Th Interim Cabinet Strategy 0902

7/21/2019 Th Interim Cabinet Strategy 0902

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Platform 1

Strategy, 2 September 2014

Strategy - Thailand Overweight

New Cabinet Supports Investment And Reforms

Macro

Risks

Growth

Value

Veena Naidu License No. 24418, 66 2862 9752

[email protected]

Source: Company data, RHB

The new military-backed interim Cabinet is staffed and controlled by themilitary, technocrats and bureaucrats. The new ministers havetentatively indicated that economic policies will be pro infrastructureand private investment, and are supportive of revamping tax laws,energy reforms and tourism. Sectors that should benefit from the newpolicies are contractors, property, energy, utilities, tourism and banking

(an indirect beneficiary).

Of the 33 cabinet ministers, 11 (or 36.3%) are from the armed forces – nine are military officers and two are former military personnel. Militaryofficers are now overseeing nine ministries, with senior civil servants andtechnocrats appointed as deputy ministers to help them. Thus, there areexperts to assist the top military cabinet ministers.

Deputy Prime Minister for economic policies, Mr Pridiyathorn Devakul,said that he will push through infrastructure projects and prepareThailand for the opening of the Asean Economic Community (AEC) in2015. The low prices of agricultural produce will have to be tackledimmediately via farm subsidies to help the farmers. We expect thecontractor sector, which we are OVERWEIGHT on, to benefit from these

new policies.

The Finance Ministry will focus on securing financing for infrastructureprojects worth THB2.4trn and bring on the biggest tax revamp in 20years through three draft bills: i) the law and building tax, ii) inheritancetax, and iii) excise tax base change. Property developers are positive onthe Law and Building Tax Bill, as this would lead to more efficient use ofland and improve the availability land plots for sale. We expect theproperty sector to benefit from this. We are OVERWEIGHT on property.

The Energy Ministry will look into energy reforms and focus oneliminating energy subsidies. The Government last week announced anew reform on energy prices, which led to a 0-8% reduction in gasolineand petrol retail prices at gas stations. The restructuring of liquefiedpetroleum gas (LPG) and compressed natural gas (CNG) prices ought tobe the Ministry’s next task, with the major beneficiary likely to be PTT(PTT TB, BUY, TP: THB374.00). We estimate that PTT’s earnings couldpotentially be boosted by around THB20bn and its SOP-based TP byaround THB40.00/share from this restructuring.

P/E (x)

P/B (x)

Yield (%)

Dec-14F

Dec-14F

Dec-14F

Central Pattana

THB48

THB55

29.5

4.9

- BUY

Kasikornbank

THB225

THB238

11.6

2.1

1.8

BUY

Krung Thai Bank

THB24

THB25

10.2

1.4

4.0

BUY

Pruksa Real Estate

THB35

THB43

13.5

2.7

2.2

BUY

PTT

THB321

THB374

9.0

1.2

3.9

BUY

Quality Houses

THB4

THB6

13.4

2.2

3.7

BUY Unique Engineering & Construction

THB10

THB14

16.4

2.6

1.6

BUY

Company Name

Price

Target

Rating



Strategy - Thailand2 September 2014

See important disclosures at the end of this report 2

However, the likelihood of the Government allowing PTT to benefit from the fullflotation of LPG and CNG prices seems quite unlikely, especially if this is at theexpense of citizens who will have to pay higher petroleum prices.

The Industry Ministry is to focus on solving the delays in granting Ror Ngor 4 permits (plant operating permits) to factories. Currently, 870 factories are waitingfor the change in the procedures in applying for – and obtaining – the permit, ie itwould be issued within a month of application vs 4-5 months under the existingstructure. This would shorten the approval process for parties seeking to buildfactories and help boost direct investment in the country.

The Information and Communications Technology (ICT) Ministry will give firstpriority to rescuing ailing state telecom enterprises Telephone Organisation ofThailand (TOT) and Communications Authority of Thailand (CAT). The two stateenterprises can no longer book concession revenues under the Frequency Allocation Act, as the law was amended in 2012. In our opinion, enhancing thecompetitiveness of TOT and CAT against private operators would be timely. Itwould also be a challenge. As such, the auction of the 4G spectrum may bedelayed into 2016. ICT stocks Advanced Info Service (ADVANC TB, NEUTRAL,TP: THB235.00), Total Access Communication (DTAC TB, BUY, TP:THB140.00) and True Corp (TRUE TB, NR) may continue to be under pressure.We maintain our NEUTRAL call on the telco sector due to the reasonable

valuations of the players after the recent sell-offs and high dividends paid out.

The Commerce Ministry has discussed boosting exports. However, no clearstrategy has been announced yet. As exports are dependent on global factors, itwould be difficult to bring about any changes.

The Tourism and Sports Ministry is planning to introduce short-term taxmeasures for domestic tourists as well as tour and hotel operators. It plans toimplement a 2-year tax deduction for locals spending THB15,000 on hotels.Meanwhile, tour operators and hotels can deduct taxes from expenses incurredthat are related to training and seminars at twice the amount that they spent.These are small measures to boost domestic tourism numbers. For foreigntourists, the measures comprise extending visas for tourists to two months fromone month currently. In our opinion, the measures are insignificant and the lifting

of martial law would be more crucial in stimulating foreign tourist arrivals intoThailand.

We remain OVERWEIGHT on the contractor, banking and property sectors, in light ofthe economic policies tentatively indicated by the new interim Cabinet. These policieswill focus on infrastructure projects, as well as reforms in energy (aimed ateliminating subsidies), taxes (to generate more income for the Government), andindustry permits (to smoothen the process of building new factories). We areNEUTRAL on the energy sector, with our Top Pick being PTT, the major beneficiaryof the energy reforms. We like the utilities sector due to the possible opening ofindependent power producers (IPPs)’s coal-fired and solar-powered power plants,although the stocks of related companies have already priced in the good news.Depending on the results of the new bids for power projects, we may upgrade theTPs of the winners. We are NEUTRAL on the ICT sector, as share prices have fallensignificantly while dividends are attractive. However, the sector could still go througha big revamp, which would delay the bidding of the 4G spectrum to 2017.

The new Cabinet set up by the military junta was endorsed by the King on 31 Sept2014. The interim government, led by General Prayuth Chan-ocha as the PrimeMinister, has 33 ministers (inclusive of the Prime Minister). These Ministers will be incharge of 35 Ministries, with some Ministers holding two portfolios. Of the 33 cabinetministers, 11 (36.3%) are from the armed forces – nine are military officers and twoare former military personnel. In all, the nine ministries where the military officers arein charge, senior civil servants and technocrats have been appointed as DeputyMinisters to help them. The ministries that are under the military officers’ purview areDefence, Interior, Education, Foreign Affairs, Labour, Commerce, Natural Resourcesand Environment, Social Development and Human Security, and Transport.

The ministries would also be staffed by bureaucrats and technocrats.





Deputy Prime Minister for Economic Policy – Pridiyathorn Devakul

Profile: Pridiyathorn Devakul has been a Deputy Minister of Commerce, a Senatorand a Governor of the central bank.

Urgent tasks:

Pushing through government infrastructure projects. Preparing the country for integration into the Asean Economic Community

(AEC) in late 2015.

The agriculture sector is in critical need of reformative measures. We

believe that price subsidies are inevitable before a sustainable measure is

implemented.

Finance Minister – Sommai Phasee

Profile: Mr Phasee has worked at the Finance Ministry for the majority of his career.He was the Director-General of the Fiscal Policy Office before he was promoted tothe post of Deputy Permanent Secretary of the Finance Ministry, his last job beforeretirement.

Urgent tasks: Financing for the THB2.4trn infrastructure development scheme recently

approved by National Council for Peace and Order (NCPO).

A tax revamp. For the first time in two decades, the Finance Ministry hasinstigated a series of tax changes:

i. The land and buildings tax

ii. Inheritance tax

iii. Excise tax base change

These are the first three tax drafts to be considered by the National Legislative Assembly.

Commerce Minister – General Chatchai Sarikulya

Profile: General Chatchai Sarikulya, the Deputy Chief of the NCPO, was a classmateof the Prime Minister in Class 12 of the military’s pre-cadet school. General Sarikulyawas involved with finance matters throughout his career with the Royal Thai Army.

Urgent tasks:

Boosting exports

Making the Ministry more effective and resolving problems hindering trade

Regaining the trust of foreign trading partners

Industry Minister –

Chakramon Phasukvanich

Profile: Mr Chakramon Phasukvanich is a former Permanent Secretary for theMinistry of Industry.

Urgent tasks:

Cutting red tape procedures and impediments to building new factories – thedelays in issuing plant operating permits, ie Ror Ngor 4 licences, to 870factories by the previous administration was a major stumbling block forinvestors

All regulations hindering private investment should be revamped

Enhancing the role of small businesses so they can help drive the economy

Restructuring the sugar and sugar cane industry is also a must – the

existing revenue-sharing format has growers and millers splitting the money70:30. Floating sugar prices and zoning plantation areas would be the firststeps that need to be taken. He is also set to outline new rules for awardingmining concessions, especially gold mining, ie another concern.





Energy Minister – Narongchai Akarasanee

Profile: Mr Narongchai Akarasanee is a former Commerce Minister and Senator.

Urgent tasks:

Eliminating energy subsidies – Mr Akarasanee was quoted as saying,

"Energy reform is an urgent task, but the public attention means we can

push forward reform cautiously using comments from various parties."

ICT minister – Pornchai Rujiprapa

Profile: Mr Pornchai Rujiprapa served as a Deputy Secretary-General of the NationalEconomic and Social Development Board of Thailand (NESDB), and chairman ofPTT Aromatics and Refining (PTTAR TB, NR).

Urgent tasks:

Rescuing the ailing state telecom enterprises is the top priority. TOT andCAT Telecom can no longer book concession revenues under theFrequency Allocation Act, and enhancing their competitiveness alongside

strong private operators would be a challenge A national broadband policy is needed to deal with the convergence of

broadcasting and telecom

Tourism and Sports minister – Kobkarn Wattanavrangkul

Profile: The chairperson of Toshiba Thailand Co, Mrs Wattanavrangkul will be thefirst woman to head the Ministry.

Urgent tasks:

To restore tourists’ confidence and lure them back to Thailand. Touristarrivals to the country fell 10% to 13.6m during the first seven months of

the year, partly because of the political crisis, coup, curfews and theimplementation of martial law. The administration is targeting visitor arrivalsof 28m next year, which would generate THB2.2trn in revenue.





Figure 1: Members of the Cabinet

Source: Bangkok Post



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RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 monthsTrading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertainNeutral: Share price may fall within the range of +/- 10% over the next 12 monthsTake Profit: Target price has been attained. Look to accumulate at lower levelsSell: Share price may fall by more than 10% over the next 12 monthsNot Rated: Stock is not within regular research coverage

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7

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Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2013

ADVANC BCP CPF ERW IVL NKI PS ROBINS SCB SNC TCAP TMB UV AOT BECL CPN GRAMMY KBANK NOBLE PSL RS SCC SPALI THAI TNITY VGI ASIMAR BKI CSL HANA KKP PAP PTT S&J SCSMG SPI THCOM TOP WACOALBAFS BROOK DRT HEMRAJ KTB PG PTTEP SAMART SE-ED SSI THRE TRC

BANPU BTS DTAC ICC LPN PHOL PTTGC SAMTEL SIM SSSC TIP TRUEBAY CIMB EASTW INTUCH MCOT PR QH SAT SIS SVI TASCO TTWBBL CK EGCO IRPC MINT PRANDA RATCH SC SITHAI SYMC TKT TVO

2S AYUD CNT GL KKC MBK OISHI SABINA STANLY TK TTCL ZMICO ACAP BEC CPALL GLOW KSL MBKET PB SAMCO STEC TLUXE TUF AF BFIT CSC GOLD KWC MFC PDI SCCC SUC TMILL TWFP AHC BH DCC GSTEL L&E MFEC PE SCG SUSCO TMT TYM AIT BIGC DELTA GUNKUL LANNA MODERN PF SEAFCO SYNTEC TNL UAC AKP BJC DTC HMPRO LH MTI PJW SFP TASCO TOG UMI AMANAH BLA ECL HTC LHBANK NBC PM SIAM TCP TPC UMS AMARIN BMCL EE IFEC LHK NCH PPM SINGER TF TPCORP UP AMATA BWG EIC INET LIVE NINE PPP SIRI TFD TPIPL UPOIC AP CCET ESSO ITD LOXLEY NMG PREB SKR TFI TRT UT

APCO CENTEL FE JAS LRH NSI PRG SMT THANA TRU VIBHA APCS CFRESH FORTH JUBILE LST NWR PT SNP THANI TSC VIH ASIA CGS GBX KBS MACO OCC PYLON SPCG THIP TSTE VNG ASK CHOW GC KCE MAJOR OFM QTC SPPT TICON TSTH VNT ASP CM GFPT KGI MAKRO OGC RASA SSF TIPCO TTA YUASA

*** PHATRA was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25,2012

A BCH CRANE FPI IT MBAX PICO SGP TBSP TPP WIN AAV BEAUTY CSP FSS JMART MDX PL SIMAT TCCC TR WORK AEC BGI CSR GENCO JMT PRINC POST SLC TEAM TTI AEONTS BLAND CTW GFM JTS MJD PRECHA SMIT TGCI TVD AFC BOL DEMCO GJS JUTHA MK PRIN SMK TIC TVI

AGE BROCK DNA GLOBAL KASET MOONG Q-CON SOLAR TIES TWZ AH BSBM DRACO HFT KC MPIC QLT SPC TIW UBIS AI CHARAN EA HTECH KCAR MSC RCI SPG TKS UEC AJ CHUO EARTH HYDRO KDH NC RCL SRICHA TMC UOBKH AKR CI EASON IFS KTC NIPPON ROJNA SSC TMD UPF ALUCON CIG EMC IHL KWH NNCL RPC STA TMI UWC ANAN CITY EPCO ILINK LALIN NTV SCBLIF SUPER TNDT VARO ARIP CMR F&D INOX LEE OSK SCP SVOA TNPC VTE AS CNS FNS IRC MATCH PAE SENA SWC TOPP WAVEBAT-3K CPL FOCUS IRPC MATI PATO SF SYNEX TPA WG

*** CIMBI was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25, 2012.

IOD (IOD Disclaimer)

การเปดเผลผลการสารวจของสมาคมสงเสรมสถาบันกรรมการบรษัทไทย (IOD) ในเร องการกากับดแลกจการ (Corporate Governance) น เปนการดาเนนการตามนโยบายของสานักงานคณะกรรมการกากับหลักทรัพยและตลาดหลักทรัพย โดยการสารวจของ IOD เปนการสารวจและประเมนจากขอมลของบรษัทจดทะเบยนในตลาดหลักทรัพยแหงประเทศไทยและตลาดหลักทรัพยเอมเอไอ ท มการเปดเผยตอสาธารณะและเปนขอมลท ผ ลงทนทั วไปสามารถเขาถงได ดังนั นผลสารวจ

ดังกลาวจงเปนการนาเสนอในมมมองของบคคลภายนอกโดยไมไดเปนการประเมนการปฏบัตและมไดมการใชขอมลภายในในการประเมนอน ง ผลการสารวจดังกลาว เปนผลการสารวจ ณ วันท ปรากฎในรายงานการกากับดและกจการบรษัทจดทะเบยนไทยเทานั น ดังนั นผลการสารวจจงอาจ

เปล ยนแปลงไดภายหลังวันดังกลาว ทั งน บรษัทหลักทรัพย อารเอสบ โอเอส เค จากัด (มหาชน) มไดยนยันหรอรับรองถงความถกตองของผลการสารวจดังกลาวแตอยางใด

Th Interim Cabinet Strategy 0902

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