THAILAND EQUITY Investment Research Daily 14 …...THAILAND EQUITY Investment Research Daily 14...

OSK Research | See important disclosures at the end of this report 1

THAILAND EQUITYInvestment Research

Daily

14 February 2013 On The Platter

Dynasty Ceramic (DCC TB; FV THB78.0 – Buy) Company Update: Back On The

Throne DCC’s management guidance at the recent analyst meeting was extremely. 2013 is expected to be a record year for the company due to a change in product mix, an increase in the average selling price and the rebranding of its outlets. We are upgrading our earnings forecast with a new higher target price of THB78 derived from its DCF valuation and a 3% terminal growth rate. Upgrade to BUY.

BTS Group Holdings (BTS TB; FV THB9.33 – Buy) 9MFY1 3 Results Review: On The Right Platform While BTS’s 9MFY13 operating revenue and EBITDA were within expectations, its core net profit outperformed our estimate due to lower-than-expected finance cost. Thus, we are increasing our FY13 earnings forecast by about 12% while leaving our FY14 and FY15 forecasts unchanged. We are maintaining our BUY call but are bumping up our FV from THB7.50 to THB9.33, based on a sum-of-parts (SOP) valuation following the upward revision in its components. Despite the slight potential delay in the setting up of the infrastructure fund (IFF), we believe the positive news flow will continue to support BTS’ share price. Banks (Overweight) Sector Update: Better Than Ever We are bullish and maintain OVERWEIGHT on Thailand's banking sector as better than ever economic fundamentals should lead to growing urbanisation and population wealth in FY13f-FY14f. Poised to capitalise on this economic upturn, Thai banking sector looks attractive for its undemanding valuation and better-than-regional earnings growth. For stock picks, we like banks such as KTB, TMB and KK, which are capable of boosting their ROEs faster than their peers, making for potential valuation re-ratings.

TMB Bank (TMB TB; FV THB2.9 – Buy) Company Update: Set For Growth Acceleration We are bullish on TMB’s earnings turnaround and significant ROE improvement, which may prompt a PBV multiple re-rating. After years of revamping its structure, TMB is starting to deliver accelerated revenue growth from both NII and non-NII. Its competitive advantage on having low funding cost will allow the bank to grow its loan book and fee based loans. In view of its optimistic outlook, we are assigning a premium on the stock’s PBV, at 1.95, to derive a THB2.9 FV.

Kiatnakin Bank (KK TB; FV THB79.0 – Buy) Company Up date: Riding on capital market boom KK’s banking platform towards portfolio investment and advisory business is expected to propel its FY13f earnings to a robust 46% growth (vs bank sector’s 17%). The group’s revenue could potentially double in the backdrop of a favourable market outlook and rigorous risk control, while its portfolio is set to more than double in size and revenue. Given Thailand’s infrastructure and REITs boom, PHATRA is expected to book a huge financial advisor (FA) fee from infrastructure fund at around THB700m. In view of anticipated stellar revenue from its businesses, we expect KK’s ROE to expand from 13% in FY12 to 16% in FY13f, re-rating KK’s PBV multiple to 1.8x with fair value of THB79. Krung Thai Bank (KTB TB; FV THB32.8 – Buy) Company Update: Poised For Strong Growth We continue to like this stock for its impressive growth and compelling valuations. Following the downward revision in our provision estimates for FY13 and FY14, we are raising our FY13 and FY14 earnings by 5.1% and 4.9% respectively, lifting our ROE for FY13 to 17.1%. We are also reducing our risk premium and COE assumptions due to its impressive growth outlook, improving risk profile and turnaround play, and thus, raise our FV from THB25.29 to THB32.75. Maintain BUY (2.23x FY13 P/BV, ROE: 17.1%, COE: 11.0%, Growth: 6.0%).


Key Market Indices (13 February 2013) Key Statistics

Value Change % Change % YTD SET Value by investor Type: Daily SET 1514.11 25.16 1.7% 8.8% Buy (THBm) Sell (THBm) Net (THBm) SET50 1004.05 20.37 2.1% 6.2% Institution 6,785.98 5,267.52 1,518.45 SET100 2241.46 43.56 2.0% 7.8% Proprietary 8,710.39 7,717.64 992.75 Foreign 10,026.43 9,202.70 823.73 Dow Jones 13982.91 -35.79 -0.3% 6.7% Retail 46,501.00 49,835.93 -3,334.93 S&P500 1520.33 0.90 0.1% 6.6% Nasdaq 3196.88 10.38 0.3% 5.9% SET Value by investor Type FTSE 6359.11 20.73 0.3% 7.8% MTD (THBm) YTD (THBm) FSSTI 3301.04 30.74 0.9% 4.2% Institution 8,214.72 12,686.34 Hang Seng 23215.16 UNCHG UNCHG 2.5% Proprietary 2,369.59 659.77 Nikkei 11275.79 -93.33 -0.8% 8.5% Foreign -11,101.92 3,935.11 KLCI 1631.16 7.36 0.5% -3.4% Retail 517.61 -17,281.22 SHANGHAI SE

2432.40 UNCHG UNCHG 7.2% JCI 4571.57 23.32 0.5% 5.9% SET50 Index Future Long Short Net MTD YTD SET 5-yr avg 2011 2012F

Institution 6,563 6,989 -426 -1,081 3,409

PE (x) 14.6 18.2 14.0 Foreign 2,118 2,039 79 -3,039 -8,734 P/BV(x) 1.9 2.5 2.3 Local 16,163 15,816 347 4,120 5,325 Yield(%) 4.0 2.6 3.3

Somboon Advance Technology (SAT TB; FV THB39.3 – Ne utral) FY2012 Results Preview: No Upside We expect Somboon Advance Technology (SAT) to end its FY12 on a positive note, with EPS surging about 100% on the back of strong sales growth, rising GPM and tax benefits from the Board of Investment. We are upgrading SAT’s 2013 earnings by 5.5% to reflect strong sales to a non-auto company (Kubota), and are revising our TP to THB39.30, based on 12x 2012 PE. However, as its share price has rallied by 36% since our last report dated 12 Nov 2012 and seems to be fairly valued, we are downgrading our recommendation on the stock to NEUTRAL.

SET Intraday Chart MEDIA HIGHLIGHTS

• GMM Z wants content • PTTEP seeks extended pay period for $500m debt • Passenger growth in slow decline • Micro-insurance on offer at 7-Eleven • CAT seeks two-year use of 1,800MHz spectrum

ECONOMIC HIGHLIGHTS

• Japan: Japan’s Economy Unexpectedly Shrinks on Exports, Investment • India: India Said to Seek $6.5 Billion Share Sales to Curb Budget Gap • Australia: Australia’s Dollar Touches 2-Year Low Versus New Zealand Peer • EU: Swiss Property Bubble Concern Seen Prompting Tightening • UK: King Says U.K. Faces Inflation Bout Plus Weak Growth • US: Treasuries Drop After Auction While S&P 500 Pares Advance


MEDIA HIGHLIGHTS

GMM Z wants content

GMM Z, the satellite unit of GMM Grammy, will spend 3 billion baht to enhance its content and import foreign programmes in a bid to expand its set-top box customer base to 3 million by the end of this year. The budget is for content production and purchasing, set-top box manufacturing and marketing activities.Fahmai Damrongchaitham, the chief operating officer for platforms at GMM Z, said after the launch of smart and mini set-top boxes last year, it hopes sell 1.5 million new boxes this year, bringing the total to 3 million. The high-definition (HD) box is set to launch next month for premium customers, but a price has not been finalised. (Bangkok Post)

PTTEP seeks extended pay period for $500m debt

PTT Exploration and Production Plc (PTTEP), Thailand's sole oil and gas explorer, plans to negotiate with banks to reschedule the payment of some of its US$3.7 billion in debt.Penchan Charikasem, the chief financial officer, said of total liabilities, $1.4 billion is due to be repaid in 2015.As a result, the subsidiary of energy giant PTT Plc wants to extend the repayment schedule for some $500 million."The company chose to extend the payment period instead of seeking new loans to refinance the debt because the conditions of our loans are good, with an interest rate of Libor plus 1%," said Ms Penchan. "That is cheaper than the loans available for the time being." (Bangkok Post)

Passenger growth in slow decline

Airlines worldwide finished 2012 having carried 5.3% more passengers than in 2011, but projections are for slower growth of 4.5% this year.On the other hand, air freight volume fell by 1.5% last year but is expected to rebound this year to 1.4% growth, says the International Air Transport Association (IATA).Last year's increase in passenger demand fell from 2011's 5.9% growth but above the 20-year average of 5%.Load factors for the year were at a near-record 79.1%, said the industry body, which represents 240 airlines accounting for 84% of global air traffic.Demand in international markets expanded at a faster rate (6%) than domestic travel (4%), with emerging markets the main growth drivers in both cases. (Bangkok Post)

Micro-insurance on offer at 7-Eleven

Five local insurers have joined to offer micro-insurance products at 7-Eleven convenience stores to attract low-income earners.Counter Service, the payment service at 7-Eleven, last month received the first licence from the Insurance Commission to sell micro-insurance products.The five firms are Muang Thai Life Assurance, Bangkok Insurance, Muang Thai Insurance, Allianz CP General Insurance and Thaivivat Insurance.The premiums range from Bt490-Bt1,000 per year depending on the type of product.Micro-insurance regulations cap annual premiums at Bt1,000. (The Nation)

CAT seeks two-year use of 1,800MHz spectrum

CAT Telecom will ask the National Broadcasting and Telecommunications Commission's legal subcommittee whether CAT can continue using the 1,800-megahertz spectrum for a short period after the expiry of its Digital Phone Co (DPC) and TrueMove concessions this September.CAT wants to use the spectrum to serve TrueMove's and DPC's combined 17 million subscribers during a two-year transition period after their concessions end.CAT chief executive officer Kittisak Sriprasert said yesterday that his agency knew it had to return the spectrum for NBTC reallocation but it still wanted the commission to consider granting its use during the transition period. The CAT board will also consider on February 27 how to deal with this issue if it cannot keep the bandwidth on the 1,800MHz spectrum it granted to TrueMove and DPC to provide cellular |service.(The Nation)


ECONOMIC HIGHLIGHTS

Japan: Japan’s Economy Unexpectedly Shrinks on Expo rts, Investment

Japan’s economy unexpectedly shrank last quarter as falling exports and a business investment slump outweighed improved consumption, highlighting the challenge facing Prime Minister Shinzo Abe as he seeks to end deflation. Gross domestic product contracted an annualized 0.4 percent in the three months through December, following a revised 3.8 percent contraction in the previous quarter, the Cabinet Office said in Tokyo today. The median forecast of 32 economists surveyed by Bloomberg News was for 0.4 percent growth. In nominal terms, the economy shrank 0.4 percent on quarter. (Bloomberg)

India: India Said to Seek $6.5 Billion Share Sales to Curb Budget Gap

India plans to raise 350 billion rupees ($6.5 billion) next fiscal year by selling shares in state-owned companies as the nation strives to pare its budget deficit, two officials with knowledge of the proposal said. The government aims to sell stakes in companies including Coal India Ltd., Indian Oil Corp., Engineers India Ltd., Power Grid Corp. of India Ltd. and Bharat Heavy Electricals Ltd., the Finance Ministry officials said, asking not to be identified as the plan isn’t public. The offering for Kolkata-based Coal India, the world’s largest producer, will be the biggest and will seek to raise 200 billion rupees, both officials said. Finance Minister Palaniappan Chidambaram, who unveils the budget on Feb. 28, has pledged to bolster the state’s revenues and curb spending to narrow the widest budget deficit in major emerging nations. The government has raised about 72 percent of its 300 billion rupee target for share sales in the fiscal year through March 2013.(Bloomberg)

Australia: Australia’s Dollar Touches 2-Year Low Ve rsus New Zealand Peer

Australia’s dollar touched the lowest level in two and a half years against the New Zealand currency after manufacturing in the smaller economy expanded last month. The so-called Aussie halted a two-day gain versus the greenback and fell against Japan’s currency as traders predicted the Reserve Bank of Australia will lower rates to a record this year. New Zealand’s dollar reached a more than one-week high against the greenback after a manufacturing index rose to its highest in eight months. Australia’s currency has “downside pressure from rates and New Zealand has been printing some fairly positive data, so that will probably see them outperform the Aussie dollar,” said Stan Shamu, a markets strategist with IG Markets Ltd. in Melbourne. “It certainly seems like the strategy among most traders is to sell Aussie on strength.” (Bloomberg)

EU: Swiss Property Bubble Concern Seen Prompting Ti ghtening

Switzerland’s central bank has a message for lenders: act now to stem surging credit growth or face further restrictions. The government, at the urging of the Swiss National Bank, yesterday ordered banks to hold additional capital as a buffer against risks posed by the country’s biggest property boom in two decades. The amount, set at 1 percent of banks’ risk- weighted assets tied to domestic residential mortgages, can be increased to as high as 2.5 percent. (Bloomberg)

UK: King Says U.K. Faces Inflation Bout Plus Weak G rowth

Bank of England Governor Mervyn King said Britain faces a further bout of inflation and a muted economic recovery, and pledged officials will look through the volatility in prices to keep nurturing growth where they can. The pound fell as King spoke on the dilemma of a weak recovery and above-target inflation that has plagued the Monetary Policy Committee for more than three years and is set to overshadow the last few months of his tenure. The BOE said today it sees inflation at about 2.3 percent at the end of its two-year forecast period, and a “slow and sustained” recovery. (Bloomberg)

US: Treasuries Drop After Auction While S&P 500 Par es Advance

Treasuries extended a third straight day of losses after a $24 billion auction of 10-year notes sold at a higher-than-forecast yield. U.S. stocks, the euro and oil erased early gains. Ten-year U.S. note yields increased four basis points at 4 p.m. in New York, topping 2 percent for the first time in a week. The S&P 500 added less than 0.1 percent to 1,520.33, paring an early 0.4 percent advance while still closing at the highest level since October 2007, while the Europe Stoxx 600 Index closed 0.4 percent higher. The 17-nation euro currency depreciated less than 0.1 percent to $1.3447 after climbing as much as 0.5 percent. Oil slipped 0.5 percent to $97.01 a barrel after gaining 0.6 percent. (Bloomberg)


Outperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield

(%) Remarks (Bt) (Bt) (%) 2012f 2012f

KK Buy 58.25 79.00 35.6 14.2 4.0 BAY Hold 31.75 34.00 11.5 12.9 3.0 KTB Buy 23.90 32.80 37.2 11.3 3.2 ADVANC Buy 198.00 254.00 28.3 17.1 5.9 PM Buy 8.90 10.80 21.3 14.6 5.2

QH Buy 3.32 3.90 17.5 14.8 2.7 INTUCH Buy 67.50 74.00 9.6 15.1 6.2 SAT Buy 36.50 37.30 2.2 15.3 2.0

STEC Trading Buy 31.00 36.60 18.1 32.3 2.0

PTT Buy 347.00 378.00 8.9 8.8 4.0 AOT Buy 111.50 120.00 7.6 25.9 1.6

Underperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield

(%) Remarks

(Bt) (Bt) (%) 2012f 2012f

CPF Sell 33.00 24.00 -27.3 13.0 3.6 TISCO Sell 51.75 48.00 -7.2 10.2 4.5 CPALL Neutral 47.75 36.60 -23.4 38.9 2.1 PSL Neutral 16.90 12.83 -24.1 50.7 1.8 PTTEP Neutral 160.50 157.00 -2.2 9.3 3.6 TTA Sell 16.60 13.60 -18.1 n.a. 6.0 SPALI Sell 19.30 15.50 -19.7 11.4 3.5

13 12 11 8 7 13 12 11 8 7

1 BBL 486.2 73.7 -60.0 46.4 -30.3 SCB -291.3 -187.3 -94.6 53.3 78.7 PTT 2,214.1 BANPU -1,678.1 INTUCH 16,621.4 LH -3,287.9

2 PTT 416.8 241.3 342.0 332.2 328.3 BLAND -173.3 30.0 2.2 -22.4 9.5 KBANK 2,005.3 SCC -973.2 PTT 6,288.3 SCC -2,789.5

3 PTTGC 303.6 -91.6 -9.9 82.7 84.0 LH -99.4 -62.8 -26.6 -122.4 -165.5 PTTEP 1,412.4 LH -795.6 PTTEP 3,967.1 BANPU -1,574.3

4 BAY 188.5 -18.9 -2.4 35.9 209.7 KBANK -94.7 -167.0 28.6 119.4 171.9 DTAC 1,360.4 INTUCH -693.2 KBANK 3,452.2 SIRI -1,414.9

5 BIGC 97.6 19.4 22.1 91.5 70.3 MINT -89.1 -29.5 -12.7 -12.0 35.1 BAY 712.3 SCB -465.0 BBL 3,198.9 MINT -825.3

6 TUF 72.6 12.7 7.4 23.8 15.5 INTUCH -68.4 -133.2 69.4 -40.2 -91.9 BGH 552.4 CPF -334.9 DTAC 3,052.4 TTCL -394.9

7 RATCH 71.0 27.2 -0.7 -1.5 18.2 STEC -66.9 -8.1 -2.4 15.4 -17.1 TOP 436.1 CK -251.8 ADVANC 2,705.1 BECL -279.3

8 BANPU 59.9 -10.7 -79.8 -174.0 -417.5 AIT -52.0 -12.7 -8.6 4.7 4.0 TMB 429.8 MINT -242.2 KTB 2,263.0 STPI -262.5

9 PTTEP 57.9 6.5 -21.6 237.5 319.8 SITHAI -40.4 0.8 -0.2 -14.4 0.4 PTTGC 418.6 TTCL -225.7 PTTGC 1,967.8 UV -189.7

10 PF 57.7 -11.2 27.3 34.2 -1.3 SCC -30.7 -77.6 -45.5 -1.6 -257.8 TCAP 406.6 STEC -210.7 CPALL 1,394.1 ITD -173.3

11 DELTA 52.3 1.7 -0.5 52.7 10.2 SIRI -29.3 -31.9 -16.8 -20.0 0.0 BIGC 377.8 BLAND -143.0 BGH 1,392.8 HMPRO -170.2

12 SAMART 46.4 24.3 38.8 78.6 0.8 TCAP -25.0 148.6 122.9 23.1 89.0 SAMART 375.6 ADVANC -131.2 BAY 1,381.5 THCOM -161.3

13 SF 43.9 1.1 -0.8 -0.5 0.4 ESSO -22.0 56.1 -46.6 -64.4 23.2 BCH 296.4 THRE -112.0 TMB 1,317.2 CK -158.0

14 BGH 41.5 115.4 35.7 102.5 72.4 PRIN -20.8 -39.4 -0.6 -0.9 3.4 KTB 277.1 UV -101.2 TCAP 1,117.6 STEC -140.5

15 ADVANC 37.0 3.4 -161.3 -31.2 470.5 CEN -19.6 -10.4 -5.6 -10.2 -1.2 TUF 224.8 BECL -97.0 SPALI 1,084.5 GUNKUL -124.8

16 UNIQ 33.3 0.5 3.2 10.8 -0.0 QH -18.8 -8.5 4.6 1.2 2.8 RATCH 196.8 TTW -89.0 TOP 1,040.4 SITHAI -122.2

17 TICON 32.6 14.5 28.1 44.4 -18.3 BCP -17.6 -3.7 -0.1 -21.5 4.5 AOT 189.4 MK -76.3 TUF 1,008.5 WHA -121.7

18 TRUE 29.4 74.4 1.1 -4.4 6.6 AAV -15.5 1.3 1.8 -5.7 0.8 ROJNA 177.5 SITHAI -72.2 BIGC 995.4 MINT-W4 -116.8

19 ROJNA 28.3 42.2 1.1 43.3 59.4 GLOBAL -15.2 1.1 0.1 0.0 -9.5 TISCO 173.4 NWR -66.0 LPN 823.7 SINGER -104.8

20 TOP 28.1 -1.3 11.2 16.3 29.8 MK -9.8 -29.6 -13.9 -5.1 -2.6 CPALL 163.0 BEAUTY -62.6 AOT 815.8 IEC -104.6

% % of % of

Turn. paidup paidup

1 BLAND 3.07 1 TISCO-P 65.86 65.86

2 TMB 5.47 2 BBL 30.70 29.99

3 PF 4.35 3 KBANK 29.16 28.50

4 LH 39.58 4 LPN 23.33 21.73

5 TRUE 5.25 5 TWFP 23.20 24.77

6 GSTEL 4.74 6 SPALI 20.46 17.94

7 BLAND-W2 0.64 7 LH 18.47 21.18

8 BLAND-W3 3.27 8 THRE 17.05 15.50

9 SYNTEC 5.35 9 SIRI-W1 16.87 11.05

10 QH 2.47 10 LRH 15.36 15.73

11 N-PARK 0.17 11 AP 14.81 12.92

12 BCH 32.56 12 GOLD-W1 14.72 14.87

13 PRIN 4.52 13 SPCG-W1 14.65 13.31

14 AP 8.85 14 TISCO 14.64 13.69

15 NEP 10.88 15 BAY 14.40 13.89

16 SF 4.30 16 NOBLE 14.34 13.18

17 STEC 22.74 17 E-W1 14.17 22.27

18 SIRI-W1 13.23 18 TCAP 14.14 12.60

19 BAY 21.24 19 PRANDA 14.06 14.59

20 BMCL 0.39 20 TLUXE-W2 14.06 14.30

Source : SET.OR.TH

12,952,209

-8,188,200

5,976,800

200,000

1,040,150 7,016,950

1,215,500

13,105,20913,028,709

2,253,184 4,363,600

8,401,700

9,820,400

4,808,600 3,593,100

7,503,2007,303,200

1,632,200 11,452,600

5,765,000 11,304,700 17,069,700 -5,539,700

14,669,400 315,700 14,985,100

6,074,143,747 -7,103,200

14,353,700

76,500

41,017,100 37,278,800 279,999,581

727,878,228 106,587,279 99,645,251

6,416,000

77,281,246

874,861,796 843,803,210

65,448,500 4,936,650

17,794,060 124,462,191

6,616,784 -2,110,416

180,641,491 161,065,653

57,115,100

17,500,626 993,800

5,868,200353,700 6,575,600

6,563,800

6,496,000 80,000

3,778,800 2,785,000

6,221,900

6,576,000

406,282,554

1,277,816,397

456,471,175

49,182,146

59,270,000

60,173,300

347,000,000

367,964,647 2,848,272,038 421,754,095

74,105,298 74,970,598 503,405,255

2,036,627,210

166,682,701

343,676,568 268,936,368

25,603,256 26,226,480

10,025,921,523

3,512,494,860

1,851,453,060 2,123,251,472

599,017,234 544,461,149

351,122,011 307,949,569

1,505,000

12,254,600 5,727,218

21,286,300 5,000,000

26,346,600 4,465,600

17,981,818 6,527,382

26,286,300 16,286,300 1,716,553,249

15,406,100 10,940,500

17,119,400 14,109,400

9,151,900 9,354,608 18,506,508 -202,708

15,614,400

1,475,698,768

31,209,300

9,506,055

2,393,260,193

344,260,756

2,354,634 2,205,646

-8,826,000 320,609,239 17,711,300 26,537,300 44,248,600

572,486,791 -4,278,367

697,985,513 682,155,834

586,030,845 46,668,500 89,058,633

45,553,300 14,344,000 59,897,300

NetBuy Sell Total

1,908,842,894

10,806,700 93,575,100 22,300 22,300 104,381,800 -82,768,400

42,390,133

33,858

2-Jan-13

Net Buy Net Sell Net Buy Net Sell

2 Jan- 13 Feb 131-13 Feb 13

14 February 2013

Total Volume Shares

13-Feb-13

NVDR Shrs. Paid up CapitalNVDR Shrs.

13-Feb-13

Feb 13 Feb 13

BUY VALUES SELL VALUES

Most Active Volume (shares) NVDR Shares to Total Paid-up Shares(%)

NET BUY NET SELL Month to Date Year to Date

Most Active Values (Btmn)

THAI NVDR : Top Ranking

OSK Research 14 Febrary 2013


THAILAND EQUITY

Investment Research

Sector Update

Banks Better Than Ever

We are bullish and maintain OVERWEIGHT on Thailand's banking sector as better than ever economic fundamentals should lead to growing urbanisation and population wealth in FY13f-FY14f. Poised to capitalise on this economic upturn, Thai banking sector looks attractive for its undemanding valuation and better-than-regional earnings growth. For stock picks, we like banks such as KTB, TMB and KK, which are capable of boosting their ROEs faster than their peers, making for potential valuation re-ratings.

Benefiting from improving economic fundamentals. We expect Thailand’s economic fundamentals to stay solid over the next three to five years, fuelled by mega infrastructure-led private investment growth and rising household income. Solid corporate balance sheets (with net debt/equity ratio at <1x and interest coverage ratio at ~12x) enable companies to grow their CAPEX in line with the country’s mega investment boom. Meanwhile, healthy household income is growing at a faster rate than household expenses and household debt, implying that the consumer loan growth boom is set to continue. Thai banks are inexpensive and rising household debt is not a concern. The Thai banking sector looks attractive, due to its firm fundamentals and relative value compared to regional peers. With a forward FY13f PE of 10.4x (vs 13x in the region), Thai banks are 25% cheaper than the regional banks. The sector’s PBV-1.3f of 1.7x is inexpensive, given its ROE expansion is far above historical long-term baseline. Meanwhile, rising household debt would not be too much of a concern given that income is now growing at a faster pace. Lastly, household debt/GDP is low at only 30% of nominal GDP in Thailand, vs 40%-60% in the region. KTB, TMB, KK our top picks. Given the solid economic outlook, we project sector earnings at a CAGR of 17% and individually, 46% for KK, 40% for KTB, 24% for TMB. In particular KTB, rising fee income from a low base, leveraged growth in government loan programmes, as well as loan loss provision (LLP) cut should bolster KTB’s earnings and ROE, potentially leading to a re-rating of its valuation (similar to KBANK two year ago). Meanwhile, TMB’s competitive funding cost allows it to capture more loan market share and prop up its ROE. Lastly, Thailand’s capital market boom is set to drive KK’s investment banking (IB) platform.

Chalie Kueyen 66 2862 9745 [email protected]

Keith Wee 603 9207 7638 [email protected]

OVERWEIGHT

Stock

Price THB

FV THB

Mkt CapUSDm

Volume ‘000

EPS EPS Gwt BV ROE PE(x) PBV (x) Rel. Perf % Rating

FY13f FY14f FY13f FY14f FY13f FY13f FY13f FY14f FY13f FY14f 1-mth 3-mth YTD

SCB 174.00 207.3 19,886 5,591 13.7 16.0 15.7 16.7 72.1 20.9 12.7 10.9 2.4 2.1 -5.4 9.4 -4.1 Buy KBANK 205.00 254.6 16,450 5,355 17.1 19.1 23.2 12.3 90.0 21.0 11.3 10.1 2.3 1.9 3.0 15.2 5.9 Buy

BBL 210.00 224.3 13,475 4,960 19.2 21.0 11.2 9.1 164 13.5 10.9 10.0 1.3 1.2 6.6 20.3 7.4 Buy KTB 23.90 32.8 11,228 39,733 2.4 2.6 40.3 11.1 14.5 17.5 10.0 9.2 1.6 1.5 17.7 31.3 21.9 Buy BAY 32.75 34.0 6,687 16,341 2.9 3.5 21.3 21.3 20.3 14.1 11.0 9.4 1.5 1.4 -1.5 13.9 0.8 Hold TMB 2.44 2.8 3,538 230,222 0.1 0.2 238 8.0 1.5 12.7 15.3 12.8 1.7 1.6 22.6 30.5 31.2 Buy

TCAP 41.75 45.0 1,793 11,218 4.1 4.3 0.6 3.6 43.0 13.2 9.7 9.3 1.0 0.9 9.2 16.0 10.6 Buy TISCO 52.50 48.0 1,458 2,306 5.1 5.3 0.6 4.1 27.4 18.7 11.7 11.2 1.9 1.7 0.0 11.7 1.0 Sell

KK 61.75 79.0 1,727 3,208 6.0 7.3 46.0 22.0 47.2 15.6 10.3 8.5 1.3 1.2 24.7 35.7 27.3 Buy

Source: Company data, OSK Research estimates



TABLE OF CONTENTS

Page

Summary – key reason for overweight ...................................................................... 3 - 4

Individual stock valuation chart ................................................................................... 5 - 7

Individual stock highlights ........................................................................................... 8 - 9

Thai banking sector inexpensive............................................................................... 10 - 13

Economic fundamental look stronger ....................................................................... 14 - 17

Consumer loan growth boom continues .................................................................... 18

Rising household debt not a concern ........................................................................ 19

Strategy and stock pick ........................................................................................... 20 - 24

KTB – Poised for strong growth .................................................................. 25 - 31

TMB – Year of growth acceleration ..............................................................32 - 39

KK – Benefit most from Thailand capital market boom ................................40 - 50



SUMMARY – KEY REASONS FOR OVERWEIGHT RATING

Strengthening economic fundamentals stoke provincial boom The banking sector stands to benefit from an economic upturn and investment boom in 2013-2016, which should jumpstart the CAPEX cycle and spur provincial economic growth. Amid growing urbanisation and rising wealth, we expect the growth in domestic led-consumer loan to continue solid, while corporate loan will maintain its pace of growth. Given solid earnings growth of +18%+21%/+31% in FY10/FY11/FY12, we remain bullish on forward earnings at a 2-yr CAGR of 17%, backed by a 12% loan growth and fee income growth of 14% ach year. Meanwhile, growing urbanisation and population wealth are set to change the bank’s industry landscape, with the main source of income coming from provinces with middle-class customers. As a government processing bank with the largest number of provincial customers, KTB will benefit the most from the trend shift. Valuations still cheap and deserving of a premium to historical mean Although Thai bank is trading at +1SD from mean PBV, it’s deserved given the current ROE and forward is far above the historical ROE base line. Despite the strong share price rally by 43% in FY12, Thai bank’s valuation is still attractive as it is still trading on par with its historical PE mean of 10x, but higher than historical mean in term of PBV at 1.7x (+1SD). In particular KBANK and SCB, they are trading above the long-term valuation mean at 2.2x and 2.4x respectively (at +2SD from its mean). Thus, apart from our bullish view for the sector, high valuations will make them less attractive than KTB, which is now only trading at a PBV of 1.6x. Compared to their counterparts in Singapore, Malaysia, Indonesia and the Philippines, Thai banks offer better value in terms of PBV, PE, and earnings growth outlook. KTB, TMB, KK: High ROEs to prompt PBV re-rating We like banks like KTB, TMB and KK, which have the ability to re-rate their PBV multiples on rising ROEs. We expect normalised LLP and accelerated fee income growth to boost FY13f ROEs for KTB/TMB/KK to nearly 18%/13%/16% (up from 16%4%/12.5%) respectively, while earnings to grow at >2x over industry growth. With low PBVs of 1.6x/1.7x/1.4x for KTB/TMB/KK, these banks are trading at 25%-40% discounts to top banks like KBANK and SCB. KTB’s ROE approaching 20%, close to KBANK and SCB’s 21% KTB is trading at a PBV of 1.6x and PE of 9x, a discount to KBANK and SCB by 30% in terms of PBV and 20% in terms of PE. With its LLP policy expected to normalise at 60bps in FY13f-FY14f (vs 100bps in FY12), KTB should chalk up the highest earnings growth at 46% in FY13f (vs sector growth of 17%), based on the assumptions of +12% loan, flat NIM, and +15% fee. KTB’s ROE will in turn pick up from 17% in FY12 to nearly 18% going forward in FY13f/FY14f. No sign of excessive lending The corporate balance sheets of companies in the SET100 are very healthy, with their net debt/equity ratio at <1.0x and interest coverage ratio at 12x. Meanwhile, Thailand’s lending-to-GDP is still low at only 72%, vs 118% in Malaysia and 110% in Singapore. Rising household debt a non-issue Consumer loan penetration is still low in Thailand at around 30% of GDP (vs 58% in Malaysia, 56% in HK, and 36% in Singapore). We believe that the rising household debt will not derail the strong consumer loan momentum nor significantly increase the probability of a default on banks’ retail loan, given that: i) Thailand’s household debt-to-GDP is still low at 30% vs 55-60% in the region, ii) household income growing at a faster rate than household debt, and iii) 75% of household debt is collateralised in mortgage and auto segments.



Figure 1: Bank sector forward PBV Figure 2: Bank sector forward PE – slightly above mean

0.40.60.8

1.01.21.41.6

1.82.0

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P/BV (X)

Mean = 1.44x

-2SD = 0.93x

-1SD = 1.18x

+2SD = 1.95x

+1SD = 1.69x

SETBANK ‐ Foward P/BV

0.02.04.06.08.0

10.012.014.016.018.0

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P/E (X)

Mean = 10.0x

-2SD = 6.0x

-1SD = 8.0x

+2SD = 14.0x

+1SD = 12.0x

SETBANK ‐ Foward P/E

Source: Bloomberg, OSK Research Source: Bloomberg, OSK Research

Figure 3: Sector ROE above L-T base line, deserving a premium Figure 4: Current PBV is still below the theoretical PBV

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%20.0%

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Avg. sector L-T ROE of 13%

ROE moving ahead L-T

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Theorical PBV

PBV (current

PBV (x)

Target PBV = ROE-g/COE-g Assumptions 1.) COE = 12% 2.) Beta 1 3.) Rf = 4% 4.) ERP = 7%


Figure 5: Falling NPL – to drive value at premium Figure 6: Healthy NPL coverage – to drive value at premium

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Key sector charts



Figure 7: KTB – forward PBV Figure 8: KTB – forward PE

0.00.20.40.60.81.01.21.41.61.82.0

Jan-

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P/BV (X)

Mean = 1.12x

-2SD = 0.56x

-1SD = 0.84x

+2SD = 1.69x

+1SD = 1.40x

KTB - Forward P/BV

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P/E (X)

Mean = 9.17x

-2SD = 1.38x

-1SD = 5.28x

+2SD = 16.96x

+1SD = 13.07x

KTB TB ‐ Forward P/E

Source: OSK Source: OSK

Figure 9: TMB – forward PBV Figure 10: TMB – forward PE

0.00.51.01.52.0

2.53.03.54.0

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P/BV (X)

Mean = 1.37x

-2SD = 0.29x

-1SD = 0.83x

+2SD = 2.45x

+1SD = 1.91x

TMB - Forward P/BV

0.05.0

10.015.020.025.030.035.040.045.0

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P/E (X)

Mean = 17.93x

-2SD = 1.66x

-1SD = 9.80x

+2SD = 34.20x

+1SD = 26.07x


Figure 11: KK – forward PBV Figure 12: KK – forward PE

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P/BV (X)

Mean = 0.80x

-2SD = 0.42x

-1SD = 0.61x

+2SD = 1.19x

+1SD = 1.00x

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P/E (X)

Mean = 6.96x

-2SD = 2.48x

-1SD = 4.72x

+2SD = 11.43x

+1SD = 9.20x

KK TB ‐ Forward P/E


Individual stock valuation



Figure 13: BBL – forward PBV Figure 14: BBL – forward PE

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P/BV (X)

Mean = 1.17x

-2SD = 0.78x

-1SD = 0.97x

+2SD = 1.56x

+1SD = 1.36x

BBL - Forward P/BV

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P/E (X)

Mean = 9.62x

-2SD = 6.51x

-1SD = 8.06x

+2SD = 12.72x

+1SD = 11.17x

BBL TB ‐ Forward P/E


Figure 15: KBANK – forward PBV Figure 16: KBANK – forward PE

0.50.70.91.11.31.51.71.92.12.3

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P/BV (X)

Mean = 1.53x

-2SD = 1.01x

-1SD = 1.27x

+2SD = 2.05x

+1SD = 1.79x

KBANK - Forward P/BV

0.02.04.06.08.0

10.012.014.016.018.0

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P/E (X)

Mean = 9.68x

-2SD = 5.92x

-1SD = 7.80x

+2SD = 13.45x

+1SD = 11.57x

KBANK TB ‐ Forward P/E


Figure 17: SCB – forward PBV Figure 18: SCB – forward PE

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P/BV (X)

Mean = 1.79x

-2SD = 1.26x

-1SD = 1.52x

+2SD = 2.32x

+1SD = 2.05x

SCB - Forward P/BV

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Mean = 10.38x

-2SD = 6.90x

-1SD = 8.64x

+2SD = 13.86x

+1SD = 12.12x

SCB TB ‐ Forward P/E




Figure 19: BAY – forward PBV Figure 20: BAY – forward PE

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P/BV (X)

Mean = 1.23x

-2SD = 0.54x

-1SD = 0.89x

+2SD = 1.92x

+1SD = 1.58x

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P/E (X)

Mean = 11.9x

-2SD = 0.5x

-1SD = 6.2x

+2SD = 23.3x

+1SD = 17.6x

BAY TB ‐ Forward P/E


Figure 21: TCAP – forward PBV Figure 22: TCAP – forward PE

0.00.20.40.60.81.01.21.41.6

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P/BV (X)

Mean = 0.85x

-2SD = 0.35x

-1SD = 0.60x

+2SD = 1.35x

+1SD = 1.10x

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Mean = 4.93x

-2SD = 0.10x

-1SD = 2.52x

+2SD = 9.76x

+1SD = 7.35x

TCAP TB ‐ Forward P/E


Figure 23: TISCO – forward PBV Figure 24: TISCO – forward PE

0.60.81.01.21.41.61.82.02.22.4

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Mean = 1.63x

-2SD = 1.04x

-1SD = 1.34x

+2SD = 2.21x

+1SD = 1.92x

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Mean = 7.05x

-2SD = 4.88x

-1SD = 5.96x

+2SD = 9.22x

+1SD = 8.14x

TISCO TB ‐ Forward P/E




NP (THBmn)/EPS (THB)

FY13 FY14f Rationales

KTB 33,061 2.4

36,544 2.6

Room for valuation re-rating on wide discounts

The bank has more room to re-rate ROE at a faster pace than other banks given its provisioning expense at normalised level of 70bps in FY13 vs 100bps in FY12, which should give rise to earnings growth of +40% in FY13f (vs 17% for the sector) and ROE nearly 18% (close to 21% for KBANK and SCB). In addition, KTB’s share price is trading at 1.6x PBV (a 30% discount to KBANK and SCB) and 9.0x PE (a 20% discount to KBANK and SCB).

TMB 6,940

0.16 8070 0.19

Competitive funding cost to boost margin

TMB’s competitive funding cost at 2.3% (vs 2.7% for SCB, 2.4% each for KTB & BBL, and 2.2% for KBANK) will enable the bank to grow its loan book in all loan segments. In addition, with a relatively low LDR of 86% (vs 92% for industry), TMB’s loan book will grow faster than deposit, thereby improving its margin. Lastly, with its NPL coverage on par with peers’ 113%, we expect the bank’s LLP expense cut to normalise at 70bps in FY13-FY14, vs 200bps in FY12. Although TMB starts to pay corporate income of 20% in FY13, we expect core earnings growth of 24% in FY13.

KK 4,971

6.0 6,040

7.3 Leveraging on capital market boom

The bank’s long-term outlook should be buoyed by its new business model geared towards investment banking (IB), value-added lending, investments. Thus, we like KK for its prospective changes. For FY13, we expect Thailand’s investment boom to drive the group’s IB and portfolio investment business under PHATRA and potentially double its asset size and revenue. Given a 17% sector earnings growth, KK’s earnings will likely expand by 46%, with ROE rising from 12.5% in FY12 to 15.6% in FY13.

BBL 36,734 19.2

40,090 21.0

Conservative stance caps long-term growth

We consider BBL to be too conservative given its below-peers earnings and high NPL coverage of 206%. BBL’s core value is heavily relied on corporate banking, while its consumer loans exposure has been shrinking. With Thailand’s banking landscape increasingly shifting towards consumer loans in the provinces, BBL, which is unlikely to benefit from the new trend, should see its valuation in line with historical range.

KBANK 43,456

18.1 48,790

20.3 Well-balanced growth across key segments; high valuation limits short-term upside

KBANK is favourably positioned in key areas that will benefit it from the structural shift in Thailand’s banking landscape. Its well-balanced loan portfolio and superior fee income franchise should underpin its longer-term growth. Valuation-wise, we prefer KTB to KBANK, which has a BUY call.

SCB 46,530

13.7 54,294

16.0 Growing market share; high valuation limits short-term upside

SCB is well-positioned to capitalise on Thailand’s’ underpenetrated consumer banking market. Its growth potential remains substantial given its dominance in consumer products, rising market share and large customer base. Similar to KBANK, its PBV and PE are at a 30% premium over industry average, which should pressure its short-term share price.

BAY 18,145

2.99 21,121

3.48 Long-term policy at risk, limits re-rating

BAY is poised to benefit from the growing wealth of Thailand’s middle class, implying potential stronger loan growth in the high-yield segments. The bank’s LLP cut in FY13f-FY14f should boost its earnings growth. However, the risk of a pullback from GE sparks uncertainties in its long-term policy/direction and outweighs the positive developments from its better ROE.

TCAP 5,515

4.3 5,716

4.5 Cheap valuation impedes growth

TCAP’s life insurance business may hamper its earnings growth in FY13f. Meanwhile, its lending business is still tough due to NIM pressure. Given its gloomy profit outlook, the bank’s valuation should be in line with the historical range. Key catalyst is its PBV of 1.0x and PE 8x, the lowest in the sector.

TISCO 3,728

4.5 3,880

4.7 Business model unviable, low Tier I

Given its high ROE of 21%, we see limited room for further ROE improvement and valuation re-rating, with the current price reflecting PBV-13f of 2.0x. In addition, we see limited scope for growth in the non-auto loan segment due to funding cost disadvantage and capital constraint with Tier I of 9%.

Investment thesis for individual stocks



Figure 25: FY-13F earnings growth – TMB, KTB, and KK Figure 26: L-T ROE

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Figure 27: Forward PE-13f Figure 28: Forward PBV-13f

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Thai banking sector inexpensive 25% cheaper than regional PE While certain segments of the investment community have argued that the valuations of Thai banking stocks are no longer attractive – they have been trading at +1SD above the historical mean PBV of 1.5x and at a discount to regional peers – we believe this historical trend is unlikely to persist. In fact, we think that Thai banks are at the early stages of a multi-year growth cycle, supported by robust domestic consumption growth, under-penetrated and structurally-exciting high-margin consumer banking growth, and better insulated NIM compared to regional banks. Most compelling valuations in the region As depicted in Figures 29, Thai banking sector has the most compelling price-to-book and PE valuations vs corresponding ROEs and EPS growth in the region. The sector’s 12-month average forward ROE of 17.0% is the second-highest after Indonesia’s. Structural growth drivers an added catalyst The valuation attractiveness of Thai banks is further enhanced by the scope for further structural ROE expansion, led by increasing consumer banking growth from its current low base. Consumer loans tend to have higher NIMs and lower credit costs, coupled with opportunities for larger fee income expansion via greater cross-selling initiatives. Given the confluence of positive immediate- and longer-term structural ROE and ROA growth drivers, we view the sector’s discounted valuations to regional peers’ as unwarranted. A valuation re-rating closer to sector comparison would imply an additional 24% upside to overall sector valuations. Figure 29: Individual Thai bank valuation matrix (ROE vs PBV)

5.07.5

10.012.515.017.520.022.525.027.530.0

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

PBV (x)

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E (%

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BAY

BBL

KBANK

KTB

TISCO

TMBTCAP

KK

Regional avg. 2.02x

Regional avg. 15.6%

SCB

Expensive

High profit

MAY

PBKFBBCA

PNBN

BBRI

CIMB

BPI

MPT

Thailand Malaysia Philippines Indonesi

Source: Bloomberg, OSK research



Figure 30: Thai bank PE-13f vs regional banks’

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Figure 31: ROE vs PBV


Figure 32: EPS growth vs PE


PE (x)



Regional bank valuation and absolute performance comparison Mkt Mkt PBV ROE Div. Yield

B lo o mberg co Cap Price 1wk 1m 3m 12m YTD '13f '14f '13f '14f '13f '14f '13f '14f '13f '14f '13f '14f(US$ M N ) Lo cal currency Lo cal curr (%) (%) (x) (x) (x) (x) (%) (%) (%) (%)

ThailandBangkok Bank BBL TB 13,388 209.0 -6.0 13.0 34.0 45.5 6.9 19.7 21.9 13.7 11.2 10.6 9.6 1.4 1.3 13.4 13.7 3.6 4.0Bank of Ayudhya BAY TB 6,624 32.5 -0.8 -0.3 4.0 9.5 0.0 3.0 3.5 25.1 17.2 10.8 9.2 1.6 1.4 15.6 16.6 3.6 4.3Kasikorn Bank KBANK TB 16,464 205.0 0.0 10.5 25.5 73.0 5.9 17.9 20.3 21.5 13.7 11.5 10.1 2.2 1.9 21.2 20.8 2.0 2.4Kiatnakin Bank KK TB 1,665 59.5 7.5 9.5 13.8 27.5 22.7 5.3 6.3 9.1 18.4 11.2 9.4 1.4 1.3 13.1 13.9 4.4 5.1Krung Thai Bank KTB TB 11,021 23.5 -0.3 3.3 5.1 8.0 19.9 2.4 2.7 19.7 14.3 9.9 8.7 1.6 1.5 17.2 17.5 3.9 4.5Siam Commercial Bank SCB TB 28,569 174.0 -7.0 -1.5 14.0 48.5 -4.1 14.3 16.2 20.7 13.7 12.2 10.7 2.4 2.1 20.9 20.9 3.0 3.4Thanachart Capital TCAP TB 1,715 40.0 0.0 2.3 3.8 12.8 6.0 4.8 5.2 11.4 8.4 8.4 7.7 1.0 0.9 19.9 12.5 3.9 3.8TISCO Bank TISCO TB 1,301 53.3 0.5 -1.0 5.8 17.0 2.4 5.9 6.7 16.3 13.0 9.0 8.0 1.9 1.7 22.4 22.0 5.0 5.5TMB Bank TMB TB 3,449 2.4 0.0 0.3 0.5 0.6 26.9 0.1 0.2 287.5 20.3 16.5 13.7 1.7 1.6 11.8 12.9 1.9 2.6Average 84,195 -0.7 4.0 11.8 26.9 9.6 17.2 14.5 11.1 9.7 1.7 1.5 17.3 16.8 3.5 4.0

IndonesiaBank Central Asia (BCA) BBCA IJ 25,778 10,100.0 0.5 18.1 33.8 11.0 468.8 549.1 5.6 17.1 21.5 18.4 4.9 4.1 24.9 24.5 1.3 1.5Bank Danamon BDMN IJ 5,953 6,000.0 0.8 6.2 -4.0 34.8 6.2 423.6 477.5 11.8 12.7 14.2 12.6 2.0 1.8 14.9 15.1 2.1 2.4PT Bank Mandiri Tbk. BMRI IJ 21,377 8,850.0 -0.6 9.9 2.9 43.9 9.3 621.7 726.5 18.4 16.9 14.2 12.2 2.8 2.4 21.3 21.4 1.7 2.0Bank Pan Indonesia (Panin) PNBN IJ 1,570 630.0 -3.1 3.3 -12.5 -28.4 0.0 95.6 104.6 25.8 9.4 6.6 6.0 0.9 0.8 13.4 13.7 n.a. n.a.Bank Rakyat Indonesia BBRI IJ 20,685 8,100.0 0.0 8.7 11.7 21.8 16.5 780.4 893.7 0.2 14.5 10.4 9.1 2.5 2.1 26.7 25.0 1.9 2.0PT Bank Internasional Indo. BNII IJ 2,330 400.0 0.0 -1.2 -2.4 -10.1 -1.2 10.9 16.9 -8.8 54.7 36.6 23.6 2.6 2.4 7.5 10.6 n.a. n.a.Average 77,694 -0.4 5.4 2.3 16.0 7.0 8.8 20.9 17.2 13.6 2.6 2.3 18.1 18.4 1.7 1.9

PhilippineBank of the Philippine Isds BPI PM 9,109 104.2 1.4 4.7 21.9 57.7 9.7 4.8 5.6 5.8 15.6 21.5 18.6 3.4 3.1 16.8 17.1 1.8 2.0Metropolitan Bank and Trust MPT PM 5,756 110.9 3.2 4.3 14.9 37.1 8.7 6.1 7.1 21.6 16.4 18.2 15.6 2.0 1.8 11.6 11.8 1.0 1.1Union Bank of Philippines UBP PM 1,922 121.9 0.7 7.1 10.8 35.4 8.2 11.4 12.3 -3.5 8.2 10.7 9.9 1.5 1.3 15.4 14.0 2.4 2.2China Banking Corp CHIB PM 1,911 59.9 5.8 9.1 13.2 55.4 9.7 3.9 4.4 0.6 12.9 15.4 13.7 1.8 1.7 12.0 12.7 2.5 2.4Banco De ORO-EPCI INC BDO PM 7,429 84.4 3.2 12.3 22.4 49.9 15.9 4.0 4.5 12.4 12.3 21.3 19.0 2.0 1.9 10.6 10.3 1.0 1.3Average 26,827 2.6 8.4 18.1 49.7 10.7 6.1 13.1 17.4 15.3 2.1 2.0 13.3 13.2 1.7 1.8

MalaysiaRHB Captital BHD RHBC MK 6,144 7.6 -1.3 -3.3 -0.1 5.2 -0.7 0.8 0.8 10.0 5.5 10.1 9.6 1.3 1.2 13.9 13.2 3.1 3.3Malayan Banking BHD MAY MK 24,439 9.0 1.1 -0.2 -0.4 5.4 -2.4 0.7 0.7 11.9 5.1 13.1 12.4 1.9 1.8 15.2 14.8 5.9 5.8Affin Holdings BHD AHB MK 1,571 3.3 -0.9 -5.2 -3.3 2.2 -5.2 0.4 0.4 16.5 0.0 8.2 0.0 0.8 0.8 10.1 0.0 5.2 5.1Hong Leong Bank HLBK MK 8,375 14.4 1.4 -3.6 -1.8 25.6 -2.3 1.0 1.1 4.5 10.0 13.9 12.7 2.1 1.9 15.5 15.3 2.5 2.7Public Bank PBK MK 17,910 15.9 2.2 -2.1 2.2 13.3 -2.6 1.2 1.3 8.1 10.3 13.3 12.0 2.8 2.5 22.2 21.8 3.7 3.9Average 76,349 0.8 -2.8 -0.2 10.8 -2.6 9.9 6.9 12.0 9.8 1.9 1.8 16.5 14.5 3.9 4.1

China(H-share)Industrial & Commercial Bank 1398 HK 306,522 5.6 -4.1 -2.3 11.3 5.6 2.4 0.7 0.7 9.8 4.2 8.5 8.2 1.8 1.5 22.1 20.2 3.9 4.1China Contruction Bank 939 HK 256,916 6.4 -4.0 -0.6 11.8 3.2 3.2 0.8 0.8 12.9 4.7 8.4 8.0 1.7 1.5 21.7 19.9 4.1 4.2Bank of China 3988 HK 170,726 3.7 -4.1 2.5 18.7 14.4 8.1 0.5 0.5 6.8 1.7 8.0 7.8 1.3 1.2 17.1 15.7 4.3 4.3China Merchants Bank 3968 HK 60,548 17.6 -6.4 0.3 25.0 2.1 3.0 1.9 1.9 13.4 -0.8 9.3 9.4 2.0 1.7 22.5 19.3 2.6 2.6Bank of Communication 3328 HK 75,946 6.2 -6.9 1.0 12.8 2.8 5.5 0.8 0.8 -0.6 -4.5 7.6 7.9 1.2 1.1 17.4 14.5 2.8 3.0China Citic Bank 998 HK 43,522 5.1 -6.1 3.2 31.0 NA 11.1 0.7 0.7 0.8 1.0 7.1 7.1 1.2 1.1 17.7 15.7 3.5 3.5Average 914,180 -5.3 0.7 18.4 5.6 5.5 7.2 1.0 8.1 8.1 1.5 1.3 19.7 17.6 3.5 3.6

2/11/2013Last Price

Absolute Performance EPS Growth PER

Source : Bloomberg



Figure 33: Bank sector - Assumptions, valuation and recommendation summary

BBL KTB SCB KBANK BAY TMB KK TCAP TISCO Total

Price (THB) 210 23.9 174 204 32.75 2.42 61.75 41.75 52.5

Rec. BUY BUY BUY BUY Hold BUY BUY BUY SELL OW

Fair price (THB) 242 32.75 207 255 34 2.9 79 45 48

Mkt cap (USDm) 13,475 11,228 19,886 16,450 6,687 3,538 1,727 1,793 1,458 76,242

Loan growth 2010 9.9% 16.4% 12.6% 14.6% 7.6% -1.4% 23.6% 107.5% 25.6% 9.9%

2011 17.1% 14.2% 22.1% 12.4% 10.7% 9.5% 26.1% 8.2% 24.2% 14.3%

2012f 7.0% 9.7% 20.0% 9.6% 12.6% 19.3% 25.0% 12.5% 22.0% 13.0%

2013f 12.8% 13.8% 16.2% 9.1% 12.0% 10.0% 14.1% 7.5% 14.3% 12.5%

2014f 11.4% 12.4% 14.5% 9.1% 10.0% 10.0% 14.1% 7.7% 14.2% 12.5%

Credit cost – LLP/loan (bps)

2010 63 53 51 62 190 45 60 27 129 77

2011 88 101 54 63 169 78 80 31 70 92

2012 41 58 57 66 140 99 79 55 70 77

2013f 40 60 54 64 120 70 80 70 70 70

2014f 40 60 54 61 120 70 80 70 70 70

NIM 2010 2.8% 2.6% 3.1% 3.6% 1.7% 2.0% 4.9% 2.9% 4.5% 2.6%

2011 2.8% 2.9% 3.3% 3.8% 4.4% 2.4% 4.3% 2.9% 3.5% 3.3%

2012 2.6% 2.8% 3.2% 3.5% 4.4% 2.7% 3.8% 2.7% 2.8% 3.2%

2013f 2.5% 2.7% 3.2% 3.5% 4.5% 2.7% 3.8% 3.0% 2.8% 3.2%

2014f 2.5% 2.7% 3.2% 3.5% 4.8% 2.7% 3.8% 3.1% 3.0% 3.2%

ROE 2010 11.6% 11.9% 15.7% 14.9% 9.2% 6.6% 13.6% 16.2% 21.1% 11.7%

2011 11.4% 15.0% 19.8% 17.7% 10.7% 7.9% 11.6% 13.5% 21.0% 13.8%

2012 12.1% 13.1% 18.5% 19.1% 12.8% 2.9% 10.3% 12.8% 20.5% 16.1%

2013f 11.8% 15.4% 19.0% 20.2% 14.1% 12.7% 15.6% 12.5% 19.0% 17.0%

2014f 11.4% 15.4% 19.5% 19.6% 15.4% 14.0% 16.5% 10.8% 19.0% 17.4%

Net profit (THBm)

2010 24,593 14,913 24,206 20,047 8,793 3,202 2,840 5,640 2,888 107,122

2011 27,334 17,011 36,273 26,168 9,264 4,009 2,859 5,002 3,267 131,187

2012 33,021 23,566 40,220 35,260 14,625 1,605 3,391 5,482 3,705 160,875

2013f 36,734 33,061 46,530 43,456 18,145 6,940 4,971 5,515 3,728 199,080

2014f 40,090 36,544 54,294 48,790 21,121 8,070 6,040 5,716 3,880 224,545

Net profit growth

2011 11.1% 14.1% 49.9% 30.5% 5.4% 25.2% 0.7% -11.3% 13.1% 22%

2012 20.8% 38.5% 10.9% 34.7% 57.9% -60.0% 18.6% 9.6% 13.4% 31%

2013f 11.2% 40.3% 15.7% 20.0% 24.1% 332.4% 46.6% 0.6% 0.6% 18%

2014f 9.1% 16.0% 16.7% 12.3% 16.4% 16.3% 21.5% 3.6% 4.1% 17%

EPS (THB)

2010 12.9 1.1 7.1 8.4 1.5 0.1 5 4.2 4 2011 14.3 1.2 10.7 10.9 1.5 0.1 4.5 3.8 4.5 2012 17.3 1.7 11.8 14.7 2.41 0.04 4.1 4.3 4.5 2013f 19.2 2.4 13.7 18.1 2.99 0.16 6.0 4.3 4.5 2014f 21.0 2.6 16.0 20.3 3.48 0.19 7.3 4.5 4.7

Source: OSK



Economic fundamentals look stronger We are bullish on Thailand’s long-term economic growth and improving economic fundamentals over the next two to three years due to the following factors: i) government’s mega infrastructure projects will likely stimulate a new CAPEX cycle, ii) the corporate balance sheet is very healthy with its net debt/equity ratio at <1.0x and interest coverage at 12x, allowing companies to raise debt and grow along with the infrastructure boom, iii) household balance sheet is also very solid, with household income growing at a faster pace than household expenses, and iv) consumer loan penetration is still low in Thailand at 25% of GDP, vs 40%-50% of GDP in the region.

THB2.27trn mega projects to trigger Thailand’s investment cycle

The government’s THB2.27trn mega investment plans to build the country’s largest transportation and logistics system over the next 5-7 years will fuel Thailand’s economic growth over the next decade. This, along with government’s investment policy geared towards the Asean Economic Community (AEC), should boost corporate investment and potentially trigger a huge investment cycle in Thailand.

Figure 34 Thailand’s infrastructure project values Figure 35: Source of funding

Projects Project value (THBbn)

High speed train (N,NE,E,S) 481.1 Metropolitan rail system 321.3 Expressway between cities 187.3 Rail networks 298.2 Road networks 181.9 Air and marine transport i.e. Suvanabhumi Airport, Leam Chabang, Songkla Seaport

148.5

Energy resources 499.5 Telecommunication i.e. 3G network, broadband network

35.2

Utilities i.e. water supply in rural areas, waste water mgt system

117.0

Total 2,270.0 Source: National Statistical Office, OSK Research

Objective: Enhance L-T competitiveness Create 1.5-2.0mn jobs Stimulate domestic economy Enhance the quality of life

Source of fund

Main funding is expected to be domestic borrowing Remainder of funds may be covered from revenues of state

enterprise (SE) and public-private partnership (PPP)

Borrowing > 70%

SE & PPP < 30%

Source: BoT, OSK Research

Economic growth to extend further upcountry According to the mega infrastructure plan, around 65% of total budget will be allocated to transportation and logistics system improvement (mainly in railway) across the country. These investments are also aimed at tapping business opportunities ahead of the AEC and opening linkages to Myanmar’s new economic zones. We expect these plans to bolster economic development in upcountry and accelerate urbanisation in tier II cities, which should lead to income redistribution in the country.



Figure 36: Thailand’s population by region Figure 37: Urbanization rate – Thailand vs Asean

16% - BKK & Vicinity

53% - Northern & Norteastern

14% - Southern

4% - Sub-central

7% - Eastern

6% - Western

Source: National Statistic xxx, OSK Research

49% 47%44%

34% 33%30% 30%

20%

0%

10%

20%

30%

40%

50%

60%

Philip

pine

s

Chi

na

Indo

nesi

a

Thai

land

Laos

Indi

a

Viet

nam

Cam

bodi

a

Source: World Bank, CIA, OSK Research

Figure 38: Monthly household income Figure 39: Month household income – net

23,236

41,631

20,82217,350 18,217

27,326

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Kingdom BKK &vicinity

Central North Northeast South

HH

inco

me/

mon

th (T

HB)

2x over upcountry

Source: National Statistical Office, OSK Research

5,833

14,065

3,868 3,682 3,842

7,640

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Kingdom BKK &vicinity

Central North Northeast South

HH

inco

me

- net

(TH

B)

Source: National Statistical Office, OSK Research Growing urbanisation aids income redistribution The gap of average monthly income per household in Greater Bangkok is wider than that in the rest of Thailand. With Greater Bangkok accounting for 25%-30% of the country’s total real GDP and 40% of wholesale and retail trade GDP, it is not surprising that the average monthly household income in Greater Bangkok is nearly 80% higher than the country’s average and a staggering >2.0x higher than that in the country’s least affluent northern and northeast regions. This is because the government had earlier mainly focused on the development in Bangkok and major cities with regional investment hubs. However, most public investments are now geared towards upcountry and this could alter Thailand’s economic growth pattern and lead to rising urbanisation. According to Figure 37, Thailand’s urbanisation rate (the percentage of the total population living in the urban areas) has trailed behind those of other countries, at around 34% vs 44% for Indonesia, 47% for China, and 49% for the Philippines. Higher urbanization rate is associated with potential growth in domestic private consumption.

OSK Research


Healthy balance sheets to spark an increase in capex and corporate loans

Companies borrow more to reinvigorate investments and lift capex Company balance sheets are currently in good health, with the average net-debt/equity at 0.97x and interest coverage ratio at about 12x. This is significantly higher than the 7.9x coverage ratio in 2008, when the US financial crisis began. With solid balance sheets in hand, companies has ability to increase their borrowings to finance the growth of their long-term investments or to increase their capex in tandem with the government’s investment in mega infrastructure projects, without having to use up substantial equity. Furthermore, lenders’ solid balance sheets, which indicate robust asset quality, will help safeguard the banks from risk.

Figure 40: In 3Q12, the corporate debt-to-equity ratio decreased to 0.9x, while the interest coverage ratio was as high as 10x.

11.4

7.9

12.4

10.711.7

14.1

-

0.2

0.4

0.6

0.8

1.0

1.2

2008 2009 2010 2011 2012 2013f

D/E

- ne

t (x)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Inte

rest

cov

erag

e ra

tio (x

)

D/E - net Interest coverage

Source: Stock Exchange of Thailand, Bloomberg, OSK Research

Healthy household balance sheets point to a boom in consumer loans Household incomes growing faster than expenses Thailand’s monthly household incomes have sharply increased in the past five years at a CAGR of 6% to THB23,236 in 2011, outpacing the growth of household expenses by 3% in the same period. As a result, the ratio of household expenses to income is on a downward trend, thereby indicating that savings have been growing. As the daily minimum wage has been set at THB300 (effectively increasing by 50%-100% from 2012 onwards) and the minimum monthly salaries for non-university graduates have been bumped up by 20%-50% to THB15,000, household income growth was even stronger in 2012 and will continue increasing. In the meantime, household debt should not be a key concern as 75% household debts is in collateralized mortgages (55%) and auto loans (20%). Personal and consumer loans only form a small part of household debts.

OSK Research


Figure 41: Monthly household expenses are growing at a slower rate than household

incomes – saving is growing

13,73614,963

18,66020,903

23,236

17,787

10,88912,297

14,311 14,50016,205

17,403

-

5,000

10,000

15,000

20,000

25,000

2002 2004 2006 2007 2009 2011

THB

/mon

th

70.0%

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

HH income HH expense HH expense/HH income

75%

82%

Source: National Statistical Office ( NSO), OSK Research

Collateralized mortgages and auto loans make up 75% of consumer loans Mortgages make up slightly over half, while auto loans take up 25% of total consumer loans in Thailand. Unsecured consumer loans make up the remaining 25% of total consumer loans, or a mere 6% of total loans in Thailand.

Figure 42: Breakdown of loans: consumer vs non-consumer (%)

Figure 43: Consumer breakdown (%)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2Q05

1Q06

4Q06

3Q07

2Q08

1Q09

4Q09

3Q10

2Q11

1Q12

Non-consumer loan Consumer loan

Source: BOT, OSK Research

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2Q05

4Q05

2Q06

4Q06

2Q07

4Q07

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

2Q12

Con

sum

er lo

an (T

HBm

)

Credit card + P-loan H/P loanHousing

Source:BOT, OSK Research

Household incomes are growing by 6% while expenses have only increased by 3%

OSK Research


Plenty of room for consumer loans to grow, due to the low penetration rate Consumer loans are only 30% of GDP Consumer loans have been a key driver of loans growth in Thailand, averaging 14.5% p.a. over the past eight years, compared to the total industry loans CAGR of 7.0% in the same period. Despite robust consumer loan growth, the penetration of consumer loans in Thailand is only at 30% of GDP. Although that number is slightly higher than that of Indonesia, income per capital in Thailand is substantially higher than the latter’s. This implies that there is tremendous potential for consumer loans in Thailand to grow.

NPLs: consumer loans do better than corporate loans Overall NPL for Thailand’s banking sector has been decreasing for over 10 years, from 14% of total loans in 2003 to 2.5% of total loans currently. Consumer NPLs have declined at a faster pace than corporate NPLs since 2005, in line with rising household income and growing wealth.

Figure 45: : Breakdown of consumer and non-consumer NPLs

15.1%

6.5%

13.0%

10.7%

5.4%4.7%

11.5%

2.1%2.3%

3.0%3.6%4.1%

5.0%

8.5%

6.1%7.2%

8.9%8.8%

3.2% 2.6%

12.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

4Q03

2Q04

4Q04

2Q05

4Q05

2Q06

4Q06

2Q07

4Q07

2Q08

4Q08

2Q09

4Q09

2Q10

4Q10

2Q11

4Q11

2Q12

Non-consumer NPL

Consumer loan NPL

Source: Bank of Thailand, OSK Research

Remark: consumer loans = mortgage loan + auto loan + P-loan + credit card

Figure 44: Consumer lending penetration remains low in Thailand

-

10

20

30

40

50

60

70

80

90

0 10 20 30 40 50 60 70 80 90

Consumer loan as a percentage of GDP (%)Consu

mer

loan a

s a p

erc

enta

ge o

f to

tal

loan (

%)

IndiaChina

Thailand

Singapore

High penetration

high risk

S. Korea

TAIWAN

Malaysia

Hong Kong

Indonesia

Medium penetration

Low penetration

Under penetration

Source: Asian Banker Magazine, Bloomberg, Bank of Thailand, OSK research Note: consumer lending includes mortgage, auto loan, credit card, and personal loans.

Consumer NPLs are lower than corporate NPLs

OSK Research


Rising household debt not a concern Household asset quality holding up better than corporates’ Consumer loans are now backed by stronger and more resilient assets. This is due to the fact that 55% of total consumer loans comprise of collateralized mortgage loans, which are more secure, and there is an absence of any material price inflation in Thailand’s real estate market. As the consumer banking industry in Thailand is still relatively underpenetrated, we are optimistic that further structural improvements in the overall system, together with better asset quality and higher provisions will continue on an uptrend as consumer loans continue growing. Rising household debt is a reflection of growing wealth The governor of the Bank of Thailand recently raised concerns about household debt being on the rise. Figure 47 indicates that household debt has been growing along with wealth (measured by income per capita), which has been on an uptrend since 2006. Household debt has grown slowly in 2006-2011, at a rate slower than the income of the population. This is the effect of several circumstances: the global economic crisis of 2008-2009, the prolonged political unrest in 2006-2010 and the massive floods of 2011. These events have made Thais conservative, even as banks have become cautious and unwilling to lend, particularly to borrowers in high-risk segments. However, the growth of household debt in 2009 was exceptional due to the government’s tax incentive schemes for home buyers in order to stimulate the property market during US economic crisis, which mirrored the situation in 2002-2004.

Figure 46: Household debt is not a concern since it grows along with GDP

Growth

Income per capita THB

HH debt THB

Income per capita

HH debt

Remark

2000 79,096 68,405 n.a. -2.3%

2001 81,697 68,279 3.3% -0.2%

2002 86,947 82,485 6.4% 20.8% tax incentive for home buyer

2004 100,564 104,571 7.5% 12.6% and developers ’02-‘04

2006 119,634 116,585 9.1% 5.6%

2007 129,089 116,681 7.9% 0.1%

2009 134,145 134,699 1.9% 7.4% tax incentive for home

buyer part II

2011 150,118 134,900 5.8% 0.1%

Source: National Statistic Office ( NSO), OSK Research

Figure 47: : Breakdown of household debt , by borrowings from banks and non-

banks

2007

109,826

6,855

THB116,681

2011

130,930 3,970

THB134,900

Source: Bank of Thailand, National Statistic Office ( NSO), CEIC, Ministry of Interior, OSK Research

OSK Research


Strategy Apart from sector “OVERWEIGHT”, we like banks that have the potential to re-rate their ROEs faster than their peers, and have revalued and rerated stocks like KTB, TMB, and KK. We like KTB for four reasons: i) negative overhang on low NPL coverage and low capital were already resolved, ii) it stands to benefit the most from the economic boom in the provinces, iii) its ROE is expanding faster than its peers’ iv) valuation at deep discount to peers. Meanwhile, TMB stands out as well, as its core business has improved together with its competitive funding costs. Lastly, KK is set to reap the most benefits from the capital market boom. KTB’s FY13f earnings growing 2.5x over its peers’ We expect KTB’s earnings to grow by 40% (>2x over its peers), as its LLP have been cut by 40%. Its NPL coverage, close to the industry level, is an encouraging factor for the bank to set the provisioning expense at a normalized level of 60bps vs 100bps in FY12. The decrease in LLP will help boost FY13f’s earnings by 14%-15%. Its loans growth has sped up due to the government’s budget disbursement and the improvement of its fee income due to the low base. Figure 48: Projected earnings growth for 2013

4%7%

13% 14% 16% 17%19%

31%

37%41%

0%5%

10%

15%20%25%30%

35%40%45%

TISC

O

TCAP BBL

KBA

NK

SCB

Indu

stry

BAY

TMB

KK KTB


No more negative overhang KTB has removed several overhangs that have pressured its share price performance throughout the past four to five years. Four main issues that plagued it in the past, namely: i) it had lower-than-peer Tier I capital, ii) its NPL ratio was higher than its peers’, iii) its lower-than-peer NPL coverage, iv) its lower-than-peer ROE, have already been resolved. The bank can thus shift its focus to growth and improving its ROE. If KTB is able to maintain improving its profitability, we expect it to be able to exceed KBANK and SCB in term ROE within two years.

OSK Research


KTB’s re-rating: a repeat of the situation for KBANK two years ago With its lower LLP and solid earnings growth of 40% in FY13f, we believe KTB’s current valuation of 10x FY13 PE and 1.6x FY13 PBV is attractive and ROEs being on track to breach the 17% level. When KBANK’s and SCB’s ROEs were breaching 17%-18%, their respective valuations had already exceeded 2.0x PBV. In contrast, KTB’s ROEs remained at 1.6x. In the past, KTB’s valuation discounts were attributed to its capital constraints and sub-par loans loss coverage ratios, which were addressed in FY12. This puts the group in a stronger position to build on the impressive earnings growth momentum achieved last year.

Figure 49: KTB and peers comparison

KTB KBANK SCB

2009 Tier I 10.0% 10.2% 12.3% CAR 15.9% 15.2% 16.5% NPL ratio 7.9% 3.9% 4.8% NPL coverage 48% 92% 95% ROE 11.3% 13.6% 15.4% 2012 Tier I 10.2% 10.4% 10.9% CAR 16.3% 16.0% 16.5% NPL ratio 3.2% 2.2% 2.3% NPL coverage 96% 132% 144% ROE 17.2% 21.0% 20.9%

Source: Stock Exchange of Thailand, Bloomberg, OSK Research

Figure 50: KTB’s hefty discount from the big banks’ valuations Figure 51: Unjustified discount between KTB and big banks

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KBANK SCB KTB Disc2009 13.0% 16.5% 11.7% -21%2010 15.4% 16.9% 13.4% -17%2011 17.5% 19.0% 13.3% -27%2012 21.5% 20.9% 16.0% -25%2013f 21.5% 20.9% 17.5% -17%


OSK Research


Figure 52: KBANK, SCB and KTB’s re-rating ROE Figure 53: KTB’s discounted ROE and PBV

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Source: National Statistic xxx, OSK Research 30% valuation discount to KBANK is unjustified KTB is trading at a discount to KBANK and SCB, which is unjustified as its core earnings have improved. As its negative overhangs have been done away with and earnings grown at a faster pace, KTB’s forward-ROE of nearly 18% (vs. an average of 21% for KBANK and SCB) implies that its valuation multiple should trade at a 15%-20% discount to those banks, not at the current 30%. KTB to benefit most from the economic boom in the provinces Three factors put KTB at an advantage, as it stands to reap more rewards from the economic upturn than its competitors. The government’s infrastructure plans will trigger massive development in the upcountry, as it is encouraging major corporations to gear their resources in the same direction. We expect the people’s growing wealth to boost growth for retail- and consumer-related businesses. KTB’s main customers are made up of the middle class – quite different from other commercial banks – and comprise of government and SOE staff. In contrast, most big banks are focused on the wealthy classes in the cities. LLP pared to 60bps as 40%-45% of loans are geared towards government-related projects As government-related loans account for 40%-45% of total loans (including unsecured consumer loans to SOE staff and direct loan exposures to government agencies), we consider KTB’s loan risk as quite low given that repayments will be linked to employee payrolls. Given its NPL coverage of 96%, cutting its provisions to the more normalized 60bps will help to free up FY13f earnings by about 10-15%.

Figure 54: KTB’s loan mix

2009 2012 Remark

Government 19% 11% lower govt’ loan drawdown in FY12 Corporate 35% 39% SME 20% 20% Retail - Mortgage 13% 15% - Consumer loans 13% 15% High-yield with payroll linked

Source: Company data, OSK research

OSK Research


TMB – upbeat on a turnaround Upgrading FV to THB2.90 (from THB2.15), due to the faster turnaround TMB has embarked on its plan to accelerate revenues after strengthening its banking platform, restoring capital and making funding costs more competitive as well as having reserves to cover NPLs at 113%. Such factors are set to drive its turnaround as well as trigger a potential re-rating of earnings and ROE to 13% in FY13 and to 14% in FY14. We apply the PBV at a premium of 1.95x for its strong turnaround and decent earnings growth, to derive the FV at THB2.90 Competitive funding cost similar to big banks’ TMB’s funding cost is at a competitive 2.3% (same as the funding cost for large banks) and this will enable it to compete with its rivals and grow its loans across all segments. Furthermore, its strategy to grow loans in the high-yield SME sector will also allow the bank to grow its margins at a faster rate than its peers. Note that TMB has been able to improve NIM from 2% in 2010 to 2.6% at the current (higher BBL by around 10bps).

Figure 55: NPL ratio – moving to the level of its peers Figure 56: NPL coverage – on par with the industry

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Figure 57: TMB’s NIMs Figure 58: Funding costs for TMB vs the big banks’

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OSK Research


KK – biggest beneficiary of the capital market boom We believe that KK will the biggest beneficiary of the capital market boom in Thailand. Its banking platform, geared towards the investment and advisory business, could enable KK to record its highest earnings growth in FY13f, at +46% (vs. bank sector growth +17%). Its portfolio investment business has doubled in size and the favorable returns will contribute substantially to income, at around THB1.0bn. Given the boom in infrastructure funds and REITs, we expect PHATRA to book substantial advisory fee income from infrastructure funds, at around THB600m. With such stellar revenue from these businesses, we expect KK’s ROE to increase from 13% in FY12 to 16% in FY13f, thereby paving the way for us to re-rate its PBV multiple to 1.8x to derive the FV at THB79. Larger portfolio size by 2x – 4x The success of its portfolio investment business, previously operating under Phatra Securities, will be even more pronounced when it is run by KK’s new entity. Under Phatra Securities, the size of its portfolio was limited at THB2.0-2.6bn, as it was operated using internal cash. As the bank has a larger equity base by 5x, we expect its portfolio to be enlarged when it operates under the KK banner. Revenue increases by more than 2x With sound investment decisions and proper risk management under its belt, KK’sportfolio business generated returns of about 30% p.a. in 2008-2012. With market conditions being positive, the good returns should be stable when its enlarged business operates under a single platform. PHATRA contributes one third of KK’s net profit KK’s earnings growth relies heavily on the capital market outlook – which may affect its return on investment – as well as the size of its portfolio. As such, we did a sensitivity analysis to show the different impact on KK’s net profit based on changes in investment return from 10% to 30% and portfolio size from THB5.0bn to THB9.0bn. According to the analysis, a 5% return on investment will result in a 2.4% net profit growth, while a portfolio worth THB1.0bn should give rise to a 1.3% net profit growth. The calculations are based on the following assumptions: i) revenue from brokerage business at THB1.96 (at 5.6% for combined market share of KK and Phatra), ii) revenue from IB business at THB700m, and iii) net profit from commercial banking at THB5bn (+12% from FY12). Figure 59 : Sensitivity of PHATRA’s net profit (at cost-to-income 51%, corp tax 20%)

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8,000 1,447 1,614 1,782 1,949 2,116 9,000 1,489 1,677 1,865 2,053 2,242


Figure 60 : Sensitivity of KK’s net profit (at cost-to-income 51%, corp tax 20%)


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8,000 4,797 4,964 5,132 5,299 5,466 9,000 4,839 5,027 5,215 5,403 5,592




THAILAND EQUITY

Investment Research

Company Update

Krung Thai Bank PCL Poised For Strong Growth

We continue to like this stock for its impressive growth and compelling valuations. Following the downward revision in our provision estimates for FY13 and FY14, we are raising our FY13 and FY14 earnings by 5.1% and 4.9% respectively, lifting our ROE for FY13 to 17.1%. We are also reducing our risk premium and COE assumptions due to its impressive growth outlook, improving risk profile and turnaround play, and thus, raise our FV from THB25.29 to THB32.75. Maintain BUY (2.23x FY13 P/BV, ROE: 17.1%, COE: 11.0%, Growth: 6.0%). Banking on infrastructure plans. As the only full-fledged government-backed commercial bank, KTB is in a prime position to ride on the Thai government’s mega infrastructure stimulus plan which amounts to some THB2,270bn over the medium term. As budgeted public infrastructure spending is only in the early stages of its rollout, we believe that the market has not yet priced its positive effect on KTB’s loans growth, which was partially capped by capital deficiency in 2012. With the completion of its THB14bn capital-raising exercise in 2012, however, the group is now well-positioned to set significantly stronger targets for loans growth in FY13; for this, we have conservatively forecasted its loans to grow by 11.5% this year, vs 7.3% in FY12. Improving loans mix helps to sustain margins. Despite the comparatively modest loans growth of 7.3%, the group registered fairly impressive net interest income (NII) growth of 16.2% in FY12, as it benefited from an improving loans mix for higher-margin consumers and SMEs, which lifted overall NIMs by 11bps to 2.89%. Compelling valuation. With its lower LLP and continued solid earnings growth of 40% in FY13f, we believe KTB’s current valuations of 10x FY13 PE and 1.6x FY13 PBV is attractive vs FY13 EPS growth of 40% and ROEs on track to breach the 17% level. When KBANK and SCB’s ROEs were breaching 17%-18%, their respective valuations had already breached 2.0x PBV; in contrast, KTB’s remained at 1.6x. In the past, KTB’s valuation discounts were attributed to its capital constraints and sub-par loans loss coverage ratios, which were addressed in FY12. This puts the group in a stronger position to build on the impressive earnings growth momentum achieved last year.

Chalie Keuyen +662 862 9745 [email protected] Keith Wee 603 9207 7638 [email protected] Buy THB Target THB32.8

Previous THB25.3

Price THB23.8

Banks

KTB is a full-fledged financial institution with principal activities that include commercial banking, insurance, investment banking, treasury and others. Stock Statistics

Bloomberg Ticker KTB TB Market Cap THB332,630m USD11,143m 52 wk H/L price (THB) 23.8 13.9 3m ADT THB720m YTD Returns 21.4% Beta (x) 1.31 Major Shareholders (%)

Financial Institutions Dev 44.1 Thai NVDR 4.7 Share Performance (%)

Month Absolute Relative 1m 21.4 15.2 3m 32.2 16.6 6m 57.6 32.1 12m 67 29.6 6-month Share Price Performance

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Source: Bloomberg

Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Net interest income (THBm) 39,768 50,384 58,569 66,093 71,782Net income to ord equity (THBm) 14,913 17,027 23,566 33,061 36,544Net profit growth 22.3% 14.2% 38.4% 40.3% 10.5%Recurrent net profit (THBm) 14,913 17,027 23,566 33,061 36,544Consensus EPS (THB) 1.33 1.52 1.87 2.31 2.59EPS (THB) 1.33 1.52 1.87 2.37 2.61DPS (THB) 0.51 0.85 0.76 0.83 1.18Dividend Yield 2.1% 3.6% 3.2% 3.5% 4.9%Return on average equity 12.5% 13.3% 15.2% 17.1% 17.0%Return on average assets 0.9% 0.9% 1.1% 1.4% 1.4%P/E (x) 17.8 15.6 12.7 10.1 9.1P/B (x) 2.12 2.05 1.85 1.62 1.48




FINANCIAL

Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Interest income 60,857 82,938 102,245 113,027 120,785

Interest expense (21,089) (32,554) (43,676) (46,934) (49,004) Net interest income 39,768 50,384 58,569 66,093 71,782

Non interest income 15,427 18,868 21,549 24,562 26,859

Total other income 15,427 18,868 21,549 24,562 26,859 Total operating income 55,195 69,252 80,118 90,655 98,641

Total costs x depn & amortn (27,162) (30,559) (32,696) (35,996) (39,639) Operating EBITDA 28,033 38,693 47,422 54,659 59,001

Depreciation and amortisation (2,550) (2,616) (2,607) (2,798) (3,014)

Total costs (29,712) (33,175) (35,304) (38,795) (42,653)

Operating profit 25,483 36,077 44,814 51,861 55,988

Total provision charges (6,124) (13,544) (15,163) (12,454) (12,343)

Post-provision operating profit 19,359 22,532 29,652 39,406 43,645

Income from associates 1,089 272 1,778 1,920 2,035 Pre-tax profit 20,448 22,805 31,429 41,327 45,680

Taxation (5,535) (5,777) (7,863) (8,265) (9,136) Profit after tax 14,913 17,027 23,566 33,061 36,544

Profit after tax & minorities 14,913 17,027 23,566 33,061 36,544

Net income to ord equity 14,913 17,027 23,566 33,061 36,544

Recurring net profit 14,913 17,027 23,566 33,061 36,544 Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total gross loans 1,251,795 1,428,983 1,530,797 1,706,086 1,898,874

Securities - total 192,508 217,785 290,586 390,035 390,035 Other interest earning assets 210,965 198,203 332,134 282,504 123,747 Total gross interest earning assets 1,655,268 1,844,970 2,153,517 2,378,626 2,412,656

Total provisions (45,125) (44,271) (54,259) (56,486) (62,603)

Net loans to customers 1,206,670 1,384,712 1,476,538 1,649,600 1,836,271

Total net interest earning assets 1,610,142 1,800,700 2,099,258 2,322,140 2,350,053

Cash & accrued interest 35,328 37,331 43,705 47,307 54,497 Total investments 54,698 52,784 51,246 48,981 45,586 Tangible fixed assets 22,339 24,223 26,125 27,284 27,545

Intangible assets 3,497 3,760 3,724 3,723 3,723 Other assets 36,472 46,200 29,708 99,868 351,023 Total non-interest earning assets 152,334 164,298 154,508 227,162 482,374

Total assets 1,762,476 1,964,998 2,253,766 2,549,302 2,832,427

Broad deposits 1,390,790 1,446,892 1,858,972 2,027,778 2,254,785 Other interest-bearing liabilities 181,317 308,934 146,636 239,799 264,029 Total interest-bearing liabilities 1,572,107 1,755,826 2,005,608 2,267,577 2,518,813

Deferred tax liability 2,696 12,001 13,249 21,251 27,307 Other non-interest bearing liabilities 61,886 67,347 54,607 55,122 60,856 Total non-interest bearing liabilities 64,582 79,348 67,856 76,373 88,163

Total liabilities 1,636,689 1,835,174 2,073,464 2,343,950 2,606,977

Share capital 57,576 57,576 71,977 71,977 71,977 Retained earnings reserve 58,319 61,236 67,624 89,113 109,213 Other reserves 9,866 10,985 40,674 44,236 44,236 Shareholders' equity 125,760 129,796 180,274 205,326 225,425

Minority interests - - (1) - - Other equity 28 28 28 25 25 Total equity 125,788 129,824 180,302 205,351 225,451

Total liabilities & shareholders' equity 1,762,476 1,964,998 2,253,766 2,549,302 2,832,427



Balance Sheet Employment Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Net cust loans/assets 68.5% 70.5% 65.5% 64.7% 64.8%Net earning assets / assets 91.4% 91.6% 93.1% 91.1% 83.0%Non-earning assets/assets 8.6% 8.4% 6.9% 8.9% 17.0%Net cust loans/cust deposits 96.7% 107.7% 88.6% 91.1% 91.9%Equity / assets 7.1% 6.6% 8.0% 8.1% 8.0%Equity / gross cust loans 10.0% 9.1% 11.8% 12.0% 11.9%Equity & provns / gross cust loans 13.7% 12.2% 15.4% 15.4% 15.2%Asset risk weighting 66.5% 70.4% 71.6% 71.4% 71.4%Liquid funds / cust deposits 35.2% 35.3% 40.0% 39.7% 28.4%Provision charge / avg cust loans 0.5% 1.0% 1.0% 0.8% 0.7%Provision charge / avg assets 0.4% 0.7% 0.7% 0.5% 0.5%Total write-off / avg cust loans 0.3% 1.1% 0.4% 0.7% 0.4%Total write offs / average assets 0.2% 0.8% 0.3% 0.5% 0.3%Reported NPLs / net cust loans 6.3% 4.6% 4.0% 3.5% 3.0%Estimated NPLs / net cust loans 6.3% 4.6% 4.0% 3.5% 3.0%SP chg / avg cust loans -0.5% -1.0% -1.0% -0.8% -0.7%GP charge / average cust loans -0.1% 0.0% -0.1% 0.0% 0.0%Total provn chg / avg cust loans -0.5% -1.0% -1.0% -0.8% -0.7%Reported NPLs / gross cust loans 6.1% 4.5% 3.9% 3.4% 2.9%Estimated NPLs / gross cust loans 6.1% 4.5% 3.9% 3.4% 2.9%Total provisions / gross cust loans 3.6% 3.1% 3.6% 3.4% 3.3%Total provisions / reported NPLs 59.7% 70.1% 92.4% 99.9% 113.2%

Source : OSK, Bloomberg

OSK Research28


KEY HIGHLIGHTS

Rejuvenated outlook. KTB, as Thailand’s only government-backed full-fledged commercial bank, is primed to benefit from the country’s planned mega infrastructure stimulus amounting to approximately THB2,270bn over the medium term. As public infrastructure spending is only in its early stages of rollout, we believe that the market has yet to price in the positive effect on KTB’s loans growth which was partially capped by capital deficiency in 2012. With the completion of its THB14bn capital-raising exercise in 2012, the group is well-positioned to set significantly stronger loans growth targets for FY13, for which we have conservatively forecasted 11.5% in loans growth vs 7.3% in FY12. Assuming a stable and sustainable 1.4x loans to nominal GDP growth multiple, this points to a potential loans growth of 12.0% for 2013, compared to its management’s more conservative 9%-11% target. Management has hinted at a sustainable 1.5x loans to nominal GDP growth multiple for FY13 which could imply loans increasing by 13%, almost double that of 7.3% growth achieved in FY12. Improving loans mix helps sustain margins. The group delivered impressive net interest income growth of 16.2% in FY12 in spite of rather moderate 7.3% loans growth, as it had benefited from an improving loans mix towards higher-margin consumers and SMEs and lifted overall NIMs by 11bps to 2.89%. Moving into FY13, its management has guided for NIMs to remain relatively stable at 2.89% to 2.90% as continuous contributions from higher-margin SME and consumer loans will help to balance out any NIMs pressure from equally strong growth in lower-margin infrastructure government loans. The positive rebalancing of its loan portfolio mix has resulted in the composition of lower margin government loans declining from 19% of the group’s total loans at end-2011 to approximately 12% as at end-2012. SME and retail loans currently comprise 20% and 30% of total loans respectively. Figure 1 : KTB’s loans mix

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Corporate Retail SME Government

Source: OSK Research

OSK Research28


Room for normalization. KTB aggressively booked THB15.1bn in provisions for FY12, more than double its normalized provisions of THB6bn p.a. to help shore up loans loss coverage ratios to 93%. However, management has guided that FY13 is likely to reflect provisions closer to normalized levels as declining NPL (-7.3% y-o-y in FY12) and sizeable government-linked loans implies that it may not need to build up loans loss coverage ratios above 100%. It expects the NPL ratio to decline below 3.2% by end-FY13. Assuming if provisions in FY13 do normalize to THB6bn from THB15bn in FY12, this could potentially result in a bump of 15.3% to our FY13 estimates. However, we are taking a more conservative approach in forecasting a 73bps credit cost for FY13 vs a normalized level of 45bps as inferred by management’s potential THB6bn p.a. provision for FY13. That said, our new provision estimates are still a moderation from our earlier credit costs estimates of 85bps, but would be sufficient to raise the loans loss coverage to 100% by end-FY13, assuming NPL ratios were to decline to 3.4% by then vs management’s target of <3.2%. We are forecasting the loans loss coverage ratio to rise to 113% by end-FY14 and potentially driving down normalization further in terms of provisions and earnings growth. Figure 2 : KTB’s quarterly NPL coverage ratios trending upwards

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Figure 3 : KTB’s loan loss coverage and NPL ratios trending in the right directions

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OSK Research28


Figure 4 : KTB’s provision and credit costs trend – expecting a moderation into FY13 and FY14

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Maintain BUY, FV upgraded to THB32.75. Following our downward revision in provision estimates, we are raising our FY13 and FY14 earnings by 5.1% and 4.9% respectively, which lifts our ROE for FY13 to 17.1%. In addition, its impressive growth outlook, improving risk profile and turnaround play prompt us to reduce our risk premium and hence, pare our COE assumptions thereby lifts our FV from THB25.29 to THB32.75. Maintain BUY (2.23x FY13 P/BV, ROE: 17.1%, COE: 11.0%, Growth: 6.0%). Compelling valuation to growth profile. With lower LLP and consistently strong earnings growth (+40%) in FY13f, we believe that KTB’s current valuations of 10x FY13 PE and 1.6x FY13 PBV is attractive vs EPS growth of 40% and ROEs on track to breach the 17% level. When KBANK and SCB’s ROEs were breaching 17%-18%, their respective valuations had already breached the 2.0x PBV levels, while KTB’s stayed well below that at 1.6x. In the past, KTB’s valuation discount was attributed to its capital constraints and sub-par loans loss coverage ratios. These were addressed in FY12, enabling the group to build on its impressive earnings growth momentum moving forward.

OSK Research


RECOMMENDATION CHART

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Price Close

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Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Prof it Unrated


Date Recommendation Target Price Price

2013-01-22 Buy 22.1 21.3

2012-10-19 Buy 22.1 19.0

2012-08-14 Neutral 15.1 15.9

OSK Research 14 February 2013


THAILAND EQUITY

Investment Research

Company Update

TMB Bank Set For Growth Acceleration

We are bullish on TMB’s earnings turnaround and significant ROE improvement, which may prompt a PBV multiple re-rating. After years of revamping its structure, TMB is starting to deliver accelerated revenue growth from both NII and non-NII. Its competitive advantage on having low funding cost will allow the bank to grow its loan book and fee based loans. In view of its optimistic outlook, we are assigning a premium on the stock’s PBV, at 1.95, to derive a THB2.9 FV.

Better-than-peer earnings: Apart from sector forward earnings of 17%, we expect TMB’s earnings to expand at 24% each year for FY13F and FY14F, with its LLP/loan normalizing at 70bps as NIM continues to improve while fee-based income accelerate from a low base. Thus, the bank’s ROE should re-rate from 9% to 12.7%/14% for FY13f/FY14f, which may then spark a PBV multiple re-rating. Low funding cost boosts loan growth acceleration. TMB’s funding cost has improved significantly from 70bps to 100bps above the big banks’ three to five years ago to almost equal with the big players currently. This has enabled it to grow loans in all of its segments. Furthermore, given its expertise in SME lending, TMB has been able to expand its high-yield SME loans and in the process fetch better margins. For FY-13f/FY14f, we are assuming loan growth of 14.5% for each year and NIM of 2.7%, which is relatively conservative as it is still below the bank’s historical NIM of 2.85% in 2H12. Major shareholder’s exit strategy a risk as well as opportunity. TMB has two major shareholders: MOF with 26% equity interest and ING with 25%. MOF wishes to exit TMB by selling its entire shareholding to ING or potential investors. However, this deal is complicated because ING has the right of first refusal to buy MOF’s shares. Should ING drag its feet, MOF will find it difficult to push the deal through. Meanwhile, ING Group has its share of financial problems and its hands are tied with regard to new acquisitions. Thus, any potential acquisition in TMB may continue to be mired in controversy. Note that cost of MOF’s investment in TMB was THB3.56 per share vs ING’s THB1.6 purchase price.


Buy THB Target THB2.90

Price THB2.44

Banks

The Bank engages in universal banking business with 52% of lending in wholesale, 30% in SME, and the rest in retail. Stock Statistics

Bloomberg Ticker TMB TB Market Cap THB106,262m USD3,557m 52 wk H/L price (THB) 2.44 1.40 3m ADT THB488m YTD Returns 31.2% Beta (x) 1.11 Major Shareholders (%)

Ministry of Finance 26.1%ING 25.2%Thai VNDR 5.9% Share Performance (%)

Month Absolute Relative1m 18.4 13 3m 30.5 15.5 6m 61.6 39.5 12m 41.9 8.1 6-month Share Price Performance

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

14-F

eb-1

2

16-A

pr-1

2

15-J

un-1

2

16-A

ug-1

2

17-O

ct-1

2

18-D

ec-1

2

76

82

87

93

99

105

110

116Price Close Relative to Stock Exchange of Thailand Index (RHS)

Source: Bloomberg


Net interest income (THBm) 10,646 14,236 17,065 19,339 21,948Net income to ord equity (THBm) 3,202 4,009 919 6,940 8,070Net profit growth 64.7% 25.2% (77.1%) 654.9% 16.3%Recurrent net profit (THBm) 3,202 4,009 919 6,940 8,070EPS (THB) 0.07 0.09 0.02 0.16 0.19Return on average equity 6.6% 7.9% 1.7% 12.7% 14.0%Return on average assets 0.6% 0.6% 0.1% 0.9% 1.0%P/E (x) 33 26 116 15 13P/B (x) 2.13 2.04 1.98 1.90 1.77




FINANCIALS


Interest income 18,499 26,146 30,678 35,523 40,681





Total costs (11,308) (13,641) (14,275) (15,458) (17,157)


Total provision charges (1,654) (3,104) (8,751) (3,639) (4,166)

Post-provision operating profit 3,190 4,072 981 8,675 10,087

Income from associates 36 - - - - Pre-tax profit 3,225 4,072 981 8,675 10,087

Taxation (14) (40) (36) (1,735) (2,017) Profit after tax 3,211 4,031 945 6,940 8,070

Minority interests (9) (22) (26) - - Profit after tax & minorities 3,202 4,009 919 6,940 8,070

Net income to ord equity 3,202 4,009 919 6,940 8,070

Recurring net profit 3,202 4,009 919 6,940 8,070 Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total gross loans 447,802 535,739 548,987 652,645 734,415

Securities - total 94,538 113,660 109,147 118,252 120,617 Total gross interest earning assets 542,339 649,399 658,134 770,897 855,033


Net loans to customers 342,631 375,842 427,797 490,536 567,036

Total net interest earning assets 521,794 627,644 633,211 744,189 829,824

Cash & accrued interest 15,279 13,994 15,554 15,005 15,331 Tangible fixed assets 12,116 11,859 11,533 10,359 9,859

Other assets 40,404 65,146 51,849 30,576 31,836 Total non-interest earning assets 67,799 90,999 78,936 55,940 57,026

Total assets 589,592 718,643 712,147 800,129 886,851

Broad deposits 413,115 452,316 496,158 533,241 598,227 Other interest-bearing liabilities 85,595 144,487 109,301 90,098 114,549 Total interest-bearing liabilities 498,711 596,803 605,459 623,340 712,776

Other non-interest bearing liabilities 41,027 69,559 53,019 120,985 114,236 Total non-interest bearing liabilities 41,027 69,559 53,019 120,985 114,236

Total liabilities 539,737 666,362 658,478 744,325 827,012


Minority interests 83 104 65 - - Other equity (0) (0) 0 - - Total equity 49,855 52,282 53,669 55,804 59,839

Total liabilities & shareholders' equity 589,592 718,643 712,147 800,129 886,851



Balance Sheet Employment Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Net cust loans/assets 58.1% 52.3% 60.1% 61.3% 63.9%Net earning assets / assets 88.5% 87.3% 88.9% 93.0% 93.6%Non-earning assets/assets 11.5% 12.7% 11.1% 7.0% 6.4%Net cust loans/cust deposits 82.9% 83.1% 86.2% 92.0% 94.8%Equity / assets 8.4% 7.3% 7.5% 7.0% 6.7%Equity / gross cust loans 13.7% 13.1% 11.8% 10.8% 10.1%Equity & provns / gross cust loans 13.7% 13.1% 11.8% 10.8% 10.1%Liquid funds / cust deposits 46.9% 58.6% 44.3% 49.9% 46.0%Provision charge / avg cust loans 0.5% 0.8% 2.1% 0.8% 0.8%Provision charge / avg assets 0.3% 0.5% 1.2% 0.5% 0.5%


OSK Research


OUTLOOK

Turning around faster than expected Balance sheet more solid and competitive advantage sharpened Under TMB’s transformation programme implemented in 2009, the bank has put in a lot of work to improve its back office operations, clean up its balance sheet, and finetune its banking culture and staff attitude. The key achievements so far are in: i) making its funding cost more competitive, ii) cleaning up its bad debts and raising its NPL coverage to a solid 111% to match the industry level, and iii) improving margins from 2% to 2.8% and outshining BBL’s 2.6% margin. Currently, TMB is ready to take a leap and reap the potential gains from the economic upturn.

Figure 1: TMB’s NPL ratio Figure 2: TMB’s NPL coverage

0.0%2.0%

4.0%6.0%

8.0%10.0%

12.0%14.0%

16.0%18.0%

2007 2008 2009 2010 2011 2Q12 4Q12

TMB Industry

0%

20%

40%

60%

80%

100%

120%

2007 2008 2009 2010 2011 2Q12 4Q12

TMB Industry


Figure 3: TMB’s NIMs improve significantly Figure 4: TMB’s funding is lower than its peers’

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2007 2008 2009 2010 2011 2Q12 4Q12

TMB Industry 0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2007 2008 2009 2010 2011 2Q12 4Q12

TMB Industry

M


OSK Research


Fast revenue growth on high yield loans and fee incomes As a specialist in SME loans, TMB started to aggressively boost its SME loans in early 2012, as a result of which this segment expanded by 33% in FY12 (vs +6% in FY11), against the bank’s overall loan growth of 14% (vs the industry average of 13%). We believe that after cleaning up its balance sheet and making its funding more competitive, TMB would embark on a more aggressive strategy to grow this loan segment and boost margins.

Figure 5: TMB embarked on aggressive loan growth in 2012 Figure 6: TMB’s funding is lower than its peers’

-14%-14%

-9%

-1%

10%

15%15%14%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013f 2014f

-

50,000

100,000

150,000

200,000

250,000

2007

2008

2009

2010

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

Loan

by

segm

ent (

THB

m)

Corp SME Retail SME

Corp

Retail


Apart from the forecast loans growth of 14.5% for each of the categories set out below from FY13-FY14, we see TMB’s loan growth charging ahead at a 15% growth rate. Figure 7: TMB’s loan growth by segment - SME segment on aggressive growth path

2011 2012 2013F 2014f

Corp 11% 6% 12% 12% SME 6% 33% 18% 18% Retail 12% 7% 14% 14% Total 10% 14% 15% 15%


OSK Research


Three phases of transformation - more room to improve fee income/revenue In the 1st and 2nd phases of transformation from 2008-2011, TMB rolled out a new front-end system to drive service and sales. It centralized its administrative functions to better enable staff to generate revenue while streamlining processes to reduce turnaround time and revamping as well as relocating its branches to better serve customers. The aim was to get the service proposition up and running, and then roll out new products to drive sales. Currently, the bank has new asset and liability products to tap the corporate loan segment. To ride on its SME clients and to serve their supply chains, it has also launched products that are linked with loans for this customer segment. All these moves will enable TMB to improve its current fee income/revenue ratio of only 33% (vs the industry’s 40%).

Figure 8: TMB’s three-phase transformation into the best transactional bank

Phase 2 Phase 3Phase 1 Differentiation & Building mkt leadership

Laying the foundation Quality growth The best transaction bank

2008-2009 2010-2012 2013-onward

Reorganization Service and operational excellence New standars for customer service Branch transformation Product expansion New standars for financial mgt End-to-end process Channel enhancement TMB group offering HR transformation Brand enhancement Risk mgt

Source: Company data, OSK research

Meanwhile, we expect the fee income growth of 15% in FY12 to persist over the next two years and bolster TMB’s fee income/revenue ratio to 38%.

OSK Research


Major shareholder’s exit both a risk and an opportunity MOF’s investment cost in TMB is about THB3.6 per share Thailand’s Ministry of Finance became TMB’s major shareholder after buying preferred shares amounting to THB19.9bn @ THB10 apiece under a financial bailout program in 2000. The ministry has also continued to maintain its equity stake in TMB even after the bank sought recapitalization several times in the past 10 years. Following TMB’s recapitalization exercises, MOF had subscribed for its rights offering at prices ranging from THB10 in 2000 and THB1.4 in 2008. Beyond recapitalization, MOF’s total investment cost in TMB is around THB3.56/share. ING’s cost of investment in TMB is THB1.6 a share TMB has undergone changes many times since the bank merged with DBS & IFCT, after which DBS became its major shareholder. Owing to DBS’ inability to resolve the bank’s bad debts arising mainly from IFCT, the former could not revive TMB, which led to the latter having to seek the injection of new capital for bad debt provisions. In 2007-2008, TMB again changed major shareholder when ING bought new shares in the company at THB1.6 per share. Acquisition will continue to be mired in controversy Currently, MOF wants to exit TMB and sell its entire share portion to ING or potential investors. However, this deal is more complicated than meets the eye since as ING has the right of first refusal to buy MOF’s shares. Should ING keep silent or does not act on the offer, MOF would not be able to push the deal through. Meanwhile, ING Group has its share of financial problems and is unable to make new acquisitions. Thus, any acquisition of MOF’s TMB shares will continue to be mired in controversy.

Figure 9: MOF’s investment cost in TMB through share subscription

No. of shares

(m sh)

Price

(THB/sh)

Amount

(THBm)

2000 (preferred sh) 1,992 10.0 19,920

2004 2,780 3.5 9,730

2007 1,005 3.0 3,015

2008 5,587 1.4 7,821

Total 11,364 3.56 40,486 Source: Company data, OSK Research

OSK Research


Valuation: Buy, with FV THB2.9 (PBV 1.95x) Re-rate ROE to 12.7%/14% for FY13f/FY14f (up from historical 8% base) In our forecasts for TMB’s FY13f/FY14f earnings, we are assuming NIM of 2.7%/2.7% on LDRs of 83%/83% respectively. Given that TMB’s LLP is similar to the industry’s, we are assuming normalized provisioning expenses of 70bps for FY13f-FY14f, down substantially from FY12 at 200bps. As for expiry of its tax exemption, TMB will be paying 20% tax on its earnings going forward. Beyond this, we see TMB as one of Thailand’s three banks that will make a strong turnaround with significant ROE improvement from 9% to 12.7%/14% for FY13f/FY14f. Key earnings upside/downside heavily dependent on NIM, opex growth As TMB’s earnings are heavily dependent on NIM and operating expense growth, based on our key assumptions, a 10bps change in NIM will affect its earnings by 8% while a 5% change in operating expenses will result in a 9% change in its earnings. Notably, our earnings forecast is not too aggressive as it is based on a 2.7% NIM, below the company’s historical NIM of 2.85% in 2H12.

Figure 10: TMB’s earnings sensitive to changes in key assumptions on NIM and opex

growth changes

Net profit change

NIM assumption (2.7% for FY13f-FY14f)

Impact of each 10bps change 8.1% Loan growth (14.5% for FY13f-FY14f)

Impact of each 5% change 2.4% Non-NII (+12% FY13f-FY14f )

Impact of each 5% change 8.5% Opex (+10% FY13f-FY14f )

Impact of each 5% change 9.2% Provisioning expense/loan (0.7% FY13f-FY14f )

Impact of each 10bps change 6.0% Source: Company data, OSK Research

Figure 10: TMB – forward PBV Figure 11: TMB – forward PE

0.00.51.01.52.0

2.53.03.54.0

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

P/BV (X)

Mean = 1.37x

-2SD = 0.29x

-1SD = 0.83x

+2SD = 2.45x

+1SD = 1.91x

TMB - Forward P/BV

0.05.0

10.015.020.025.030.035.040.045.0

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

P/E (X)

Mean = 17.93x

-2SD = 1.66x

-1SD = 9.80x

+2SD = 34.20x

+1SD = 26.07x


OSK Research 14 Feb 2013

OSK Research | See important disclosures at the end of this report 40Powered by Enhanced Datasystems’ EFA Platform

THAILAND EQUITY

Investment Research

Company Update

Kiatnakin Bank PCL Riding On Capital Market Boom

KK’s banking platform towards portfolio investment and advisory business is expected to propel its FY13f earnings to a robust 46% growth (vs bank sector’s 17%). The group’s revenue could potentially double in the backdrop of a favourable market outlook and rigorous risk control, while its portfolio is set to more than double in size and revenue. Given Thailand’s infrastructure and REITs boom, PHATRA is expected to book a huge financial advisor (FA) fee from infrastructure fund at around THB700m. In view of anticipated stellar revenue from its businesses, we expect KK’s ROE to expand from 13% in FY12 to 16% in FY13f, re-rating KK’s PBV multiple to 1.8x with fair value of THB79.

Portfolio business more than double in size. We believe the portfolio investment business, previously under Phatra Securities, will likely perform better under KK’s new entity. Given that KK’s equity base is 5x larger than that of Phatra Securities, we expect a larger portfolio size under KK’s platform at a combined THB5-6.5bn, representing 4%-6% of KK’s equity base, or only 2.2% of its asset base. In view of better market outlook in FY13f, we assume an average annual return of 17% and revenue of THB1.2bn. REITs, infrastructure fund lead IB business boom. Phatra has the strongest expertise in the advisory business, with >80% market share in the investment banking (IB) business in terms of M&A and IPO & PO deals. Phatra’s good track record as financial advisor to several property and infrastructure funds should help KK & Phatra attract more deals going forward. Recently, Phatra became the financial advisor of the first infrastructure fund in Thailand “BTSGIF”, with a deal value of around THB70bn. Assuming a 1% fee and Phatra sharing 50% of the total, the deal should contribute around THB300m of fee income to be booked in 1H13. Commercial banking to grow 12% vs. doubled revenue for brokerage business. The group’s commercial banking growth will likely come from an forecasted 15% loan growth, margin improvement from rate cut, as well as recurring gain from non-performing assets (NPA). Meanwhile, the huge daily volume at THB40bn (vs THB27bn in FY12) should translate to THB1.9bn in brokerage fee income (at 5.6% for combined market share of KK and Phatra, with an average commission of 0.18%). In addition, we assume a cost-to-income ratio of 51% and a corporate tax rate of 20%, down from 23% in FY12.



Previous THB62.0

Price THB55.8

Banks

Consumer banking

Stock Statistics

Bloomberg Ticker KK TB Market Cap THB46,478m USD1,561m 52 wk H/L price (THB) 55.8 31.8 3m ADT THB128m YTD Returns 14.9% Beta (x) 1.00 Major Shareholders (%)

Watanavakin Family 23.6%PHATRA’s management 10.3%Free Float 66.1% Share Performance (%)

Month Absolute Relative1m 12.6 6.3 3m 22.5 7.2 6m 33.5 7.7 12m 71.5 34.4

6-month Share Price Performance

29

34

39

44

49

54

59

06-F

eb-1

2

06-A

pr-1

2

07-J

un-1

2

08-A

ug-1

2

09-O

ct-1

2

10-D

ec-1

2

89

97

106

114

122

131


Source: Bloomberg


Net interest income (THBm) 5,900 6,476 7,113 7,811 8,089 Net income to ord equity (THBm) 2,840 2,859 3,391 4,971 6,040 Net prof it grow th 27.4% 0.7% 18.6% 46.6% 21.5%Recurrent net profit (THBm) 2,840 2,859 3,391 4,971 6,040 EPS (THB) 5.22 4.76 4.62 5.97 7.25 Return on average equity 14.7% 12.8% 11.9% 15.7% 16.5%Return on average assets 2.1% 1.7% 1.6% 1.9% 2.1%P/E (x) 10.7 11.7 12.1 9.3 7.7 P/B (x) 0.9 0.7 1.3 1.3 1.1


OSK Research


FINANCIAL


Interest income 8,841 11,296 14,452 17,753 20,340





Total costs (4,557) (5,095) (6,222) (8,046) (8,876)


Total provision charges (647) (1,278) (1,555) (1,154) (1,331)

Post-provision operating profit 4,080 3,421 4,033 6,255 7,597

Pre-tax profit 4,080 3,421 4,033 6,255 7,597

Taxation (1,213) (535) (605) (1,251) (1,519) Profit after tax 2,866 2,886 3,428 5,004 6,077

Minority interests (26) (27) (36) (33) (37) Profit after tax & minorities 2,840 2,859 3,391 4,971 6,040


Recurring net profit 2,840 2,859 3,391 4,971 6,040 Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total gross loans 115,639 151,830 176,519 220,553 256,774

Securities - total 19,070 32,045 42,350 85,958 108,975 Total gross interest earning assets 134,709 183,875 218,869 306,511 365,749


Net loans to customers 103,491 130,629 162,822 189,327 218,652

Total net interest earning assets 130,474 178,755 212,698 302,259 361,298

Cash & accrued interest 868 1,180 2,403 3,339 3,516 Tangible fixed assets 901 - - - -

Other assets 9,657 10,061 17,912 24,841 31,074 Total non-interest earning assets 11,426 11,241 20,315 28,180 34,590

Total assets 141,900 189,996 233,013 330,439 395,887

Broad deposits 75,932 69,040 153,027 215,403 280,025 Other interest-bearing liabilities 38,509 91,233 34,592 63,013 61,347 Total interest-bearing liabilities 114,441 160,273 187,619 278,416 341,372

Other non-interest bearing liabilities 6,548 5,459 12,196 15,651 15,466 Total non-interest bearing liabilities 6,548 5,459 12,196 15,651 15,466



Minority interests 241 379 296 39 39 Other equity 0 0 (0) 0 0 Total equity 20,911 24,264 33,198 36,372 39,049

Total liabilities & shareholders' equity 141,900 189,996 233,013 330,439 395,887 Balance Sheet Employment Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Net cust loans/assets 72.9% 68.8% 69.9% 57.3% 55.2%Net earning assets / assets 91.9% 94.1% 91.3% 91.5% 91.3%Non-earning assets/assets 8.1% 5.9% 8.7% 8.5% 8.7%Net cust loans/cust deposits 136.3% 189.2% 106.4% 87.9% 78.1%Equity / assets 14.6% 12.6% 14.1% 11.0% 9.9%Equity / gross cust loans 19.2% 17.6% 19.5% 18.8% 17.5%Equity & provns / gross cust loans 19.2% 17.6% 19.5% 18.8% 17.5%Liquid funds / cust deposits 35.9% 70.3% 33.5% 53.4% 51.7%Provision charge / avg cust loans 0.7% 1.0% 1.0% 0.6% 0.6%Provision charge / avg assets 0.5% 0.8% 0.7% 0.4% 0.4% Source : OSK, Bloomberg

OSK Research


OUTLOOK

Portfolio investment – the star performer Portfolio size to expand by 2x – 4x The portfolio investment business, previously under Phatra Securities, should perform better under KK’s new entity. Under Phatra Securities, the portfolio size had been limited at only THB2.0-2.6bn as it was operated by internal cash. Given that KK’s equity base is 5x larger than that of Phatra Securities, coupled with its huge cash on hand, we expect a larger portfolio size under KK’s platform at a combined THB5-6.5bn, representing 4%-6% of KK’s equity base, or only 2.2% of its asset base. Revenue to grow by more than 2x Driven by sound investment vision and proper risk management, Phatra’s portfolio business had generated return of around 30% p.a. from 2008-2012. In view of better market outlook in FY13, we expect continued good return from the portfolio segment under KK’s platform. All in, we assume a portfolio return of 17% p.a. in our FY13f earnings forecasts.

Figure 1 : Investment business – double in size

Portfolio size

THBm

% to equity Remark

Old – operate under Phatra Sec

- Arbitrage & proprietary trading 600 15% return ~THB800m/p.a.

- Direct investment 1,500-2,000 37%-50% (implied 30% return p.a.)

Total 2,000-2,600

New - operate under KK + Phatra Sec

- Arbitrage 2,000-3,000 6-9%

- Systematic trading 1,500 4% assuming 15% return p.a.

- Direct investment 1500-2,000 4% - 6%

Total 5,000- 6,500 14% - 18%


Portfolio revenue estimated at THB1.2bn p.a. Armed with a combined portfolio size of THB5-6.5bn, the bank has set three portfolio investment strategies i.e. proprietary trading, arbitrage trading, and long-term direct investment. Return on each portfolio varies from 8%-15% for short-term strategy and 20%-25% for long-term strategy. Assuming an average annual return of 17%, the portfolio investment business should generate THB1.2bn in income.

Figure 2 : Substantial potential return

Portfolio size

(THBm)

KK’s expected

annual return

OSK’s portfolio

return assumption

KK + PHATRA

- Arbitrage 2,000-3,000 8-12%

- Systematic trading 1,500 10-14% return 17% p.a.

- Direct investment 1500-2,000 20-25% with rev THB1.2bn

Total 5,000- 6,500 12%-17%


OSK Research


Investment banking business boom REITs and infrastructure fund lead IB business boom Phatra has the strongest expertise in the advisory business, with >80% market share in the investment banking (IB) business in terms of M&A and IPO & PO deals. This is attributed to its longstanding relationship with big corporations in Thailand as well as strong distribution channels in the local and international markets. Despite slow business activities over the past few years, Phatra was one of the IB firms that managed to sustain its advisory fee income at high levels. Thus, in view of favourable capital market outlook and new regulations on REITs & infrastructure fund, we expect an IB business boom this year and the coming two years. Projecting THB700m advisory fee for FY13f We believe that Phatra’s good track record as financial advisor to several property and infrastructure funds should help KK & Phatra attract more deals going forward. Recently, PHATRA was appointed as the financial advisor of the first infrastructure fund in Thailand “BTSGIF”, with a deal value of around THB70bn. Assuming a 1% fee and Phatra sharing 50% of the total, the deal should contribute around THB300m of fee income to be booked in 1Q13 or 2Q13. Figure 3 : Historical PHATRA’s IB deal

Client Transaction Revenue (THBm)

2006 KTB Perpetual Non-cumulative Tier I 496

CPF M&A

KIN (tender offer UBC) M&A

PTT M&A

TATA Tender offer MS

Thai Food Pattanakij Company Tender offer SFP

THBEV IPO

Rayong Refinery IPO

TRUE Private Placement

CPN Private Placement

2007 CPALL M&A 220

TMB PO

2008 THBEV Tender offer OISHI 270

CIMB M&A

ESSO IPO

2009 BAY M&A 234

CPF M&A

MTL M&A

BTS M&A

2010 Ayudhaya Capital Auto Lease M&A 456

BTS M&A

THAI PO

PS Private Placement

BEC Private Placement

RATCH Private Placement

SCC (sell PTTGC) Private Placement

2011 BGH M&A 318

PTTAR M&A

Thainwx Stainless Tender offer

CPALL Private Placement

2012 CPF Private Placement 258 (for 9M12)

CPALL Private Placement

ROBINS Private Placement

TLGF #1 and #2 Property fund

2013f BTSGIF Infrastructure fund N.A.


OSK Research


Brokerage business – a doubling revenue business Doubling daily turnover We assume KK to maintain its market share at 1.4%, while trimming down Phatra’s market share to 4.3%. Assuming an average commission rate at 0.18%, revenue from the brokerage segment should come in at THB1.97bn. Figure 4: Brokerage revenue

Assumption Remark

Avg. daily trading value (THBm) 40,000 (up from 27bn in ’12)

Brokerage mkt share 5.70%

KK 1.40% (maintained mkt sh to FY12)

PHATRA 4.30% (vs. 4.4% in FY12)

Avg. commission rate 0.18% (maintained mkt sh to FY12)

Revenue (THBm) 1,970

Source: Stock Exchange of Thailand, OSK Research

Figure 5: Average daily turnover - doubling turnover Figure 6: Brokerage market share

16.1 17.4 17.6

25.1 25.4 27.5

55.2

-

10.0

20.0

30.0

40.0

50.0

60.0

2007 2008 2009 2010 2011 2012 YTD13

(TH

B b

n)

4.20%4.40%4.78%

4.20%4.45%

5.96%5.60%

1.40%1.43%1.41%1.51%1.57%1.31%1.36%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2007 2008 2009 2010 2011 2012 YTD13

PHA Sec

KK Sec

Source: Stock Exchange of Thailand, OSK Research Source: Stock Exchange of Thailand, OSK Research

Commercial bank – a recurring business with possible margin upside Potential margin improvement on rate cut Lending activity growth is expected to moderate at around 15%, as the high SME loan growth of 25% will be offset by flat growth from the auto loan segment. However, loan spread will potentially recover at a better-than-expected pace given possible interest rate cut. Should the policy rate be cut by around 50bps in 1H13, this will be an opportunity for the bank to reduce its cost of funds. As 60% of its loan portfolio has a fixed loan rate, the lower cost of funds will boost the bank’s margin. Figure 7 : KK’s profit contribution in 2012

Value (THBm) Remark

Net profit 2012 3,391

- KK 2,988

- PHATRA 403 Brokerage rev THB387m,

Gain investment THB150m Advisory fee THB102


OSK Research


Consistent revenue contribution from NPA KK has THB10.3bn in remaining non-performing assets (NPA) for sales, which should stretch over the next 4-5 years, assuming sold value of THB2.5-3.0bn p.a. As 60% of its NPA is land, we expect favourable returns from its NPA sales due to continued high land value in Thailand. Figure 8 : Historical NPA sales, revenue contribution

NPA for

sales Sold value Rev % rev/sold value (THBbn) (THBbn) (THBbn)

2009 12.6 3.0 2.3 76% 2010 13.8 4.0 2.5 63% 2011 12.3 3.2 2.0 61% 2012 10.3 3.2 2.3 71%

2013f 8.3 2.5 2.0 80% 2014f 6.3 2.5 2.0 80%


Figure 9 : Remaining NPA breakdown (THB10.3bn)

Housing , 32%

Land , 61%Residential

7%

Greater BKK , 59%

Central , 18%

Northeast , 3%South ,

5%

East , 4%

North , 11%


By class By location

OSK Research


KK’s earnings sensitivity analysis KK’s earnings growth relies heavily on the capital market outlook – which may affect its return on investment – as well as the size of its portfolio. As such, we did a sensitivity analysis to show the different impact on KK’s net profit based on changes in investment return from 10% to 30% and portfolio size from THB5.0bn to THB9.0bn. According to the analysis, a 5% return on investment will result in a 2.4% net profit growth, while a portfolio worth THB1.0bn should give rise to a 1.3% net profit growth. The calculations are based on the following assumptions: i) revenue from brokerage business at THB1.96 (at 5.6% for combined market share of KK and Phatra), ii) revenue from IB business at THB700m, and iii) net profit from commercial banking at THB5bn (+12% from FY12). Figure 10 : Base case revenue from IB and brokerage fee income

THBm Remark

Advisory fee incomes 700 Brokerage fee 1,960 Assume daily trading THB40bn, mkt sh 5.6%,

commission rate 0.18%


Figure 11 : Sensitivity of gain on investment, varying with portfolio return assumption


(THB m) 10% 15% 20% 25% 30%

5,000 500 750 1,000 1,250 1,500

6,000 600 900 1,200 1,500 1,800 7,000 700 1,050 1,400 1,750 2,100

8,000 800 1,200 1,600 2,000 2,400 9,000 900 1,350 1,800 2,250 2,700


Figure 12 : Sensitivity of revenue contribution from PHATRA, varying with portfolio return assumption (assuming Brokerage fee of THB1.9bn, IB fee THB700m)


(THB m) 10% 15% 20% 25% 30%

5,000 3,160 3,410 3,660 3,910 4,160

6,000 3,260 3,560 3,860 4,160 4,460 7,000 3,360 3,710 4,060 4,410 4,760

8,000 3,460 3,860 4,260 4,660 5,060 9,000 3,560 4,010 4,460 4,910 5,360


Figure 13 : Sensitivity of PHATRA’s net profit (at cost-to-income 51%, corp tax 20%)


(THB m) 10% 15% 20% 25% 30%

5,000 1,322 1,426 1,531 1,635 1,740

6,000 1,363 1,489 1,614 1,740 1,865 7,000 1,405 1,552 1,698 1,844 1,991

8,000 1,447 1,614 1,782 1,949 2,116 9,000 1,489 1,677 1,865 2,053 2,242


OSK Research


Figure 14 : Sensitivity of KK’s net profit (at cost-to-income 51%, corp tax 20%)


(THB m) 10% 15% 20% 25% 30%

5,000 4,672 4,776 4,881 4,985 5,090

6,000 4,713 4,839 4,964 5,090 5,215 7,000 4,755 4,902 5,048 5,194 5,341

8,000 4,797 4,964 5,132 5,299 5,466 9,000 4,839 5,027 5,215 5,403 5,592


Figure 15 : Sensitivity of KK’s EPS


(THB m) 10% 15% 20% 25% 30%

5,000 5.6 5.8 5.9 6.0 6.1

6,000 5.7 5.8 6.0 6.1 6.3 7,000 5.7 5.9 6.1 6.3 6.4

8,000 5.8 6.0 6.2 6.4 6.6 9,000 5.8 6.1 6.3 6.5 6.7


OSK Research



4

14

24

34

44

54

64

Feb-08 May-09 Aug-10 Nov-11

Price Close

NR

43.0

51.0


Buy Neutral Sell Trading Buy Take Profit Unrated



2012-11-01 Buy 0.0 46.0

2012-08-10 Trading Buy 0.0 41.3


OSK Research | See important disclosures at the end of this report 1 Powered by Enhanced Datasystems’ EFA Platform

THAILAND EQUITY Investment Research

Company Update

Dynasty Ceramic Back On The Throne DCC’s management guidance at the recent analyst mee ting was extremely. 2013 is expected to be a record year for the company due to a change in product mix, an increase in the average selling price and the rebra nding of its outlets. We are upgrading our earnings forecast with a new higher t arget price of THB78 derived from its DCF valuation and a 3% terminal growth rat e. Upgrade to BUY.

New tiles, higher selling prices. Late last year, DCC introduced a new 16”x16” tile, which is modified to look like granite tiles but sold at a cheaper price. The new product has sold well as it is smaller and easier to use compared to the 60”x60” granite tiles imported from China. The tile has incurred an additional cost, which was fully offset by a high selling price. Additionally, the overall average selling price (ASP) in Feb 2013 rose to THB139 per sq m, up from THB129.1 per sq m in 2012. In terms of volume, 5.5m sq m worth of tiles were sold in Jan 2013, compared to 4.9m sq m in Jan 2012.

A better performance in 2013:

• Modern trade outlet is not a threat. Modern trade stores like HMPRO, GLOBAL or Boontavorn target different customer segments and offer fewer variety of tiles versus DCC.

• Capacity boost. With all 20 kilns, DCC plans to increase its production capacity by approximately 3.65m sq m (+~5%) per year. This will be supported by a capex of around THB100m. By the end of February, the company will be running at capacity utilization rate of 90%.

• Rebrand outlets. The company will rebrand its stores’ appearances. Starting with 20 branches in 2013, DCC will spend around THB1m-THB3m per branch depending on the size. We believe that this will attract more customers as stores and staff will look more professional.

Earnings & TP upgraded. We raised our FY13/FY14 earnings forecast by 5%/10% respectively to reflect the better near-term outlook. A pick-up in sales since early 2013 has signaled a turnaround for the company and the impact from the modern trade boom is mild. Thus, we are upgrading our recommendation to BUY, with a new TP of THB78 providing an upside of 31% from the current price. The counter also offers a yield of 6-7%.

Thailand Research Team 66 2862 9999 ext 2030

Buy �� THB78.0 Target THB78.0

Previous THB56.0

Price THB59.3

Building Materials

DCC is one of the largest ceramic tile manufacturers in Thailand. The company's main customers are low- to middle-income earners who live mostly in the upcountry.

Stock Statistics

Bloomberg Ticker DCC TB Market Cap THB24,174m

USD811m

52 wk H/L price (THB) 67.5 40.8

3m ADT THB47.1m

YTD Returns 30.2%

Beta (x) 0.71

Major Shareholders (%)

Saengsastra Family 37.01 Mr. Viboon Vacharasurung 8.59

Viriyamettakul Family 7.46

Share Performance (%)

Month Absolute Relative 1m 17.9 10.7

3m 45.4 27.9

6m 15 -9.2

12m -0.8 -36.3


40

51

63

74

86

97

109

120

38

43

48

53

58

63

68

73

14-F

eb-

12

17-A

pr-

12

19-J

un-1

2

21-A

ug-

12

23-O

ct-1

2

25-D

ec-1

2


Source: Bloomberg

Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-1 3F Dec-14F

Total turnover (THBm) 6,477 7,227 7,638 8,567 9,288

Recurring net profit (THBm) 1,175 1,243 1,255 1,434 1,581

Recurring net profit growth 18.2% 5.8% 1.0% 14.2% 10.2%

Core EPS (THB) 2.88 3.05 3.08 3.51 3.87

Core EPS growth 18.2% 5.8% 1.0% 14.2% 10.2%

DPS (THB) 2.88 3.05 3.08 3.51 3.87

Dividend Yield 4.9% 5.1% 5.2% 5.9% 6.5%

Core P/E (x) 20.6 19.4 19.3 16.9 15.3

Return on average equity 43.8% 46.8% 47.5% 53.7% 59.1%

P/B (x) 8.99 9.22 9.07 9.05 9.04

EV/EBITDA (x) 12.0 12.4 12.6 11.4 10.4

Net debt to equity net cash 7.9% 26.3% 4.4% net cash

OSK vs consensus EPS




Modern trades not a threat.

• Investors’ concerns over the threat of modern trade stores eating DCC’s market share have been clarified by the management. It said that modern trade actually helps to boost DCC’s sales and bring more customers to its outlets, as the latter offers greater product variety and most of its outlets are located between the modern trade stores.

• DCC started selling its tiles through the ‘Thai Wasadu’ stores, one of the modern trade players.

• Its target customer is the middle- to low-income earner while Home Product Center (HMPRO) and Siam Global House (GLOBAL) targets those in the C+ class segment, and Boontavorn targets the A class segment.

• After a short interview with GLOBAL and HMPRO, we discovered that their tiles accounted for only 10% and 20% of their total products sold. Clearly, DCC offers more choices and greater product variety for customers.

• The company’s main customer base is in the renovation market, which is less likely to be the case for HMPRO, GLOBAL and Boontavorn.

Strong position as a market leader. DCC has a robust balance sheet with no long-term interest-bearing debt. As a market leader, it enjoys great economies of scales. Also, high double digit margins provide a buffer should the industry outlook becomes any more negative.

Modern Trade Stores Dynasty Ceramic Pcl.

Market New market Replacement & Renovation

Target Customer Segment Middlte to High Income Earners Mostly Low Income Earners

Target Customer Group

Housing Developers, High-end people who are looking for home

renovation

Contractors, People living in the upcountry who look for home

renovation during harvest season

Specialty All hardware products Tile

Proportion of tiles sold 10% - 20% 100%

Variety of Tile Product Low High

Figure 1: Comparison between modern trade stores an d DCC

Source: OSK Research, HMPRO, GLOBAL,

Figure 2: DCC ’s vs peers’ GPM

Source: OSK Research, SEC



However, long-term catalysts are limited due to the risk factors outlined below:

• Limited ability to raise ASP. DCC’s major customers are those in the low- to middle- class, who are usually more price-sensitive compared to high income earners. This will lead the company to have only a limited ability to raise prices.

• Natural gas price volatility. With the difficulty in predicting commodity prices, our model assumes that the price of natural gas rises on an average of 7% per year looking forward. Therefore, any deviation from the assumption would lead to volatile margins.

• Possibly more competition. Even though tiles are heavy and a little costlier to import, domestic competition remains risky.

Source: OSK Research, DCC

Figure 3: Expansion of production capacity

Source: OSK Research, DCC

Figure 4: Rebranding of outlets

OSK Research


FINANCIAL

Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec -14F

Total turnover 6,477 7,227 7,638 8,567 9,288

Cost of sales (3,630) (4,143) (4,625) (5,163) (5,568)

Gross profit 2,847 3,084 3,013 3,404 3,720

Gen & admin expenses (1,114) (1,237) (1,349) (1,537) (1,667)

Other operating costs (38) (41) - (51) (56)


Operating EBITDA 2,035 2,002 2,010 2,173 2,368

Depreciation of fixed assets (339) (196) (346) (358) (370)

Operating EBIT 1,695 1,806 1,664 1,815 1,998

Interest expense (0) (4) (16) (17) (17)

Pre-tax profit 1,695 1,803 1,648 1,798 1,981

Taxation (516) (555) (388) (360) (396)

Minority interests (4) (5) (4) (4) (4)

Profit after tax & minorities 1,175 1,243 1,255 1,434 1,581


Recurring net profit 1,175 1,243 1,255 1,434 1,581

Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec -14F

Total cash and equivalents 160 190 189 301 435

Inventories 1,131 1,267 1,550 1,556 1,678

Accounts receivable 147 131 137 187 203

Total current assets 1,466 1,623 1,911 2,087 2,362

Other current assets 28 35 36 43 46

Total investments 0 0 - 0 0

Tangible fixed assets 2,105 2,514 2,473 2,321 2,160

Intangible assets 110 112 113 116 117

Total other assets 33 39 37 43 46

Total non-current assets 2,249 2,665 2,622 2,480 2,324

Total assets 3,715 4,288 4,533 4,568 4,686

Short-term debt 0 400 840 420 420

Accounts payable 496 607 621 757 816

Other current liabilities 442 473 426 508 555

Total current liabilities 938 1,481 1,887 1,685 1,791

Other liabilities 51 143 170 172 176

Total non-current liabilities 51 143 170 172 176

Total liabilities 989 1,624 2,057 1,857 1,967

Share capital 408 408 408 408 408

Retained earnings reserve 41 41 41 41 41

Other reserves 2,240 2,174 2,218 2,222 2,227

Shareholders' equity 2,689 2,623 2,667 2,671 2,675

Minority interests 37 41 45 50 54

Other equity 0 0 (236) (10) (10)

Total equity 2,726 2,664 2,476 2,711 2,719


OSK Research


Cashflow (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F


Depreciation & amortisation 339 196 346 358 370

Change in working capital 74 17 (323) 154 (35)

Other operating cashflow (50) (4) 4 (1)

Operating cashflow 2,059 2,014 1,691 2,327 2,332

Interest paid (0) (4) (16) (17) (17)

Tax paid (516) (555) (388) (360) (396)

Cashflow from operations 1,542 1,456 1,287 1,950 1,919

Capex (423) (601) (300) (200) (200)

Other new investments - (5) (5) (10) (10)

Other investing cashflow 15 13 5 4 4

Cashflow from investing activities (408) (594) (300) (206) (206)

Dividends paid to ordinary shareholders (1,163) (1,228) (1,255) (1,434) (1,581)

Increase in debt (2) 400 440 (420) -

Other financing cashflow (0) (3) (173) 223 1

Cashflow from financing activities (1,165) (832) (988) (1,631) (1,580)

Cash at beginning of period 191 160 190 189 301

Total cash generated (31) 31 (2) 113 134

Implied cash at end of period 160 191 189 302 435 Source : OSK, Bloomberg

OSK Research



3

13

23

33

43

53

63

73

Feb-08 May-09 Aug-10 Dec-11

Price Close

NR

50.0

56.0





2013-01-31 Neutral 56.0 52.0

2012-11-01 Neutral 50.0 45.8




Daily

FY2012 Results Preview

Somboon Advance No Upside We expect Somboon Advance Technology (SAT) to end i ts FY12 on a positive note, with EPS surging about 100% on the back of strong s ales growth, rising GPM and tax benefits from the Board of Investment. We are u pgrading SAT’s 2013 earnings by 5.5% to reflect strong sales to a non-auto compa ny (Kubota), and are revising our TP to THB39.30, based on 12x 2012 PE. However, as i ts share price has rallied by 36% since our last report dated 12 Nov 2012 and see ms to be fairly valued, we are downgrading our recommendation on the stock to NEUT RAL.

Ending 2012 on firm footing. We expect SAT to end its financial year with y-o-y EPS growth of at least 99% on the back of: i) 48% sales growth, ii) 2012 GPM of 16% (vs 2011’s GPM of 15%), and iii) a 2012 effective tax rate of 13% (vs 2011 GPM of 16%). The 13% tax rate is based on the company’s guidance that the figure would be in the range of 12%-14% for the next few years; however, this may turn out to be too high as in 9M12, the effective tax rate was only 8%. Hence, if tax rate continues to be relatively low in 4Q12, we will see an upside surprise in its earnings.

Higher utilization rate at ICP2 anticipated. SAT’s latest casting plant (ICP2) ended the year with a utilization rate of 75%, up from 40% at end-2Q12 and 60% at end-3Q12, implying that GPM should improve to about 17% in 4Q12 and 18.5% in 2013 as expected

Upgrade 2013 earnings. We upgrade FY13f and FY14f earnings by 5.5% and 4%, respectively. The upgrade for FY13f was due to two factors, namely i) the adjustment of projected sales growth from 8% to 10% and ii) the reduction of the forecasted effective tax rate from 13% to 10%. We believe sales growth for 2013 should be around 10% instead of 8% once we take into account the 30% growth rate of sales of axle shafts to Kubota (11% of total sales in 2012). As our TP is based on 12x 2013 PE, the upgraded earnings has resulted in a higher TP of THB39.3.

Downgrade to NEUTRAL. Although we have decided to increase SAT’s TP from THB37.30 to THB39.30, the upside from the current market price is rather limited at 5.5%, leading us to downgrade the recommendation to NEUTRAL. However, it is worth noting that, going forward, this counter is expected to enjoy the boon of positive news flow, including waves of healthy sales due to back orders spilling over from last year, and the finalization of its Indonesian investment in 1H13. Such positive news could help push its share price to our TP in a short period of time.

Thailand Research Team 66 2862 9999 ext 2030

Neutral � THB Target THB39.3

Previous THB37.3

Price THB37.3

Auto Parts & Equipment

Somboon Advance Technology PCL manufactures and sells automotive parts to automobile manufacturers. The company's products include axle shafts, leaf springs, disc and drum brakes, manifold exhaust, fly wheels, stabilizer bars, and coil springs.

Stock Statistics

Bloomberg Ticker SAT TB Market Cap THB12,662m

USD424m 52 wk H/L price (THB) 37.3 24.4

3m ADT THB95.4m

YTD Returns 22.1% Beta (x) 0.96


Somboon Holding 25.5 Kitaphanich Family 24.3

Sompong Cholkadeedamrongkul 6.9 Share Performance (%)

Month Absolute Relative 1m 16.4 11

3m 31.9 16.4

6m 28.4 6.3 12m 55.9 22.6


23

25

27

29

31

33

35

37

39

14-F

eb-1

2

16-A

pr-1

2

15-J

un-1

2

16-A

ug-1

2

17-O

ct-1

2

18-D

ec-1

2

84

89

94

99

104

109

114

119


| Source: Enhanced Datasystems. Prices are for demonstration purposes only

Forecasts and Valuations Dec-10 Dec-11 Dec-12F Dec-1 3F Dec-14F


Recurring net profit (THBm) 772 408 811 1,114 1,265

Recurring net profit growth 145.9% (47.2%) 98.9% 37.3% 13.5%

Core EPS (THB) 2.41 1.20 2.39 3.28 3.72

Core EPS growth 130.5% (50.3%) 98.9% 37.3% 13.5%

DPS (THB) 0.35 0.85 0.88 1.21 1.38

Dividend Yield 0.9% 2.3% 2.4% 3.3% 3.7%

Core P/E (x) 15.4 31.0 15.6 11.4 10.0


P/B (x) 3.11 3.03 2.70 2.35 2.04

EV/EBITDA (x) 9.9 14.3 9.4 7.5 6.5

Net debt to equity 34.0% 64.4% 62.2% 50.8% 38.4%

OSK vs consensus EPS (7.0%) 5.6% 5.7%





Daily

9MFY13 Results Review

BTS Group Holdings On The Right Platform While BTS’s 9MFY13 operating revenue and EBITDA wer e within expectations, its core net profit outperformed our estimate due to lo wer-than-expected finance cost. Thus, we are increasing our FY13 earnings forecast by about 12% while leaving our FY14 and FY15 forecasts unchanged. We are maintaini ng our BUY call but are bumping up our FV from THB7.50 to THB9.33, based on a sum-of-parts (SOP) valuation following the upward revision in its comp onents. Despite the slight potential delay in the setting up of the infrastruc ture fund (IFF), we believe the positive news flow will continue to support BTS’ sh are price.

Above expectations . BTS recorded revenue and net profit of THB8.493bn and THB2.089bn respectively for 9MFY13. The figures included gains from the sale of investments in its subsidiaries. Excluding non-recurring items, BTS’ 9MFY13 operating revenue and EBITDA came in within our expectation. However, its core net profit outperformed, largely due to the lower-than-expected finance cost from the repayment of loans and debentures as well as the extensive conversion of its bonds. Its operating revenue and EBITDA was up around 13.3% and 24.6% y-o-y respectively in 9MFY13, driven by strong performance across all of its business divisions. In 3QFY13, revenue from its mass transit business was up by 13.7% y-o-y, boosted by strong ridership growth. Meanwhile its media business grew by 49.7% y-o-y, thanks to the sturdy growth in both the BTS-related and modern trade media segments, which was partly driven by higher space utilization. To recap, BTS did not record any gains from VGI’s listing in its P&L, as it did not lose any control over VGI after the latter’s IPO.

Maintain BUY at higher FV . In view of the better-than-expected core net profit, we are raising our FY13 earning forecast by 12%, after lowering our finance cost assumptions. However, we leave our FY14 and FY15 estimates unchanged pending more details on the IFF. We maintain our BUY call on BTS, with a higher FV of THB9.33, up from THB7.50. The FV upgrade was largely driven by lower net debt, the higher market value of VGI (from THB70 per share to THB125) as well as the higher valuation for fare box revenue for the IFF (from THB55bn to THB60bn) to reflect the positive market sentiment, which could further spur the IFF’s valuation to hit the top-end range of its indicative value, at THB50bn-THB60bn.

The Research Team +66 (0) 2862 9999 ext 2030


Previous THB7.50

Price THB8.40

Transportation BTS Group is the concessionaire for the core Silom and Sukhumvit Lines in the rail mass transit system known as BTS SkyTrain. It is also the largest out-of-home media company in Thailand.

Stock Statistics

Bloomberg Ticker BTS TB Market Cap THB92,592m

USD3,106m

52 wk H/L price (THB) 8.40 4.56

3m ADT THB925m

YTD Returns 17.5%

Beta (x) 0.94


Mr. Keeree Kanjanapas Group 49.15Bangkok Bank PLC 5.21

Share Performance (%)

Month Absolute Relative 1m 19.1 11.9

3m 34.4 16.9

6m 58.5 34.3

12m 94.9 59.4


93

101

109

117

125

133

141

149

157

165

173

3.9

4.4

4.9

5.4

5.9

6.4

6.9

7.4

7.9

8.4

8.9

14-F

eb-1

2

17-A

pr-

12

19-J

un-1

2

21-A

ug-1

2

23-O

ct-1

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25-D

ec-1

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Source: Bloomberg

Forecasts and Valuations Mar-11 Mar-12 Mar-13F Mar-1 4F Mar-15F


Recurring net profit (THBm) 359 2,278 1,743 1,823 2,270

Recurring net profit growth na 535.5% (23.5%) 4.6% 24.5%

Core EPS (THB) 0.04 0.24 0.17 0.16 0.20

Core EPS growth na 535.5% (29.1%) (2.5%) 24.5%

DPS (THB) (0.06) (0.30) (0.20) (0.21) (0.26)

Dividend Yield (0.7%) (3.6%) (2.4%) (2.5%) (3.1%)

Core P/E (x) 226 36 50 52 41


P/B (x) 2.34 2.30 2.04 1.93 1.86

EV/EBITDA (x) 32.0 19.5 18.3 9.9 9.0

Net debt to equity 55.7% 66.9% 23.5% net cash net cash

OSK vs consensus EPS 8.5% (16.1%) (15.9%)


OSK Research


FINANCIAL

Profit & Loss (THBm) Mar-11 Mar-12 Mar-13F Mar-14F Mar -15F

Total turnover 6,829 9,252 10,320 7,349 8,712

Cost of sales (3,357) (4,020) (4,943) (2,929) (3,487)

Gross profit 3,472 5,232 5,377 4,420 5,225

Gen & admin expenses (1,034) (1,212) (1,393) (1,102) (1,350)

Selling expenses (250) (177) (237) (169) (205)

Other operating costs (171) - (100) (200) (150)


Operating EBITDA 3,205 5,346 5,246 4,549 5,120

Depreciation of fixed assets (1,187) (1,503) (1,600) (1,600) (1,600)

Operating EBIT 2,017 3,843 3,646 2,949 3,520

Net income from investments 1 (2) 2 454 499

Interest expense (1,602) (1,432) (1,200) (770) (770)

Pre-tax profit 417 2,408 2,449 2,633 3,249

Taxation - - (392) (474) (585)

Minority interests (58) (130) (314) (335) (395)

Profit after tax & minorities 359 2,278 1,743 1,823 2,270

Net income to ord equity 359 2,278 1,743 1,823 2,270

Recurring net profit 359 2,278 1,743 1,823 2,270 Balance Sheet (THBm) Mar-11 Mar-12 Mar-13F Mar-14F Mar -15F

Total cash and equivalents 1,825 1,333 2,309 35,991 36,228

Accounts receivable 640 1,107 1,262 1,503 1,728

Total current assets 6,024 7,868 9,322 43,324 43,875

Other current assets 3,559 5,428 5,750 5,829 5,919

Total investments 2,504 2,468 2,857 19,643 19,731

Tangible fixed assets 7,971 8,716 7,200 9,436 11,554

Intangible assets 44,610 45,313 44,625 3,214 3,198

Total other assets 2,593 2,525 2,796 2,830 2,840

Total non-current assets 57,678 59,021 57,477 35,122 37,323

Total assets 63,703 66,889 66,799 78,446 81,198

Short-term debt 652 5,021 3,128 3,129 3,129

Accounts payable 1,170 1,452 1,525 1,817 2,088

Other current liabilities 1,840 1,865 2,144 2,576 3,321

Total current liabilities 3,662 8,338 6,798 7,521 8,538

Total long-term debt 13,692 12,378 9,600 9,600 9,600

Other liabilities 8,840 9,241 2,598 10,891 10,867

Total non-current liabilities 22,531 21,619 12,198 20,491 20,467


Share capital 35,769 36,600 43,750 43,750 43,750

Retained earnings reserve (1,476) (2,033) (557) 4,292 4,949

Other reserves 482 722 2,878 659 1,762

Shareholders' equity 34,775 35,290 46,071 48,701 50,461

Minority interests 2,734 1,642 1,732 1,732 1,732

Total equity 37,509 36,932 47,803 50,434 52,193


OSK Research


Cashflow (THBm) Mar-11 Mar-12 Mar-13F Mar-14F Mar-15F


Depreciation & amortisation 1,187 1,503 1,600 1,600 1,600

Change in working capital 2,626 4,367 5,553 6,651 7,292

Other operating cashflow (5,899) (8,901) (9,620) (9,048) (9,686)

Operating cashflow (69) 813 1,179 2,152 2,726

Interest received (29) (40) (40) (42) (45)

Interest paid 1,487 983 1,216 1,216 1,216

Dividends received - (0) - - -

Tax paid 32 24 (300) (503) (644)

Cashflow from operations 1,422 1,779 2,055 2,824 3,253

Capex (4,049) (1,856) (1,030) (1,048) (1,067)

Other new investments 3,195 2,648 878 34,160 1,100

Other investing cashflow (20,792) (4,857) (623) (502) (462)

Cashflow from investing activities (21,646) (4,064) (775) 32,610 (429)

Dividends paid to ordinary shareholders (718) (2,647) (776) (1,049) (1,237)

Proceeds from issue of shares 22,838 - - - -

Increase in debt 2,432 5,949 220 200 (100)

Other financing cashflow (1,851) (1,510) (1,139) (1,392) (1,851)

Cashflow from financing activities 22,702 1,792 (1,695) (2,241) (3,188)

Cash at beginning of period - 1,825 1,333 2,309 35,991

Total cash generated 2,477 (492) (415) 33,192 (364)

Implied cash at end of period 2,477 1,333 919 35,501 35,627


OSK Research


Figure 1: SOP valuation for BTS

THB m Remarks Mass transit (Farebox) 60,000.0 Top-end range of the indicative value for the IFF

O&M 13,439.2 DCF

VGI 26,775.0 70% stake in VGI (based on current price)

Property 13,450.0 1.5x BV

Minus net debt -10,853.1

Total 102,811.1Share base (m) 11,023.8

FV Per share (THB) 9.33

OSK Research



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Price Close

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7.5

0 Recommendations & Target Price




2013-02-13


OSK Guide to Investment Ratings Buy : Share price may exceed 10% over the next 12 months

Trading Buy : Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral : Share price may fall within the range of +/- 10% over the next 12 months

Take Profit : Target price has been attained. Look to accumulate at lower levels Sell : Share price may fall by more than 10% over the next 12 months

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