055Total current liabilities 2,542 2,218 2,462 2,333 2,459Total long-term liabilities 2,276 2,094 1,917 1,769 1,594Total liabilities 4,818 4,312 4,379 4,103 4,053Paid-up capital 425 425 425 425 425Total equity 5,412 5,315 5,407 5,531 5,680BVPS (Bt) 12.73 12.50 12.72 13.01 13.36

Cash Flow Statement (Btmn) FY December 31 2014 2015 2016F 2017F 2018FCore Profit 650 641 603 768 919Depreciation and amortization 839 876 810 803 784Operating cash flow 1,267 1,555 1,196 1,463 1,597Investing cash flow (576) (778) (400) (400) (400)Financing cash flow (663) (939) (495) (547) (607)Net cash flow 28 (162) 301 516 590

Main Assumptions 2014 2015 2016F 2017F 2018F Auto production (000 units) 1,881 1,912 1,927 2,072 2,207 % growth (23.5) 1.7 0.8 7.5 6.5 Domestic sales (000 units) 882 799 799 864 919 % growth (33.7) (9.4) - 8.1 6.4 Auto export (000 units) 1,126 1,205 1,220 1,300 1,380 % growth 1.8 7.0 1.2 6.6 6.2

Key Financial Ratios 2014 2015 2016F 2017F 2018FGross margin (%) 17.5 14.5 14.1 15.5 16.0Operating margin (%) 8.8 6.6 6.3 7.4 8.1EBITDA margin (%) 20.4 18.7 16.9 17.1 16.9EBIT margin (%) 9.9 8.4 7.7 8.8 9.4Net profit margin (%) 8.0 7.4 6.8 7.9 8.6ROE (%) 12.9 11.9 10.6 12.5 13.9ROA (%) 6.6 6.6 6.2 7.7 8.8Net D/E (x) 0.3 0.2 0.1 Net cash Net cashInterest coverage (x) 11.2 14.0 13.7 16.7 19.9Debt service coverage (x) 2.3 2.1 1.8 2.0 2.2Payout Ratio (%) 39.3 39.8 40.0 40.0 40.0

PE Band Chart

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YoY growth (%)


Figure 3: Commercial vehicle segment recovers first Figure 4: Commercial car sales: early in an uptrend

(100)(80)(60)(40)(20)

020406080

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-10

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Passenger car sales


0

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n-94

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Jan-

15Ja

n-16

3.3 yrs

2.4 yrs

7.4 yrs

3.5 yrs

3.6 yrs

2.4 yrs

0.6 yrs



Figure 5: Domestic auto market to return to anuptrend with 8% YoY growth in 2017

Figure 6: Thai auto production to be back to an uptrendin 2017

0200400600800

1,0001,2001,4001,600

1993

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17F

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F


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68

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7 73

6 1,

020

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8 703

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1996

1998

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000 units







52

Figure 7: Sales breakdown by business Figure 8: Revenue breakdown by automaker

-

2,000

4,000

6,000

8,000

10,000

12,00020

10

2011

2012

2013

2014

2015

2016

F

2017

F

2018

F

Bt mn

OEM Tractor

Mitsubishi31%

Toyota/Hino29%

Kubota15%

Isuzu6%

Honda3%

Nissan3%

GM1%

Ford&Mazda1%

Others11%

Sales breakdown by automaker (%)


Figure 9: Gross margin trend Figure 10: SAT’s earnings forecast

10.0

12.0

14.0

16.0

18.0

20.0

22.0

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2011

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F

2017

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F%

0

200

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1,200

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2011

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Bt mn


Figure 11: PE band Figure 12: PB band

0

4

8

12

16

20

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16Ju

l-16

PE (x)

+2SD = 17.2x

-1SD = 6.3x

-2SD = 2.6x

+1SD =13.5x

PE vs S.D. — SAT

+1.5SD = 15.4x

+0.5SD = 11.7x

-0.5SD = 8.1x

-1.5SD = 4.5x

Avg.= 9.9x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12Ju

l-12

Jan-

13Ju

l-13

Jan-

14Ju

l-14

Jan-

15Ju

l-15

Jan-

16Ju

l-16

PBV (x)

Avg. = 1.5x

+2SD = 2.4x

+1SD = 1.9x

-1SD = 1x

PBV vs S.D. — SAT

+1.5SD = 2.1x

-1.5SD = 0.8x

+0.5SD = 1.7x

-2SD = 0.6x

-0.5SD = 1.2x

Source: SET and SCBS Investment Research Source: SET and SCBS Investment Research

53

Gaining market share, AAV best placed We expect AAV to continue to gain market share from NOK

High percentage of hedging will dilute earnings risk when fuel prices rise

AAV is our top pick

Strong 1Q16 earnings for all except NOK. In 1Q16, AAV and THAI beat market estimates, mainly from lower jet fuel cost, as average jet fuel spot price was US$42/bbl in 1Q16, plummeting 39% YoY and 22% QoQ. AAV reported record high core earnings at Bt1.0bn in 1Q16, almost equal to 2015 full-year earnings. THAI’s core profit was Bt6.9bn, up 2% YoY and turning up from a core loss of Bt1.5bn in 4Q15. NOK was the exception, with a net loss of Bt406mn - in high season - dragged down by fewer passengers after flight cancellations in February–March because of pilot shortage plus rising maintenance and staff expenses.

AAV gaining market share. AAV passengers surged by 18% YoY and 10% QoQ to 4.4mn in 1Q16, in stark contrast to NOK, who saw passengers fall 10% YoY and 8% QoQ to 2.1mn. AAV is doing well off the strength of Thai tourism and we also believe it benefited indirectly from passenger migration from NOK. We expect AAV to continue to grab market share from NOK since NOK is in the process of pilot recruitment and does not expect operations and flight schedule to return to normal until September-4Q16, which we view as optimistic. Our view is reaffirmed by AAV’s continuing strong passenger growth at 17% YoY in April and 21% YoY in May.

Rising jet fuel price, high percentage hedging is best. Jet fuel prices are on the way up, with QTD average jet fuel spot price at US$54/bbl, up 27% QoQ, though down 28% YoY. This has led to market concerns about airline operations. In this climate, we see AAV as best placed as it has a high hedging position that dilutes earnings risk. AAV has upped its hedging to 70-76% of total jet fuel usage in 2Q-4Q16, above its normal policy of 30%, with average hedging cost at US$54-55/bbl. It hedging position is higher than 45% for THAI and 13% for NOK.

Update on ICAO resolution. The International Civil Aviation Organization (ICAO) sent experts on aviation safety to help Thailand overhaul its regulatory system after it red-flagged Thailand citing significant safety concerns in June last year. The Transport Minister said inspection and re-certification for Thai-registered airlines to resolve the ICAO’s concerns will start next month and is expected to complete within six months, i.e. around December 2016 to January 2017. The ICAO will be invited to assess these developments and we hope the evidence of better safety standards will encourage it to lift its red flag.

AAV is top pick. We see AAV as the best airline play. We like it for its intact and sound fundamentals and strong earnings growth with excellent prospects from growing travel demand, particularly from China and AEC countries. It is also looking at good growth potential from the duty-free business after Mr. Vichai Srivaddhanaprabha, CEO of King Power (Thailand’s major duty-free operator), and family became AAV’s largest shareholder at 39% of total paid up shares on June 13, 2016.

Valuation summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F AAV Buy 6.15 7.5 23.7 25.0 14.5 14.1 n.m. 73 3 1.5 1.4 1.3 6 10 9 1.6 1.7 1.8 9.3 6.2 5.7 NOK Buy 8.60 9.5 10.5 n.m. n.m. 20.8 (120) 79 n.m. 1.8 1.9 1.8 (30) (7) 9 0.0 0.0 2.4 (2.2) 33.7 8.9 THAI Sell 24.60 15.5 (37.0) n.m. n.m. 18.4 77 95 n.m. 1.6 1.6 1.5 (13) (1) 9 0.0 0.0 1.4 11.4 8.0 6.9 Average 25.0 14.5 17.8 (22) 82 3 1.6 1.6 1.5 (13) 1 9 0.5 0.6 1.8 6.2 16.0 7.2 Source: SCBS Investment Research

Airlines

Raweenuch Piyakriengkai

Fundamental Investment Analyst on Securities

(66-2) 949-1002 [email protected]

Airline July 2016

54

Figure 1: AAV is gaining market share Figure 2: NOK’s capacity is cut due to pilot shortage

0.0

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1Q16

AAV (LHS)

NOK (RHS)

ASK (mn seat-km) ASK (mn seat-km)


Figure 3: AAV has high hedging position Figure 4: Jet fuel price trend

0%

10%

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AAV NOK THAI

1Q16 2Q-4Q16F

020406080

100120140160

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-13

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-14

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4

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-14

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Jun-

15

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-15

Jan-

16

May

-16

Jet fuel spot price (US$/bbl)

Source: Company data and SCBS Investment Research Source: Bloomberg and SCBS Investment Research

Figure 5: AAV’s quarterly earnings Figure 6: AAV’s earnings uptrend

-300-200-100

0100200300400500600700

1Q12

2Q12

3Q12

4Q12

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2011

2012

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2017

F

2018

F

AAV's core profit (Bt mn)

Source: Company data and SCBS Investment Research Source: Company data, SCBS Investment Research

55

Picking up Thai auto stocks have been off the radar since 2013 when production was

dragged down by poor domestic auto demand. The lengthy downtrend of the domestic market appears to be fading with some factors suggesting the economy is beginning to improve.

With this, the auto industry appears to be clambering up to the recovery path. We believe there is now an investment opportunity in Thai auto stocks.

Our top picks are SAT and PCSGH. Both offer attractive risk/reward with over 30% upside gain and high dividend yield at 4-6% p.a. in 2016-17. We expect AAV to continue to gain market share from NOK

Auto production to tick back up in 2017. Thai auto production nosedived in 2014 after the first-car buyer stimulus program moved demand forward, with the plunge in demand amplified by the sinking of Thailand’s economy. The lengthy downturn in production and the economy appears to have run their course and domestic auto demand should wake up after slumbering at bottom. With domestic demand and auto exports both showing signs of returning, we expect Thai auto production to resume its uptrend with 7% YoY growth to 2.1mn units in 2017 after negligible growth in 2015-16

Domestic auto market downtrend at the tail end. Domestic auto sales in May jumped 16% YoY, which the market sees as off the exceptional low last year from Toyota’s change in its Vigo model; however, we believe this also reflects some return of domestic auto demand. This is supported by the fact that auto demand is tied to the economic situation and some data is suggesting the economy is improving: rising farm income, strong retail sales and upwardly revised GDP forecasts. Commercial vehicles are at the forefront of demand recovery, since these are related to agricultural and business activities. Historically, rolling 12-month commercial vehicle sales from 1992 to now shows that the downtrend of the commercial vehicle market consumed 2.4-3.5 years while the uptrend lasted a longer 3.3-7.4 years. Going by this, the recent pick-up of 0.6 years indicates we are now in the early phase of recovery of the commercial vehicle market. We expect flat domestic auto sales in 2016, implying better growth for the rest of the year, followed by 8% YoY growth in 2017, bouncing back to a long-term uptrend.

Auto export growth underscored by capacity expansion. Auto exports are crucial, taking 60% of auto production and, on a global basis, Thailand was at 13

th place in terms

of production in 2015. We see automakers’ plan to increase capacity by 15% in 2017 as confirmation of some recovery in exports. Capacity expansions also underscore the confidence of automakers in in Thailand as an investment destination, with the country positioned as an important global auto production and export hub. We expect auto exports to rise 1% YoY in 2016 and 7% YoY in 2017.

Investment opportunity in over-penalized sector. Top picks are SAT and PCSGH. Thai auto stocks have been under pressure since 2013, reflecting low expectations for the automotive industry and earnings – both of which are recovering. We see this as a good time to invest in Thai auto stocks; our top picks are SAT and PCSGH, both of which have high exposure to the commercial vehicle market and over-penalized share prices that offer attractive risk/reward. SAT offers 35% capital gain and 4-5% p.a. dividend yield in 2016-17 and PCSGH’s upside to our TP is 33% plus dividend yield at 5-6% in 2016-17.

Valuation summary

Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F AH Buy 12.00 15.0 28.4 12.4 9.0 7.3 (16) 37 24 0.6 0.6 0.6 5 7 8 2.5 3.4 4.3 6.2 4.9 3.8 PCSGH Buy 5.30 7.0 37.0 15.4 16.4 12.7 (29) (6) 29 1.7 1.6 1.6 11 10 13 7.5 4.9 6.3 6.5 6.7 5.7 SAT Buy 13.20 18.0 40.7 8.8 9.3 7.3 (1) (6) 27 1.0 1.0 0.9 12 11 13 4.5 4.3 5.5 4.1 4.0 3.1 STANLY Neutral 176.50 200.0 15.9 13.2 11.5 9.5 (4) 15 20 1.1 1.0 0.9 9 9 10 2.8 2.6 3.1 3.9 3.7 3.0


Automotive

Raweenuch Piyakriengkai

Securities FundamentalInvestment Analyst

(66-2) [email protected]

Automotive July 2016

56


(20.0)

(10.0)0.0

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40.050.0

(4.0)

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01020304050

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YoY growth (%)


Figure 3: Commercial car segment recovers first Figure 4: Commercial car sales: early in an uptrend

(100)(80)(60)(40)(20)

020406080

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3.3 yrs

2.4 yrs

7.4 yrs

3.5 yrs

3.6 yrs

2.4 yrs

0.6 yrs



Figure 5: Domestic auto market to return to an uptrend with 8% YoY growth in 2017

Figure 6: Thai auto production to be back to an uptrend in 2017

0200400600800

1,0001,2001,4001,600

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000 units






Figure 7: Auto stocks have been under the pressure Figure 8: SAT and PCSGH offer high dividend yield

-60%-40%-20%

0%20%40%60%80%

100%

Jan-

11Ap

r-11

Aug-

11D

ec-1

1M

ar-1

2Ju

l-12

Nov

-12

Feb-

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n-13

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-13

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14M

ay-1

4Se

p-14

Dec

-14

Apr-

15Au

g-15

Nov

-15

Mar

-16

Share price performance (since Jan 2011)

AH SAT STANLY PCSGH* SET

0.0%

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6.0%

7.0%

STANLY AH SAT PCSGH

Dividend yield

2015 2016F 2017F

Source: SET and SCBS Investment Research *PCSGH’s share price performance started at IPO period in March 2014.

Source: SET and SCBS Investment Research

57

Closing in on the worst quarter 2Q16 is expected to be the year’s worst quarter for banks in terms of operational

performance on a conjunction of a mediocre loan growth, a sharp NIM squeeze, and continued hefty provisions against further deterioration

2016F earnings are expected to be slow with possible downside on fee income

TCAP is our sector pick as we expect it to outperform its sector in terms of asset quality plus recognition of S-T tax benefit

1Q16 recap: Rising NPLs with flattish pre-provision profit. Sector earnings fell 9% YoY in 1Q16 but rose 9% QoQ, in line with SCBS and consensus forecasts. Banks missing 1Q16 forecasts were SCB (on one-off negative impact from SCB Life’s accounting changes) and KTB (on worse asset quality than expected). KKP beat forecasts, mainly on lower provisions than anticipated. Overall 1Q16 results reflected: 1) a deterioration in asset quality with a 16 bps QoQ rise in NPL ratio (+6% in amount) and a 14 bps QoQ hike in credit cost to keep LLR coverage stable at 130%; 2) zero loan growth (-0.3% QoQ) on high repayment of corporate and government loans and tightening credit policy; 3) a 5 bps QoQ squeeze in NIM; 4) flattish non-interest income; 5) easing cost to income ratio due to cost controls.

2Q16F, the worst of the year. We expect to see a conjunction of mediocre loan growth, a sharp NIM squeeze, and continued hefty provisioning against further deterioration in 2Q16, making the quarter this year’s worst in terms of operational performance. We expect a narrowing of ~20 bps QoQ in NIM for large & medium sized banks in 2Q16 as a result of a 25 bps cut in lending interest rate cuts in April. NPLs, particularly from SME loans, are expected to continue rising in 2Q16. We expect KBANK to report the largest YoY fall in 2Q16F earnings.

Downside on fee income. We see some downside risk to banks’ fee income from the National e-Payment Master Plan. Effective at the end of October, the BoT is kicking this plan off with a new money transfer system called “PromptPay” which will allow money transfer or payment by using the registered ID or phone number that is tied to a selected deposit account instead of deposit account number. The transaction fees for the “PromptPay” system of no more than Bt10 are well below fees on normal transactions of up to Bt120. Money transfer and collection fee income accounts for ~11% of the banking system’s total fee income. We preliminarily estimate that this will impact bank’s earnings ~3% if we assume 50% of transfer transactions move to “PromptPay”, mainly for big banks. The regulator is reviewing other areas on which transaction fees are collected to eventually have a cashless bank transaction system. At the same time, the negative impact from a cut in transaction fee should be mitigated by higher business volume and lower operating cost in the long run.

2016F: Flattish. We expect the sector’s 2016F earnings to be little changed after a 9% decrease in 2015. 2016F earnings are expected to be dragged down by: 1) narrowed NIM from lending rate cuts and 2) continued asset deterioration. We expect a modest pick-up in loan growth to 5% from 4% for 2015 and a deceleration in non-NII growth.

TCAP is the sector’s top pick as we expect it to outperform its sector in terms of asset quality, plus it will use the huge tax loss carried forward to enhance its LLR coverage and ROE.

Valuation Summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F BAY Sell 36.75 29.0 (18.9) 14.5 13.6 11.8 9 7 15 1.4 1.3 1.2 12 10 11 2.1 2.2 2.5 BBL Buy 159.00 180.0 17.2 8.9 9.0 8.4 (6) (1) 7 0.8 0.8 0.7 10 9 9 4.1 4.0 4.3 KBANK Buy 169.50 180.0 8.6 10.3 10.5 9.0 (14) (3) 17 1.4 1.3 1.1 15 13 13 2.4 2.4 2.7 KKP Neutral 41.75 42.0 8.7 10.7 8.6 7.8 25 24 11 0.9 0.9 0.9 9 11 11 7.2 8.1 9.0 KTB Buy 16.60 19.0 19.0 8.1 8.2 7.0 (14) (1) 18 0.9 0.8 0.8 12 11 12 4.6 4.5 5.3 LHBANK Sell 1.75 1.5 (12.7) 14.5 18.7 16.8 33 (23) 11 1.3 1.0 1.0 10 7 6 1.9 1.6 1.8 TCAP Buy 35.25 42.0 23.7 8.3 7.6 6.9 6 9 10 0.9 0.8 0.7 10 11 11 4.5 4.5 4.5 TISCO Neutral 47.00 48.0 7.2 8.9 7.8 7.4 0 14 5 1.3 1.2 1.1 16 16 16 5.1 5.1 5.3 TMB Neutral 2.22 2.5 15.6 10.4 10.1 8.9 (2) 3 14 1.3 1.2 1.1 13 12 12 2.9 3.0 3.4 Average 10.4 10.4 9.3 (7) 3 10 1.2 1.1 1.0 12 11 12 3.9 4.0 4.3 Source: SCBS Investment Research

Important note: SCBS is a wholly-owned subsidiary of SCB. Any information related to SCB is for sector comparison purposes.

[

Banking

Kittima Sattayapan, CFA



Banking July 2016

58

Figure 1: Loans vs. GDP & investment growth Figure 2: Domestic car sales

Source: NESDB, SCB EIC and SCBS Investment Research Source: Toyota (Thailand) and SCBS Investment Research

Figure 3: NIM and interest rates Figure 4: NPL ratio by segment

Source: SCBS Investment Research Source: NESDB and SCBS Investment Research

Figure 5: Special-mention loans Figure 6: LLR coverage

Source: BoT and SCBS Investment Research Source: BoT and SCBS Investment Research

-20%-15%-10%-5%0%5%

10%15%20%25%30%35%

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Loan growthReal GDP growthReal private investmentReal public investment

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Units

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4Q13 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Corporate loans SME loans

Consumer loans Total

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4Q13 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Corporate loans SME loans

Consumer loans Total0%

20%40%60%80%

100%120%140%160%180%200%

BBL

KTB

SCB

KBAN

K

BAY

TMB

TCAP

TISC

O

KKP

LHBA

NK

Tota

l

3Q15 4Q15 1Q16

59

Blessed by a series of positives

Government stimulus, rising farm income and big sporting events in June-August will boost SSS growth and lead to further sector re-rating

Our lead picks are GLOBAL, CPALL, and ROBINS: all are looking at strong 2Q16F and valuations are attractive

Driver#1: Disbursement of government stimulus on course. Beginning in September last year, the government has employed economic stimulus measures worth a total of Bt645bn with an eye to assisting lower income earners and farmers. It began with measures worth Bt434bn in Sep-Dec 2015 (village funds, assistance for SMEs and rubber farmers), followed by Bt212bn in 2016 (assistance for those suffering from the drought and Baan Pracha Rat). Of the total Bt645bn budget, Bt354bn (55%) was disbursed in 4Q15-1Q16, and Bt116bn (18%) will be disbursed in 2Q16-4Q16F, lifting real consumption for the rest of 2016.

Driver#2: Signs of revival of farm income. Improved farm income will be another key to boosting consumption this year. In April, the farm income index turned around to growth of 5% YoY, ending the series of contractions seen since 1Q14. This was backed by growth of 5% YoY in agricultural output prices: prices were higher for major crops (rubber and fruit) and livestock, amid flat production (weaker major crop output outpaced by higher livestock and fishery output). The fall in crop production was caused by the drought. Based on the latest forecast by the Thai Meteorological Department, the impact of El Nino will abate in May-July 2016, and will be followed by La Nina, bringing agricultural production back up in 2H16.

Driver#3: Large global sporting events in June-Aug. The UEFA Euro football cup will run from June 10 to July 10, followed by the Olympics from August 5-21. This generally improves consumer sentiment and spending. Based on data from the University of the Thai Chamber of Commerce (UTCC), spending during the 2012 UEFA Euro and 2010/2014 World Cup was Bt22-26bn, with the largest portion (85%) spent on consumer products and consumables (food & beverages, sports fashion) and the rest on electric appliances and others. News reports suggest retailers of sports fashion (SuperSport, Sports Mall) and electric appliances, such as Power Buy, estimate sales growth of 10-20% YoY during this year’s events.

Sector: Better 2Q16TD and 2016F. The brighter mood, stimulus and low base has lifted sector SSS growth to 3-4% YoY in 2Q16TD (vs. 0.3% in 2Q15 and 1.4% in 1Q16), the highest for the past ten quarters. Figures were positive for all players: mid-single digit growth for HMRPO, ROBINS, CPALL and MAKRO and slightly positive for GLOBAL and BIGC. The improved figures support sector re-rating to 29x 2016PE (still below the 5-year average PE of 32x).

In 2016F, we expect sector SSS growth to surge 2.7% off the 2-year low base (-1.1% in 2014 and -1.2% in 2015) and improved consumption. This, together with higher EBIT margin and more stores will support sector core earnings growth of 16% in 2016F.

Top picks. GLOBAL is our first pick, as it is the one poised to report the sector’s best 2Q16F growth (impressive margin expansion from high steel price and better private brand) and has a compelling 2-year PEG of 1.3x (vs. sector’s 1.8x). We also like players who will show robust 2Q16 growth and for whom valuation is attractive: CPALL (better convenience store and cash&carry operations from stimulus and sporting events, and lower funding costs, with 2-year PEG of 1.3x), and ROBINS (better SSS growth and equity income from stimulus in April and sporting events in June, with 2-year PEG of 1.6x).

Valuation summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F

BIGC Neutral 208.00 230.0 11.9 24.9 22.0 19.6 (5) 13 12 3.7 3.3 2.9 16 16 16 1.3 1.4 1.5 14.0 12.8 11.3 CPALL Buy 49.25 60.0 23.7 32.3 27.0 22.4 39 20 21 10.6 8.8 7.2 36 36 35 1.8 1.9 2.2 18.5 16.7 14.8 GLOBAL Buy 13.50 15.0 11.6 56.9 40.5 33.9 24 40 20 3.3 3.1 2.9 6 8 9 0.3 0.4 0.5 27.5 21.6 18.7 HMPRO Neutral 9.80 9.7 1.6 36.8 31.9 28.0 6 15 14 7.6 7.3 6.8 21 23 25 2.6 2.7 2.9 18.3 16.5 14.9 MAKRO Buy 33.25 43.0 31.6 29.7 28.0 23.9 9 6 17 11.2 10.1 8.5 40 38 39 2.6 2.3 2.3 18.4 17.2 14.9 ROBINS Buy 67.00 70.0 6.2 34.6 29.3 25.0 12 18 17 5.1 4.7 4.2 16 17 18 1.5 1.7 2.0 16.9 15.3 14.1 Average 35.9 29.8 25.4 14 19 17 6.9 6.2 5.4 22 23 24 1.7 1.7 1.9 18.9 16.7 14.8 Source: SCBS Investment Research

Commerce

Sirima Dissara, CFA



Commerce July 2016

60


(%) To be disbursed for

the rest of 2016 Stimulus package announced in Sep-Dec 2015 1) Assistance measures for low income earners and small public investment 139.7 58.4 41.7 100.1 71.6% 27.5



Subtotal 211.5 0.0 11.4 11.4 5.4% 36.3 Total 645.4 212.4 141.3 353.7 54.8% 115.7

Source: NESDB and SCBS Investment Research

Figure 2: Farm income turned to positive growth in April



Figure 4: Estimated spending during 2010/2014 world cup and 2012 Euro Categories World cup 2010 EURO 2012 World Cup 2014 EURO 2016 Olympic (Btmn) 11 Jun-11 Jul 2010 8 Jun - 1 Jul 2012 12 Jun - 13 Jul 2014 10 Jun - 10 Jul 2016 5-21 Aug 2016Consumer products and parties 19,025 19,671 21,917 Electrical appliances and TV reception equipment 2,205 2,254 2,497 Others (lotteries, souvenirs) 1,235 1,293 1,301 Total general spending 22,465 23,218 25,715 N/A N/ASource: UTCC and SCBS Investment Research

Figure 5: In 2Q16TD, sector’s SSS growth was highest seen in ten quarters

Figure 6: Yearly private consumption growth and sector SSS growth

Source: Company data, NESDB and SCBS Investment Research Source: Company data. SCB EIC and SCBS Investment Research

-30%-20%-10%

0%10%20%30%40%50%

1Q08

4Q08

3Q09

2Q10

1Q11

4Q11

3Q12

2Q13

1Q14

4Q14

3Q15

Apr-

16

Farm income (SA) growth YoY

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4Q08

3Q09

2Q10

1Q11

4Q11

3Q12

2Q13

1Q14

4Q14

3Q15

Apr-

16

Price growth YoY


(6.0)(4.0)(2.0)0.02.04.06.08.0

10.012.014.016.0

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

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4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2 Q16

TD

% Private consumption growthSSS growth - Sector

4.7

7.9

5.3

8.8 7.9

9.0

3.6

(1.1) (1.2)

2.7 1.2

2.8

(1.3)

5.0

1.8

6.3

0.8 0.6

2.2

2.0

(4.0)

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

%

Sector SSS growth (%) Private consumption (%)

61

Waiting for demand to come back Demand will begin to show some improvement but not clearly visible until late

2016 when infrastructure projects get moving, encouraging private investment

Ceramic margin will widen in 2016F from low fuel cost; cement margin will be weak in ST from lower price but improve in late 2016F along with better demand

Pick SCC (solid chemical) and DCC (wider margin) on better 2Q16F than peers

1Q16 recap. SCC led its sector, with 1Q16 core earnings growth of 42% YoY, mainly on a better chemical unit (gain on weak THB/US$ and wider spread) outpacing the softer cement and building materials units (lower cement price and higher depreciation). DCC reported earnings growth of 14% YoY from a rise in volume and wider margin on lower fuel costs. SCCC was the sector’s weakest, with earnings slipping 6% YoY from lower cement prices.

Demand to show slow improvement in ST. In 4M16, local cement and ceramic tiles sales volume grew 1% YoY (vs. -1% in 2015) and dropped 6% YoY (-8% in 2015). In the near term, local demand will begin to show some slow improvement as the government disburses its investment budget, though private investment will remain dull. In 7MFY16 (Oct 2015-April 2016), the government disbursed Bt188bn (+33% YoY), mainly to water resource management and road projects, as it sped up disbursement to 38% of the budget (vs. 33% in 7MFY15) and boosted its investment budget to Bt544bn (+21% YoY) in FY2016. Private investment, on the other hand, is lackluster, with fragile sentiment and low capacity utilization in several industries. The Business Sentiment Index (BSI) slid for the third consecutive month in May to 49.7 points. Construction area permitted, a leading indicator for local construction material demand over the following 1-2 quarters, edged down 6% YoY in 4M16, with a drop in the property segment (-4%) and commercial and industrial segments (-11%).

.. and strengthen in late 2016. In late 2016, we expect local sales volume to show more solid improvement, led by greater progress on infrastructure projects and the return of private investment. Of the 20 urgent infrastructure projects under the Ministry of Transport worth Bt1.4trn, 11 were approved by the Cabinet in May 2015-April 2016, and the rest will be approved in June-2H16. While construction of these projects will boost public investment in 2016-20, more importantly, the approval of and investment in big infrastructure projects will lift sentiment and stimulate private investment. In 2016, we expect cement and ceramic tile demand growth of 2%, off a low base, more public investment growth (+11%) and better private investment growth of 2%.

Ceramic margin to widen in 2016. In 4M16, local ceramic tile price remained stable YoY. Ceramic tile producers will enjoy a wider margin as fuel costs continue low (gas cost lags oil price ~6 months). Despite the recent rise over past few months, oil price is still down 27% YoY in 2016TD, which will help lower gas costs this year.

Cement margin to improve in late 2016. For cement producers, there is concern about potential local price competition from new supply amid fragile demand. However, we expect prices to strengthen in tandem with demand in late 2016. In 4M16, local cement price dropped by 5% YoY, in line with our estimate, after -4% YoY in 2015. The plunge in spot coal price of 14% in 2016TD will help lower production costs this year, as cement producers typically lock in coal price 6-12 months in advance.

Top picks: SCC and DCC. With slow local demand revival in the near term, we prefer SCC (solid chemical spreads and equity income from new capacity, and gain on weak THB/US$) and DCC (wider ceramic tile margin from low fuel costs), both of whom will enjoy better growth than SCCC (pure cement player).

Valuation summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F DCC Buy 4.18 4.8 19.5 19.9 17.3 15.3 12 15 13 8.7 8.1 7.0 46 48 49 4.4 4.6 6.5 13.7 12.1 10.7 SCC Buy 482.00 600.0 28.3 13.3 11.7 10.7 29 14 9 2.4 2.1 1.9 19 19 19 3.3 3.9 4.2 8.5 7.7 7.0 SCCC Neutral 295.00 340.0 19.9 14.8 15.2 14.2 (9) (3) 7 3.1 2.9 2.7 21 20 20 5.1 4.6 4.6 9.9 9.7 9.5 Average 16.0 14.7 13.4 11 9 10 4.7 4.4 3.9 29 29 29 4.3 4.4 5.1 10.7 9.8 9.1 Source: SCBS Investment Research

Construction Materials

Sirima Dissara, CFAFundamental Investment

Analyst on Securities(66-2) 949-1004

[email protected]

Construction Materials July 2016

62

Figure 1: Public and private investment in 2016F Figure 2: Local demand growth in 2016F

Source: SCB EIC, FPO, BOT and SCBS Investment Research Source: BOT and SCBS Investment Research

Figure 3: Gov’t budget disbursement rose FY2016TD Figure 4: Construction area permitted fell in 4M16

Source: FPO and SCBS Investment Research Source: BoT and SCBS Investment Research

Figure 5: 20 urgent infrastructure projects to open for bid in 2016F and be constructed in 2016-20F Approval

date Project Budget(Bt mn)

Disbursement(Bt mn) % disbursed Construction

period Completion

period Projects approved by Cabinet 476,563 4,922 1.0% 7-May-15 1. Dual-track Railway: Jira - Khon Kaen 23,802 2,343 9.8% 2016-17 201826-May-15 2. Coastal port development: Laem Chabang Port 1,864 165 8.8% 2016-18 201823-Jun-15 3. Suvarnabhumi Airport Phase ll 50,322 2017-20 202014-Jul-15 4. Motorway: Pattaya-Mab Taphut 20,200 1,920 9.5% 2016-19 201915-Jul-15 5. Motorway: Bang Pa In - Nakhon Ratchasima 84,600 448 0.5% 2016-20 202016-Jul-15 6. Motorway: Bang Yai - Kanchanaburi 55,620 46 0.1% 2016-20 202022-Sep-15 7. Single Rail Transfer Operator (SRTO): Laem Chabang Port 2,031 2016-18 201829-Mar-16 8. Mass transit: Pink line: Kae Rai - Minburi 56,691 2017-20 202130-Mar-16 9. Mass transit: Yellow line: Lad Praow - Sam Rong 54,644 2017-20 202119-Apr-16 10. Mass transit: Orange line: Thailand Cultural Centre-Minburi 109,540 2016-19 202026-Apr-16 11. Dual-track Railway: Prachuab Kirikan - Chumpon 17,249 2017-18 2018 Projects awaiting for Cabinet approval in June 2016 70,161 Jun-16 12. Mass transit: Light and Dark Red Lines 44,157 2017-18 2018Jun-16 13. Dual-track Railway: Mab Kabao - Jira 26,004 2017-20 2020 Projects under study & awaiting for Cabinet approval in 2H16 864,039 2H16 14. Mass transit: Purple Line: Tao Poon - Ratburana 2018-20 20212H16 15. Dual-track Railway: Nakhon Pathom - Hua Hin 2017-18 20182H16 16. Dual-track Railway: Lop Buri - Pak Nam Po 2017-19 20192H16 17. High-speed train: Bangkok - Hua Hin 2018-20 20212H16 18. High-speed train: Bangkok - Ra Yong 2018-20 20212H16 19. Thai-Chinese railway: Bangkok - Korat 2018-20 20212H16 20. Thai-Japan railway: Bangkok - Phitsanulok 2017-20 2021 Total 1,410,763 4,922 0.3%

Source: Local newspapers, Ministry of Transport and SCBS Investment Research

Figure 6: Local product selling prices Figure 7: Fuel costs still falling YoY in 2016TD

Source: REIC and SCBS Investment Research Source: Barlow Junker, Bloomberg, and SCBS Investment Research

16.7 9.5 11.8

(1.5) 29.8 (2.0)

2.1 1.8 3.0 2.4

(0.8)(8.6)

7.0 0.8

(7.3)

29.8

12.4 11.0 8.9 10.7

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2010 2011 2012 2013 2014 2015 1Q16 2016F(SCBEIC)

2016F(FPO)

2016F(BOT)

%Private investment growthPublic investment growth

9 811

9

-1 -1

1 2

15

53

-4

-10-8 -6

2

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2010 2011 2012 2013 2014 2015 4M16 2016F

PercentDomestic cement sales growthDomestic tile sales growth

3% 5%9% 13%

19%28%

33%39%

46%52%

58%74%

4% 7%13%16%

22%

32%38%

0%

20%

40%

60%

80%

0

100

200

300

400

500

600

Oct

Nov

Dec Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep

Bt bn Investment budget disbursement - FY2015Investment budget disbursement - FY2016% disbursement - FY2015% disbursement - FY2016

0

5,000

10,000

15,000

20,000

25,000

30,000

2010 2011 2012 2013 2014 2015 4M15 4M16

'000 sqm

Construction areas permitted- ResidentialConstruction areas permitted -Commerical & industrial

-6% YoY

-4% YoY-11% YoY

95

100

105

110

115

120

125

130

Jan-

10Ap

r-10

Jul-1

0O

ct-1

0Ja

n-11

Apr-

11Ju

l-11

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-11

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12Ap

r-12

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2O

ct-1

2Ja

n-13

Apr-

13Ju

l-13

Oct

-13

Jan-

14Ap

r-14

Jul-1

4O

ct-1

4Ja

n-15

Apr-

15Ju

l-15

Oct

-15

Jan-

16Ap

r-16

Points

Cement price indexTiles and tiling materials price index

20

40

60

80

100

120

140

Jan-

10Ap

r-10

Jul-1

0O

ct-1

0Ja

n-11

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-11

Jan-

12Ap

r-12

Jul-1

2O

ct-1

2Ja

n-13

Apr-

13Ju

l-13

Oct

-13

Jan-

14Ap

r-14

Jul-1

4O

ct-1

4Ja

n-15

Apr-

15Ju

l-15

Oct

-15

Jan-

16Ap

r-16

US$

Coal spot priceBrent price

63

There are bright spots in a dim industry outlook

The electronics industry is vulnerable to eurozone concerns, a steady slump in the former lead segment (PCs) and an unexciting mobile handset market. Thai electronics companies, however, have been forward-looking and have made big adjustments via M&A, expanding in CLMV and building up new revenue streams. Despite concerns on macro outlook and ongoing adjustments, there are a few bright spots and the automotive segment is one of them. “Research and Markets” industry research firm forecasts global auto electronics markets growth at a CAGR of 14.42% in the period 2016-2020F, driven by rising consumer demand. KCE, one of the world’s top 5 automotive PCB makers is set to do well from this. The rise in demand, capacity addition of 24% over 2016-2017 and steady improvement of production efficiency makes it shine out with earnings growth of 39% in 2016F and a CAGR of 17% in 2016-18F; KCE is thus our top pick in this sector.

Vulnerable industry outlook but a few bright spots. The electronics industry is to the cloudy macro outlook and weakening industry figures reported in the first half of this year. The Semiconductor Industry Association (SIA) just slashed its 2016-2017 projection of worldwide semiconductor sales by 4-5%. We see a good chance Gartner research firm will cut its 2016 worldwide PC shipments projection from currently a 1% decline after 1Q16 shipments fell 9.6% YoY. Mobile handsets also look unexciting with no new killer features. The lights are on full in the automotive segment, however, with Research and Markets industry research firm forecasting the global auto electronics markets will grow at a CAGR of 14.42% over 2016-2020F, backed by rising consumer demand for safety, connectivity and infotainment devices. Major catalysts that will boost demand in the long term are: 1) the Advanced Driver Assistant System (ADAS), 2) autonomous cars (by 2020) and 3) growth of electric vehicles (EV cars).

Further uncertainties in 2017 with EU concerns and ongoing adjustments. The caution from both softening indicators and uncertainties after Brexit has soured sentiment for the electronics sector. Ranked by percentage of revenue from exports to Europe are SVI (77%), KCE (55%), DELTA (27%) and HANA (10%). However, most products are re-exported to encompass the globe, so the exposure in terms of end-user markets is much lower. Another concern is the substantial amount of adjustment begun in 2016: SVI (M&A), DELTA (opening operations in India to pave the way for a new business, expanding its plant in Myanmar) and HANA (changing product mix, new plant in Cambodia). Although these adjustments are a long-term positive, in the medium term, they will create uncertainties through 2017. Only KCE, which completed its largest adjustments several years ago, has an unclouded outlook.

Valuations. We derive target prices via the PE multiple approach. Given a sizable increase in sector ROEs over the past ten years to 20% in 2015 from 12.6% in 2006 (stocks under our coverage), we believe electronics stocks deserve to be traded at +1SD ten-year historical average PE. This gives us mid-2017 target prices (rounded) of Bt74 for DELTA, Bt30 for HANA, Bt100 for KCE and Bt5.4 for SVI.

KCE stands out. Rising above the dull outlook for the electronics industry as a whole, KCE stands out and is chosen as the sector’s top pick. It has the sector’s clearest outlook, most benefit from the growing automotive electronics segment (in the world’s top 5 for automotive PCBs), and we expect outstanding earnings growth of 39% in 2016F and a CAGR of 17% during 2016-18F.

Valuation summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F DELTA Neutral 67.00 74.0 15.1 13.3 13.1 12.6 14 1 4 2.7 2.5 2.3 22 20 19 4.6 4.6 4.8 8.6 8.4 7.7

HANA Neutral 29.75 30.0 7.6 10.3 11.3 10.8 39 (9) 4 1.2 1.2 1.2 12 11 11 6.7 6.7 6.7 4.2 4.2 3.7 KCE Buy 84.50 100.0 20.4 22.1 15.9 13.3 25 39 19 6.1 4.8 3.8 31 34 32 1.5 2.0 2.4 17.3 12.7 10.6

SVI Neutral 5.10 5.4 7.5 16.6 15.9 13.6 (5) 4 17 2.0 1.6 1.5 15 11 12 1.6 1.6 3.1 9.9 9.3 7.7

Average 15.6 14.0 12.6 18 9 11 3.0 2.5 2.2 20 19 18 3.6 3.7 4.3 10.0 8.7 7.4 Source: SCBS Investment Research

Electronics

Solaya Na Songkhla Securities Fundamental

Investment Analyst (66-2) 949-1006

[email protected]

Electronics July 2016

64

Figure 1: Worldwide semiconductor sales (US$,bn) Figure 2: Worldwide PC shipments (mn)

Source: SIA and WSTS Source: Gartner (January 2016)

Figure 3: Worldwide Devices Shipments by Device Type (mn units)

Device Type 2015 2016F 2017F 2018F Growth2015 2016F 2017F 2018F

1. Traditional PCs (Desk-Based and Notebook) 246 232 226 219 -11.2% -5.7% -2.6% -3.1%2. Ultramobiles (Premium) 45 55 74 92 21.6% 22.2% 34.5% 24.3%PC Market (1+2) 290 287 299 312 -7.6% -1.0% 4.2% 4.3%3. Ultramobiles (Basic and Utility) 196 195 196 198 -13.3% -0.5% 0.5% 1.0%Computing Devices Market (1+2+3) 486 482 495 510 -10.0% -0.8% 2.7% 3.0%4. Mobile Phones 1,910 1,959 1,983 2,034 1.6% 2.6% 1.2% 2.6%Total Devices Market (1+2+3+4) 2,396 2,441 2,478 2,545 -1.0% 1.9% 1.5% 2.7%Note: The Ultramobile (Premium) category includes devices such as Microsoft's Windows 8 Intel x86 products and Apple's MacBook Air. The Ultramobile (Basic and Utility Tablets) category includes devices such as, iPad, iPad mini, Samsung Galaxy Tab S 10.5, Nexus 7 and Acer Iconia Tab 8, Source: Gartner (January 2016)

Figure 4: Electric vehicle projection (mn, units) Figure 5: % export to Europe (before re-export globally)

Source: Data complied by Bloomberg New Energy Finance, Marklines Source: Company reports and SCBS Investment Research

Figure 6: Comparisons of companies’ gross margin trends

Figure 7: Daily minimum wages in Thailand vs CLMV (US$)

Source: Company reports and SCBS Investment Research Source: Philippines’ Department of Labor and Employment (Feb 2016)

-20%

-10%

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2002

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Worldwide semiconductor sales (LHS) % change (RHS)

-15.0%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%

050

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SVI KCE DELTA HANA

0%

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F

DELTA HANA

KCE SVI

- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0

Thailand Cambodia Vietnam(average)

Laos Myanmar

Sca

nd

ina

via

Electric vehicles to account for 35% of all

new vehicle sales

65

Brighter top line outlook Both AEONTS and KTC are seeing a brighter outlook for top lines

Opex growth will be up for KTC but down for AEONTS in 2016; both are expected to see further small easing in cost of funds in 2016 and stabilizing credit cost

Prefer AEONTS to KTC: valuation cheaper, growth opportunities better, and opex growth slower

AEONTS to benefit from recovering farm income, farmer assistance measures and wage hike. We expect AEONTS’ business volume to pick up in the second half of this year, backed by the start of a recovery in farm income, plus government measures to help farmers and raise minimum wage. Farm income growth returned to positive at 5% YoY in April, the first month since 2015, and we expect farm income to continue to get better as crop prices improve. Additionally, the cabinet just approved a budget of Bt45bn to help farmers via: 1) support for small business production (Bt38bn); 2) a debt moratorium (Bt5.4bn) and 3) rice insurance (Bt2.1bn). It also approved a hike in minimum wage to Bt360-550/day from Bt300/day in five industries, which is expected to take effect in August. We expect loan growth to pick up from 7% in FY2015 to 8% in FY2016 and then to 10% in FY2017.

KTC sees accelerating growth in credit card spending. KTC’s credit card spending rose ~16% YoY in 5M16 from 12% in 2015 against system credit card spending of 9% YoY in 4M16 from 6% YoY in 2015. Its 16% growth in credit card spending over 5M16 beats its full-year target of 15% and our forecast of 12%.

Seasonal hike in provision in 2Q16 but stable provisions for full year. We expect a QoQ rise in provisions for both KTC and AEONTS in 2Q16 due to seasonally lower debt collection because of the many holidays in April and May. However, asset quality for the full year is expected to be under better control. This will allow consumer finance companies to stabilize their provisioning in 2016.

Continued reduction in cost of funds. Benefiting from the low interest environment, KTC and AEONTS are seeing a small further easing in cost of funds in 2016. There is a chance the BoT will cut its policy rate further, which will be positive to their NIM.

Opex growth will be up for KTC but down for AEONTS in 2016. KTC expects little earnings growth in 2016 as top line growth will be offset by higher opex from its reengineering program to enhance efficiency this year and a 36% jump in marketing expenses. KTC calculates the higher marketing expenses plus the lower collection charges will lift cost to income ratio to 41-42% from 39-40% in 2015F. In contrast, AEONTS will tighten its opex (i.e. freezing headcount) in FY2016.

AEONTS’ big step in Cambodia and Myanmar. Its Cambodia subsidiary started a credit card business this year and the subsidiary in Myanmar reported a profit of Bt11mn in FY2015 and growth in that subsidiary will be even faster in the next few years since it can now access bank loans as an alternative to equity after the Myanmar government gave banking licenses to foreign banks. AEONTS targets 10% revenue contribution from its CLMV subsidiaries by FY2020 from ~1% now with a 5-year CAGR of 43%. We expect strong growth in its CLMV subsidiaries will support accelerated loan growth over the long run.

Prefer AEONTS to KTC. We prefer AEONTS to KTC because of a cheaper valuation, greater L-T growth opportunities from its CLMV subsidiaries and slower opex growth.

Valuation Summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F

AEONTS Buy 95.25 115.0 24.7 9.7 8.9 8.1 1 9 10 2.0 1.7 1.5 22 21 20 3.6 3.9 4.3 KTC Neutral 96.50 86.0 (7.4) 12.0 11.6 10.5 18 3 10 2.8 2.5 2.2 26 23 22 3.3 3.4 3.8

Average 10.9 10.3 9.3 10 6 10 2.4 2.1 1.8 24 22 21 3.5 3.7 4.1 Source: SCBS Investment Research

Finance

Kittima Sattayapan, CFAFundamental Investment


[email protected]

Finance July 2016

66

Figure 1: Household debt as a percentage of GDP Figure 2: Average wage

Source: NESDB, BoT and SCBS Investment Research Source: BoT and SCBS Investment Research

Figure 3: Private consumption index Figure 4: YoY growth in monthly credit card spending

Source: BoT and SCBS Investment Research Source: BoT and SCBS Investment Research

Figure 5: YoY growth in credit card numbers, credit card loans and personal loans

Figure 6: Credit card and personal loan NPLs

Source: BoT and SCBS Investment Research Source: Banks and SCBS Investment Research

0%

5%

10%

15%

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25%

30%

0%10%20%30%40%50%60%70%80%90%

2003

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2015

Household debt/Nominal GDP (RHS)Growth in household debt (LHS)

-4%-2%0%2%4%6%8%10%12%14%

02,0004,0006,0008,000

10,00012,00014,00016,000

2002

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16

YoY growth in no. of credit cardsYoY growth in credit card loansYoY growth in personal loans

0%

1%

2%

3%

4%

5%

6%

02468

1012141618

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3Q06

1Q07

3Q07

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1Q11

3Q11

1Q12

3Q12

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3Q15

1Q16

NPLs of credit card loans (LHS)NPLs of personal loans (LHS)NPL ratio of credit card loansNPL ratio of personal loans

Bt bn

67

All lights green as we enter high season Stronger 2Q16-3Q16F from high season, better livestock unit (wider spreads),

revival of aquatic unit (better volume and margin), and weak THB

Our top picks are CPF and GFPT

Livestock industry. Spreads. In 2Q16TD, swine and broiler spreads have widened 28% YoY and 8% YoY, backed by better product prices as supply adjusts and feed costs drop. Swine price jumped to Bt75/kg (+11% YoY), while broiler price was flat at Bt37/kg (-1% YoY). Corn and soybean prices dropped to Bt8.5/kg (-12% YoY) and Bt16.8/kg (-2% YoY). Meat prices. A shortage of swine in China (the world’s largest consumer) from environmental issues and weather change pushed swine prices up in China and also in the region (CLMV and Thailand) from border trade. The surge in domestic swine price widened the gap for swine and broiler price to Bt38/kg (above the 3-year average of Bt29/kg). If this continues, we may see a pickup in broiler price. A rise in price for day-old chicks to Bt12/chick (+24% YoY) in 2Q16TD are leading indicators of tighter supply. Feed costs. The weather change in South America has delayed crop season and reduced production, raising concerns that feed costs may rise in the near term. This against potential abundant supply from the US’s next crop season in late 2016 is leading sector players to believe the level of increase should be manageable. To alleviate any adverse impacts, they have begun to extend their raw material inventory management to 3-6 months in advance from 2-3 months. Thus, if feed material spot prices increase in 3Q16, it will be seen in their actual costs in 4Q16 at the earliest.

Aquatic industry. Shrimp: In 2Q16TD, shrimp price has picked up to Bt153/kg, +2% YoY, which may entice local shrimp farmers to raise production. This, together with a better shrimp survival rate using new technology for shrimp farming to prevent EMS, should bring more shrimp to domestic markets. In 2016, Thai shrimp production is poised to rise 15% YoY to 300K tons, supporting better sales volume and margin for players. Tuna: Since March, tuna price has turned up to US$1,555/ton (+41% YoY) in 2Q16TD, which should bring more OEM tuna sales volume in the near term, while branded tuna margin continues healthy in 2Q16-3Q16, buffered by its 5-6 months’ worth of low-cost inventory. Regulations: On June 28, the US upgraded Thailand to the Tier 2 watch list from Tier 3 on its US TIP report, in response to the obvious efforts of the Thai government to solve human trafficking problem. Meanwhile, the 2016 review of EU IUU fishing report will be released in July. This should be monitored as it might impact the image of Thai products, though operational impact will be minimal (of total sales, TU exports seafood 5% to the EU and 13% to the US; CPF exports 1% of shrimp to the EU and the US).

Brexit issue. There is concern that the UK’s exit from the EU may damage economies and trade. If it does exit, negotiations of new trade pacts among the UK, EU and Thailand must be made in the two years before the UK’s exit takes effect and this will determine the impact. In 2015, value of broiler exports from Thailand to the EU was Bt28bn, 34% of Thailand’s broiler exports; value of seafood exports was Bt17bn, 9% of Thailand’s seafood exports. TU's exposure to EU countries stands at 29% of its total sales, while CPF and GFPT's exposures are 8% and 7%.

Top picks: CPF and GFPT. Following the impressive 1Q16, earnings from all players will improve further in 2Q16-3Q16F, backed by: 1) high season for sales volume and margin; 2) improving livestock units (wider spreads); 3) continued revival of aquatic units (better volume and wider margin); 4) weak THB (good for overseas operations and exports). We like CPF most, as it is likely to be 2Q16F’s best (better livestock and aquatic units), followed by GFPT which will show the second best growth in 2Q16F on solid equity income off a low base and better livestock unit.

Valuation summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F CPF Buy 27.75 38.0 39.5 80.5 22.7 18.9 (63) 255 20 1.2 1.1 1.1 2 5 6 2.7 2.6 2.6 18.5 14.1 13.8 GFPT Buy 11.30 16.0 44.3 11.9 10.3 9.0 (32) 16 14 1.5 1.3 1.2 13 14 14 2.2 2.7 3.1 8.3 7.4 6.6 TU Buy 21.80 25.0 17.8 18.7 15.9 13.9 (3) 18 14 2.1 2.0 1.8 12 13 14 2.9 3.2 3.6 12.6 11.0 10.0 Average 37.0 16.3 13.9 (33) 96 16 1.6 1.5 1.4 9 11 11 2.6 2.8 3.1 13.1 10.8 10.1 Source: SCBS Investment Research

Food

Sirima Dissara, CFA

Fundamental InvestmentAnalyst on Securities


Food July 2016

68

Figure 1: In 2Q16TD, broiler and swine spreads widened

Figure 2: In 2Q16TD, swine price jumped YoY while broiler price was flat

1723 23

18 2117

20 1814 16 15 15 16 17

2832

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3328

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43

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TD

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Broiler spread Swine spread

+2% YoY

+23% YoY

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39.342.7 41.0 43.7 40.7

37.0 37.7 37.2 35.2 37.0 37.0

63.067.0 69.8 67.7

74.080.0 77.7

66.762.0

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20.030.040.050.060.070.080.090.0

1Q13

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TD

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-1% YoY

+11% YoY


Figure 3: In 2Q16TD, corn and soybean meal costs slid Figure 4: Shrimp & tuna prices edged up in 2Q16TD

10.2 10.2 9.37.8 8.2

9.6 9.7 8.8 9.5 9.7 10.08.6 8.8 8.5

18.2 18.1 17.319.8 20.6 21.3 20.3 19.6 18.5

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0.0

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‐2% YoY

163192

222268 265

215 200178 182

150 157 150185

153

2,198 2,178 1,868

1,580

1,225 1,473 1,560

1,187 1,103

1,102 1,430

1,047 1,257

1,555

-

500

1,000

1,500

2,000

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180

280

380

480

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2Q16

TD

US$/tonBt/kg

Vannamei Shrimp (70 pieces) Tuna price

+2% YoY

+41% YoY


Figure 5: Thailand exported broiler and seafood to EU of 34% and 9% to total broiler and seafood export

Figure 6: Sector’s revenue contribution from each market

Japan51%

EU34%

Asean8%

Others7%

Broiler

US24%

Japan20%

EU9%

Asean5%

Others42%

Seafood

8%33%

81%42% 1%

29%

8%

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TU CPF GFPT

Thailand US Europe Asia & others

Source: MOC and SCBS Investment Research Source: MOC and SCBS Investment Research

69

Strong earnings conviction is key. Prefer BCH. Valuation of Thai healthcare sector is currently high, indicating investor

preference for arenas where earnings are both growing and resilient to economic fluctuations, and it will be slashed from steady earnings growth in 2018.

In this environment, we believe the strongest earnings play is the safest investment and on that basis, we like BCH.

1Q16 was a good quarter. In 1Q16, sectoral earnings grew 6% YoY and 20% QoQ. BCH reported outstanding earnings growth at 64% YoY (but down 18% QoQ) from higher revenue and lower losses at World Medical Center (WMC), its high-end hospital. BDMS’ core earnings made a record high in 1Q16 (+5% YoY and 21% QoQ) driven by higher revenue and strong EBITDA margin. BH was the poorest, with core earnings growth of only 1% YoY (up 28% QoQ) due to weak revenue growth.

Seasonally soft in 2Q16 but worse for BH. The Thai healthcare sector’s low season is second quarter, so earnings are normally soft QoQ (2Q16 results will be announced in August). We flag a concern that 2Q16 will be a weaker low season than usual for BH for two reasons. First, its UAE patients declined in 1Q16 and this trend is expected to continue since the UAE is encouraging its citizens to get medical care at home. We believe this will hit BH more heavily than peers as revenue from the UAE accounts for 8% of BH’s revenue (vs. 2% for BDMS and negligible for BCH). Secondly, patients from the Middle East generally dip during Ramadan, this year running from June 6 – July 7, and these patients contribute 15-20% of total revenue for BH. We expect BCH to again report the strongest YoY core earnings growth in 2Q16 on strengthening operations at WMC, rising revenue from the social security scheme and last year’s low earnings base.

High valuation but it will come down as earnings grow. High re-ratings have been seen in healthcare sector in Thailand and regional since 2014. Our covered stocks (BCH, BDMS and BH) are trading at 38-46x 2016PE, +1.5-2.5SD of their historical average, slightly above the regional average of 39x. We view the current high valuation reflects investor preference for putting their money where earnings are growing and are resilient to economic wavering. Notably, as earnings trend steadily up, by 2018 sector valuation will come down to 30-32x PE, +0.5-1.0SD of historical average. At the same time, this means key risk for the sector is weakening in earnings prospects.

BCH is our top pick. When valuations are high, the strongest earnings play is the safest investment and on that basis, we like BCH. Its long wait for recovery is nearly over and it is striding into a new growth cycle with 22% core earnings CAGR for the next three years (above 15% for BDMS and 10% for BH) as WMC makes the turn from a drag to a driver, with profit generation as soon as 2018. In our view, EV/EBITDA is better than PE as a comparative valuation for BCH as its earnings are still being dragged down by losses at WMC (which are ending). BCH is trading at 19.6x 2016 EV/EBITDA, below the regional average of 21x – and it comes down to 15.5x in 2018. We BUY with end-2016 DCF TP of Bt14/share

Valuation Summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F

BCH Buy 12.60 14.0 11.8 59.6 47.5 39.1 1 26 21 6.4 6.0 5.4 11 13 15 0.6 0.7 0.9 23.4 20.7 18.0 BDMS Buy 23.70 27.0 15.1 47.6 41.5 35.7 8 15 16 6.5 6.4 5.9 15 16 17 1.1 1.2 1.4 27.7 24.7 21.8 BH Sell 183.00 190.0 5.2 39.3 37.3 33.5 26 6 11 12.1 11.0 9.6 28 26 26 1.3 1.3 1.5 24.2 23.1 20.7


Healthcare

Raweenuch PiyakriengkaiFundamental Investment


[email protected]

Healthcare July 2016

70

Figure 1: 1Q16 earnings review Core earnings (Bt mn) 1Q15 2Q15 3Q15 4Q15 1Q16 % YoY % QoQBCH 95 98 144 191 156 64.2 (18.4)BDMS 2,289 1,491 1,879 1,993 2,406 5.1 20.7 BH 962 836 831 760 972 1.0 27.8 Sector 3,346 2,426 2,854 2,944 3,534 5.6 20.0 Source: Company data and SCBS Investment Research

Figure 2: PE band: Regional average Figure 3: PE band: BCH

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Avg.= 25.9x

+2SD = 40.5x

-1SD = 18.7x

-2SD = 11.4x

+1SD =33.2x

PE vs S.D. — Regional

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+2SD = 42x

-1SD = 10.6x

-2SD = 0.1x

+1SD =31.5x

PE vs S.D. — BCH

+1.5SD = 36.7x

+0.5SD =26.3x

-1.5SD = 5.3x

-0.5SD = 15.8x

Source: Bloomberg and SCBS Investment Research Source: Bloomberg and SCBS Investment Research

Figure 4: PE band: BDMS Figure 5: PE band: BH

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PE vs S.D. — BDMS

+1.5SD = 41x

+0.5SD =32.6x

-1.5SD = 15.9x

-0.5SD = 24.3x

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+2SD = 42.5x

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+1SD =33.2x

PE vs S.D. — BH

+1.5SD = 37.8x

+0.5SD =28.6x

-1.5SD = 10.1x

-0.5SD = 19.3x

Source: Bloomberg and SCBS Investment Research Source: Bloomberg and SCBS Investment Research

Figure 6: Regional valuation comparison

MKt Cap PE (x) EPS Growth (%) PBV (x) Div. Yield (%) ROE (%) EV/EBITDA (x) Company name Country U$ mn. 16F 17F 18F 16F 17F 18F 16F 17F 18F 16F 17F 18F 16F 17F 18F 16F 17F 18F

Bangkok Chain Hospital * Thailand 891 47.5 39.1 32.9 25.5 21.3 19.1 6.0 5.4 4.9 0.7 0.9 1.1 13.0 14.5 15.7 20.7 18.0 16.2Bangkok Dusit Medical* Thailand 10,414 41.7 35.9 31.5 14.7 16.2 14.0 6.5 5.9 5.4 1.2 1.4 1.6 15.6 17.2 17.9 24.8 21.9 19.4Bumrungrad Hospital* Thailand 3,782 37.3 33.5 29.4 5.5 11.1 14.2 9.2 8.1 7.2 1.3 1.5 1.7 26.0 25.7 26.0 23.1 20.7 18.0Chularat Hospital Thailand 1,005 49.5 42.4 35.0 32.7 16.9 21.1 10.9 10.0 8.7 1.2 1.4 1.9 21.2 23.3 24.9 34.6 28.8 23.8Ladprao General Hospital Thailand 206 42.2 36.9 32.6 35.3 14.3 13.3 4.5 4.3 4.2 1.7 1.9 2.4 10.7 11.9 13.6 25.1 21.8 18.6Vibhavadi Medical Center Thailand 1,087 50.7 46.8 40.5 2.6 8.3 15.4 6.3 6.0 5.4 1.3 1.3 1.6 14.9 16.4 17.3 24.1 21.6 19.4KPJ Healthcare Bhd Malaysia 1,086 30.6 25.4 23.4 5.8 20.3 8.4 2.9 2.7 2.6 1.8 1.9 2.2 10.0 10.6 11.6 14.4 12.8 11.3IHH Healthcare Bhd Malaysia 13,187 50.0 41.1 34.8 14.2 21.5 18.4 2.4 2.3 2.2 0.6 0.6 0.7 4.8 5.5 6.4 23.4 20.5 17.6Raffles Medical Group Singapore 1,930 34.3 30.2 25.2 8.6 13.6 20.0 4.0 3.6 3.3 1.4 1.5 1.7 12.2 12.8 14.1 24.7 21.5 18.4Apollo Hospitals Enterpris India 2,707 45.3 35.8 27.4 11.5 26.6 30.4 4.9 4.4 4.1 0.5 0.6 1.0 11.2 12.9 15.5 22.0 18.5 15.4Ramsay Health Care Australia 10,221 27.1 24.5 22.4 14.9 10.5 9.5 6.4 5.7 5.2 1.9 2.2 2.3 23.5 23.2 22.6 13.1 12.2 11.3Ryman Healthcare New Zealand 3,117 25.5 21.9 18.7 -2.2 16.2 17.2 3.1 2.8 2.5 2.0 2.3 2.6 14.5 14.8 14.4 20.8 19.3 17.0

Average 40.1 34.5 29.5 14.1 16.4 16.7 5.6 5.1 4.6 1.3 1.5 1.7 14.8 15.7 16.7 22.6 19.8 17.2

Source: Bloomberg and SCBS Investment Research *SCBS estimates

71

Uncertainties ahead IE land sales and demand for RBF & WH were slow in 1Q16, putting 2016

at risk

Global uncertainty may lead to miss in land sales and RBF targets

Land and Building Tax Act will add extra expense of 3-7% to 2017F, assuming land blank is classified as commercial property.

Sluggish IE land sales in 1Q16; risk to 2016F. In line with the level of BoI approvals (-50% YoY), CBRE data shows industrial estate land sales plunged 83% YoY to only 113 rai in 1Q16, miles from our full year forecast of 2,651 rai. Despite weak demand, AMATA managed to raise its selling price at Amata Nakorn to Bt8.5mn/rai from Bt7.5mn/rai. We look for higher land sales QoQ in 2Q16 backed by growth at AMATA and HEMRAJ, but see risk for 2H16 as investors take to the sidelines.

RBF and WH. According to CBRE data, in 1Q16, WH demand and supply increased 7% each QoQ to 2.2mn sqm and 2.7mn sqm respectively, leaving occupancy rate stable at 83%. The demand/supply dynamics for RBF look better with QoQ demand growth of 4% outpacing supply growth of 1%, and occupancy rate rose to 71% from 69%. In 1Q16, new contracts for TICON achieved only 3% of full year target for WH and 4% for RBF; WHA reached 13%. TICON may not meet its RBF target but both TICON and WHA may achieve WH targets when they sign build-to-suit contracts.

Delay or cancellation of TPP has limited impact. Vietnam is sexy with or without the Trans-Pacific Partnership (TPP) deal thanks to its strong investment attractions including ample and cheap labor, superior economic growth, strategic location and supportive incentives and AMATAV and AMATA are ideally positioned to benefit from Vietnam’s growth. Whether TPP will or will not be born is now uncertain as both of the lead US presidential candidates - Clinton and Trump - are against it.

Brexit to adversely impact FDI in short-term. Investors are going to take to the sidelines after the Brexit vote to see how things will pan out. Though direct trade between Thailand and the UK is small (3.0% of manufacturing FDI and 1.8% of exports), the possibility of contagion poses a greater risk, since the EU takes 26.2% of manufacturing FDI and 10.2% of exports. The UK has two years to negotiate new trade pacts, which will determine the final impact, and uncertainty may hang on until then.

Moderate impact from Land and Building Tax Act. The cabinet recently passed the draft Land and Building Tax Act, which will collect property tax at a stepped rate based on property value. This will replace the old property tax that was based on rental revenue; it is to take effect on January 1, 2017. It is uncertain if land bank will be classified as commercial use, taxed at 0.3-1.5% depending on property size, or as unused land, taxed at 1% and doubling every three years with a ceiling of 3%. Our assessment suggests no impact on AMATAV but a hit of 5-7% on 2017F for other IE developers, with the new tax offsetting their selling price increases of 1-2%. Impact on RBF and WH developers is 3% for WHA and 7% for TICON as tenants will pay tax on only their units while developers will have to shoulder the taxes on all unoccupied units and land bank.

Sector pick – AMATA (TP Bt21/share). The market is overlooking AMATA’s valuable land bank in very strategic locations in Thailand. At last close, it is undervalued, trading at EV/Rai of Bt1.1mn, a 47% discount to appraisal value.


AMATA Buy 12.70 21.0 68.3 15.7 13.4 9.1 (61) 17 48 1.0 1.0 0.9 7 7 10 3.6 2.9 4.3 8.9 9.7 7.9 AMATAV Buy 8.60 10.5 24.0 56.9 16.9 9.4 (6) 236 81 2.6 2.4 2.0 6 15 23 1.8 1.9 2.1 19.8 15.3 8.6 TICON Neutral 13.90 13.0 (2.4) 19.0 17.3 15.8 (5) 10 10 1.3 1.3 1.2 7 7 8 3.6 4.1 4.5 20.1 18.7 17.6


Industrial Estate

Sirikarn Krisnipat Fundamental Investment


[email protected]

Industrial Estate July 2016

72

Figure 1: Land sales sluggish in 1Q16 Figure 2: Asking price rising in Chonburi

Source: CBRE, BoI Source: CBRE

Figure 3: RBF: Demand, supply and occupancy rate inch up slightly

Figure 4: WH: Demand and supply grow equally in 1Q16, occupancy rate unchanged

Source: CBRE Source: CBRE

Figure 5: Export to UK and EU are declining Figure 6: FDI from UK declining, but EU rising

Source: BoT Source: BoT

Figure 7: Tentative tax rates on industrial and unused land Type of property Property value (Btmn) Tentative tax rate

Commercial, Industrial =<20 0.30% 20-50 0.50% 50-100 0.70%

100-1,000 0.90% 1,000-3,000 1.20%

>3,000 1.50%

Unused land Year 1-3 n.a. 1.00% Year 4-6 n.a. 2.00% Year 7 onward n.a. 3.00% Source: Krungthep Turakij newspaper

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Unattractive for both valuation and profitability THRE expects to book a loss from marking its investment in THREL to market,

but this should be offset by extra commission profit from ceded policies

THREL has cut its 2016F premium growth target as a result of tougher regulations on the sale of life insurance to seniors via direct TV

BLA’s 2Q16F earnings are expected to return to profit as a result of a pick-up in L-T bond yield

Underweight insurance stocks on unattractive valuation and deteriorating profitability

THRE’s 2Q16F: Loss from THREL will be offset by extra commission profit from ceded policies. THRE must mark its investment in THREL to fair market value in 2Q16 after it cut its holding to ~18% in 1Q16 from 24.83% at YE2015 and all THRE managers resigned from THREL’s board on May 10, which removed THREL as an associated company. By our estimates, it will have to mark down its holding in THREL from Bt12.5/share to Bt10.1/share (based on THREL share price on May 10), giving it an investment loss of ~Bt260mn in 2Q16. But this will be offset by extra profit from commission on ceded policies. THRE expects to book profit from commission on policies (teacher support project) that it reinsured outside in 3Q15. In 2Q16, it will book the profit commission for 3Q15-2Q16 all at once. This will result in a lower combined ratio than usual in 2Q16 and will offset the investment loss from marking down its holding in THREL to fair market value. Including the extra commission profit, the company expects its combined ratio for 2016 to be ~95% (vs. 102% in 1Q16 and 93% in 2015). We estimate its combined ratio at ~80% in 2Q16.

THREL cuts 2016F premium growth target. THREL has slashed its premium growth target from 15% to 8-9% in 2016 (vs. 16% in 2015), close to the growth expected for the life insurance market as a whole. Historically, THREL has been able to grow above the market because of its aggressive expansion into non-conventional products, particularly via direct TV sales. However, it has put this on hold this year due to tougher regulations on the sale of life insurance to seniors via direct TV. All life insurance companies are doing the same as they fine tune the features of life insurance for seniors to comply with the new regulations.

BLA’s 2Q16F: Recovering earnings from picking-up bond yield. BLA booked a huge Bt6.9bn loss in 1Q16 as a result of Bt10.4bn extra life policy reserve to reflect a sharp fall in L-T bond yield (-80 bps QoQ for 10-year government bond). So far in 2Q16, L-T bond yield has been recovering (+37 bps from the end of 1Q16 for 10-year government bonds). Thus, we expect a substantial reduction in life policy reserve and a return to profit in 2Q16.

Underweight insurance stocks. All three insurance stocks under coverage have an unattractive valuation and profitability is deteriorating in 2016F.

Valuation Summary Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F

BLA Neutral 37.50 38.0 1.3 15.6 n.m. 14.5 54 n.m. n.m. 2.4 2.4 2.0 16 (13) 15 0.0 0.0 0.0

THRE Sell 2.40 2.0 (16.2) 17.0 59.0 15.7 n.m. (71) 276 1.9 1.7 1.6 13 3 10 0.0 0.5 1.9 THREL Neutral 10.00 11.0 15.7 15.4 13.1 11.7 5 17 12 4.7 4.1 3.7 31 33 33 5.0 5.7 6.4 Average 16.0 36.1 14.0 29 (27) 144 3.0 2.7 2.4 20 8 20 1.7 2.1 2.8 Source: SCBS Investment Research

Insurance


Fundamental InvestmentAnalyst on Securities


Insurance July 2016

74

Figure 1: Life insurance premium growth in January Figure 2: Government bond yield

Source: The Thai Life Assurance Association and SCBS Investment Research Source: Thai BMA and SCBS Investment Research

Figure 3: Investment in debt securities by maturity Figure 4: Investment portfolio

Source: BLA, THRE, THREL and SCBS Investment Research Source: BLA, THRE, THREL and SCBS Investment Research

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BLA The sector

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Equities & unittrust

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75

Downward spiral ending, up-cycle coming soon Right now, adspend looks discouraging, still spiraling down YoY. However,

we believe we are at the tail end of the spiral and expect adspend to begin to move up again in the not too distant future.

Though TV will continue to grab the lion’s share, OOH media is poised to expand its share of advertising budgets.

WORK and RS are our broadcaster picks as DTTV picks up more advertising dollars: both have plenty of room to bump up rates. For OOH media, we select PLANB, which is rapidly and efficiently growing earnings.

Ad spending update. Major consumer product companies such as Unilever and Beiersdorf have been cut their advertising budgets and this is hurting the industry. Ad spending in May was uninspiring, flat MoM but down YoY (-8.2%), continuing the slide YoY begun in September 2015. Adspend in the first five months of 2016 has fallen 8.5% compared to the same period last year. TV was the biggest drag, as it accounts for a whopping 68% of total adspend. In May, TV advertising came down 10% YoY and is down 11% YoY in 5M16. The trend-breakers in May were cinema (+18% YoY), OOH (+15% YoY) and internet (+33% YoY). In the 5M16, adspend in these media also outperformed overall adspend, with cinema up 16% YoY, OOH up 13% YoY and internet up 64% YoY.

Adspend is still in a long-term expansion phase. The recent slowdown in ad spending is, in our view, simply a cyclical not a structural shift. We also believe this cycle is ending - if not this year, then soon. We expect adspend to grow 3% in 2017-18, far below the 5-year average of 6%. Ad spending is directly linked to Private Consumption Expenditure (PCE), which SCB EIC expects to resume normal growth in 2H16. We also believe adspend has ample room for growth in Thailand with adspend per head at just US$57, a huge 78% below the world average of US$250 and thus expect many years of growth ahead.

OOH remains our pick for the sector. Looking beyond the unexciting growth in adspend overall, we see a clear structural shift in spending toward OOH from traditional media. Over the past eight years (from 2007-2015), growth in OOH media has exceeded the ad industry overall (8% for OOH vs. 4% for industry), with its market share rising to 9% in 2015 from 6% in 2007. There is still ample room to grow: in countries where people spend less time at home such as Hong Kong and Singapore, OOH media accounts for 25% of total adspend. With lifestyles shifting towards less time at home, OOH media has much expansion room.

WORK, PLANB and RS are top picks. On the out-of-home media theme, we prefer PLANB to VGI as PLANB has a greater diversity of assets in out-of-home media, allowing it to tap into more ad budgets. The structural shift in ad spending to DTTV from analog puts WORK at the top of our top pick list. We Buy WORK with a DCF-based target price of Bt55. Backing the selection of WORK is its stronger and more unique content than others, as seen in its high TV ratings, plus its earnings are more leveraged to a higher ad rate as it gets more of its revenue from DTTV than other digital players. Finally, it has the lowest PEG of peers. For RS, buying into it now is buying into a nearly debt-free company that is starting a new EPS growth cycle


BEC Sell 22.70 25.0 14.2 15.2 22.3 33.2 (35) (32) (33) 6.17 6.77 7.28 38 29 21 5.9 4.0 2.7 8.7 11.4 13.4 GRAMMY Neutral 8.05 8.0 (0.6) n.m. n.m. n.m. 29 80 24 2.25 2.43 2.60 (45) (11) (10) 0.0 0.0 0.0 90.1 11.6 20.1 MAJOR Neutral 32.25 32.0 2.7 28.9 25.8 21.9 1 12 18 4.41 4.35 4.20 15 17 20 3.6 3.5 4.1 13.9 13.3 11.8 MCOT Sell 8.70 6.0 (31.0) 59.8 n.m. n.m. (80) n.m. (209) 0.75 0.75 0.75 1 (1) (3) 0.7 0.0 0.0 5.2 27.3 66.6 PLANB Buy 5.30 8.5 61.5 45.9 45.1 23.7 96 2 91 6.38 6.31 5.42 22 23 24 1.1 1.1 2.1 20.2 19.2 11.9 RS Buy 11.30 14.0 25.7 92.0 32.5 25.9 (67) 188 26 6.28 5.80 5.30 7 19 22 0.7 1.8 2.3 10.4 7.9 6.8 VGI Neutral 6.05 5.0 (15.4) 49.3 44.1 42.9 (8) (21) 16 21.25 15.80 15.20 54 41 44 1.7 1.9 2.0 29.4 34.7 16.3 WORK Buy 40.00 55.0 38.5 95.6 48.8 30.3 n.m. 96 61 5.27 4.51 3.85 7 11 14 0.6 1.0 1.6 21.7 18.7 14.9

Average 55.2 36.4 29.7 (9) 46 (1) 6.59 5.84 5.57 12 16 16 1.8 1.7 1.9 24.9 18.0 20.2 Source: SCBS Investment Research

Media

Phatipak NavawatanaFundamental Investment


[email protected]

Media July 2016

76

Figure 1: : We expect ad spending to grow at a normal rate of 4% from 2017 on

Source: Company and SCBS Investment Research

Figure 2: Adspend dictates price media performances Figure 3: PCE is slowing but see signs of recovery

Source: Company and SCBS Investment Research Source: Company and SCBS Investment Research

Figure 4: Recovery of GDP will help improve ad spending in the future

Figure 5: Ad spending/head in Thailand is still far below other countries

Source: Company and SCBS Investment Research Source: Company and SCBS Investment Research

(15)(10)(5)05

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77

Positive catalysts in the pipeline Stimulus helped move finished stock in 1Q16, but new supply will drive

presales up for the rest of the year. Revenue will fluctuate on the timing of condo completion and the effect of April’s stimulus package expiration.

Backlog rising this year, securing growth and reducing forecast risk

Provincial purchasing power and demand is recovering, backed by rising farm income and growing tourism

Presales momentum stepping up ... Government stimulus helped move finished stock in 1Q16, as seen in the 44% YoY plunge in new launches vs a slip of just 3% in presales for the seven lead developers (AP, LH, LPN, PS, QH, SIRI, and SPALI). Without the stimulus, we expect QoQ growth in presales in 2Q16 and 3Q16, peaking in 4Q16, on more new launches, especially condo. We maintain our 2016 presales growth estimate for the lead seven at 19% to Bt216bn (54% low-rise and 46% condo), outdoing industry growth of 5-10% as these players take share away from high-end non-listed and small listed firms, advantaged by the low interest rate, making funding easier and cheaper.

… but revenue fluctuating. We expect QoQ revenue growth in 2Q16 from a record number of transfers at 32,950 units in April (+181% YoY) in greater Bangkok; it will then drop QoQ in 3Q16 and recover in 4Q16, in line with condo completions. SPALI is poised to do best in 2Q16. Aggregate revenue will inch up just 5% in 2016, but JV operational turnaround will pull profit up 10%. March backlog of Bt125.3bn secures 55% of 2016F.

Backlog heading north, a positive sign. Aggregate backlog has fallen since 2014 on poor condo presales (-40% YoY in 2014). However, in 2016, condo presales growth will be good at 30% against a condo revenue contraction of 7%, meaning more backlog. This will secure growth outlook and reduce forecast risk.

Signs of provincial demand recovery, SIRI benefits most. Two out of three key drivers for provincial sales are showing some signs of recovery – rising farm income and tourists. Both bring more money into the provinces, raising purchasing power and housing demand from SMEs and workers involved in tourism-related services. Once the economy in the towns improves, more migration will be seen, also bumping up housing demand. SIRI is best placed to get in on this, with the largest finished inventory of Bt5-6bn in major provinces Phuket, Chiang Mai and Khon Kaen.

Minimal impact from Land and Building Tax Act and Brexit. The cabinet recently passed the draft Land and Building Tax Act, which will collect property tax at a stepped rate based on property value; it is to take effect on January 1, 2017. This will pressure landowners to unload their raw land and thereby ease price hikes. At just 0.05% for three years for work-in-progress, tax expense for developers is tiny at <1% of our 2017F. The low tax rate of 0.03% to 0.3% for second home or more is unlikely to dent investment demand since asset appreciation is much higher than the tax expense. The housing industry is largely domestic and thus immune from Brexit.

Top picks: LH (TP Bt12/share) and SPALI (TP Bt28/share). We like LH and SPALI for their growth outlook this year and next. Their backlogs are higher, meaning better earnings visibility and reduced forecast risk. SIRI is a good play on provincial recovery.

Valuation Summary

Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) EV/EBITDA (x) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F AP Buy 7.20 8.0 15.5 9.1 7.5 6.0 (5) 21 25 1.3 1.1 1.0 15 16 18 3.5 4.4 5.5 10.5 9.2 7.4 LH Buy 9.05 12.0 37.8 15.9 13.5 11.0 (10) 18 23 2.3 2.3 2.1 15 17 20 7.2 5.2 6.4 13.9 14.0 11.2 LPN Neutral 12.80 15.0 25.2 7.8 6.9 6.8 19 14 1 1.6 1.5 1.3 22 22 20 7.0 8.0 8.0 7.3 6.6 6.6 PS Neutral 25.00 30.0 27.3 7.3 7.0 6.6 15 4 6 1.6 1.5 1.3 24 22 21 7.0 7.3 7.7 8.4 8.0 7.2 QH Buy 2.62 3.3 31.6 9.1 8.5 7.5 (8) 7 13 1.3 1.2 1.1 15 15 15 5.3 5.7 6.4 12.5 11.8 10.2 SIRI Buy 1.86 2.1 18.3 9.3 9.0 8.7 8 3 3 1.0 0.9 0.9 11 11 10 6.5 5.4 5.6 13.6 13.5 12.4 SPALI Buy 22.60 28.0 29.1 8.9 7.7 6.5 (3) 16 18 2.0 1.7 1.5 23 24 24 4.4 5.2 6.1 9.5 8.0 6.8 Average 9.6 8.6 7.6 2 12 13 1.6 1.5 1.3 18 18 18 5.8 5.9 6.5 10.8 10.2 8.8 Source: SCBS Investment Research

Residential Property

Sirikarn KrisnipatFundamental Investment


[email protected]

Residential Property July 2016

78

Figure 1: Growing presales Figure 2: … and new launches

Source: AP, LH, LPN, PS, QH, SIRI, SPALI Source: AP, LH, LPN, PS, QH, SIRI, SPALI

Figure 3: Revenue growth of 5% in 2016 Figure 4: Backlog to turn around in 2016

Source: AP, LH, LPN, PS, QH, SIRI, SPALI, SCBS Investment Research Source: AP, LH, LPN, PS, QH, SIRI, SPALI, SCBS Investment Research

Figure 5: Farm income turned to growth in April Figure 6: Record international tourist arrivals in 2016

Source: OAE Source: Department of Tourism, Thailand and SCBS Investment Research

Figure 7: Summary of property tax Type of property Ceiling tax rate Note 1. Residential estate 1.1 House price < Bt50mn/unit for first home No 1.2 House price > Bt50mn/unit for first home 0.5% Price above Bt50mn 1.3 Second home or more 0.5% All prices 2. Agricultural land 0.2% 3. Commercial, Industrial 2.0% 4. Unused land 5.0% For years 1-3

Doubling from year 1-3, but no

greater than 5% For years 4-6

Source: Prime Minister Office

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Weakening in 2Q16 with preference for ASP

We expect 2Q16F earnings to decrease both YoY and QoQ, mainly due to reductions in market share.

We prefer ASP over MBKET on high backlog of IB deals and potential benefit from the SET recovery.

Declining brokerage income on falling market share QoQ for both ASP and MBKET. ASPS’s market share slipped to 3.11% in 2Q16 from 3.24% in 1Q15. MBKET’s market share fell to 7.78% in 2Q16 from 8.02% in 1Q16. Average daily market turnover (excluding proprietary trading) for 2Q16 (as of June 16) was Bt40.4bn, slipping 1% QoQ (but +14% YoY). We expect ASP’s 2Q16 brokerage income to fall 18% QoQ and 15% YoY. MBKET’s 2Q16 brokerage income is forecast to fall 17% QoQ and 10% YoY.

ASP to benefit more from SET recovery than MBKET. ASP is expected to benefit from a recovery in the SET index more than will MBKET as it has a much larger investment portfolio (Bt2.3bn for ASP vs. Bt195mn for MBKET). ASP’s Bt622mn exposure to listed equities should benefit from a 9% YTD recovery in the SET index. Its Bt2.3bn investment portfolio is fairly well balanced between equity (proprietary trading, strategic investment, foreign investment and private equity) and fixed-income instruments.

ASP’s large IB backlog. ASP had 53 investment banking (IB) deals in the pipeline as of 1Q16, more than double the 28 deals as of YE2014. The company executed 15 deals in 1Q16 vs. 32 deals in 2015. Out of 53 deals in the pipeline, 26 are IPOs, with a few expected to be executed in 2016 and more than 10 expected to be executed in 2017. The majority of the IB deals are expected to be executed in 2H16. There is upside to our forecast of flat non-brokerage fee income for 2017F.

2Q16F preview. Mainly due to falling market share, we forecast ASP’s 2Q16F earnings to fall 13% YoY and 10% QoQ to Bt121mn and MBKET’s 2Q16F earnings to decrease 7% YoY and 17% QoQ to Bt215mn.

Neutral on sector but prefer ASP to MBKET. We are neutral on this sector as we now expect only moderate dividend yield. We continue to prefer ASP to MBKET for three reasons. 1) ASP has higher dividend yield than MBKET. 2) ASP has high backlog of IB deals. 3) ASP has been hit less by rising competition from new brokers as it has greater revenue diversification.

Valuation summary

Rating Price Target ETR P/E (x) EPS growth (%) P/BV (x) ROE (%) Div. Yield (%) (Bt/Sh) (Bt/Sh) (%) 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F ASP Neutral 3.38 3.7 17.0 12.7 11.2 10.5 (32) 13 7 1.6 1.6 1.5 12 14 15 7.1 7.6 8.1 MBKET Sell 22.20 21.0 1.2 12.4 12.9 12.2 (19) (4) 6 2.6 2.6 2.5 21 20 21 6.8 6.6 7.0 Average 12.6 12.1 11.3 (26) 5 6 2.1 2.1 2.0 17 17 18 7.0 7.1 7.5 Source: SCBS Investment Research

Securities




Securities July 2016

80

Figure 1: Target price sensitivity to turnover ASP MBKETTarget price at 2016F various daily mkt. turnover Bt37bn 3.4 19 Bt40bn — base case 3.7 21 Bt43bn 4.0 23 2016F EPS (Bt) at 2016F various daily mkt. turnover Bt37bn 0.28 1.57 Bt40bn — base case 0.30 1.72 Bt43bn 0.33 1.87 2016F DPS (Bt) at 2016F various daily mkt. turnover Bt37bn 0.24 1.33 Bt40bn — base case 0.26 1.46 Bt43bn 0.28 1.59 Dividend payout 85% 85%Target PE (x) 12.1 12.1 Source: SCBS Investment Research

Figure 2: Daily market turnover and market share for MBKET and ASP

Source: SET and SCBS Investment Research

Figure 3: 2015 revenue breakdown

Source: ASP, MBKET and SCBS Investment Research

010,00020,00030,00040,00050,00060,00070,000

0%2%4%6%8%

10%12%14%

Jan-

14Fe

b-14

Mar

-14

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ay-1

4Ju

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Daily market turnover (RHS)ASP's market share (LHS)MBKET's market share (LHS)

Btmn

0%

20%

40%

60%

80%

100%

ASP MBKET

Interest on loans

Interest & dividend on securities

Gain on investment

Fee & service Income

Brokerage fee

81

Clouded with costly license costs Though the playing field is unchanged and investors no longer fear a price

war, competition will continue intense as TRUE continues to work to steal share from both ADVANC and DTAC, aiming especially at prepaid.

Short-term profitability will be undercut by license-related costs such as amortization and network opex, which will hit ADVANC and TRUE. DTAC is also facing lower earnings - but from lower market share and costs related to trying to hold on to it.

Buy ADVANC and TRUE. ADVANC is cheap and dividend return will remain high. The fear factor hitting the stock over the past two months is past as it has said it will maintain 100% dividend payout. TRUE is gaining market share and this will help earnings turn back to the black in 2017, three years earlier than the market expects.

Good news: no price war. The playing field ended up unchanged after the license saga and the threat of a price war has dimmed. This is priced in, with DTAC and TRUE up the most at 45% YTD, followed by ADVANC, up 36% YTD.

3Q16 under pressure. After ADVANC and TRUE paid enormous prices for their new spectra, their earnings will be pressured by license costs, i.e. amortization and network opex, for at least the next twelve months. We expect TRUE to be in the red only this year, however, before again turning a profit in 2017. For ADVANC, we expect the costs to bring a 20% YoY fall in earnings in 2016. DTAC, though free of these costs, is paying heavily to keep its market share by offering subsidies and is also losing market share. This means its earnings will fall YoY in 3Q16, just like ADVANC and TRUE.

Target is prepaid market. With a 900MHz license in hand, TRUE is looking more to the prepaid market. It plans to use about half of its total bandwidth on 900MHz for 2G, which is mainly prepaid, as this spectrum provides broader coverage than higher spectrums like 1800MHz or 2100MHz. This will make it easier to grab market share from ADVANC and DTAC, the traditional leaders in the prepaid market. Currently, TRUE has only 13% revenue market share from the prepaid market (vs. 34% of postpaid) and is standing by its ambitious revenue share target of 34% by 2018 from 22% presently.

Buy ADVANC, TRUE. We Buy ADVANC with our DCF-based TP of Bt190 and TRUE with a DCF-based price of Bt10.2 (adjusted for dilution impact). Note our target price on TRUE was Bt12 (before incorporated share dilution). We view ADVANC as cheap at the current price. It has confirmed that the high price paid for the 900MHz will not affect its 100% dividend payout ratio. Dividend yield at the present price is 6%, which is high for a big-cap stock such as ADVANC. We buy TRUE on the theme that its revenue market share is on the rise at the expense of ADVANC and DTAC. It will share one-third of total revenue in the mobile business in the next three years as its network quality is increasingly perceived as at worst as good as and probably better than traditional market leader ADVANC. The cost for its licenses will put earnings into the red only in 2016 and it will be profitable again in 2017, three years earlier than the market expects. DTAC is a hold for high yield with DCF-based target price of Bt40.


ADVANC Buy 156.50 190.0 27.9 11.9 15.5 17.1 9 (23) (9) 9.6 9.6 9.6 82 62 56 8.4 6.5 5.9 6.8 7.0 6.6 DTAC Neutral 32.75 40.0 28.2 12.5 16.4 14.7 (42) (24) 12 2.8 1.9 1.7 21 14 12 8.9 6.1 6.8 4.3 5.4 5.8 TRUE Buy 7.30 10.2 39.7 n.m. n.m. 62.7 n.m. n.m. n.m. 2.4 2.5 2.4 0 (4) 4 0.1 0.0 0.8 12.1 15.9 11.4

Average 12.2 16.0 31.5 (17) (24) 1 5.0 4.7 4.6 34 24 24 5.8 4.2 4.5 7.7 9.4 7.9 Source: SCBS Investment Research

Telecom

Phatipak NavawatanaFundamental Investment


[email protected]

Telecom July 2016

82

Figure 1: More data consumption after introduction of 4G LTE

Source: SK Telecom

Figure 2: Comparison between 3G and 4G

Source: www.diffen.com

Figure 3: TRUE will gain revenue market share to 23% in 2017

Source: Company and SCBS Investment Research

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ADVANC DTAC TRUE

(%)

83

Strong low season The growing number of passengers passing through AOT’s airports and

high occupancy rate for hoteliers suggests a strong low season

Prefer ERW. It is set to show the first core profit in low season since 2009

Record high tourist arrivals in 1Q16. ERW showed the best performance. In 1Q16, Thailand’s international tourist arrivals were a record 9.0mn, up 15% YoY and 16% QoQ. China was the main support: tourists from that country achieved an all-time high of 2.6mn in 1Q16, up 31% YoY and 45% QoQ, and, at 29% of total international tourist arrivals, the biggest single contributor. Another positive is the beginning return of tourists from Russia (4% of Thailand’s total international tourist arrivals), up 10% YoY in 1Q16 after sliding since 2Q14. However the number has yet to climb back up to pre-crisis level. With exposure solely to Thai tourism, ERW was an outperformer with a reported record high core profit in 1Q16.

Operational stats suggest strong low season. Our check with tourism-related companies suggests Thai tourism is growing and that this year’s low season is strong. According to AOT, Thailand’s major airport operator, international passengers grew 11.2% YoY in April, 9.5% YoY in May and 10.5% YoY during June 1-4. Hotelier show strong occupancy rate QTD and, importantly, the occupancy rate gap between high and low season is narrowing, confirming our view of fading seasonality for Thai tourism. ERW’s QTD occupancy rate (excluding its HOP INN budget hotel) was high at ~85%. This is very little below 1Q16’s 88% and is also lower than its occupancy rate gap during 2008-12 at ~15%. CENTEL’s QTD occupancy rate for hotels in Thailand was at ~80% or 7% lower than 87% in 1Q16 and the gap is narrower than its 15% historical average for 2008-12.

Hotelier: High occupancy rate means room to increase ARR. Going forward, when occupancy rate is high in what used to be low season, we see room for hoteliers to increase average room rate (ARR) even in the low season. The industry average ARR gap between high and low season is ~20% and rising ARR is the secondary driver for revenue per available room (RevPar) growth and comes at no additional cost. Stronger low season operations means better operations overall. Of hoteliers, ERW is best positioned to benefit from this trend as it is a pure hotel play with the highest exposure to Thai tourism.

Brexit may hit Thai tourism but the growing short-haul market will dilute the impact. The United Kingdom’s decision to leave the EU has raised concerns about those economies and consequently Thai tourism: Europe and the UK account for 19% and 3%, respectively, of tourist arrivals in terms of volume. In terms of spending, they are even more important at 28% and 5%, respectively. In our view, the hit to Thai tourism will be greatly moderated by the structural change involving strong growth in arrivals from short-haul markets such as East Asia. East Asia has now become the largest source for Thai tourism at 65% of total arrivals and 54% of total spending. By country, China is the biggest at 27% of total arrivals and also of total spending.

ERW is top pick. Catalyst is the first profit in the low season. Although the record high earnings in 1Q16 have driven ERW’s share price up 5% YTD, the positive backdrop of a strong low season for Thai tourism will give ERW its first core profit in low season since 2009 and further support the share price. Of hoteliers, ERW is our top pick and we rate BUY with TP at Bt6.5/share.


AOT Neutral 389.00 420.0 9.3 35.3 29.1 24.4 31 21 19 5.1 4.6 4.1 15 17 18 1.7 1.4 1.6 19.2 16.7 14.8 CENTEL Buy 37.25 47.0 27.7 30.0 26.5 22.6 54 13 17 5.1 4.5 4.0 18 18 19 1.1 1.5 1.8 12.3 11.5 10.3 ERW Buy 4.50 6.5 45.5 56.3 33.0 27.3 n.m. 70 21 2.3 2.2 2.1 4 7 8 0.9 1.1 1.3 13.2 11.3 10.8 MINT Neutral 39.25 38.0 (2.0) 37.1 30.0 26.1 7 24 15 4.8 4.4 3.9 14 15 16 0.9 1.2 1.3 25.2 21.1 18.8


Tourism

Raweenuch PiyakriengkaiFundamental Investment


[email protected]

Tourism July 2016

84

Figure 1: Growing international tourist arrivals Figure 2: Russian tourists are returning

0.0

0.5

1.0

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2011 2012 2013

2014 2015 2016

Int'l tourist arrivals (mn)

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Russian tourists (LHS)

YoY growth (RHS)

Source: Department of Tourism, Thailand and SCBS Investment Research Source: Department of Tourism, Thailand and SCBS Investment Research

Figure 3: Record high Thai tourism in 2016 Figure 4: Breakdown of arrivals and spending

10.011.711.513.814.514.614.115.9

19.222.3

26.524.8

29.832.8

0

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35

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Millions Total international tourist arrivals

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Asi

aex

. Chi

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a

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ia

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icas

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ania

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dle

Eas

t

Afric

a

No. of int'l arrivalsTotal tourists spending

Breakdown by region/country

Source: Department of Tourism, Thailand and SCBS Investment Research Source: Department of Tourism, Thailand and SCBS Investment Research

Figure 5: High hotel occupancy rate Figure 6: ERW: Rooms are filled in the low seasons

0

20

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60

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100

1Q13

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3Q13

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1Q14

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QTD

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CENTEL ERW MINT

40%

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1Q 2Q* 3Q 4Q

ERW- Occupancy rate

2008-12 2013 2014 2015 2016

Source: Company data and SCBS Investment Research Source: Company data and SCBS Investment Research Occupancy rate is excluded HOP INN budget hotels

SCBS Investment Recommendations Price as of : 28-Jun-16

2 10 3 11 28 29 30 36 37 38 42 43 44 67 68 69 74 75 76 95 96 97 Company Rec. Price Target Price % 12-mth Core Profit (Btm) Core EPS (Bt) Core EPS growth (%) Core PER (x) P/BV (x)

(Bt) Up/(Down) BB-CON 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17FAgribusiness 1,189 1,374 1,573 11.9 10.3 9.0 1.50 1.35 1.21 13% 14% 14%

GFPT Buy 11.30 16.00 41.6 14.1 1,189 1,374 1,573 0.95 1.10 1.25 -32% 16% 14% 11.9 10.3 9.0 7.5 8.4 9.3 1.50 1.35 1.21 13% 14% 14%Automotive 23.8 2,507 2,708 3,361 12.4 11.6 9.2 1.11 1.05 1.00 9% 9% 11%

AH Buy 12.00 15.00 25.0 11.3 313 428 532 0.97 1.33 1.65 -16% 37% 24% 12.4 9.0 7.3 18.5 19.9 21.5 0.65 0.60 0.56 5% 7% 8%PCSGH Buy 5.30 7.00 32.1 5.3 532 500 643 0.34 0.32 0.42 -29% -6% 29% 15.4 16.4 12.7 3.2 3.2 3.3 1.68 1.65 1.61 11% 10% 13%SAT Buy 13.20 18.00 36.4 15.5 641 603 768 1.51 1.42 1.81 -1% -6% 27% 8.8 9.3 7.3 13.0 13.9 14.9 1.01 0.95 0.88 12% 11% 13%STANLY Neutral 176.50 200.00 13.3 188.0 1,022 1,177 1,417 13.34 15.36 18.49 -4% 15% 20% 13.2 11.5 9.5 163.2 174.3 187.3 1.08 1.01 0.94 9% 9% 10%

Banking 16.4 191,953 194,447 218,584 10.4 10.4 9.3 1.19 1.07 0.99 12% 11% 12%Large BanksBBL Buy 159.00 180.00 13.2 175.6 34,181 33,847 36,144 17.91 17.73 18.94 -6% -1% 7% 8.9 9.0 8.4 189.6 200.9 213.4 0.84 0.79 0.75 10% 9% 9%KBANK Buy 169.50 198.00 16.8 179.9 39,474 38,489 46,366 16.49 16.08 19.37 -14% -2% 20% 10.3 10.5 8.7 119.4 133.4 148.7 1.42 1.27 1.14 15% 13% 14%KTB Buy 16.60 19.00 14.5 18.0 28,494 28,241 33,259 2.04 2.02 2.38 -14% -1% 18% 8.1 8.2 7.0 17.6 19.6 21.2 0.94 0.85 0.78 12% 11% 12%Mid/small banksBAY Sell 36.75 29.00 (21.1) 32.0 18,634 19,884 22,826 2.53 2.70 3.10 9% 7% 15% 14.5 13.6 11.8 25.9 27.8 30.1 1.42 1.32 1.22 12% 10% 11%KKP Neutral 41.75 42.00 0.6 44.3 3,317 4,097 4,535 3.92 4.84 5.36 25% 24% 11% 10.7 8.6 7.8 44.8 46.9 48.8 0.93 0.89 0.86 9% 11% 11%LHBANK Sell 1.75 1.50 (14.3) 1.7 1,652 1,981 2,203 0.12 0.09 0.10 33% -23% 11% 14.5 18.7 16.8 1.3 1.7 1.8 1.33 1.03 0.98 10% 7% 6%TCAP Buy 35.25 42.00 19.1 40.2 5,437 5,922 6,525 4.25 4.63 5.11 6% 9% 10% 8.3 7.6 6.9 41.2 44.3 47.8 0.86 0.80 0.74 10% 11% 11%TISCO Neutral 47.00 48.00 2.1 46.8 4,250 4,829 5,056 5.31 6.03 6.31 0% 14% 5% 8.9 7.8 7.4 35.1 38.7 42.6 1.34 1.21 1.10 16% 16% 16%TMB Neutral 2.22 2.50 12.6 2.5 9,333 9,571 10,895 0.21 0.22 0.25 -2% 3% 14% 10.4 10.1 8.9 1.7 1.9 2.1 1.27 1.17 1.06 13% 12% 12%

Commerce 16.5 32,483 37,669 44,253 35.9 29.8 25.4 6.94 6.22 5.42 22% 23% 24%BIGC Neutral 208.00 230.00 10.6 219.5 6,898 7,793 8,757 8.36 9.45 10.61 -5% 13% 12% 24.9 22.0 19.6 56.6 63.4 71.2 3.68 3.28 2.92 16% 16% 16%CPALL Buy 49.25 60.00 21.8 55.6 13,687 16,378 19,767 1.52 1.82 2.20 39% 20% 21% 32.3 27.0 22.4 4.6 5.6 6.9 10.62 8.84 7.18 36% 36% 35%GLOBAL Buy 13.50 15.00 11.1 12.8 868 1,220 1,459 0.24 0.33 0.40 24% 40% 20% 56.9 40.5 33.9 4.1 4.4 4.7 3.31 3.09 2.87 6% 8% 9%HMPRO Neutral 9.80 9.70 (1.0) 8.7 3,499 4,040 4,610 0.27 0.31 0.35 6% 15% 14% 36.8 31.9 28.0 1.3 1.3 1.4 7.63 7.30 6.84 21% 23% 25%MAKRO Buy 33.25 43.00 29.3 38.0 5,378 5,697 6,679 1.12 1.19 1.39 9% 6% 17% 29.7 28.0 23.9 3.0 3.3 3.9 11.23 10.09 8.49 40% 38% 39%ROBINS Buy 67.00 70.00 4.5 57.7 2,153 2,541 2,981 1.94 2.29 2.68 12% 18% 17% 34.6 29.3 25.0 13.0 14.3 15.8 5.15 4.69 4.23 16% 17% 18%

Construction Materials 20.9 50,689 58,609 64,352 44.4 20.0 17.0 3.63 3.35 3.01 19% 20% 21%CementSCC Buy 482.00 600.00 24.5 546.7 43,435 49,577 54,014 36.20 41.31 45.01 29% 14% 9% 13.3 11.7 10.7 202.5 226.5 252.1 2.38 2.13 1.91 19% 19% 19%SCCC Neutral 295.00 340.00 15.3 333.4 4,596 4,465 4,777 19.98 19.41 20.77 -9% -3% 7% 14.8 15.2 14.2 96.1 100.5 107.7 3.07 2.94 2.74 21% 20% 20%TPIPL Sell 2.18 2.30 5.5 2.3 278 1,342 1,592 0.01 0.07 0.08 -51% 383% 19% 158.3 32.8 27.7 2.9 3.0 3.0 0.75 0.74 0.72 0% 2% 3%CeramicsDCC Buy 4.18 4.80 14.8 4.4 1,372 1,575 1,782 0.21 0.24 0.27 12% 15% 13% 19.9 17.3 15.3 0.5 0.5 0.6 8.74 8.06 6.98 46% 48% 49%DRT Sell 4.98 5.00 0.4 5.1 331 350 383 0.32 0.33 0.37 14% 6% 10% 15.8 14.9 13.6 2.1 2.2 2.3 2.35 2.28 2.20 15% 16% 16%OthersEPG Buy 13.10 18.00 37.4 16.2 676 1,300 1,805 0.30 0.46 0.64 16% 57% 39% 44.3 28.2 20.3 2.9 3.3 3.7 4.47 3.98 3.51 11% 15% 18%

Construction Services - 2,570 4,467 4,768 167.1 44.6 33.7 2.55 2.47 2.35 12% 11% 11%BJCHI U/R * 6.35 U/R 7.8 1,214 1,138 1,253 0.83 0.71 0.78 32% -15% 10% 7.7 9.0 8.1 3.4 3.7 4.1 1.89 1.70 1.54 24% 19% 20%CK U/R * 28.00 U/R 32.0 182 1,831 1,572 0.11 1.06 0.94 -82% 887% -12% 261.1 26.5 29.9 12.4 12.4 12.5 2.25 2.25 2.25 9% 9% 7%ITD U/R * 6.65 U/R 7.5 96 276 507 0.02 0.06 0.09 -60% 221% 59% 367.6 114.7 72.3 2.8 2.7 2.8 2.40 2.47 2.39 2% 3% 4%STEC U/R * 22.80 U/R 26.4 1,079 1,223 1,435 0.71 0.81 0.94 -29% 14% 16% 32.2 28.3 24.3 6.2 6.6 7.1 3.66 3.47 3.20 12% 12% 14%

Electronic Components 11.1 11,567 12,344 13,449 15.6 14.0 12.6 3.04 2.53 2.20 20% 19% 18%DELTA Neutral 67.00 74.00 10.4 77.4 6,302 6,370 6,650 5.05 5.11 5.33 14% 1% 4% 13.3 13.1 12.6 24.5 26.5 28.7 2.73 2.53 2.33 22% 20% 19%HANA Neutral 29.75 30.00 0.8 30.1 2,328 2,124 2,216 2.89 2.64 2.75 39% -9% 4% 10.3 11.3 10.8 24.1 24.8 25.5 1.23 1.20 1.17 12% 11% 11%KCE Buy 84.50 100.00 18.3 87.9 2,240 3,119 3,724 3.82 5.32 6.35 25% 39% 19% 22.1 15.9 13.3 13.8 17.8 22.3 6.14 4.76 3.79 31% 34% 32%SVI Neutral 5.10 5.40 5.9 5.8 697 732 858 0.31 0.32 0.37 -5% 4% 17% 16.6 15.9 13.6 2.5 3.1 3.3 2.03 1.63 1.53 15% 11% 12%

Energy & Utilities 140,911 154,916 173,311 16.2 15.7 12.3 1.45 1.63 1.53 13% 12% 12%Oil & Gas and CoalBANPU U/R * 14.60 U/R 12.5 -1,534 1,530 3,029 -0.59 0.40 0.70 n.m. n.m. 77% n.m. 36.8 20.8 28.9 18.6 18.8 0.51 0.79 0.78 -2% 3% 4%PTT U/R * 312.00 U/R 322.2 64,239 81,451 88,879 22.49 28.10 30.63 -24% 25% 9% 13.9 11.1 10.2 380.8 273.2 290.7 0.82 1.14 1.07 6% 10% 11%PTTEP U/R * 81.00 U/R 76.6 24,470 12,249 18,717 6.16 2.95 4.89 -51% -52% 66% 13.1 27.5 16.6 103.0 100.6 103.4 0.79 0.81 0.78 6% 3% 4%RefineriesBCP U/R * 30.50 U/R 34.1 4,151 5,289 5,669 3.01 3.81 4.10 1404% 27% 8% 10.1 8.0 7.4 26.5 28.0 30.4 1.15 1.09 1.00 12% 14% 14%ESSO U/R * 5.90 U/R 3.8 1,700 1,883 1,887 0.61 0.54 0.54 n.m. -11% 0% 9.7 10.9 10.9 4.2 4.9 5.7 1.40 1.21 1.04 23% 13% 11%IRPC U/R * 4.78 U/R 5.5 11,786 10,402 10,647 0.58 0.51 0.52 n.m. -12% 4% 8.3 9.5 9.1 3.7 4.0 4.3 1.29 1.19 1.10 16% 13% 13%TOP U/R * 59.75 U/R 71.5 13,366 15,020 14,996 6.15 7.37 7.31 n.m. 20% -1% 9.7 8.1 8.2 45.1 49.9 53.9 1.33 1.20 1.11 15% 15% 14%UtilitiesEGCO U/R * 190.00 U/R 192.1 7,825 8,246 9,476 14.86 15.66 17.99 4% 5% 15% 12.8 12.1 10.6 146.7 153.8 164.9 1.29 1.24 1.15 10% 11% 11%GLOW U/R * 85.00 U/R 88.4 8,355 8,564 8,505 5.71 5.86 5.81 -9% 3% -1% 14.9 14.5 14.6 33.7 33.9 34.7 2.52 2.51 2.45 18% 17% 17%GUNKUL U/R * 5.35 U/R 5.7 685 1,032 1,852 0.12 0.25 0.45 -77% 116% 80% 46.1 21.4 11.9 4.2 1.5 1.8 1.28 3.46 3.00 20% 12% 17%RATCH U/R * 51.00 U/R 58.0 3,188 6,792 7,044 2.20 4.68 4.86 -38% 113% 4% 23.2 10.9 10.5 41.5 44.9 47.3 1.23 1.14 1.08 5% 11% 11%TTW Neutral 10.80 11.00 1.9 11.4 2,681 2,457 2,609 0.67 0.62 0.65 -10% -8% 6% 16.1 17.5 16.5 2.9 2.9 2.9 3.77 3.77 3.74 23% 21% 23%

ROE (%)BVPS(Bt)



(Bt) Up/(Down) BB-CON 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17FROE (%)BVPS(Bt)

Finance & Securities 3.2 6,098 6,436 7,034 11.7 11.2 10.3 2.27 2.08 1.91 20% 19% 19%Credit cardAEONTS Buy 95.25 115.00 20.7 117.7 2,446 2,678 2,955 9.79 10.71 11.82 1% 9% 10% 9.7 8.9 8.1 48.1 55.2 63.2 1.98 1.72 1.51 22% 21% 20%KTC Neutral 96.50 86.00 (10.9) 107.2 2,073 2,143 2,361 8.04 8.31 9.16 18% 3% 10% 12.0 11.6 10.5 33.9 39.0 44.8 2.85 2.48 2.15 26% 23% 22%SecuritiesASP Neutral 3.38 3.70 9.5 4.2 560 634 677 0.27 0.30 0.32 -32% 13% 7% 12.7 11.2 10.5 2.1 2.2 2.2 1.60 1.56 1.51 12% 14% 15%MBKET Sell 22.20 21.00 (5.4) 21.0 1,019 981 1,041 1.79 1.72 1.82 -19% -4% 6% 12.4 12.9 12.2 8.4 8.6 9.0 2.63 2.58 2.47 21% 20% 21%

Food & Beverage 18.1 12,780 21,368 24,968 45.4 22.8 19.6 2.71 2.49 2.29 9% 11% 12%CPF Buy 27.75 38.00 36.9 32.5 2,548 9,044 10,854 0.34 1.22 1.47 -63% 255% 20% 80.5 22.7 18.9 23.5 24.5 25.2 1.18 1.13 1.10 2% 5% 6%MINT Neutral 39.25 38.00 (3.2) 40.5 4,655 5,767 6,612 1.06 1.31 1.50 7% 24% 15% 37.1 30.0 26.1 8.2 9.0 10.0 4.81 4.36 3.93 14% 15% 16%TU Buy 21.80 25.00 14.7 22.9 5,576 6,557 7,501 1.17 1.37 1.57 -3% 18% 14% 18.7 15.9 13.9 10.2 11.0 11.9 2.14 1.98 1.84 12% 13% 14%

Health Care Services 11.2 11,626 13,079 15,051 48.8 42.1 36.1 8.35 7.81 6.99 18% 18% 19%BDMS Buy 23.70 27.00 13.9 25.4 7,709 8,839 10,272 0.50 0.57 0.66 8% 15% 16% 47.6 41.5 35.7 3.6 3.7 4.0 6.54 6.44 5.89 15% 16% 17%BH Sell 183.00 190.00 3.8 201.3 3,390 3,578 3,976 4.65 4.91 5.46 26% 6% 11% 39.3 37.3 33.5 15.1 16.6 19.0 12.12 11.01 9.64 28% 26% 26%BCH Buy 12.60 14.00 11.1 12.0 527 662 803 0.21 0.27 0.32 1% 26% 21% 59.6 47.5 39.1 2.0 2.1 2.3 6.38 5.98 5.44 11% 13% 15%

Information & Communication Technology 19.6 64,978 50,157 53,677 360.7 32.6 27.7 4.17 3.57 3.53 31% 25% 24%Mobile ADVANC Buy 156.50 190.00 21.4 179.2 39,154 30,065 27,254 13.17 10.11 9.16 9% -23% -9% 11.9 15.5 17.1 16.3 16.3 16.3 9.62 9.62 9.62 82% 62% 56%DTAC Neutral 32.75 40.00 22.1 36.3 6,188 4,715 5,281 2.61 1.99 2.23 -42% -24% 12% 12.5 16.4 14.7 11.5 17.5 19.6 2.85 1.87 1.67 21% 14% 12%TRUE Buy 7.30 10.20 39.7 6.9 53 -3,086 2,860 0.00 -0.13 0.12 n.m. n.m. n.m. 3385.7 n.m. 62.7 3.0 2.9 3.0 2.41 2.52 2.42 0% -4% 4%InternetCSL U/R * 6.00 U/R 5.5 315 340 261 0.53 0.57 0.52 -21% 8% -9% 11.3 10.5 11.5 1.1 1.3 1.3 5.43 4.52 4.78 50% 45% 44%THCOM U/R * 21.50 U/R 31.7 2,717 2,466 2,513 2.48 2.25 2.29 100% -9% 2% 8.7 9.6 9.4 16.5 17.7 18.9 1.30 1.21 1.14 15% 13% 13%OtherINTUCH U/R * 54.25 U/R 65.4 14,913 13,450 13,134 4.65 4.25 4.23 7% -9% 0% 11.7 12.8 12.8 4.4 7.1 7.4 12.21 7.64 7.30 105% 67% 63%JMART U/R * 10.10 U/R 12.5 323 506 497 0.62 0.80 0.79 -2% 30% -1% 16.4 12.6 12.8 7.2 5.7 5.7 1.40 1.76 1.76 11% 16% 12%SAMART U/R * 15.90 U/R 16.9 795 1,078 1,218 0.79 1.00 1.19 -46% 26% 19% 20.1 15.9 13.3 8.3 7.2 7.5 1.92 2.21 2.13 10% 16% 17%SAMTEL U/R * 15.70 U/R 15.8 468 564 599 0.76 0.91 0.97 -35% 21% 6% 20.7 17.2 16.2 5.6 6.1 6.1 2.81 2.60 2.58 13% 15% 16%SIM U/R * 1.28 U/R 0.7 52 59 60 0.01 0.01 0.01 -93% -41% 71% 108.2 182.9 106.7 0.7 0.7 0.7 1.74 1.72 1.87 2% 3% 2%

Insurance (0.3) 7,152 -2,958 5,571 16.0 36.1 14.0 2.97 2.73 2.43 20% 8% 20%BLA Neutral 37.50 38.00 1.3 39.0 4,108 -3,587 4,415 2.41 -2.10 2.59 54% n.m. n.m. 15.6 n.m. 14.5 15.8 15.8 18.4 2.37 2.37 2.04 16% -13% 15%THRE Sell 2.40 2.00 (16.7) 2.0 2,655 171 645 0.14 0.04 0.15 n.m. -71% 276% 17.0 59.0 15.7 1.3 1.4 1.5 1.85 1.72 1.56 13% 3% 10%THREL Neutral 10.00 11.00 10.0 14.3 389 457 511 0.65 0.76 0.85 5% 17% 12% 15.4 13.1 11.7 2.1 2.4 2.7 4.68 4.10 3.68 31% 33% 33%

Media & Publishing 8.8 4,741 4,819 5,057 54.1 37.4 29.8 6.94 6.90 6.67 13% 15% 18%TV broadcastingBEC Sell 22.70 25.00 10.1 24.4 2,983 2,032 1,366 1.49 1.02 0.68 -35% -32% -33% 15.2 22.3 33.2 3.7 3.4 3.1 6.17 6.77 7.27 38% 29% 21%GRAMMY Neutral 8.05 8.00 (0.6) 11.7 -1,074 -216 -164 -1.31 -0.26 -0.20 29% 80% 24% n.m. n.m. n.m. 2.4 2.2 2.0 3.31 3.71 4.08 -42% -11% -10%MCOT Sell 8.70 6.00 (31.0) 7.4 100 -72 -222 0.15 -0.10 -0.32 -80% n.m. -209% 59.8 n.m. n.m. 11.7 11.7 11.6 0.75 0.75 0.75 1% -1% -3%RS Buy 11.30 14.00 23.9 12.8 122 344 432 0.12 0.34 0.43 -67% 183% 26% 93.8 33.2 26.4 1.8 1.9 2.1 6.42 5.96 5.46 7% 19% 22%WORK Buy 40.00 55.00 37.5 48.3 163 361 581 0.42 0.82 1.32 n.m. 96% 61% 95.6 48.8 30.3 7.5 8.7 10.2 5.36 4.58 3.90 7% 11% 14%CinemaMAJOR Neutral 32.25 32.00 (0.8) 33.5 990 1,109 1,307 1.12 1.25 1.47 1% 12% 18% 28.9 25.8 21.9 7.3 7.4 7.7 4.41 4.35 4.20 15% 17% 20%OtherPLANB Buy 5.30 8.50 60.4 6.9 405 414 792 0.12 0.12 0.22 45% 2% 91% 45.9 45.1 23.7 0.8 0.8 1.0 6.38 6.31 5.42 22% 14% 25%VGI Neutral 6.05 5.00 (17.4) 4.2 1,053 846 966 0.15 0.12 0.14 -8% -20% 14% 39.5 49.1 43.0 0.3 0.3 0.3 22.70 22.77 22.28 56% 46% 52%

Petrochemicals & Chemicals - 27,112 33,076 37,254 17.8 13.9 13.1 1.52 1.41 1.32 10% 11% 11%IVL U/R * 30.25 U/R 31.8 6,609 7,992 8,908 1.23 1.76 1.79 13284% 43% 2% 24.6 17.2 16.9 15.4 17.4 18.5 1.96 1.74 1.63 9% 12% 10%PTTGC U/R * 58.50 U/R 69.1 20,502 25,084 28,345 5.34 5.54 6.34 67% 4% 14% 11.0 10.6 9.2 54.3 54.7 57.6 1.08 1.07 1.02 10% 11% 11%

Property Development 22.0 33,624 39,481 45,649 16.4 11.7 9.9 1.59 1.45 1.31 14% 15% 16%Industrial EstateAMATA Buy 12.70 21.00 65.4 17.0 865 1,010 1,492 0.81 0.95 1.40 -61% 17% 48% 15.7 13.4 9.1 12.7 13.1 14.2 1.00 0.97 0.90 7% 7% 10%AMATAV Buy 8.60 10.50 22.1 10.5 121 475 858 0.15 0.51 0.92 -6% 236% 81% 56.9 16.9 9.4 3.3 3.6 4.3 2.64 2.39 1.98 6% 15% 23%ROJNA Neutral 5.15 7.16 39.0 418 418 418 0.24 0.24 0.24 -35% 0% 0% 21.6 21.6 21.6 7.8 7.8 7.8 0.66 0.66 0.66 3% 0% 0%TICON Neutral 13.90 13.00 (6.5) 12.6 803 883 969 0.73 0.80 0.88 -5% 10% 10% 19.0 17.3 15.8 10.6 10.9 11.2 1.31 1.27 1.24 7% 7% 8%WHA U/R * 3.04 U/R - 3.6 1,845 3,769 4,487 0.19 0.27 0.30 0% 0% 0% 15.8 11.4 10.0 1.3 1.5 1.8 2.35 1.97 1.74 25% 18% 17%



(Bt) Up/(Down) BB-CON 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17FROE (%)BVPS(Bt)

ResidentialAP Buy 7.20 8.00 11.1 7.5 2,486 3,010 3,772 0.79 0.96 1.20 -5% 21% 25% 9.1 7.5 6.0 5.6 6.3 7.2 1.28 1.14 1.00 15% 16% 18%LH Buy 9.05 12.00 32.6 10.2 6,690 7,866 9,676 0.57 0.67 0.82 -10% 18% 23% 15.9 13.5 11.0 3.9 3.9 4.3 2.33 2.31 2.12 15% 17% 20%LPN Neutral 12.80 15.00 17.2 14.2 2,413 2,742 2,759 1.64 1.86 1.87 19% 14% 1% 7.8 6.9 6.8 7.8 8.8 9.7 1.63 1.45 1.33 22% 22% 20%PS Neutral 25.00 30.00 20.0 29.5 7,680 8,014 8,467 3.44 3.59 3.79 15% 4% 6% 7.3 7.0 6.6 15.3 17.2 19.2 1.63 1.45 1.31 24% 22% 21%QH Buy 2.62 3.30 26.0 2.8 3,084 3,312 3,746 0.29 0.31 0.35 -8% 7% 13% 9.1 8.5 7.5 2.0 2.2 2.4 1.30 1.20 1.10 15% 15% 15%SIRI Buy 1.86 2.10 12.9 1.8 2,869 2,958 3,053 0.20 0.21 0.21 8% 3% 3% 9.3 9.0 8.7 1.9 2.0 2.1 0.98 0.94 0.89 11% 11% 10%SPALI Buy 22.60 28.00 23.9 22.8 4,349 5,026 5,951 2.53 2.93 3.47 -3% 16% 18% 8.9 7.7 6.5 11.6 13.3 15.4 1.96 1.70 1.47 23% 24% 24%

Property Fund 6,082 6,041 6,402 1.03 1.03 1.02CommercialCPNRF Buy 20.10 21.00 4.5 21.8 2,988 3,071 3,318 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 12.6 12.7 12.7 1.60 1.59 1.58 n.a. n.a. n.a.LHSC Buy 13.50 12.00 (11.1) 344 371 404 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10.3 10.3 10.5 1.32 1.31 1.29 n.a. n.a. n.a.IndustrialTFUND Sell 11.00 11.00 - 9.1 1,048 834 853 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 11.3 11.3 11.3 0.98 0.97 0.97 n.a. n.a. n.a.TLOGIS Buy 12.40 13.00 4.8 12.9 369 391 428 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 11.7 11.7 11.8 1.06 1.06 1.05 n.a. n.a. n.a.WHAPF Buy 11.40 14.00 22.8 11.0 706 728 751 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10.8 11.1 11.4 1.06 1.03 1.00 n.a. n.a. n.a.OfficeQHPF Buy 11.50 10.50 (8.7) 252 259 251 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10.9 10.9 10.9 1.05 1.05 1.05 n.a. n.a. n.a.POPF Buy 16.90 12.00 (29.0) 374 386 396 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 93.2 93.2 93.2 0.18 0.18 0.18 n.a. n.a. n.a.

Tourism & Leisure 29.5 1,874 2,238 2,628 43.2 29.8 25.0 3.66 3.35 3.06 11% 12% 13%CENTEL Buy 37.25 47.00 26.2 43.3 1,676 1,900 2,220 1.24 1.41 1.64 54% 13% 17% 30.0 26.5 22.6 7.4 8.2 9.2 5.05 4.53 4.05 18% 18% 19%ERW Buy 4.50 6.50 44.4 5.6 198 337 408 0.08 0.14 0.16 n.m. 70% 21% 56.3 33.0 27.3 2.0 2.1 2.2 2.27 2.17 2.06 4% 7% 8%

Transportation & Logistics 6.0 13,228 22,445 29,991 36.0 35.6 26.9 2.42 2.38 2.23 -4% 4% 10%AviationAAV Buy 6.15 7.50 22.0 6.9 1,191 2,060 2,118 0.25 0.42 0.44 946% 73% 3% 25.0 14.5 14.1 4.2 4.5 4.8 1.48 1.37 1.28 6% 10% 9%AOT Neutral 389.00 420.00 8.0 422.0 15,755 19,109 22,741 11.03 13.38 15.92 31% 21% 19% 35.3 29.1 24.4 76.2 84.1 94.7 5.11 4.62 4.11 15% 17% 18%NOK Buy 8.60 9.50 10.5 7.5 -1,039 -216 258 -1.66 -0.34 0.41 -120% 79% n.m. n.m. n.m. 20.8 4.9 4.5 4.9 1.76 1.92 1.76 -30% -7% 9%THAI Sell 24.60 15.50 (37.0) 13.6 -5,008 -258 2,924 -2.29 -0.12 1.34 77% 95% n.m. n.m. n.m. 18.4 15.1 15.0 16.3 1.63 1.64 1.51 -13% -1% 9%Mass TransitBTS Buy 9.35 10.50 12.3 10.1 2,329 1,749 1,950 0.20 0.15 0.16 3% -25% 11% 47.6 63.2 56.7 4.4 4.0 3.8 2.13 2.36 2.49 4% 4% 4%

Infrastructure FundDIF Buy 12.60 14.00 11.1 15.6 4,862 6,025 6,180 13.5 13.6 13.7 0.93 0.93 0.92

SCBS Coverage 1437.42 12.0 617,080 656,759 750,718 80.18 85.34 97.63 6.2% 6.4% 14.4% 17.9 16.8 14.7 1.8 1.7 1.6 11% 11% 12%Note: Under Review; consensus data used


2 10 3 11 Company Rec. Price Target Price % 12-mth

(Bt) Up/(Down) BB-CONAgribusiness

GFPT Buy 11.30 16.00 41.6 14.1 Automotive 23.8

AH Buy 12.00 15.00 25.0 11.3 PCSGH Buy 5.30 7.00 32.1 5.3 SAT Buy 13.20 18.00 36.4 15.5 STANLY Neutral 176.50 200.00 13.3 188.0

Banking 16.4 Large BanksBBL Buy 159.00 180.00 13.2 175.6 KBANK Buy 169.50 198.00 16.8 179.9 KTB Buy 16.60 19.00 14.5 18.0 Mid/small banksBAY Sell 36.75 29.00 (21.1) 32.0 KKP Neutral 41.75 42.00 0.6 44.3 LHBANK Sell 1.75 1.50 (14.3) 1.7 TCAP Buy 35.25 42.00 19.1 40.2 TISCO Neutral 47.00 48.00 2.1 46.8 TMB Neutral 2.22 2.50 12.6 2.5

Commerce 16.5 BIGC Neutral 208.00 230.00 10.6 219.5 CPALL Buy 49.25 60.00 21.8 55.6 GLOBAL Buy 13.50 15.00 11.1 12.8 HMPRO Neutral 9.80 9.70 (1.0) 8.7 MAKRO Buy 33.25 43.00 29.3 38.0 ROBINS Buy 67.00 70.00 4.5 57.7

Construction Materials 20.9 CementSCC Buy 482.00 600.00 24.5 546.7 SCCC Neutral 295.00 340.00 15.3 333.4 TPIPL Sell 2.18 2.30 5.5 2.3 CeramicsDCC Buy 4.18 4.80 14.8 4.4 DRT Sell 4.98 5.00 0.4 5.1 OthersEPG Buy 13.10 18.00 37.4 16.2

Construction Services - BJCHI U/R * 6.35 U/R 7.8 CK U/R * 28.00 U/R 32.0 ITD U/R * 6.65 U/R 7.5 STEC U/R * 22.80 U/R 26.4

Electronic Components 11.1 DELTA Neutral 67.00 74.00 10.4 77.4 HANA Neutral 29.75 30.00 0.8 30.1 KCE Buy 84.50 100.00 18.3 87.9 SVI Neutral 5.10 5.40 5.9 5.8

Energy & UtilitiesOil & Gas and CoalBANPU U/R * 14.60 U/R 12.5 PTT U/R * 312.00 U/R 322.2 PTTEP U/R * 81.00 U/R 76.6 RefineriesBCP U/R * 30.50 U/R 34.1 ESSO U/R * 5.90 U/R 3.8 IRPC U/R * 4.78 U/R 5.5 TOP U/R * 59.75 U/R 71.5 UtilitiesEGCO U/R * 190.00 U/R 192.1 GLOW U/R * 85.00 U/R 88.4 GUNKUL U/R * 5.35 U/R 5.7 RATCH U/R * 51.00 U/R 58.0 TTW Neutral 10.80 11.00 1.9 11.4

81 82 83 88 89 90 134 135 136 Net Debt (Btm) Shares Mkt. Cap. %Mkt.Cap / SET

15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F (m Shrs.) (Btm)2.21 2.72 3.11 8.31 7.43 6.56 -16.68 8.81 9.06 3,553 3,054 2,421 14,168 0.10

0.25 0.31 0.35 2.21 2.72 3.11 8.31 7.43 6.56 -16.68 8.81 9.06 3,553 3,054 2,421 1,254 14,168 0.102.49 2.59 3.23 5.19 4.84 3.90 -1.69 -1.68 11.81 -855 -3,485 -6,329 31,196 0.23

0.30 0.41 0.51 2.50 3.42 4.25 6.22 4.93 3.80 -7.13 11.73 10.27 2,932 2,149 1,248 323 3,871 0.030.40 0.26 0.33 0.08 0.05 0.06 6.55 6.72 5.69 -9.68 -6.78 14.19 (800) (1,118) (1,358) 1,545 8,189 0.060.60 0.57 0.72 4.55 4.30 5.47 4.07 4.00 3.14 -1.63 -7.27 11.40 973 391 (364) 425 5,613 0.045.00 4.60 5.50 2.83 2.61 3.12 3.93 3.71 2.96 11.66 -4.38 11.38 (3,960) (4,907) (5,855) 77 13,524 0.10

3.87 3.95 4.32 1,912,373 13.95

6.50 6.38 6.82 4.09 4.01 4.29 - - - 1,909 303,506 2.214.00 4.00 4.50 2.36 2.36 2.65 - - - 2,393 405,658 2.960.76 0.75 0.88 4.58 4.50 5.30 - - - 13,976 232,003 1.69

0.76 0.81 0.93 2.07 2.21 2.53 - - - 7,356 270,324 1.973.00 3.39 3.75 7.19 8.11 8.98 - - - 847 35,352 0.260.03 0.03 0.03 1.89 1.60 1.78 13,639 23,868 0.171.60 1.60 1.60 4.54 4.54 4.54 - - - 1,278 45,043 0.332.40 2.40 2.50 5.11 5.11 5.32 - - - 801 37,630 0.270.06 0.07 0.07 2.88 2.96 3.37 - - - 43,807 97,252 0.71

1.67 1.73 1.92 18.95 16.68 14.77 11.71 11.93 11.69 199,038 188,960 174,098 1,026,303 7.482.62 2.83 3.18 1.26 1.36 1.53 14.02 12.81 11.31 -6.39 6.64 9.50 10,291 5,589 -203 825 171,600 1.250.90 0.91 1.10 1.83 1.85 2.23 18.55 16.70 14.81 21.41 9.83 11.11 166,485 159,743 151,077 8,983 442,418 3.230.04 0.06 0.07 0.32 0.44 0.53 27.50 21.62 18.71 15.25 25.19 14.99 4,226 3,364 3,125 3,658 49,390 0.360.25 0.26 0.28 2.55 2.66 2.86 18.30 16.46 14.85 11.62 13.12 11.68 11,661 14,105 15,247 13,151 128,882 0.940.85 0.77 0.78 2.56 2.32 2.34 18.44 17.22 14.90 14.13 7.39 15.11 4,909 5,389 4,729 4,800 159,600 1.161.00 1.14 1.34 1.49 1.71 2.00 16.87 15.27 14.05 14.22 9.44 7.73 1,465 769 122 1,111 74,414 0.54

3.11 3.48 4.04 13.78 11.62 10.17 16.21 17.99 11.88 204,393 200,830 196,886 759,450 5.54

16.00 18.59 20.26 3.32 3.86 4.20 8.51 7.74 7.05 30.36 10.15 8.98 167,991 168,822 163,190 1,200 578,400 4.2215.00 13.61 13.50 5.08 4.61 4.58 9.90 9.66 9.50 -2.86 -1.16 7.20 5,991 3,368 7,180 230 67,850 0.490.01 0.01 0.01 0.52 0.46 0.54 15.32 12.37 11.16 43.74 22.27 8.84 26,141 25,257 23,969 20,190 44,014 0.32

0.19 0.19 0.27 4.43 4.62 6.54 13.73 12.12 10.69 8.14 12.82 11.51 743 628 176 6,528 27,287 0.200.27 0.29 0.32 5.33 5.83 6.43 7.91 7.41 6.90 7.96 5.37 5.53 1,097 1,009 905 1,048 5,219 0.04

0.00 0.20 0.26 0.00 1.53 1.97 27.32 20.44 15.70 9.92 58.51 29.25 2,430 1,746 1,465 2,800 36,680 0.273.10 2.41 2.60 17.15 17.77 17.39 -9.19 2.60 8.61 68,566 80,218 86,223 127,472 0.93

0.50 0.41 0.46 7.87 6.46 7.17 6.70 7.20 6.39 9.07 5.05 7.29 -1,147 -1,009 -1,433 1,600 10,160 0.070.65 0.44 0.38 2.32 1.56 1.36 29.89 34.05 36.12 -24.10 2.29 -2.65 39,928 53,356 58,030 1,694 47,429 0.350.00 0.00 0.01 0.00 0.05 0.11 14.32 13.04 12.98 -3.20 3.64 12.86 30,508 30,301 32,982 5,280 35,111 0.260.50 0.36 0.40 2.19 1.59 1.76 17.68 16.77 14.08 -18.54 -0.59 16.93 -723 -2,430 -3,356 1,525 34,772 0.25

3.61 3.73 4.25 9.98 8.66 7.43 10.43 10.20 11.58 -26,820 -28,827 -34,136 167,796 1.223.10 3.10 3.20 4.63 4.63 4.78 8.56 8.41 7.67 14.45 1.72 5.62 -20,298 -20,324 -22,630 1,247 83,575 0.612.00 2.00 2.00 6.72 6.72 6.72 4.18 4.24 3.75 11.69 -2.49 5.07 -9,121 -9,282 -10,346 805 23,945 0.171.30 1.70 2.00 1.54 2.01 2.37 17.28 12.68 10.59 26.77 31.21 15.61 5,587 3,515 1,700 577 48,721 0.360.08 0.08 0.16 1.57 1.57 3.14 9.90 9.31 7.72 -11.18 10.37 20.01 -2,987 -2,736 -2,860 2,266 11,555 0.08

4.06 3.80 4.15 14.55 10.14 8.97 138.71 30.18 13.39 657,871 565,941 530,088 1,926,694 14.05

1.00 0.44 0.50 6.85 2.98 3.45 6.69 13.82 12.93 6.90 -39.49 10.98 80,048 91,058 90,012 3,873 56,543 0.4110.00 11.02 12.14 3.21 3.53 3.89 3.70 3.88 3.62 25.31 -11.42 6.28 313,121 212,170 203,112 2,856 891,165 6.503.00 1.67 2.21 3.70 2.06 2.73 2.38 3.14 2.49 -25.75 -18.89 11.22 -9,182 -3,379 -15,684 3,970 321,569 2.35

1.40 1.69 1.81 4.59 5.53 5.93 5.58 5.60 5.28 124.62 17.13 8.45 15,331 25,370 26,870 1,377 41,996 0.310.00 0.02 0.00 0.00 0.34 0.00 8.18 11.80 10.90 n.m. -29.81 8.41 38,031 34,730 34,730 3,461 20,419 0.150.22 0.21 0.23 4.60 4.39 4.75 7.43 7.18 6.52 n.m. 1.96 2.10 50,128 47,237 37,850 20,434 97,677 0.712.70 3.19 3.18 4.52 5.34 5.32 6.83 5.26 4.97 1194.70 10.41 -0.02 37,839 20,789 12,135 2,040 121,892 0.89

6.25 6.51 7.06 3.29 3.42 3.72 24.47 23.88 18.24 -7.93 4.97 31.42 78,441 82,759 83,409 526 100,028 0.735.75 5.05 5.21 6.76 5.94 6.13 9.15 8.84 8.61 -6.04 0.78 -1.43 41,938 37,715 31,074 1,463 124,344 0.910.06 0.09 0.17 1.17 1.70 3.16 51.83 17.97 14.08 77.73 147.84 85.18 1,027 5,955 18,654 6,359 34,019 0.252.27 2.39 2.49 4.45 4.69 4.88 38.26 10.09 10.02 -0.68 279.33 -3.56 9,861 9,696 6,377 1,450 73,950 0.540.60 0.62 0.63 5.56 5.70 5.81 10.06 10.25 10.02 -1.76 -0.63 1.61 1,288 1,841 1,548 3,990 43,092 0.31

EBITDA Growth (%)DPS (Bt) Dividend Yield (%) EV/EBITDA (x)



(Bt) Up/(Down) BB-CONFinance & Securities 3.2

Credit cardAEONTS Buy 95.25 115.00 20.7 117.7 KTC Neutral 96.50 86.00 (10.9) 107.2 SecuritiesASP Neutral 3.38 3.70 9.5 4.2 MBKET Sell 22.20 21.00 (5.4) 21.0

Food & Beverage 18.1 CPF Buy 27.75 38.00 36.9 32.5 MINT Neutral 39.25 38.00 (3.2) 40.5 TU Buy 21.80 25.00 14.7 22.9

Health Care Services 11.2 BDMS Buy 23.70 27.00 13.9 25.4 BH Sell 183.00 190.00 3.8 201.3 BCH Buy 12.60 14.00 11.1 12.0

Information & Communication Technology 19.6 Mobile ADVANC Buy 156.50 190.00 21.4 179.2 DTAC Neutral 32.75 40.00 22.1 36.3 TRUE Buy 7.30 10.20 39.7 6.9 InternetCSL U/R * 6.00 U/R 5.5 THCOM U/R * 21.50 U/R 31.7 OtherINTUCH U/R * 54.25 U/R 65.4 JMART U/R * 10.10 U/R 12.5 SAMART U/R * 15.90 U/R 16.9 SAMTEL U/R * 15.70 U/R 15.8 SIM U/R * 1.28 U/R 0.7

Insurance (0.3) BLA Neutral 37.50 38.00 1.3 39.0 THRE Sell 2.40 2.00 (16.7) 2.0 THREL Neutral 10.00 11.00 10.0 14.3

Media & Publishing 8.8 TV broadcastingBEC Sell 22.70 25.00 10.1 24.4 GRAMMY Neutral 8.05 8.00 (0.6) 11.7 MCOT Sell 8.70 6.00 (31.0) 7.4 RS Buy 11.30 14.00 23.9 12.8 WORK Buy 40.00 55.00 37.5 48.3 CinemaMAJOR Neutral 32.25 32.00 (0.8) 33.5 OtherPLANB Buy 5.30 8.50 60.4 6.9 VGI Neutral 6.05 5.00 (17.4) 4.2

Petrochemicals & Chemicals - IVL U/R * 30.25 U/R 31.8 PTTGC U/R * 58.50 U/R 69.1

Property Development 22.0 Industrial EstateAMATA Buy 12.70 21.00 65.4 17.0 AMATAV Buy 8.60 10.50 22.1 10.5 ROJNA Neutral 5.15 7.16 39.0 TICON Neutral 13.90 13.00 (6.5) 12.6 WHA U/R * 3.04 U/R - 3.6


15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F (m Shrs.) (Btm)EBITDA Growth (%)DPS (Bt) Dividend Yield (%) EV/EBITDA (x)

5.22 5.38 5.80 68,483 0.50

3.45 3.75 4.14 3.62 3.94 4.34 250 23,813 0.173.22 3.32 3.66 3.33 3.45 3.80 258 24,881 0.18

0.24 0.26 0.27 7.10 7.57 8.09 2,106 7,117 0.051.52 1.46 1.55 6.84 6.58 6.98 571 12,672 0.09

2.16 2.29 2.53 18.74 15.41 14.16 -0.88 22.99 7.76 291,660 305,665 304,327 491,888 3.590.75 0.71 0.73 2.70 2.56 2.65 18.47 14.08 13.76 -7.15 34.76 3.30 213,917 225,471 229,420 7,743 214,867 1.570.35 0.46 0.53 0.89 1.17 1.34 25.20 21.12 18.78 6.09 21.42 10.85 41,441 45,153 42,005 4,408 172,996 1.260.63 0.69 0.79 2.89 3.15 3.61 12.56 11.04 9.96 -1.59 12.78 9.11 36,302 35,041 32,901 4,772 104,026 0.76

0.97 1.09 1.26 25.11 22.87 20.19 10.87 9.97 11.40 25,492 26,645 20,224 531,899 3.880.26 0.29 0.33 1.08 1.20 1.40 27.67 24.73 21.77 11.70 12.09 12.39 24,337 25,172 20,940 15,491 367,136 2.682.35 2.46 2.73 1.28 1.34 1.49 24.25 23.12 20.74 17.71 5.21 10.54 (1,832) (1,399) (2,488) 729 133,342 0.970.07 0.09 0.11 0.56 0.74 0.89 23.43 20.74 18.04 3.21 12.60 11.27 2,987 2,872 1,772 2,494 31,421 0.23

4.79 4.48 4.53 9.70 13.50 10.71 -3.79 -6.96 12.61 167,334 323,133 336,419 962,882 7.02

13.17 10.11 9.17 8.42 6.46 5.86 6.75 6.98 6.58 7.92 -5.40 6.19 13,327 2,636 2,636 2,973 465,289 3.392.93 1.99 2.23 8.95 6.08 6.81 4.33 5.38 5.77 -10.32 1.92 5.50 42,026 73,632 93,670 2,368 77,546 0.570.01 0.00 0.06 0.09 0.00 0.80 12.08 15.93 11.44 28.41 13.84 37.83 87,547 221,630 217,481 24,977 182,332 1.33

0.44 0.49 0.47 7.33 8.22 7.83 6.77 6.34 5.42 -13.31 -8.06 -4.26 65 -455 -455 595 3,567 0.030.65 0.90 0.93 3.02 4.20 4.31 4.95 4.63 4.19 31.48 6.36 3.97 5,053 4,865 3,182 1,096 23,564 0.17

4.63 4.12 3.93 8.53 7.60 7.24 11.52 31.30 29.46 6.96 -61.83 2.70 -1,799 6,588 4,226 3,206 173,948 1.270.47 0.48 0.40 4.65 4.70 3.96 12.84 14.03 10.25 8.59 -15.05 36.35 4,389 2,608 2,608 524 5,297 0.040.50 0.60 0.67 3.14 3.77 4.19 7.65 6.27 5.48 -24.85 13.55 11.94 8,289 5,434 5,843 1,007 16,003 0.120.40 0.53 0.58 2.55 3.39 3.69 7.44 7.02 6.85 -15.30 12.92 10.23 2,918 3,741 4,773 618 9,703 0.070.02 0.01 0.01 1.17 0.39 0.63 22.69 37.07 21.69 -57.44 -27.81 15.64 5,519 2,455 2,455 4,400 5,632 0.04

1.67 2.07 2.77 80,056 0.580.00 0.00 0.00 0.00 0.00 0.00 1,705 63,940 0.470.00 0.01 0.05 0.00 0.51 1.91 4,215 10,116 0.070.50 0.57 0.64 5.00 5.71 6.38 600 6,000 0.04

1.79 1.67 1.85 24.68 17.75 21.81 10.90 92.25 2.71 14,699 18,113 20,427 174,984 1.28

1.34 0.91 0.61 5.91 4.03 2.71 8.73 11.41 13.39 -28.25 -21.14 -13.60 5,781 7,349 8,091 2,000 45,400 0.330.00 0.00 0.00 0.00 0.00 0.00 90.14 11.59 20.11 -75.50 788.47 -32.62 3,077 4,451 6,328 820 6,601 0.050.06 0.00 0.00 0.71 0.00 0.00 5.20 27.26 66.60 60.85 -80.30 -58.99 3,424 3,722 3,739 687 5,978 0.040.07 0.21 0.26 0.65 1.84 2.31 10.38 7.91 6.76 -21.28 32.04 12.99 65 141 -258 1,010 11,412 0.080.22 0.40 0.65 0.56 0.99 1.63 20.23 19.30 15.02 112.15 22.30 34.79 -62 507 1,398 417 16,690 0.12

1.18 1.11 1.31 3.65 3.45 4.07 13.88 13.29 11.81 2.03 3.98 11.51 3,635 3,513 3,212 893 28,785 0.21

0.06 0.06 0.11 1.12 1.11 2.12 20.17 19.17 11.93 41.78 2.84 56.39 -1,034 -1,503 -2,030 3,507 18,589 0.140.10 0.12 0.12 1.72 1.93 1.98 28.70 32.04 28.82 -4.62 -10.16 11.22 -187 -66 -52 6,864 41,529 0.30

3.19 3.26 3.59 9.31 7.98 7.50 28.69 14.68 9.31 135,203 139,100 139,100 409,399 2.990.48 0.56 0.58 1.59 1.84 1.92 12.51 9.35 8.97 26.42 27.12 10.25 73,843 87,198 87,198 4,814 145,632 1.062.80 2.74 3.08 4.79 4.68 5.27 6.10 6.61 6.03 30.96 2.25 8.36 61,360 51,902 51,902 4,509 263,768 1.92

4.37 4.34 4.93 12.43 11.27 9.73 12.59 21.01 18.33 220,963 216,514 210,416 387,914 2.83

0.46 0.37 0.55 3.62 2.91 4.29 8.93 9.72 7.90 -44.26 16.50 42.70 3,349 7,874 11,310 1,067 13,551 0.100.16 0.17 0.18 1.82 1.94 2.12 19.78 15.27 8.60 15.21 162.10 80.08 -899 4,111 4,285 935 8,041 0.060.13 0.00 0.00 2.54 0.00 0.00 19.28 19.28 19.28 -19.50 0.00 0.00 15,306 15,306 15,306 1,975 10,172 0.070.50 0.57 0.63 3.60 4.12 4.53 18.36 16.88 15.83 12.98 8.68 9.33 20,172 20,129 21,036 1,099 15,278 0.110.00 0.06 0.07 0.00 1.97 2.37 10.88 6.28 6.46 154.69 13.88 3.27 46,602 30,633 32,562 14,322 43,540 0.32



(Bt) Up/(Down) BB-CONResidentialAP Buy 7.20 8.00 11.1 7.5 LH Buy 9.05 12.00 32.6 10.2 LPN Neutral 12.80 15.00 17.2 14.2 PS Neutral 25.00 30.00 20.0 29.5 QH Buy 2.62 3.30 26.0 2.8 SIRI Buy 1.86 2.10 12.9 1.8 SPALI Buy 22.60 28.00 23.9 22.8

Property FundCommercialCPNRF Buy 20.10 21.00 4.5 21.8 LHSC Buy 13.50 12.00 (11.1) IndustrialTFUND Sell 11.00 11.00 - 9.1 TLOGIS Buy 12.40 13.00 4.8 12.9 WHAPF Buy 11.40 14.00 22.8 11.0 OfficeQHPF Buy 11.50 10.50 (8.7) POPF Buy 16.90 12.00 (29.0)

Tourism & Leisure 29.5 CENTEL Buy 37.25 47.00 26.2 43.3 ERW Buy 4.50 6.50 44.4 5.6

Transportation & Logistics 6.0 AviationAAV Buy 6.15 7.50 22.0 6.9 AOT Neutral 389.00 420.00 8.0 422.0 NOK Buy 8.60 9.50 10.5 7.5 THAI Sell 24.60 15.50 (37.0) 13.6 Mass TransitBTS Buy 9.35 10.50 12.3 10.1

Infrastructure FundDIF Buy 12.60 14.00 11.1 15.6

SCBS Coverage 1437.42 12.0 Note: Under Review; consensus data used


15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F 15A 16F 17F (m Shrs.) (Btm)EBITDA Growth (%)DPS (Bt) Dividend Yield (%) EV/EBITDA (x)

0.25 0.32 0.40 3.47 4.44 5.50 10.50 9.21 7.41 -3.29 16.27 20.17 14,258 14,986 13,757 3,146 22,650 0.170.65 0.47 0.58 7.18 5.19 6.38 13.93 14.02 11.20 -8.77 1.20 22.69 31,493 34,097 31,264 11,772 106,539 0.780.90 1.02 1.03 7.03 7.99 8.04 7.32 6.61 6.59 21.51 9.69 0.61 4,367 4,142 4,212 1,476 18,889 0.141.75 1.83 1.93 7.00 7.30 7.72 7.25 6.90 6.15 11.24 4.81 6.14 18,339 18,122 14,178 2,233 55,817 0.410.14 0.15 0.17 5.34 5.66 6.41 12.54 11.76 10.17 -6.85 6.85 12.52 22,362 22,436 21,110 10,714 28,072 0.200.12 0.10 0.10 6.45 5.35 5.62 10.88 11.03 10.39 16.84 -4.32 3.60 26,224 24,666 23,409 14,286 26,571 0.191.00 1.17 1.39 4.42 5.18 6.14 9.54 8.28 6.73 1.27 16.50 18.88 19,390 20,011 17,988 1,717 38,794 0.28

5.59 5.88 6.11 96,847 0.71

1.22 1.25 1.35 6.05 6.22 6.72 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 2,212 44,471 0.320.74 0.76 0.78 5.50 5.63 5.76 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 488 6,589 0.05

0.65 0.70 0.72 5.86 6.40 6.54 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,150 12,645 0.090.79 0.93 1.01 6.37 7.46 8.18 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 414 5,132 0.040.73 0.70 0.71 6.40 6.17 6.25 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 939 10,705 0.08

0.31 0.32 0.31 2.69 2.77 2.68 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 797 9,166 0.071.06 1.10 1.12 6.27 6.48 6.65 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 482 8,140 0.06

0.98 1.29 1.52 12.78 11.39 10.54 38.92 14.68 8.17 15,766 17,412 16,483 61,529 0.450.40 0.56 0.66 1.07 1.51 1.77 12.33 11.48 10.30 16.37 9.68 8.78 8,175 9,405 7,989 1,350 50,288 0.370.04 0.05 0.06 0.89 1.06 1.28 13.22 11.29 10.77 61.47 19.69 7.55 7,591 8,008 8,494 2,498 11,242 0.08

1.94 2.07 1.72 13.23 21.16 15.30 162.65 19.75 59.36 136,093 132,072 122,997 756,152 5.51

0.10 0.11 0.11 1.63 1.73 1.77 9.32 6.15 5.74 191.73 54.28 5.83 6,446 7,137 6,657 4,850 29,828 0.226.54 5.35 6.37 1.68 1.38 1.64 19.17 16.74 14.83 24.78 13.14 13.65 -16,060 -22,506 -18,802 1,429 555,714 4.050.00 0.00 0.21 0.00 0.00 2.40 -2.17 33.73 8.85 n.m. n.m. 264.45 -4,010 -1,992 -2,139 625 5,375 0.040.00 0.00 0.33 0.00 0.00 1.36 11.39 7.99 6.86 436.37 33.05 7.53 160,911 146,543 131,140 2,183 53,696 0.39

0.60 0.68 0.13 6.42 7.23 1.41 28.43 41.20 40.22 -2.28 -21.45 5.37 -11,194 2,890 6,141 11,929 111,539 0.81

0.90 1.00 1.01 7.12 7.92 8.03 5,808 73,181 0.533.4% 3.3% 3.5% 10.14 10.35 9.44 16.72 -1.13 8.87 2,112,957 2,187,111 2,122,691 10,054,803 72.36

Disclaimer:

The information in this report has been obtained from sources believed to be reliable. However, its accuracy or completeness is not guaranteed. Any opinions expressed herein reflect our judgment at this date and are subject to change without notice. This report is for information only. It is not to be construed as an offer, or solicitation of an offer to sell or buy any securities. We accept no liability for any loss arising from the use of this document. We or our associates may have an interest in the companies mentioned therein.

SCB Securities Company Limited (“SCBS”) is a wholly-owned subsidiary of The Siam Commercial Bank Public Company Limited (“SCB”). Any information related to SCB is for sector comparison purposes.

This document is prepared by SCB Securities Company Limited (“SCBS”). SCBS has acted as tender offer agent of Asia Aviation Public Company Limited (the “Company”). Any opinions, news, research, analyses, prices, statements, forecasts, projections and/or other information contained in this document (the “Information”) is provided as general information purposes only, and shall not be construed as individualized recommendation of an offer to buy or sell or the solicitation of an offer to buy or sell any securities. SCBS and/or its directors, officers and employees shall not be liable for any direct, indirect, incidental, special or consequential loss or damage, resulting from the use of or reliance on the Information, including without limitation to, damages for loss of profits. The investors shall use the Information in association with other information and opinion, including their own judgment in making investment decision. The Information is obtained from sources believed to be reliable, and SCBS cannot guarantee the accuracy, completeness and/or correctness of the Information.

SCBS reserves the right to modify the Information from time to time without notice and in its sole discretion. This document is delivered to intended recipient(s) only and is not permitted to reproduce, retransmit, disseminate, sell, distribute, republish, circulate or commercially exploit the Information in any manner without the prior written consent of SCBS.

This document is prepared by SCB Securities Company Limited (“SCBS”) which is wholly-owned by The Siam Commercial Bank Public Company Limited (“SCB”). SCB has acted as financial advisor of Siam Makro Public Company Limited. SCBS has acted as Joint-Lead Underwriter of Siam Makro Public Company Limited. Any opinions, news, research, analyses, prices, statements, forecasts, projections and/or other information contained in this document (the “Information”) is provided as general information purposes only, and shall not be construed as individualized recommendation of an offer to buy or sell or the solicitation of an offer to buy or sell any securities. SCBS and/or its directors, officers and employees shall not be liable for any direct, indirect, incidental, special or consequential loss or damage, resulting from the use of or reliance on the Information, including without limitation to, damages for loss of profits. The investors shall use the Information in association with other information and opinion, including their own judgment in making investment decision. The Information is obtained from sources believed to be reliable, and SCBS cannot guarantee the accuracy, completeness and/or correctness of the Information.


This document is prepared by SCB Securities Company Limited (“SCBS”) which is wholly-owned by The Siam Commercial Bank Public Company Limited (“SCB”). SCB has acted as financial advisor and lead underwriter of Hemaraj Leasehold Real Estate Investment Trust. SCBS has acted as a selling agent of Hemaraj Leasehold Real Estate Investment Trust. Any opinions, news, research, analyses, prices, statements, forecasts, projections and/or other information contained in this document (the “Information”) is provided as general information purposes only, and shall not be construed as individualized recommendation of an offer to buy or sell or the solicitation of an offer to buy or sell any securities. SCBS and/or its directors, officers and employees shall not be liable for any direct, indirect, incidental, special or consequential loss or damage, resulting from the use of or reliance on the Information, including without limitation to, damages for loss of profits. The investors shall use the Information in association with other information and opinion, including their own judgment in making investment decision. The Information is obtained from sources believed to be reliable, and SCBS cannot guarantee the accuracy, completeness and/or correctness of the Information.


SCB SECURITIES COMPANY LIMITED (“SCBS”) ACTS AS MARKET MAKER AND ISSUER OF DERIVATIVE WARRANTS on the ordinary shares AAV, ADVANC, AOT, BANPU, BBL, BCP, BDMS, BEAUTY, BH, BJCHI, BLAND, CENTEL, CK, CPALL, CPF, CPN, DTAC, EARTH, EPG, GL, GLOBAL, GPSC, HMPRO, ICHI, INTUCH, IRPC, ITD, IVL, JAS, KBANK, KTB, LHBANK, LPN, MAJOR, MINT, PTT, PTTEP, PTTGC, QH, ROBINS, S, SAMART, SCC, SPALI, STEC, STPI, SVI, TASCO, THAI, THCOM, TISCO, TMB, TOP, TPIPL, TRUE, TTA, TTCL, TU, UNIQ.

Before making an investment decision over a derivative warrant, an investor should carefully read the prospectus for the details of the said derivative warrants. Any opinion, news, research, analyse, price, statement, forecast, projection and/or other information contained in this document (the “Information”) is provided as general purpose information only, and shall not be construed as a recommendation to any person of an offer to buy or sell, or the solicitation of an offer to buy or sell, any securities. SCBS and/or its directors, officers, employees, and agents shall not be liable for any direct, indirect, incidental, special or consequential loss or damage, resulting from the use of, or reliance on, the Information, including without limitation, damages for loss of profits. The investor should use the Information in association with other information and opinion, including his/her own judgment in making investment decision. The Information is obtained from sources believed to be reliable, and SCBS cannot guarantee the accuracy, completeness and/or correctness of the Information.

SCBS reserves the right to modify the Information from time to time at its sole discretion without giving any notice. This document is delivered to intended recipient(s) only and is not permitted to reproduce, retransmit, disseminate, sell, distribute, republish, circulate or commercially exploit the Information in any manner without the prior written consent of SCBS.

CG Rating 2015 Companies with CG Rating

ADVANC, BAFS, BCP, BIGC, BTS, CK, CPN, DRT, DTAC, DTC, EASTW, EGCO, GRAMMY, HANA, HMPRO, INTUCH, IRPC, IVL, KBANK, KCE, KKP, KTB, LHBANK, LPN, MCOT, MINT, MONO, NKI, PHOL, PPS, PS, PSL, PTT, PTTEP, PTTGC, QTC, RATCH, ROBINS, SAMART, SAMTEL, SAT, SC, SCB, SCC, SE-ED, SIM, SNC, SPALI, THCOM, TISCO, TKT, TMB, TOP, VGI, WACOAL

AAV, ACAP, AGE, AHC, AKP, AMATA, ANAN, AOT, APCS, ARIP, ASIMAR, ASK, ASP, BANPU, BAY, BBL, BDMS, BEM, BKI, BLA, BOL, BROOK, BWG, CENTEL, CFRESH, CHO, CIMBT, CM, CNT, COL, CPF, CPI, CSL, DCC, DELTA, DEMCO, ECF, EE, ERW, GBX, GC,GFPT, GLOBAL, GUNKUL, HOTPOT, HYDRO, ICC, ICHI, INET, IRC, KSL, KTC, LANNA, LH, LOXLEY, LRH, MACO, MBK, MC, MEGA, MFEC, NBC, NCH, NINE, NSI, NTV, OCC, OGC, OISHI, OTO, PAP, PDI, PE, PG, PJW, PM, PPP, PR, PRANDA, PREB, PT, PTG, Q-CON, QH, RS, S & J, SABINA, SAMCO, SCG, SEAFCO, SFP, SIAM, SINGER, SIS, SITHAI, SMK, SMPC, SMT, SNP, SPI, SSF, SSI, SSSC, SST, STA, STEC, SVI, SWC, SYMC, SYNTEC, TASCO, TBSP, TCAP, TF, TGCI, THAI, THANA, THANI, THIP, THRE, THREL,TICON, TIP, TIPCO, TK, TKS, TMI, TMILL, TMT, TNDT, TNITY, TNL, TOG, TPC, TPCORP, TRC, TRU, TRUE, TSC, TSTE, TSTH, TTA, TTCL, TTW, TU, TVD, TVO, TWPC, UAC, UT, UV, VNT, WAVE, WINNER, YUASA, ZMICO

2S, AEC, AEONTS, AF, AH, AIRA, AIT, AJ, AKR, AMANAH, AMARIN, AP, APCO, AQUA, AS, ASIA, AUCT, AYUD, BA, BEAUTY, BEC, BFIT, BH, BIG, BJC, BJCHI, BKD, BTNC, CBG, CGD, CHG, CHOW, CI, CITY, CKP, CNS, CPALL, CPL, CSC, CSP, CSS, CTW, DNA,EARTH, EASON, ECL, EFORL, ESSO, FE, FIRE, FOCUS, FORTH, FPI, FSMART, FSS, FVC, GCAP, GENCO, GL, GLAND, GLOW, GOLD, GYT, HTC, HTECH, IEC, IFEC, IFS, IHL, IRCP, ITD, JSP, JTS, JUBILE, KASET, KBS, KCAR, KGI, KKC, KTIS, KWC, KYE, L&E,LALIN, LHK, LIT, TT, LST, M, MAJOR, MAKRO, MATCH, MATI, MBKET, M-CHAI, MFC, MILL, MJD, MK, MODERN, MOONG, MPG, MSC, MTI, MTLS, NC, NOK, NUSA, NWR, NYT, OCEAN, PACE, PATO, PB, PCA, PCSGH, PDG, PF, PICO, PL, PLANB, PLAT, PPM,PRG, PRIN, PSTC, PTL, PYLON, QLT, RCI, RCL, RICHY, RML, RPC, S, SALEE, SAPPE, SAWAD, SCCC, SCN, SCP, SEAOIL, SIRI, SKR, SMG, SOLAR, SORKON, SPA, SPC, SPCG, SPPT, SPVI, SRICHA, SSC, STANLY, STPI, SUC, SUSCO, SUTHA, SYNEX, TAE,TAKUNI, TCC, TCCC, TCJ, TEAM, TFD, TFI, TIC, TIW, TLUXE, TMC, TMD, TOPP, TPCH, TPIPL, TRT, TSE, TSR, UMI, UP, UPF, UPOIC, UREKA, UWC, VIBHA, VIH, VPO, WHA, WIN, XO Corporate Governance Report The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on theinformation of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It isnot an evaluation of operation and is not base on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. SCB Securities Company Limited does not conform nor certify the accuracy of suchsurvey result. Anti-corruption Progress Indicator 2015 Level 5: Extended (ขยายผลสผท เก ยวของ) BCP, CPN, GYT, PE, PM, PPP, PT, PTT, PTTGC, SAT, SCC, THANI, TOPLevel 4: Certified (ไดรบการรบรอง) ADVANC, AMANAH, ASP, AYUD, BAFS, BANPU, BAY, BBL, BKI, BLA, BTS, CFRESH, CIMBT, CNS, CSL, DCC, DRT, DTC, EASTW, ECL, EGCO, ERW, FSS, GCAP, HANA, HTC, IFEC, INTUCH, IRPC, IVL, KBANK, KCE, KGI, KKP, KTB, LANNA, LHBANK, MBKET,MFC, MINT, MTI, NKI, PPS, PSL, PTG, PTTEP, SABINA, SCB, SINGER, SIS, SNC, SNP, SSF, SSI, SSSC, SVI, TCAP, THCOM, THRE, THREL, TISCO, TMB, TMD, TNITY, TOG, TSTH Level 3B: Established by Commitment and Policy (มมาตรการปองกน ตามคาม นและนโยบาย) AAV, AHC, AIT, AKR, ARROW, ASK, BA, BDMS, BEC, BJCHI, CGH, CHG, CHOW, CIG, CITY, CK, CKP, COLOR, CWT, EARTH, EASON, EPG, F&D, FANCY, FIRE, FMT, FORTH, GENCO, GL, GOLD, GPSC, GRAMMY, HYDRO, IRCP, IT, JCT, KCM, KWC, LH, LIT,LOXLEY, MACO, MANRIN, MATI, MODERN, MSC, NOBLE, NOK, NPK, NUSA, OISHI, OTO, PAF, PAP, PATO, PF, PJW, PLANB, PLE, POLAR, PRG, PTL, Q-CON, QTC, RCI, S11, SALEE, SAM, SAMART, SAMTEL, SAPPE, SC, SCP, SFP, SIM, SLP, SMT, SPA, SPORT,SSC, SST, STEC, STPI, SUC, SUTHA, T, TAE, TBSP, TCC, TFD, TGCI, TGPRO, THANA, THIP, TIW, TK, TMW, TNDT, TOPP, TPC, TPCH, TPIPL, TSR, TT, TYCN, UAC, UBIS, UEC, UMI, UP, UPF, UT, UV, VPO, WAVE, WINNER, YUASA Level 3A: Established by declaration of intent (มมาตรการปองกน ตามคาประกาศเจตนารมณ) ABC, ACAP, AGE, AH, ANAN, AP, APCS, APURE, AS, ASIA, ASIAN, ASIMAR, BIGC, BROOK, BWG, CEN, CENTEL, CHARAN, CHO, CHOTI, CM, CNT, COL, CPF, CPI, CPL, DELTA, DEMCO, DIMET, DNA, DTAC, EA, ECF, EE, EVER, FPI, GBX, GC, GFPT, GLOW,HMPRO, HOTPOT, ICC, ICHI, INOX, INSURE, IRC, JAS, JTS, JUBILE, KC, KTC, KYE, LHK, LPN, LRH, MAKRO, MC, MCOT, MFEC, MJD, MONO, MOONG, NBC, NDR, NINE, NMG, NSI, NTV, OGC, PACE, PCSGH, PDI, PG, PHOL, PLAT, PR, PRANDA, PREB, PS,QLT, RATCH, RML, ROBINS, ROJNA, RWI, SAMCO, SCCC, SCG, SEAOIL, SE-ED, SENA, SITHAI, SMK, SMPC, SPALI, SPC, SPCG, SPI, SRICHA, STANLY, SUPER, SYMC, SYNEX, SYNTEC, TASCO, TCMC, TFI, THAI, TICON, TKT, TLUXE, TMILL, TMT, TNL,TPCORP, TSTE, TTCL, TU, TVI, UOBKH, UREKA, VGI, VNT, WACOAL, WHA, ZMICO Level 2: Declared (ประกาศเจตนารมณ) 2S, ABICO, AF, AIRA, AKP, ALUCON, AMARIN, AMATA, AOT, APCO, BEAUTY, BFIT, BH, BKD, BLAND, BROCK, BRR, BSBM, BTNC, CCP, CI, CSC, CSR, CSS, EFORL, EPCO, ESTAR, FE, FER, FNS, FVC, GEL, GLOBAL, GUNKUL, IEC, IFS, ILINK, INET, J, JMT,JUTHA, K, KASET, KBS, KCAR, KKC, KSL, KTECH, L&E, LALIN, LTX, M, MALEE, MBAX, MBK, MEGA, MILL, MK, MPG, MTLS, NCH, NCL, NNCL, NPP, OCC, OCEAN, PB, PCA, PDG, PRINC, PSTC, PYLON, QH, ROCK, ROH, RP, RPC, S & J, SGP, SIAM, SKR, SMG,SMIT, SORKON, SPACK, SPPT, SR, SUSCO, TAKUNI, TEAM, TF, TIC, TIP, TIPCO, TMC, TMI, TPA, TPP, TRT, TRU, TRUE, TSC, TSI, TTW, TVD, TVO, TVT, U, UKEM, UNIQ, UWC, VIBHA, VNG, WIIK, WIN, XO Level 1: Committed (ขยายผลสผท เก ยวของ) AEONTS, AFC, AJ, AMC, AQUA, ARIP, AUCT, BAT-3K, BIG, BJC, BOL, CBG, CCET, CCN, CGD, CMR, CPH, CSP, CTW, DCON, DRACO, DSGT, DTCI, E, EMC, ESSO, FOCUS, FSMART, GIFT, GLAND, GRAND, GREEN, HFT, HTECH, IHL, ITD, JSP, KDH, KTIS, KTP,LEE, LST, MAJOR, MATCH, MAX, M-CHAI, MDX, MIDA, ML, MPIC, NC, NEP, NWR, OHTL, PICO, PK, PL, PPM, PRAKIT, PRECHA, PRIN, RAM, RICH, RS, SANKO, SAUCE, SAWAD, SAWANG, SCN, SEAFCO, SF, SHANG, SIRI, SMART, SMM, SOLAR, SPG, SPVI,STA, STAR, SVH, SVOA, SWC, TAPAC, TC, TCCC, TCJ, TCOAT, TH, TKS, TNH, TNPC, TPAC, TPOLY, TRC, TRUBB, TSE, TTA, TTI, TTL, TTTM, TWP, TWZ, UMS, UPA, UPOIC, UTP, UVAN, VARO, VI, VIH, VTE, WG Anti-corruption Progress Indicator The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companiesof the Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti-Corruption which refers to the AnnualRegistration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company . The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessmentof operations and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after that date or when there is any change to the relevant information.Nevertheless, SCB Securities Company Limited does not confirm, verify, or certify the accuracy and completeness of the assessment result. Reference 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 casesLevel 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 3: Established – Carrying out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 3A: Established by declaration of intent, Level 3B: Established by Commitment and Policy Level 2: Declared – Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 1: Committed – Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws

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