Thailand Market Focus Investment StrategyAMATA TB 561 16.10 20.00 24.2% 4.6 MINT TB 2,387 19.90 26.50 33.2% 1.5 PTTGC TB 10,307 70.00 82.00 17.1% 5.0 Source: DBS Vickers DBS Group

“In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.”

www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: TW

SET : 1391.93

Analyst Chirasit Vuttigrai (66) 2657 7836 [email protected] Chanpen Sirithanarattanakul (66) 2657 7824 [email protected]

Thailand Research Team [email protected]

Key Indices Current Chg SET Index 1391.93 -0.38% SET 100 Index 2078.67 -0.51% SET 50 Index 945.39 -0.62% Bt/US$ Exchange Rate 31.45 2.70% Daily Volume (m shrs) 1,763 Daily Turnover (US$m) 1,101

Market Key Data (%) EPS Gth Div Yield

2012F 13.7 3.3 2013F 13.7 3.7 2014F 12.0 4.1

(x) PE EV/EBITDA

2012F 14.3 8.1 2013F 12.6 7.2 2014F 11.2 6.4

Top picks Bloomberg Mkt Price Target Upside Yield Code Cap 27-Dec Price 13F (US$m) (Bt) (Bt) (%) (%)

KTB TB 8,949 19.60 22.00 12.2% 4.9 KBANK TB 15,122 193.50 210.00 8.5% 1.9 INTUCH TB 7,329 70.00 88.75 27.0% 6.8 JAS TB 1,277 5.40 6.20 14.8% 3.8 GLOBAL TB 1,251 17.80 21.80 22.5% 0.9 PS TB 1,524 21.10 27.90 32.2% 3.3 AP TB 790 8.50 11.00 29.4% 4.3 SIRI TB 905 3.52 4.40 25.0% 5.3 BECL TB 849 33.75 39.00 15.6% 3.9 CK TB 702 13.00 16.00 23.1% 0.8 AMATA TB 561 16.10 20.00 24.2% 4.6 MINT TB 2,387 19.90 26.50 33.2% 1.5 PTTGC TB 10,307 70.00 82.00 17.1% 5.0 Source: DBS Vickers

DBS Group Research . Equity 2 Jan 2013

Thailand Market Focus

Investment Strategy

Five themes to drive Thai market in 2013 Earnings yield gap suggests SET Index still has huge

upside potential. The current post-recession liquidity-driven rally should continue to run its course over the next 12-18 months at least

Raised our SET Index target for 2013 to 1524, implying 13.6x FY13F PE (+0.2sd of 7-year mean)

Themes for 2013: (i) strong domestic consumption, (ii) new investment cycle, (iii) strong FDI inflows, (iv) solid tourism growth, and (v) China recovery plays in Thai market

Overweight Banks, Property and Contractors Earnings yield gap suggests further upside. Despite PE rerating in the past four years, Thailand’s earnings yield gap had always closed at the peak of a bull cycle. If history indeed repeats itself, we could see substantial rerating ahead and the SET Index could hit 2200 at the peak. No political tension expected in 1H13. If the government holds a referendum in May, the constitutional amendment process would only start in mid-2013. Hence, we do not expect any severe demonstrations in 1H13, which will be positive for the market. Overweight Banks, Property and Contractors. Our top picks include Krung Thai Bank (KTB TB), KASIKORNBANK (KBANK TB), Shin Corporation (INTUCH TB), Jasmine International (JAS TB), Siam Global House (GLOBAL TB), Pruksa Real Estate (PS TB), Asian Property Development (AP TB), Sansiri (SIRI TB), Bangkok Expressway (BECL TB), Ch. Karnchang (CK TB), Amata Corporation (AMATA TB), Minor International (MINT TB) and PTT Global Chemical (PTTGC TB).

[email protected] Raju R Gopalakrishnan 01/19/13 03:40:44 AM Reuters - Internal Employee ID's - 96

Market Focus

Five themes to drive Thai market in 2013

Page 2

Analyst

Chirasit Vuttigrai (66) 2657 7836

[email protected]

Chanpen Sirithanarattanakul (66) 2657 7824

[email protected]

Thailand Research Team [email protected]

Table of Contents Asian economy: Asia saves the euro 3 Thailand economy: Above average 6 Thai politics: Pushing for constitutional amendment 9 Corporate earnings: Forecast 14% growth in 2013F 11 Performance & Valuations 13 Market outlook & Strategy 15 Sector weighting & Recommendations 24 Stock Picks - Krung Thai Bank (KTB TB) 28 - KASIKORNBANK (KBANK TB) 30

- Shin Corporation (INTUCH TB) 32 - Jasmine International (JAS TB) 34

- Siam Global House (GLOBAL TB) 36

- Pruksa Real Estate (PS TB) 38 - Asian Property Development (AP TB) 40

- SANSIRI (SIRI TB) 42 - Bangkok Expressway (BECL TB) 44

- Ch. Karnchang (CK TB) 46 - Amata Corporation (AMATA TB) 48 - Minor International (MINT TB) 50 - PTT Global Chemical (PTTGC TB) 52 Earnings guide 54 Disclaimers 56


Market Focus


Page 3

Asian Economy Asia saves the euro… and other New World tales

This section is contributed by David Carbon, chief economist at DBS Bank Twelve heresies for 2013 1) Never listen to what the Fed, or any other central bank, has to say about policy. Watch the data instead Where the data go, central banks follow. Last April, not many were watching the data. Fourth quarter GDP went up, Fed officials revised their outlook up, markets revised the outlook for QE3 down. Four months later, QE3 was here. And nothing had happened in the meantime except more of what had already been happening for the past 6 months. No shock, no surprise, no nothing. Listen to the Fed when you’re wondering about next week. For anything further afield, watch the data. 2) Never hire a Thai to cover Thailand; never hire an American to cover America What you’ll get from someone “on the ground” is a bunch of guys who all talk to each other and all say the same thing. If you want to cover an economy well, get some data and get as far away from the ground as you can. Go to the beach. Go to Mars. Go anywhere, as long as no else is there. 3) Where (oh where) is global growth going to come from in 2013? From Asia -- just like it has for the past four years The US has run at a sub-2% rate for the past six quarters and a fiscal cliff now looms. In Europe, recession in the periphery is spreading to the core. Where is global growth going to come from in 2013? Asia, just like it has for the past four years. As seen in the chart below, the US, Europe and Japan have all gone nowhere. But Asia has grown by 32 percentage points. This is not a decoupling idea. The world is more interconnected than ever before. But Asia is now doing the driving. And luckily so for the G3 – without Asia in the picture above, the G3 would have run south, instead of sideways like it did.

Real global GDP

92

96

100

104

108

112

116

120

124

128

132

Jun-08Dec-08Jun-09Dec-09Jun-10Dec-10Jun-11Dec-11Jun-12

2Q08=100, seas adj

The growth that came"from nowhere"

USJPEU17

Asia-10

Source: CEIC and DBS Bank 4) Who needs European import demand? Asia grows a new Germany right here in Asia every 3.5 years! A weak Europe may not help Asia’s growth prospects but it doesn’t hurt much either. Thirty-two percent GDP growth in Asia replaces a lot of missing European imports pretty quickly. In 2011, Asia-10 GDP was $13trn. If you grow that by 7.5%, you generate some $1trn of growth. Germany’s GDP was $3.5trn in 2011, about 3.5 times greater. In other words, Asia “adds” a Germany to its economy every 3.5 years. Throw Germany out the window today, Asia would replace it by 2016. And it would add another by 2020. 5) Asia – not Europe – will save the euro (if it is to be saved) The whole world has been urging Germany to step up its demand growth. So far, it has been reluctant to do so for fear of higher inflation. But suppose Germany did agree to raise its GDP growth rate – say to something like 19% per year. Why 19%? Because, Merkel announces, that would double Germany’s GDP in 4 years. The Eurozone rejoices! The euro problem is solved. Now of course Germany can’t double the size of its economy in 4 years. No country can. But Asia can, in effect, do just that – Asia puts a new Germany on the economic map every 3.5 years.


Market Focus


Page 4

6) The euro is dead. Long live the euro The euro will survive 2013. Maybe only just. Yes, the ECB has, with its OMT program, thrown a lot of money onto the table and that has kept financial markets from summarily ending the show. But the real economy problem is the real problem. The only way out is to restore competitiveness in the periphery. It’s a long and painful process and sometimes people take the ‘easy’ way out instead: they devalue the currency. The only way for a Eurozone member to do that is to drop out of the euro – which is precisely what everyone is trying to avoid. Another vicious circle. The euro is strangling Europe. But the euro must be preserved. 7) China’s real target growth rate is 9%, not 7%. Everyone thinks China is entering a new, slower growth phase. That’s partly because 7% is now the official target rate and partly because growth has indeed slowed to a 7.5% rate for the past 6 quarters. But are authorities really talking about slower growth anymore? It wouldn’t seem so. At the NPC at end-November, officials called for a doubling of GDP 2020. For something – anything – to double in 8 years, it has to grow at 9% per year. During the last (2006-2010) 5-year plan, the official target was 7.5%; actual growth averaged 11.2% per year. Look for 9% GDP growth on average over the next 5 years. And for 9% GDP growth to start in 2013. China GDP growth

10.0 10.1

11.3

12.7

14.2

9.69.2

10.4

9.2

0

2

4

6

8

10

12

14

16

2003 2004 2005 2006 2007 2008 2009 2010 2011

% per year, annual avg

Officialtargetrate

Source: CEIC and DBS Bank

8) China’s investment is among the most efficient in Asia. Moreover, acceleration in investment growth will push GDP growth back to 9% in 2013 The biggest reason everyone thinks growth must slow is that there’s been “too much” investment. In fact, investment in China appears to be more efficient than any other country in Asia, save for Singapore. What about investment in 2013? Our bet is that fixed asset investment will accelerate back toward the 26% rate it averaged since 2002-11 from the 20% it registered in 2012. Investment accounts for 50% of China’s GDP and we reckon a rise back to 23% would kick GDP growth up to 8.5% in 2013. A further halfpoint rise to 9% is expected owing to modestly better consumption growth at home and improved export growth to the US. 9) QE3 and OMT won’t have much of an impact on Asia The question now is: will QE3 and the ECB’s OMT program lead to the same sort of inflow and economic outcome that was experienced in 2010 and 1H11? The money that came to Asia was mainly for two reasons: Asia offered higher growth and returns and global risks were perceived to be relatively low. Inflows came to a shuddering halt in August of 2001. Was this because QE2 money had suddenly dried up? Of course not. It was because the euro / EU debt crisis finally erupted in earnest. Visions of a euro blowout and another ‘Lehman moment’ prompted investors to take risk off the table everywhere, and that included Asia. This why QE3 and OMT won’t lead to another onslaught of inflows into Asia – the EU debt crisis hasn’t been solved by either central bank program. Asia – Foreign reserves

1,500

1,550

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

4,000

4,200

4,400

4,600

4,800

5,000

5,200

5,400

5,600

5,800

6,000

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

US$bn, effective = actual + fwd mkt commitments, both axis

Asia 8(RHS)

Asia 10(LHS)

Dec11

Jul12

Aug11

Source: CEIC and DBS Bank


Market Focus


Page 5

10) EU growth will remain at zero in 2013. US growth will remain at 2% in 2013. But Asia’s growth will accelerate How can this be? Three reasons. First, QE3 and OMT will still have a modestly positive impact on Asia. Both take some of short-term risk out of the picture and investors should react positively, even if not aggressively. Second, although US growth will not be numerically much different from 2012 (about 2%) the nature of growth there will be different and that should impact sentiment, inflows and markets. In 2013, private sector growth should be stronger (led by housing and slightly better consumption growth). This will be offset by tighter fiscal policy and the need to cut the deficit and the debt. But the biggest reason Asia will accelerate in 2013 is that investment in China will accelerate. China’s investment growth accounted for 42% of all the GDP growth in the Asia-10 in 2011. The acceleration in China’s FAI will lift Asia-10 GDP growth to 6% from 4.5% in 2012. GDP growth forecast, YoY

2009 2010 2011 2012e 2013F US -3.5 3.0 1.8 2.2 2.0 Japan -5.5 4.5 -0.6 1.6 1.0 Eurozone -4.4 1.9 1.6 -0.4 -0.3 Indonesia 4.6 6.1 6.5 6.1 6.3 Malaysia -1.6 7.2 5.1 5.2 5.0 Philippines 1.0 7.3 3.9 6.2 5.3 Singapore -1.0 14.8 5.0 1.6 3.2 Thailand -2.3 7.8 0.1 5.5 5.0 Vietnam 5.3 6.8 5.9 5.1 5.6 China 9.2 10.3 9.3 7.8 9.0 HK -2.7 7.0 4.9 1.5 5.0 Taiwan -1.8 10.7 4.1 1.1 4.2 Korea 0.3 6.2 3.6 2.2 3.7 India* 8.3 8.4 6.5 5.5 6.5 Note: * India data & forecasts refer to fiscal years beginning April;

inflation is WPI Source: CEIC and DBS Bank

11) The US fiscal cliff will be averted. If it wasn’t so dangerous, it would be comical. What has made the fiscal cliff a cliff is one thing: Obama insists on letting the Bush tax cuts expire on the top 2% of income earners (those with incomes above $250k/year) and Republicans refuse to allow the same on the grounds that it is a “tax increase”. For the past two years, Democrats have rejected all Republican plans to address the debt/deficit that doesn’t have this expiration / tax hike built in and Republicans have rejected all Democratic offers that do. Small deal, medium deal, big deal – all deficit deals have foundered on this one binary issue. How many ways are there around this? At least a couple. For starters, Obama has intimated that tax rates on the top 2% would not necessarily have to go back to pre-Bush levels to bring a deal. For their part, Republicans have increasingly acknowledged that a) they lost the election and b) that ‘revenues’ (i.e., taxes) must be part of any deficit solution. With the binary, all-or-nothing nature of this condition now removed, the way is cleared for both sides to step down from their soap boxes. A second way is to – briefly – go over the cliff. And just how is that a solution? Simple. Come January 1, all taxes (automatically) go up. On January 2, Obama proposes a tax cut for 98% of Americans. Are Republicans going to vote against that? Not a chance. By hook or by crook, taxes are going up on higher income Americans. The cliff isn’t as steep as it sometimes seems. 12) Markets will greatly applaud continued recovery in 2013. Averting the fiscal cliff won’t bring rapid growth in the US in 2013. No matter what, fiscal policy will remain contractionary and growth will remain slow. Ditto for Europe, where further modest contraction is expected in 2013. But markets don’t need strong growth in the G3 to advance. All they need is the absence of disaster and half a plan. We expect a modest pickup in Asia, continued 2%-ish growth in the US and another year of near-zero growth in Europe. Against that backdrop, markets should breathe a sigh of relief and reward investors, as ever, for risks taken.


Market Focus


Page 6

Thai Economy Above average

This section is contributed by Eugene Leow, economist at DBS Bank Growth outlook benign in 2013. The post-flood V-shaped recovery has already run its course and headline GDP growth moderated to 3.0% YoY in 3Q12, from 4.4% in the preceding quarter. In sequential terms, the growth pace cooled from 3.1% QoQ sa in 2Q12 to 0.9% in 3Q12 as pent-up demand (resulting from the flood) eased and external demand slowed. Over the past three quarters, domestic demand provided a sizable cushion against weak exports. Meanwhile, the biggest drag on growth in 3Q12 was inventories, which contributed -3.8 pct-pts to growth, but this was largely payback for the sharp restocking done in the two quarters prior. Our GDP growth forecast remains unchanged at 5.5% and 5.0% for 2012 and 2013 respectively. Although growth in the first three quarters of the year reached only 2.6% YoY, base effects will ensure that 4Q12 growth be in the mid-teens (DBSf: 15% YoY). Going into 2013, we remain optimistic about the country’s growth prospects. Both the government and the central bank (BoT) are likely to maintain the current pro-growth stance well into late 2013. Accordingly, private consumption and investment (supported by flood prevention initiatives) should be well supported. Moreover, there are increasing signs that external demand may be bottoming out.

A revival in electronics exports would provide a sharp kicker to headline growth. Another leg up in consumption. Private consumption expenditure (PCE) shot up over the last two quarters, reaching 6.0% YoY in 3Q12. Comparatively, average PCE growth in the ten years ending 2011 stands at 3.7%. A lot of this has got to do with the government’s pro-growth policies and three key policies readily come to mind. Firstly, the rice pledging scheme (estimated to cost THB

120bn a year) is raising the purchasing power of farmers, reports of corruption and mismanagement aside. For 2013, the government has already allocated THB 405bn (up from THB 300bn in 2012) to back the rice scheme despite criticisms of costs and market distortions.

Secondly, the minimum wage increases in seven provinces

including Bangkok to THB 300/day in April has also helped. This level of minimum wage is scheduled to be rolled out across the remaining 70 provinces in 2013.

Thirdly, the first car buyer scheme has been instrumental

in the record car sales over the last few months. New car sales hit 1.14mn units in the first 10 months of the year, up by 60% compared to the same period in 2011. This scheme is scheduled to end by December 2012. However, the car delivery and document submission period has been extended for another three months. All these suggest that PCE momentum will be maintained into 2013.

Thailand: Domestic demand staying supportive

-15

-10

-5

0

5

10

15

1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12

Net Exports Inventories GFCF GCE PCE GDP

pct-pt contri

Latest: 3Q12

Source: NESDB and DBS Bank


Market Focus


Page 7

Another leg up in investment. The post-flood recovery has also been an investment story. Flood damage has prompted a strong response from the government. For 2012/13, the government plans to roll out short-term water management projects worth THB 22.6bn. For the longer term (2012-2014), THB 300bn worth of projects have been lined up. These projects mark governmental efforts on the extra budgetary front that will be financed by the THB 350bn Royal Decree. Fund disbursement for these projects have been slow in 2012, but an acceleration in spending is to be expected in 2013. As such, it is not surprising that public gross fixed capital formation (GFCF) started to increase in a meaningful way only in 3Q12. Private investment, on the other hand, rebounded very sharply from the trough in 4Q11. Most of this post-flood reconstruction/repair has largely been done and this has been reflected in the recovery of industrial production by mid-2013. Any longer-term negative impact on foreign investors appears to be muted. In particular, Japanese car makers (Nissan and Toyota) have pledged to further invest and/or boost production in Thailand. Notably, 65% of the projects approved by the Board of Investment thus far this year were Japanese. Several reasons can be attributed to continued Japanese investment. Firstly, the Sino-Japan row is prompting Japanese investors to diversify their manufacturing base towards Southeast Asia. Secondly, there has been confidence in the measures taken by the government to address the flood concerns in the short term. These include the construction of flood walls and dykes around factory estates. For the longer term, investors will be attracted to Thailand as a gateway to the greater Mekong region Thailand: CPI trending up

100

150

200

250

300

350

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Jan-10 Jan-11 Jan-12 Jan-13

CPI (% chg YoY)

Min wage (THB, RHS)

%

Latest: Nov 12 DBSf

THB/day

Source: MoC and DBS Bank

Price pressure will materialize. Robust PCE growth has not led to any noticeable rise in price pressures this year and inflation actually trended lower to 2.7% YoY in November on the back of lower food prices. A combination of factors can be attributed to the low inflation rate. Firstly, the government successfully implemented price

controls across a host of essential goods. It is certainly plausible the government will utilize some of these policies in 2013.

Secondly, the minimum wage hikes were accompanied by

a slash in the corporate tax rate from 30% to 23%. A further cut to 20% is planned for 2013. This has helped to contain wage pressures to firms, thereby reducing the higher costs passthrough to final goods and services.

It may prove more difficult to contain price pressures in 2013. The minimum wage rollout will be broader and the impending tax cut will be smaller. A lot will depend on government measures aimed at providing relief to firms faced with rising wage costs. Public investment is also expected to pick up and PCE is expected to remain strong. All these suggest that demand-pull inflation is likely to materialize. Accordingly, we are expecting average inflation to reach 3.6% in 2013, compared to 3.0% in 2012. BoT is expected to maintain an accommodative stance through 2013, but a rate hike has also been factored in for 4Q13 to reflect growing price pressures. Thailand: Wages and consumption

-8

-6

-4

-2

0

2

4

6

8

10

12

0

2

4

6

8

10

12

14

Jan-08 Jan-10 Jan-12

Ave wage Ave min wage

PCE index (RHS)

'000 THB/mth % chg YoY

Latest: Sep/Oct 12

Source: BoT and DBS Bank


Market Focus


Page 8

Due for an external rebound. The trade and industrial numbers still point to weakness in external demand. Although YoY export figures will be very impressive for 4Q12, this is all due to favorable base effects. In sequential terms, electronics exports have been going sideways since July. The rice pledging scheme has also curtailed rice exports, leading to a surge in government rice inventory to 10 mn tons. Vehicles export was one of few bright spots for 2012. Two things are likely to change in 2013.

Firstly, rice exports should surge as the government works to reduce inventory. This is likely to be the case even if the government is forced to take a loss.

Secondly, the electronics cycle may be bottoming out with improvements already seen in South Korea and Taiwan. A rebound in the electronics cycle would provide a considerable boost to growth.

Thailand: Policy rate

-

1.0

2.0

3.0

4.0

5.0

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

%

Source: BoT and DBS Bank

Thailand Economic Indicators

2011 2012F 2013F 3Q12 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F

Real output and demand

GDP growth (88P) 0.1 5.5 5.0 3 15 6 4 6 5 Private Consumption 1.3 5.7 4.4 6 9 4 3 5 4 Government Consumption 1.1 7.0 5.9 9 11 10 6 2 7 Gross Fixed Capital Formation 3.3 11.9 4.3 15 17 4 4 4 5 Net Exports (THB bn) 724 677 723 162 193 208 178 134 202 Exports 9 2 4 -3 15 3 5 1 6 Imports 14 4 3 -2 7 0 0 5 6

External Merch exports (USD bn) 219 229 260 59 60 62 62 66 70 -% YoY 16 5 13 -3 25 14 10 11 17 Merch imports (USD bn) 202 220 245 55 58 58 60 62 65 -% YoY 25 9 11 -2 19 10 8 14 13 Trade balance (USD bn) 17 9 14 5 2 4 3 3 5 Current account balance (USD bn) 6 2 5 3 4 2 2 4 4 -% of GDP 1.7 0.6 1.2 n.a. n.a. n.a. n.a. n.a. n.a. Inflation CPI inflation 3.8 3.0 3.6 3 3 3 4 4 4 Other Nominal GDP (USD bn) 346 369 405 n.a. n.a. n.a. n.a. n.a. n.a. Unemployment rate, % 0.6 0.6 0.6 n.a. n.a. n.a. n.a. n.a. n.a. Fiscal balance (% of GDP) ** -2.7 -2.7 -2.5 n.a. n.a. n.a. n.a. n.a. n.a.*% change, year-on-year, unless otherwise specified **Central govt cash balance for fiscal year ending September of the calendar year Source: NESDB, DBS


Market Focus


Page 9

Thai Politics Pushing for constitutional amendment To amend or not to amend? The current constitution was written by the Constitutional Drafting Assembly that had been selected by a military junta which seized power in 2006. Hence, it is not viewed as pro-democracy. The public has agreed that some parts need to be amended, for example, Section 237 which imposes a five-year ban on executive members of parties dissolved by the Constitutional Court for electoral fraud. In addition, all senators should be elected instead of appointed. Meanwhile, anti-Thaksin groups have alleged that the amendment could pave the way for the return of confiscated assets to ex-PM Thaskin and amnesty for politicians, including Thaksin, who were involved in the political turmoil in the past six years. Government’s Plan A: Referendum and rewrite entire Constitution. As suggested by Thaksin, the government plans to hold a referendum to amend the Constitution in its entirety. Rocky road ahead. However, it will not be an easy task for the government to steer the referendum in its favour because of two major hurdles. First, the current Constitution requires at least half of the

eligible voters to lodge ballots for a referendum to be valid. Currently, there are 46.9m eligible voters, suggesting it would need more than 23.5m voters to come forward to lodge ballots.

Second, more than half of the ballots have to be in favour

of the amendment. This suggests the government would need 11.7m votes in favour of the amendment.

In the last general election on 3 July 2011, 35m voters participated. The coalition government got 17m votes (Pheu Thai party: 15m votes, other coalition parties: 2m votes). This means that, assuming the voters profile is the same for the proposed referendum, the government may be able to secure the 11.7m votes to push through a new Constitution. But the first hurdle may be much more difficult to overcome.

Low voter turnout would deem the referendum result invalid. Anti-government groups and the Democrat Party could discourage voters from participating in the referendum, and it would not meet the required 23.5m votes. Plan B: Amend constitution section-by-section. If Plan A fails, the government would need to amend the Constitution section-by-section. Thaksin’s smokescreen? An anti-Thaksin critic had commented that Thaksin might prefer the Constitution to be amended section-by-section (Plan B) although he claimed to support the referendum and is confident it would be successful. The critic cited the lengthy process (at least two years) to rewrite and approve the entire Constitution (Plan A), while a section-by-section amendment could hasten Thaksin’s return to Thailand. Further, this would be a way to discredit the Democrat Party, which might campaign to discourage voters from participating in the referendum, as being undemocratic. In the worst case, the Democrat Party might be disbanded if the Constitutional Court finds the party breached the Political Party Act for doing just that. No severe demonstrations at least until mid-2013. The referendum is expected to take place in May 2013, and if the result is in favour of the amendment, the rewriting process should start in mid-2013. But if the referendum is invalidated by low voter turnout, the section-by-section amendment could start in 3Q13. This means the political tension in Thailand should remain subdued at least until mid-2013.


Market Focus


Page 10

Will the Government step back again in 2H13? The government has stepped back its attempts to whitewash Thaksin several times. In November 2011, the cabinet endorsed a draft royal

decree to seek royal pardon for convicts, allegedly including Thaksin, but the government made a U-turn after strong public resistance and a drop in popularity following the floods.

In December 2011, several Puea Thai Party members

pushed for the Amnesty Bill, which is aimed at providing blanket amnesty to political offenders, including Thaksin. But following resistance from the public, it renamed the draft bill the Reconciliation Bill and had postponed the passage indefinitely.

In 2Q12, the government wanted to push for the

Constitutional amendment but faced strong resistance from anti-Thaksin groups and the Constitutional Court ruled the government needed to hold a public referendum if it wanted to amend it in its entirety.

Political tension could escalate again when the government starts to amend the Constitution (whether rewriting in its entirety or section-by-section) in 2H13. However, we believe there is a chance the government may step back once again as pushing too hard for the amendment could shake its stability.

Ex-PM Abhisit facing criminal charge Who is responsible for protest deaths? On 13 Dec, ex-PM Abhisit Jejjajiva and ex-Deputy PM Suthep Thaugsuban were charged for authorising the killing of anti-government protesters during the 2010 unrest in Bangkok. The Democrat Party alleged that these charges were to force the party to support the Reconciliation Bill and the Constitutional Amendment Bill. Government seeking support of military leaders. In our view, these charges may not have a large legal impact on the Democrat Party as the case could carry on for years before the court makes a decision, and that could well be a ‘not guilty’ verdict. However, the political impact may be huge. First, the defendants’ political careers are likely to end. The

Democrat Party will need to seek a new party head in the next election. Second, the pro-Thaksin government has, as promised, not

attacked the military leaders, who were also key players in curbing protests earlier. Hence, the government is able to retain their support.

Thailand: Current MP seat distribution

Coalition government Opposition Party Constituency Party list Total Party Constituency Party list Total

Puea Thai Party 203 61 264 Democrat Party 116 44 160

Chat Thai Pattana 15 4 19 Bhumjaithai Party 29 5 34

Chart Pattana Puea Pandin 5 2 7 Rak Prathetthai Party - 4 4

Palang Chon 6 1 7 Matubhum Party 1 1 2

Mahachon Party - 1 1 Rak Santi Party - 1 1

New Democracy Party - 1 1

Total 230 70 299 Total 145 55 201

Source: Election Commission and DBS Vickers


Market Focus


Page 11

Corporate Earnings Forecast 14% aggregate earnings growth in 2013F Solid earnings growth in 2013F. We forecast aggregate net profit of 73 listed companies under our coverage (which make up 75% of SET market capitalisation) will grow 14% in 2013F, slightly lower than 20% in 2012F. Annual aggregate net profit and growth

-30-20-1001020304050

0

200

400

600

800

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12F

20

13F

Banks Building mat. PropertyEnergy Commerce TelecomFoods Others Growth (RHS)

Btbn %

Note: * Only stocks under our coverage Source: SET and DBS Vickers Two major drivers 1) Macro. The estimated corporate earnings growth is in line with our GDP forecast trend. Our economist forecasts 5.0% GDP growth forecast for 2013F, which will be slightly lower than the 5.5% estimate for 2012F. Annual GDP growth

-4

-2

0

2

4

6

8

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

F

2013

F

%

Source: BoT and DBS Vickers

2) Further cut in tax rate. The corporate tax rate was cut from 30% in 2011 to 23% in 2012, and will be cut further to 20% in 2013. And due to a smaller rate cut in 2013 (3ppt cut vs 7ppt cut the previous year), earnings growth attributable purely to a lower tax rate will be less than in 2012. We estimate aggregate net profit will be boosted by 6% in 2012 and 3% in 2013 by the tax cuts. And like in 2012, most listed companies will benefit from the tax rate cuts, but more so for companies which are: (i) profitable, (ii) operating in Thailand, and (iii) not enjoying tax incentives currently. Balanced growth in 2013 Solid growth still from domestic plays. The strong earnings growth in 2012 was skewed towards domestic demand sectors (e.g. Property +63%, Banks +31%, Media +29%, Commerce +28%), while global plays reported relatively weaker earnings growth (e.g. Energy +5%, Petrochem -12%). Growth to recover for global plays in 2013. We believe the growth profile will be more balanced in 2013. Domestic demand sectors will continue to report strong earnings growth (Contractors +98%, Industrial estates +34%, Commerce +.26%, Banks +21%), but global plays will report stronger growth (Energy +11%) or lower earnings contraction (Petrochem -1%) due to (i) higher petrochemical spreads, (ii) higher sales volumes, and (ii) low base effect. Earnings growth by sector YE Dec (Btm) FY11 FY12F FY13F FY12F

Growth

FY13F

Growth

Banking 122,893 161,244 195,321 31% 21% Con. Mat. 27,281 28,762 34,745 5% 21% Chemicals 45,601 40,077 39,870 -12% -1% Property 21,560 35,081 39,723 63% 13% - Industrial 915 4,764 6,363 421% 34% - Residential 19,392 25,152 30,505 30% 21% - Contractors 326 1,949 3,860 497% 98% - Commercial 2,767 7,598 5,591 175% -26% Property Fund 2,709 2,937 2,795 8% -5% Energy 192,209 202,542 224,010 5% 11% Commerce 17,923 22,923 28,828 28% 26% Media 5,965 7,709 8,676 29% 13% Transport -6,574 13,904 14,978 nm 8% Telecom 49,785 55,236 66,421 11% 20% Electronics 1,705 7,737 8,563 354% 11% Food 27,207 33,763 33,624 24% 0% Others 13,121 15,212 15,485 16% 2% Total 521,384 627,126 713,039 20% 14% Source: Companies and DBS Vickers


Market Focus


Page 12

DBSV forecast vs. consensus In line with consensus. Our aggregate earnings forecast for 2013F is in line with consensus estimate. But some of our sector forecasts differ from consensus estimates. DBSV forecast vs. consensus by sector

YE Dec (Btm) DBSV forecast Consensus DBSV vs

consensus

FY12F FY13F FY12F FY13F FY13F

Banking 161,244 195,321 160,170 192,969 1.2%

Petrochem 40,077 39,870 37,168 43,785 -8.9%

Con. Mat. 28,762 34,745 25,137 34,260 1.4%

Property

- Residential 21,238 24,695 21,286 24,553 0.6%

- Contractors 1,481 3,074 1,912 3,222 -4.6%

- Industrial 4,764 6,363 4,931 6,279 1.3%

- Commercial 7,598 5,591 7,313 5,945 -4.0%

Property Fund 2,937 2,795 2,937 2,795 0.0%

Energy 202,542 224,010 192,162 220,183 1.7%

Commerce 22,923 28,828 22,898 28,201 2.2%

Media 7,708 8,676 7,623 8,731 -0.6%

Transport 13,904 14,978 13,644 14,876 0.7%

Telecom 55,236 66,421 59,648 68,496 -3.0%

Electronics 7,737 8,563 8,529 7,577 13.0%

Food 33,763 33,624 34,967 33,652 -0.1%

Others 15,212 15,485 15,332 15,723 -1.5%

Total 627,125 713,038 615,657 711,247 0.3% Source: Bloomberg and DBS Vickers Sector earnings: Where DBSV forecasts are >5% higher than consensus Electronics. We are more bullish than the market on small

cap electronics companies, as we have incorporated insurance claim income, while a number of brokers have not actively updated their forecasts after investors lost interest in the stock following the flooding crisis.

Sector earnings: Where DBSV forecasts are

Market Focus


Page 13

Performance & Valuations SET performance in 2012 SET the best performer in the region. The SET Index surged 36% in 2012, outperforming the regional average (measured by the MSCI Far East Asia ex-Japan) of 18% gain. Other outperformers include the Philippines, India and Hong Kong markets. Despite the recent strong market performance, China market closed flat for the year, and was the biggest underperformer. Regional market performance in 2012

-10%-5%0%5%

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

Dax

Nik

kei

NA

SDA

QS&

P 50

0D

ow Jo

nes

FTSE SET

Phil

Indi

aH

KSi

ngM

XFEJ

H-s

hare

sIn

do

Mal

ayKo

rea

Taiw

anSh

angh

ai

MS CI FExJ 18%Avg 16%

Source: Bloomberg and DBS Vickers Domestic plays outperformed global plays. Domestic plays like Property (+78%), Commerce (+74%), and Media (+67%) outperformed global plays like Energy (+8%) and Petrochem (+6%) in the year. Small-mid caps outperformed large caps. Small-mid caps gained 47% vs. 31% for large caps in 2012. Sector performance in 2012

0%

10%

20%

30%

40%

50%

60%

70%

80%

FSTH

MS

FSTH

L

PRO

PC

OM

MM

EDIA

TOU

RIS

MH

OM

ETR

AN

SIC

TA

UTO

HEL

THB

AN

KC

ON

MA

TSE

TFO

OD

ETR

ON

ENER

GPE

TRO

36%

Source: Bloomberg and DBS Vickers

Valuations – Historical trend SET PE supported by strong EPS growth. The SET Index is trading at 12.6x 13x FY13F PE, slightly lower than its 7-year mean. The SET PE has been rerated over the past four years, but there is still ample room for upside supported by accelerating EPS. SET: 12-month forward PE

(30)

(20)

(10)

-

10

20

30

40

4

7

10

13

16

19

22

200

6

20

07

20

08

20

09

20

10

20

11

20

12F

20

13F

PE EPS Growth (RHS)PE (x) EPS Gth(%)

-2 sd

-1 sd

Mean

+1 sd

+2 sd

Source: DBS Vickers SET P/BV rerating supported by rising ROE. The SET is trading at 2.2x FY13F P/BV, +2SD of its 7-year mean of 1.6x. Likewise, the P/BV expansion will be supported by rising ROE, from 17% in 2012F to 18% in 2013F.

SET: 12-month forward P/BV

5

10

15

20

0.5

1.0

1.5

2.0

2.5

3.0

20

06

20

07

20

08

20

09

20

10

20

11

20

12

F

20

13

F

PBV ROE (RHS)PBV (x) ROE (%)

-2 sd

-1 sd

Mean

+1 sd

+2 sd

Source: DBS Vickers


Market Focus


Page 14

Valuation – Regional comparison Regional peers valuations. The SET is trading at 12.6x FY13F PE, in line with regional peers average of 12.4x. Additionally, it is trading at 2.2x FY13F P/BV and offering 18% ROE, which are also in line with the regional average. However, the SET offers stronger FY13F dividend yield of 3.7% vs the regional average of 3.3%. De-rated China market weighted down regional average. The SET Index was trading at a deep discount to regional peers during the political tension in 2006-2009. However, the de-rating of the China and HK markets over the last two years has pulled down the regional average. This, coupled with the SET re-rating had removed the gap between the SET Index and regional peers. Regional: 2012 PE vs. dividend yield

China HHong Kong

Singapore

Malaysia

Thailand

Indonesia

7

9

11

13

15

17

2.9 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8

FY12

PE

(x)

FY121 Dividend yield (%)

Expensive

Cheap

Note: The arrows in these two charts represent valuation direction from FY12F to FY13F. Source: DBS Vickers Regional: 2012 ROE vs. P/BV

China H

Hong KongSingapore

Indonesia

Malaysia

Thailand

8

12

16

20

24

28

32

36

1.0 2.0 3.0 4.0 5.0 6.0

FY12

RO

E (%

)

FY12 P/BV (x)

Cheap

Expensive

Source: DBS Vickers

Valuations are higher for domestic demand sectors – A new normal What if we strip out Energy and Petrochem? One of the most FAQs by clients is what would the SET PE look like if we stripped out Energy and Petrochem sectors, which are trading at lower valuations than the SET average. Below is our answer: SET is now trading at 12.6x FY13F PE. SET ex-Energy and Petrochem would be trading at 14.6x PE

for the same year. The current earnings multiple for domestic demand plays - at 14.6x - is not excessive. Although it is higher than its historical average, this is normal during a liquidity-driven rally in a domestic-demand led economy. And this trend will persist over the next two years at least. In our view, this is the new normal. Thailand: P/E by Sector PE (x) YE Dec FY10A FY11A FY12F FY13F

Banking 19.4 16.1 12.6 10.4 Con. Mat. 14.4 19.8 18.8 15.5 Chemicals 15.8 9.6 10.9 11.0 Property 26.0 27.8 17.6 15.6 - Industrial 20.4 64.1 13.0 9.9 - Residential 14.0 15.9 12.9 10.6 - Contractors 91.7 277.8 46.5 23.5 - Commercial 112.8 67.0 24.5 33.3 Property Fund 23.6 19.2 16.0 16.8 Energy 11.1 9.8 9.9 8.9 Commerce 58.9 44.7 35.6 28.3 Media 35.1 33.9 26.2 23.3 Transport 11.5 mn 15.4 14.3 Telecom 21.2 24.4 22.0 18.2 Electronics 8.7 42.0 9.2 8.4 Food 21.0 15.1 13.7 13.8 Others 38.3 23.8 21.2 20.8 SET 17.6 16.7 14.3 12.6 SET ex-Energy & Petro 21.6 22.5 17.0 14.6

Source: DBS Vickers Thailand: Economic cycle

Asian Financial

crisis

Global Financial

crisis Period 1 Period 2 Period 3

1987 1997 2007 2017

Capital inflow Current acct deficits

Rising leverage Rising external debt

Rapid fixed capital form’n Above-avg GDP growth

Capital outflow Current acct surpluses

De-leveraging Repaying external debt

Paltry fixed capital form’n Below-avg GDP growth

A return to period 1: Capital inflow

External balance / deficit Above-avg GDP growth

Source: DBS Bank and DBS Vickers


Market Focus


Page 15

Market outlook Current liquidity-driven rally will continue Low-interest rate environment to persist. Due to the weak economic outlook for major developed economies (i.e. Eurozone, the US and Japan), interest rates will remain low around the world for the next few years. With still weak unemployment in the US, the Fed has guided that it might maintain near-zero interest rates until mid-2015. Hence, there should still be abundant liquidity in the global market for the next two years at least. SET still on uptrend. We reiterate our view that the current post-recession liquidity-driven rally will continue to run its course until the next Fed fund rate hike, expected in mid-2015. Previously, the SET Index had peaked three to six months before a Fed fund rate hike (last three episodes). US unemployment rate (total in labour force, sa)

0

2

4

6

8

10

12

Dec

06

Dec

07

Dec

08

Dec

09

Dec

10

Dec

11

Dec

12

Dec

13

Dec

14

Dec

15

%

6.5% unemployment rate threshold


Policy rates in major economies

0

2

4

6

8

End

00

End

01

End

02

End

03

End

04

End

05

End

06

End

07

End

08

End

09

End

10

End

11

End

12

End

14

End

14

%

Fed

ECB

BoE

BoJ


M2 growth: US and Thailand

0

4

8

12

16

20

End

00

End

01

End

03

End

03

End

04

End

05

End

06

End

07

End

08

End

09

End

10

End

11

End

12

End

13

End

14

%

US M2 growth

Thailand M2 growth

Source: Bloomberg and DBS Vickers Earnings yield gap (EYG) analysis Thai earnings yield at 2.3 ppt above 10-year T yield. Currently, the equity earnings yield (12-month trailing by Bloomberg) is 5.8%, or 2.3 ppt higher than the 10-year T-bill (3.52%). In theory, the earnings yield gap can close in three ways: (i) interest rates go up, (ii) EPS goes down and pushes earnings yields down, or (iii) equity market goes up. Equity market should go up further. Given the abundant liquidity in the global market and strong earnings outlook, we believe the 3rd scenario (equity market goes up) is likely to happen in the current cycle. We believe the yield compression (higher equity prices) should persist over the next 12 months at least. EYG had fallen to almost zero at the peak of bull cycles (see chart below). If we assume the equity earnings yield will drop from 5.8% to 3.52% (closing the gap), the SET Index should see substantial PE rerating and the SET Index could hit 2200 at the peak. Earnings yield gap

0

200

400

600

800

1000

1200

1400

-10

-5

0

5

10

15

End

02

End

03

End

04

End

05

End

06

End

07

End

08

End

09

End

10

End

11

End

12

End

13

End

14

SET Index (RHS)Earnings yield gap10-y T yieldEarnings yield

%



Market Focus


Page 16

SET rerating Rerating to continue. The 36% jump in the SET Index in 2012 was driven by a combination of strong earnings growth (+20%), as well as implied 16% PE multiple expansion. The latter was driven by (i) ample liquidity in the global market, (ii) strong earnings growth, which has positive correlation with PE expansion, and (iii) easing political tension. We expect these factors to continue into 2013 and the global financial environment to be more stable than in 2012, which support our view that the SET will continue to rerate in 2013. SET performance and PE expansion/(contraction)

SET Index yearend

SET performance

Earnings growth

Performance driven by PE expansion/

(contraction) (%) (%) (%) 2000 269.19 -44 Nm. Nm. 2001 303.85 13 Nm. Nm. 2002 356.48 17 43 -26 2003 772.15 117 60 57 2004 668.16 -13 41 -54 2005 713.73 7 13 -6 2006 679.84 -5 -12 8 2007 858.1 26 -11 37 2008 449.96 -48 -25 -22 2009 734.54 63 49 14 2010 1032.76 41 27 14 2011 1025.32 -1 8 -8 2012 1391.93 36 20 16 Source: SET and DBS Vickers

SET consolidation in Oct 2012 is positive for 2013 Huge foreign selling in October a positive in 2013. Foreign investors had been net buyers of Thai equities with Bt66bn (US$2.2bn) net buy position in 9M12, but turned to report Bt18bn (US$597m) net selling in October. In our view, the sell-off and market consolidation are positive for the Thai equity market in 2013. Investors who wanted to sell/reduce exposure in the Thai market would have sold. Note that foreign inflows into the Thai bond market remained strong at US$31.3bn in 2012, 13 times higher than inflows to the equity market for the year. Net fund flows into Thai bond market

(20)-20 40 60 80

100 120 140 160 180

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1M

ay-1

1Ju

n-1

1Ju

l-1

1A

ug-1

1Se

p-1

1O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-1

2Fe

b-1

2M

ar-1

2A

pr-

12

May

-12

Jun-

12

Jul-

12

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Btbn

Source: TBMA and DBS Vickers

Net fund flows into equity markets in selected Asian countries

US$m IN INDO JAP PH SK TAI TH VN PAKI

2005 10,901 -1,737 113,338 354 -3,549 23,990 2,947 na. na. 2006 8,338 1,996 68,885 720 -12,659 16,962 2,135 210 na. 2007 18,518 3,141 32,759 1,354 -29,095 477 1,853 1,430 na. 2008 -12,918 1,801 -66,817 -1,135 -36,742 -16,364 -4,942 340 -1,464 2009 17,639 1,384 -6,513 420 24,446 15,617 1,137 71 20 2010 29,321 2,345 22,926 1,232 19,657 9,577 2,687 617 532 2011 -396 2,853 -1,069 1,329 -8,584 -9,076 -167 95 -119 2012 24,228 1,657 25,104 2,490 15,106 4,756 2,452 152.1 130 1Q12 8,866 1,092 16,815 430 9,641 4,933 2,694 34 16 2Q12 -350 -873 -9,161 1,235 -4,309 -5,701 -612 -61 -48 3Q12 7,617 1,514 -7,034 520 7,991 3,536 49 40 92 4Q12 8,095 -75 24,483 304 1,783 1,988 321 139 70 Note: Data as of 27 Dec 2012 Source: Bloomberg and DBS Vickers


Market Focus


Page 17

Five themes for 2013 Theme 1: Strong domestic consumption Domestic consumption remains economic driver in 2013. Although we have been pushing the domestic consumption theme for three years, it will pay off well again in 2013. The major drivers of domestic consumption growth, especially in upcountry, remain (i) the government’s populist policies, and (ii) elevated agricultural product prices. But there are also new drivers for 2013 (and beyond), which are (i) nation-wide wage hike to Bt300 a day, (ii) personal income tax cut by 5.0-2.0 ppt, which could add Bt25bn back to taxpayers’ pockets each year, and (iii) infrastructure spending, which will drive demand for labour. Growth of GDP and Private consumption

-10

-5

0

5

10

-15

-10

-5

0

5

10

15

1Q94

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

F1Q

14F

GDP

Private consumption (RHS)

%%

Source: NESDB and DBS Vickers Nationwide-minimum wage hike to drive upcountry demand. The government raised minimum wage to Bt300 a day in seven provinces in April 2012. This will be implemented nationwide effective January 2013. With minimum wage at between Bt159-221 in mid-2011 (the election period), the Bt300 a day minimum wage represents a massive 36-89% wage hikes, depending on the regions. Positive impact on 25% of total workforce. According to the National Statistic Office (NSO), out of a total of 39m employed persons in the country, half have primary or below primary education. The average daily wages for these segments are Bt247 and Bt231, respectively. We believe a big portion of people in these segments is linked with minimum wage. Assuming half the people in these segments are linked with minimum wage, that would mean 25% of Thailand’s total workforce will benefit from the minimum wage hike.

Minimum daily wage

100

150

200

250

300

350

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Bangkok

Nakorn Pathom (Central)

Nakhon Ratchasima (NE)

Chiang Mai (N)

Songkha (S)

Bt

Source: Ministry of Labour and DBS Vickers Workforce & employment breakdown by education

0

10

20

30

40

50

60

70

Popu

latio

n

Wor

kfor

ce

Une

mpl

oyed

Empl

oyed

Belo

w

prim

ary

Prim

ary

Seco

ndar

y

Uni

vers

ity

Avg. wage at Bt231/day Avg. wage at Bt247/day

m

Source: NESDB and DBS Vickers Thailand: Average wage

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1Q01

4Q01

3Q02

2Q03

1Q04

4Q04

3Q05

2Q06

1Q07

4Q07

3Q08

2Q09

1Q10

4Q10

3Q11

2Q12

1Q13

F4Q

13F

3Q14

F

Average wages

Average wages for agriculture

Bt

Source: NSO and DBS Vickers


Market Focus


Page 18

Government’s populist policies

Programs Budget (Btbn) Female fund 7.7 Commencement fund 5.0 SML fund 30.0 Village fund 80.0 Universal health program 107.0 Agriculture-pledging program 260.0 Three-year debt-suspension program 13.5 First home buyer tax privilege 20.0 First car buyer tax privilege 9.0 Farmer credit card 1.6 Agriculture insurance 0.6 Total budgeted populist programs 534.4 Source: Krungthep Turakit and DBS Vickers Average monthly household income and growth by region

-

10,000

20,000

30,000

40,000

50,000

N-wide GBA Central North NE South

2000 2006 2011

Bt

12.0% CAGR 9.0%

CAGR

7.1% CAGR

8.6% CAGR

5.8% CAGR

11.2% CAGR

Source: NSO and DBS Vickers Average monthly household income and growth by job type

-

10,000

20,000

30,000

40,000

50,000

60,000

Total Agri. Self emp. Profess. Labor Blue collar

2000 2006 2011

Bt

5.2% CAGR 8.4%

CAGR

6.4% CAGR

8.1% CAGR

14.2% CAGR

8.6% CAGR

Source: NSO and DBS Vickers

Rice: Local price

0

2,000

4,000

6,000

8,000

10,000

12,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Oct

-12

Source: BoT and DBS Vickers Rubber: Local price

0

20

40

60

80

100

120

140

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Oct

-12

Bt/kg

Source: BoT and DBS Vickers Sugar cane: Local price

0

200

400

600

800

1000

1200

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

May

-12

Bt/ton

Source: BoT and DBS Vickers


Market Focus


Page 19

Theme 2: New investment cycle Infrastructure is government’s next focus. After focusing on populist policies in the first 18 months of its term, we believe PM Yingluck’s government will be concentrating more on infrastructure spending in 2013 and 2014. This is also one of Pheu Thai Party’s major election promises. Targeting 25% investment/GDP ratio. The government has committed to push for infrastructure spending, and this will be one of Thailand’s major economic drivers for the next few years. This is a good move, especially during a period of weak global demand. While DBS economist estimates investment/GDP at 20-22% in 2012F, the government is targeting 25% for the next few years. The ratio had reached as high as 40% before the Asian Financial Crisis in 1997. Gross Fixed Capital Formation as % of GDP

0

5

10

15

20

25

30

35

40

45

0

200

400

600

800

1,000

1,200

1,400

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

F20

13F

2014

F20

15F

Gross fixed capital formation

% to GDP (RHS)

%Btbn

Source: NESDB, DBS and DBS Vickers Growth of GDP and Gross Fixed Capital Formation

-20

-15

-10

-5

0

5

10

15

20

-15

-10

-5

0

5

10

15

1Q94

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

F1Q

14F

GDPInvestment (RHS)

%%

Source: NESDB and DBS Vickers

Two major programs Water management program worth Bt350bn. Following the flooding crisis in 4Q11, the government introduced a water management program in 1Q12. The budget for the total project is Bt350bn. While most of the spending in the near term is on rehabilitation and road reconstruction, a sizable investment will go towards the planned construction of a dam in the Yom River (north of Chao Phraya river basin). Budget for water management program (2012-2015)

Area Budget Projects (Btbn) Chao Phraya river basin 302 -Reforestation and Natural Other 17 river basins 39 conservation -Rehabilitation of existing irrigation -Database/warnings system -Reservoirs/Floodway Strategic rehabilitation & 9 -Road reconstruction country development -National single window e-logistic Total 350 - Officially allocated 22 (As of Nov 2012) - Reimbursed 3.34 (As of Nov 2012) Source: MoF and DBS Vickers Mega infrastructure investments worth Bt2.27trn. To increase long-term competitiveness and stimulate the economy, the government pushed through Bt2.27trn worth of mega infrastructure projects in mid-2012. The budget will be spent over the next four years. To improve transportation efficiency, reduce energy loss, and raise the standard of living, 65% of the budget has originally been allocated to transportation. Nonetheless, the government is amending the plan and would allocate more budget to transportation, as it is more urgent than other areas. Budget for Bt2.27trn mega-projects (2012-2016)

Project Budget (Btbn) Transportation - inland 1,470 -Motorway 187 -Railway 298 -High-speed train 481 -Mass transit 322 -Road/Highway 182 Transportation - Air/Water 149 Energy (Power plants, Electricity system, Gas pipelines) 499 Telecom (3G for TOT and CAT & NGN) 35 Utilities (Water system development) 117 Total 2,270 Source: MoF and DBS Vickers


Market Focus


Page 20

List of motorway projects

Project Distance Value (km) (Btm) Bangpain-Pakchong-Nakornrachsrima 192 61,229 Chonburi-Pattaya-Maptaphut 89 14,895 Bangyai-Nakornpratom-Karnchanaburi 96 45,886 Nakornpratom-Samutsongkram-ChaAm 118 38,290 Bangpain-Nakornsawan 206 32,380 Source: MoT and DBS Vickers List of double track routes

Project Distance Value Schedule (km) (Btm) 1. Chachoengsao-Klong 19-Kangkoi 106 11,348 2012 2. Jira junction-Khonkaen 185 17,046 2012 3. Prajuab-Chumporn 167 10,312 2012 4. Mapkabao-Jira junction 132 19,017 2013 5. Nakornpathom-Huahin 165 17,856 2013 6. Lopburi-Nakornsawan 118 10,938 2014 7. Kangkoi-BuaYai 220 18,075 2015-2020 8. Nakornsawan-Taphanhin 69 6,259 2015-2020 9. HuaHin-Prajuankirikhan 89 5,499 2015-2020 10. Chumporn-Suratthani 166 17,000 2015-2020 11. Jira junction-Ubonratchathani 309 23,174 2015-2020 12. Khonkaen-Nongkhai 172 14,877 2015-2020 Total 1,898 171,401 Source: SRT and DBS Vickers Fiscal discipline Public debt/GDP will remain below 60%. The Finance Minister assured that the mega-infrastructure investments will not push the country’s public debt/GDP above 60%, and will comply with the country’s fiscal sustainability framework. Thailand: Public debt/GDP

0

10

20

30

40

50

60

70

80

2008

2009

2010

2011

2012

F

2013

F

2014

F

2015

F

2016

F

% GDP

60% threshold under fiscal sustainability framework

Source: MoF and DBS Vickers

Budget for high-speed train (2014-2017)

Project Distance Budget Overall status (km) (Btbn) -BKK-Nakornratchaima 256 97 - Under definitive

design - Cabinet to approve in Sep 2013 - Auction in 4Q13

- Operate in late

2017

(to be extended to Nongkai) -Bkk-HuaHin 225 82 (to be extended to Malaysia) -Bkk-Rayong 221 72 -Bkk-Phisanulok 328 (to be extended to Chiangmai) 745 230

Total 481 Source: MoT and DBS Vickers Current status of mass transit projects

Project Distance Station Budget Bidding (km) (Btm) Dark red line -Bangsue-Talingchan 15 3 12,806 UNIQ JV -Bangyai-Rangsit 26.3 8 77,563 Bidding -Hualumpong-Huamak 26 9 25,107 Na. -Rangsit-Thammasat na na 5,252 2013 Purple line -Bangyai-Bangsue 23 16 56,599 CK, STEC, PAR -Bangsue-Rajburana 19.8 16 66,820 2014 Blue line -Bangsue-Taphra 13 10 24,778 SH-UN -Hualumpong-Bangkae 14 4 58,345 ITD, CK, STEC Light green line -Bearing-Samutprakarn 12.6 9 25,248 CK -Taksin-Petchkasem 5.3 4 5,915 STEC/AS JV -Samutprakarn-Bangpu 7 4 10,150 2013 Dark green line -Morchit-Sapanmai 11.4 12 36,405 2013 -Sapanmai-Kukot 7 4 23,507 2013 Light red line -Talingchan-Salaya 14 4 9,950 2013 -Makasan-Hualampong na na 36,960 2013 -Siriraj-Talingchan 15 5 4,281 2013 Pink line -Kaerai-Minburi 36 30 38,730 2013 Orange line -Cultural center-Minburi 20 14 73,070 2013 -Charan-Cultural center 17.5 13 73,070 2014 Airport Rail Link - Bangsue-Phayathai 7.9 2 13,590 2013 - Donmuang-Bangsue na na 19,400 2013 Yellow line - Ladpraw-Pattanakarn 12.6 10 16,580 2014 - Pattanakarn-Samrong 17.8 11 21,540 2014 Source: MoT, companies and DBS Vickers


Market Focus


Page 21

Theme 3: Strong FDI inflows Rising FDI inflows. Foreign direct investments (FDI) approved by the Board of Investment (BoI) have bottomed out since the global financial crisis in 2009, but had grown strongly again in 2012. In 10M12, the value of FDI and number of projects approved jumped 178% and 48%, respectively. BoI approval: Investment value and number of projects

0

50

100

150

200

250

0

50

100

150

200

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

BoI investment approval

No. of BOI application approval (RHS)

Btbn No. of projectes

Source: Boi and DBS Vickers Strong FDI from Japan. Japanese remained the largest foreign investors in Thailand in 2012. They accounted for 66% of investments and 57% of projects the BoI approved in 10M12, respectively. These also represented 205% and 78% growth, respectively. BoI approval by country (10M12)

Country No. of projects Investment (Btm) 1) Japan 639 288,451 2) Singapore 87 17,991 3) USA 40 15,107 4) Netherlands 28 14,477 5) Hong Kong 26 8,681 Source: BoI and DBS Vickers Trend to continue. The strong growth will be attributable to (i) a stronger Japanese Yen, (ii) insecure long-term electricity supply post- Fukushima nuclear crisis in March 2011, (iii) shortage of labour due to an ageing society, and (iv) tension between China and Japan over the Senkaku Islands pushing Japanese investors to choose Thailand as an investment destination instead of China.

Japanese automakers expanding capacities in Thailand. Despite the flooding crisis in 4Q11, several Japanese automakers have announced capacity expansion plans at their Thai plants. This includes Toyota (+91% diesel engine capacity), Isuzu (+33% capacity for pick-up trucks), and Nissan (+34% capacity for pick-up trucks). On this note, we believe their suppliers will also increase production capacities or shift capacities to nearby premises to reduce logistics costs/lead time. Although the weak global outlook could hurt global car sales, Thailand stands to benefit from the relocation of regional production capacities. Capacity expansion by automakers in Thailand

Automaker Existing Capacity

Added capacity

Capex Start operation

(unit pa.) (unit pa.) (Btbn) Toyota - Passenger car 680,000 70,000 Na. Jul-13 Toyota - Diesel engine 320,000 290,000 16 2015 Mitsubishi- Eco car 460,000 50,000 1.2 Jul-13 Isuzu - Pick-up truck 300,000 100,000 6.5 1H13 Ford & Mazda - Pick-up truck 275,000 20,000 0.8 Aug-13 Nissan - Pick-up truck 220,000 75,000 11.0 Aug-14 MG - Compact car - 50,000 Na. 2014 Source: Companies and DBS Vickers Strong land sales at industrial estates support positive FDI and expansion trends. The strong reported FDI flows into Thailand and planned capacity expansion by foreign companies are supported by strong land sales at industrial estates. Indeed, land sales at three major industrial estates in the country have been rising. AMATA, HEMRAJ and ROJNA: Land sales

0

500

1000

1500

2000

2500

3000

2008 2009 2010 2011 2012F 2013F

AMATA HEMRAJ ROJNA

Rai

Note: One rai equals 0.4 acre Source: Companies and DBS Vickers


Market Focus


Page 22

Theme 4: Solid tourism growth Strong visitor arrivals. Visitor arrivals in Thailand had been strong in recent years (+13% in 2010, +19% in 2011 and +13.6 in 11M12). The Association of Thai Travel Agents (ATTA) forecast tourist arrivals will grow 10% to 23m at least in 2013, driven by higher number of visitors from China, South Korea, and Japan. International visitor arrivals

500

700

900

1,100

1,300

1,500

1,700

1,900

Jan

Feb

Mar

Apr

May Jun Jul

Aug Se

p

Oct

Nov Dec

'000 People

2005 2006 2007 2008

2009 2010 2011 2012

Source: BoT and DBS Vickers Major structural growth drivers. We attribute the strong visitor arrivals to the following:

First, economic recovery post-2008 global financial crisis,

Second, stronger purchasing power of emerging countries in the region, especially big markets like China and India, and

Third, lower airfares following the strong growth of low-cost carriers – Asian LCC penetration has risen from 15% in 2009 to 25% in 2012.

Growth of GDP per capita in the past 5 years

- 40 80 120 160 200

Brunei

Hong Kong

Japan

Malaysia

Thailand

Singapore

Philippines

Bangladesh

Cambodia

India

Laos

Indonesia

China

Myanmar

% Source: IMF World Economics Outlook database and DBS Vickers

Visitor arrivals: Breakdown by nationality (11M12)

Nationality 2011 2012 Growth Number share Number share (%) (%) (%) China 1,615,349 9 2,526,085 13 56 Malaysia 2,252,060 13 2,233,820 11 -1 Japan 1,038,306 6 1,239,555 6 19 Russia 904,797 5 1,063,727 5 18 Korea 933,988 5 1,051,474 5 13 India 837,701 5 924,611 5 10 Laos 823,810 5 849,360 4 3 Australia 749,444 4 847,942 4 13 UK 754,476 4 772,920 4 2 Singapore 595,050 3 706,213 4 19

Source: Immigration Bureau and DBS Vickers A boost from escalated tensions in the region. A more recent driver is tension between China and other countries in the region over the Spratly Islands and with Japan over the Senkaku Islands. The recent re-election of nationalist Shinzo Abe as Japan PM could intensify the tension. This had encouraged tourists to consider other countries in the region, including Thailand. Senkaku Islands and Spratly Islands

Source: Google and DBS Vickers

Spratly

Senkaku


Market Focus


Page 23

Theme 5: China recovery plays in Thai market China’s economy has bottomed out. Although headline GDP growth was only 7.4% y-o-y in 3Q12, 19 out of the 27 provinces reported GDP growth in excess of 10%. DBS economist believes China’s economic recovery could well surprise on the upside in 2013. Investment growth in the country had fallen by 30% from the normal level in 2012 and our economist believes half of that gap will disappear in 2013. That would be more than enough to drive economic growth. China’s investments grew by US$335bn in 2011; incremental investments fell by 30% in 2012 and shaved 2.5 ppt off China’s GDP growth in the year. If half of that comes in next year, GDP growth could accelerate. Expect 9% GDP growth in 2013. DBS forecasts China’s economic growth will return to 9% in 2013. The Chinese government announced a few months ago it is targeting 7% growth, but at the National People’s Congress (NPC), officials said they wanted to double GDP by 2020. That implies 9% growth p.a. In addition, in the latest GDP data, sequential growth was 2.2% (q-o-q; sa) in 3Q12, which annualises to 9.1% for the year. These support our 9% growth forecast. China quarterly GDP growth

0

2

4

6

8

10

12

14

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

F3Q

13F

%

Source: DBS Bank Large fiscal stimulus program unlikely in 2013. Investment growth has picked up recently, and investments should grow by 21% in 2012. Given the low likelihood of a large fiscal stimulus in 2013, headline investments will grow by 25% at most in 2013 (vs. 30.5% in 2009). And this takes into account the fact that investment bias is usually stronger after a successful leadership transition.

Expect neutral monetary stance until 4Q13. The CPI has come down in the past few quarters, so this should not be a threat in the near term. DBS views the interest rate outlook will be neutral for the most part of next year, except for a 25bps hike in 4Q13. Nonetheless, caution towards the impact of QE in other parts of the world suggests there is unlikely to be cuts in the reserve requirement ratio in the near term.

China: PMI

35

40

45

50

55

60

65

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Source: Bloomberg and DBS Vickers Petrochem spreads to recover. China is the largest petrochemical user in the world. Hence, petrochemical spreads tend to move with China’s economic growth. The average HDPE spread was c.US$420/ton in 2012. We expect that to improve to US$450/ton in 2013F and US$520/ton in 2014F. China quarterly GDP growth vs. HDPE spread

0

300

600

900

1200

1500

1800

2100

0

2

4

6

8

10

12

14

End

02

End

03

End

04

End

05

End

06

End

07

End

08

End

09

End

10

End

11

End

12

End

13US$/ton%

CNGDPYOY Index Naphtha (RHS)HDPE (RHS) HDPE spread (RHS)

Source: Bloomberg, Datastream and DBS Vickers


Market Focus


Page 24

Sector weighting & Recommendations Reiterate ‘Overweight Thailand’ Bullish views intact. Thailand’s valuation and growth profiles remain the most attractive among ASEAN countries. Although the market is trading close to regional PE average, EPS growth and yields are forecast to be stronger than peers in 2013. Further, the impact of pro-growth policies will extend into 2013. Infrastructure projects should be kicked start in 2H13 and lift growth. Besides Thailand, we also overweight China/HK and Taiwan. Regional comparison: Growth, PE and dividend yield

EPS Gth (%) PE (x) Div. yield (%)

12F 13F 12F 13F 12F 13F

Singapore 3.1 9.3 15.7 14.4 3.4 3.5

Malaysia 14.4 10.1 16.3 14.9 3.3 3.4

HK HSI -2.6 7.8 11.9 11.1 3.3 3.5

HK HSCCI (Red) -9.6 10.7 14.1 12.7 2.0 2.1

HK HSCEI (H) 1.7 8.2 9.4 8.7 3.6 3.7

Thailand 13.7 13.7 14.3 12.6 3.3 3.7

Indonesia 13.1 14.3 14.4 12.1 3.0 3.4

Source: DBS Vickers Currency appreciation a bonus. DBS economist views that Asia ex-Japan currencies are set to emerge from the Eurozone crisis stronger, with many set to post multi-year highs. DBS Bank forecasts the Thai Baht will appreciate back to its pre-crisis level of Bt29.50/US$ in 4Q13, which will be positive for Thai equities. Exchange rate forecast

Current 1Q13F 2Q13F 3Q13F 4Q13F Developed economies US … … … … … Japan 83.6 84 85 86 87 Eurozone 1.309 1.32 1.33 1.35 1.36 Indonesia 9,689 9,400 9,300 9,200 9,100 Malaysia 3.05 3.00 2.97 2.93 2.90 Philippines 41.1 40.4 40.1 39.7 39.3 Singapore 1.22 1.20 1.19 1.18 1.17 Thailand 30.6 30.3 30.0 29.8 29.5 Vietnam # 20,845 20,750 20,750 20,750 20,750 China * 6.25 6.19 6.15 6.11 6.07 Hong Kong 7.75 7.76 7.78 7.79 7.80 Taiwan 29.1 28.7 28.5 28.2 28.0 Korea 1,074 1,050 1,030 1,010 990 India 54.2 54.5 54.0 53.5 53.0 Note: # prime rate, * 1-yr lending rate Source: DBS Bank

Limited concerns over fund flows from Thailand to China/HK. In the past two years, the TIP markets had substantially outperformed the region, while China/HK underperformed markedly. However, we believe China’s economy has reached bottom, and that has raised concerns than funds would start to flow back from Thailand to China. We believe a reversal of fund flows is possible, but the magnitude should be limited as the recovery of China’s market will be gradual. Unlike the aggressive pump priming in 2009 that caused massive inflationary pressure and bubbles in some sectors (e.g. property), we expect any stimulus to be more controlled this time around to avoid creating another round of inflationary pressure and then wasting several years to curb inflation. China’s economic recovery will be a U-shape recovery, not a V-shape recovery If China’s economy recovers stronger than the market expects, Thai Energy and Petrochem sectors will recover as well from higher oil prices and wider petrochemical spreads. If this is the case, these cyclical sectors will take the bull-market baton from domestic demand sectors and continue to drive up the Thai market. Sector weighting & top picks Raised SET Index target for 2013 to 1524. This is derived using a bottom-up approach, based on our target prices for stocks under our coverage. The target Index implies 13.6x FY13F PE, which is at +0.2sd above its 7-year mean. Themes and implications. We recommend investors focus on five themes that we believe will drive the Thai market in 2013.

Strong domestic consumption: We have KTB, KBANK, INTUCH, JAS, GLOBAL, PS, AP, SIRI and BECL as our top picks under this theme.

New investment cycle: Most contractor stocks have run-up and valuations are no longer attractive. CK is the only contractor which is still trading at cheap valuation and offers bright earnings outlook. It is the most compelling proxy to this theme. In addition, as most of the new investments will be led by government infrastructure projects, as a government bank, KTB should benefit from this new investment cycle.

Strong FDI flows: We like all major industrial estate developers in the market, but our top pick is AMATA.

Strong tourism growth: We like most of the tourism-related stocks, but MINT offers the largest upside potential.


Market Focus


Page 25

China recovery plays in Thai market: Most of the petrochemical stocks are cheap, but spreads will only recover gradually. And given our view that the Chinese economy has bottomed out, Petrochem stocks offer a better risk-reward profile now. PTTGC is the best proxy to this theme.

Themes and proxies

Domestic

demand

New

investment

cycle

Strong

FDI flows

Strong

tourism

growth

China

recovery

play in

Thailand KTB KBANK INTUCH JAS GLOBAL PS AP SIRI BECL CK

AMATA MINT PTTGC Source: DBS Vickers Sector weighting. Based on these themes, we recommend to Overweight Banks, Property and Contractors. Telecom, Building Materials, Commerce, Tourism, Transportation, Petrochem and Foods are rated Neutral. We recommend to Underweight Energy, Electronics and Media.

Sector weighting

Overweight Neutral Underweight

Banks Telecom Energy

Property Building Materials Electronics

Contractors Commerce Media

Tourism

Transportation

Petrochem

Foods Source: DBS Vickers

Prefer small-mid caps. We believe the stock rotation in 2013 will be in favour of small-mid caps. This is due to (i) their high beta, (ii) investors having higher risk appetite supported by ample liquidity in the global market, and (iii) the recent strong performance of large cap stocks. Small-mid caps had outperformed large caps during the liquidity-driven rallies in 1999 and 2003 (see next chart), especially after half-time.

Performance: Mid & small cap. vs. Large cap.

0

400

800

1200

1600

2000

End‐96

End‐97

End‐98

End‐99

End‐00

End‐01

End‐02

End‐03

End‐04

End‐05

End‐06

End‐07

End‐08

End‐09

End‐10

End‐11

End‐12

End‐13

End‐14

Mid & small capLarge cap

Index

Source: Bloomberg and DBS Vickers Top picks. Our top picks include Krung Thai Bank (KTB TB), KASIKORNBANK (KBANK TB), Shin Corporation (INTUCH TB), Jasmine International (JAS TB), Siam Global House (GLOBAL TB), Pruksa Real Estate (PS TB), Asian Property Development (AP TB), Sansiri (SIRI TB), Bangkok Expressway (BECL TB), Ch. Karnchang (CK TB), Amata Corporation (AMATA TB), Minor International (MINT TB) and PTT Global Chemical (PTTGC TB).


Market Focus


Page 26

Top picks

Bloomberg Code Mkt Cap Price Target Upside PE P/BV Dividend ROE

27-Dec-12 Price 2013F 2013F Yield 2013F 2013F

(US$m) (Bt) (Bt) (x) (x) (%) (%)

KTB TB 8,949 19.60 22.00 12.2% 8.3 1.3 4.9 16.8 KBANK TB 15,122 193.50 210.00 8.5% 11.2 2.1 1.9 20.3 INTUCH TB 7,329 70.00 88.75 26.8% 15.1 16.1 6.8 105.7 JAS TB 1,277 5.40 6.20 14.8% 13.0 3.9 3.8 32.8 GLOBAL TB 1,251 17.80 21.80 22.5% 33.5 3.7 0.9 12.2 PS TB 1,524 21.10 27.90 32.2% 9.1 2.0 3.3 23.5 AP TB 790 8.50 11.00 29.4% 9.2 1.7 4.3 19.8 SIRI TB 905 3.52 4.40 25.0% 9.5 1.9 5.3 21.2 BECL TB 849 33.75 39.00 15.6% 12.3 1.2 3.9 10.1 CK TB 702 13.00 16.00 23.1% 12.4 2.6 0.8 22.9 AMATA TB 561 16.10 20.00 24.2% 8.7 2.1 4.6 26.6 MINT TB 2,387 19.90 26.50 33.2% 20.1 3.2 1.5 17.8 PTTGC TB 10,307 70.00 82.00 17.1% 10.1 1.4 5.0 13.9 Source: DBS Vickers


Market Focus


Page 27

Stock Profiles


“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6533 9688 in respect of any matters arising from or in connection with this report.”

www.dbsvickers.com Refer to important disclosures at the end of this report ed: SGC / sa: CS

Bloomberg: KTB TB | Reuters: KTB.BK

BUY Bt19.60 SET : 1397.19 Price Target: 12-Month Bt22.00 Potential Catalyst: Accelerating infrastructrure spending; increased provisioning will remove overhang DBSV vs Consensus: Above consensus Analyst Thailand Research Team +662 658 1222 [email protected]

Price Relative

86

106

126

146

166

186

206

226

3.2

5.2

7.2

9.2

11.2

13.2

15.2

17.2

19.2

21.2

Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

Relative IndexBt

Krung Thai Bank (LHS) Relative SET INDEX (RHS) Forecasts and Valuation FY Dec (Bt m) 2011A 2012F 2013F 2014F

Pre-prov. Profit 36,077 43,581 46,615 52,016 Net Profit 17,027 27,775 32,972 37,518 Net Pft (Pre Ex.) 17,027 27,775 32,972 37,518 EPS (Bt) 1.52 1.99 2.36 2.68 EPS Pre Ex. (Bt) 1.52 1.99 2.36 2.68 EPS Gth (%) 15 30 19 14 EPS Gth Pre Ex (%) 15 30 19 14 Diluted EPS (Bt) 1.52 1.99 2.36 2.68 PE Pre Ex. (X) 12.9 9.9 8.3 7.3 Net DPS (Bt) 0.62 0.74 0.96 1.07 Div Yield (%) 3.2 3.8 4.9 5.5 ROAE Pre Ex. (%) 13.3 17.8 16.8 17.0 ROAE (%) 13.3 17.8 16.8 17.0 ROA (%) 0.9 1.3 1.3 1.3 BV Per Share (Bt) 11.60 13.07 14.98 16.59 P/Book Value (x) 1.7 1.5 1.3 1.2

Earnings Rev (%): 0.0 0.0 0.0 Consensus EPS (Bt): 2.09 2.29 2.56 Other Broker Recs: B: 29 S: 3 H: 3

ICB Industry: Financials ICB Sector: Banks Principal Business: Banking

Source of all data: Company, DBS Vickers, Bloomberg

At A Glance Issued Capital (m shrs) 13,976 Mkt. Cap (Btm/US$m) 273,931 / 8,949 Major Shareholders FIDF (%) 55.3 Thai NVDR (%) 3.1 State Street Bank and Trust Company For London (%) 2.9 Free Float (%) 39.0 Avg. Daily Vol.(‘000) 32,642

Company Focus

Krung Thai Bank

Still going strong

Will continue to register strong profits despite provisioning risk

Increased exposure to private sector provides earnings upside

Reiterate BUY rating and Bt22 TP, pegged to 1.5x FY13F BV

Expect solid earnings ahead. Accelerating public spending on infrastructure projects expected to be dished out in 2013 and business diversification provides support to our expectation of strong 19% profit growth in FY13. Downside risk to our forecast could be the delay in public spending, pressure on NIM due to low yields for public project funding and steady increase in provisions to improve coverage ratio. We have not yet imputed potentially higher credit cost in our FY13 forecast, so there may be downside risk to our forecast. Strong growth potential across the board. The bank’s strategy to lift business volume from corporates and SMEs and general consumers is another credit and revenue growth driver. More commercial transactions could also help to lift margins and fee-based income, which had been weaker than peers. These will support the bank’s earnings for the next 2-3 years. Remains our top pick among ASEAN banks. Our Bt22 TP is pegged to 1.5x FY13F BV. This is lower than major peers’ valuation because of its relatively lower ROE. However, the main appeal is KTB’s high dividend yield of 4.9%.


Company Focus

Krung Thai Bank

Page 29

-

0.5

1.0

1.5

2.0

2.5

01 02 03 04 05 06 07 08 09 10 11 12

PBV (x)

-2 sd

-1 sd

Mean

+1 sd

+2 sd

Income Statement (Bt m) Balance Sheet (Bt m) FY Dec 2011A 2012F 2013F 2014F FY Dec 2011A 2012F 2013F 2014F

Net Interest Income 50,384 58,012 64,151 71,522 Cash/Bank Balance 37,331 45,987 36,977 42,523 Non-Interest Income 18,868 22,408 21,180 26,056 Government Securities 13,868 12,844 15,817 18,706 Operati

Thailand Market Focus Investment StrategyAMATA TB 561 16.10 20.00 24.2% 4.6 MINT TB 2,387 19.90 26.50 33.2% 1.5 PTTGC TB 10,307 70.00 82.00 17.1% 5.0 Source: DBS Vickers DBS Group

Documents