Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Thailand
SECTOR REMARKS STOCK SELECTION
Banks & Finance
Overweight (Upgrade from
Neutral)
Commerce
Neutral
Communication
Neutral
Under Thailand’s 1st and 2nd stimulus packages, the government plans to
borrow from the domestic financial market from 2H09 onwards - this should
benefit banks largely in terms of credit growth. In addition, large and blue
chip corporates are switching from foreign to domestic banks for funding,
which should create opportunities for domestic banks, and seasonally stronger
demand from SMEs. Following this, we forecast FY09F loan growth at 2.2%,
including inorganic growth at BAY and TISCO, and 4.8% growth for FY10F. In
terms of asset quality, NPL ratio should improve to 6.6% by YE09F from 6.9%
by YE08, with most banks still trying to reduce NPLs through write-offs and
sale the rest of the year.
KBANK and BBL are our top picks. We like KBANK for its good asset quality,
lowest NPL ratio among peers, and attractive valuation, and BBL for its strong
balance sheet, highest NPL coverage ratio, and strong capital base to cover
rising NPL without the need to raise capital.
The Consumer Confidence Index has improved for 3 consecutive months
since June 2009, and our optimistic view of the Commerce sector is
unchanged. We are maintaining our view that the three companies under
our coverage (CPALL, BIGC, and HMPRO) are still strong in their respective
markets, and their revenues are considered resilient to the weak economy
relative to other sectors on the SET. We expect them to grow revenue and
earnings continuously this year and next, led by continuous network
expansion and effective cost control. Moreover, the government has
extended several stimulus measures to boost consumption, e.g. cash
handouts for low-income earners, which should be positive for the sector.
These companies also have strong balance sheets.
In our view, the convenience store format will grow the fastest in Thailand
for the following reasons: (i) as the name implies, they offer convenient and
quick services to clients, (ii) favorable locations, (iii) availability of value-added
services such as bill payments, (iv) they are profitable because most work
under a franchise model with good store management.
Our top pick remains CPALL for its strong balance sheet, and earnings
growth prospects led by (i) continued store expansion, (ii) increasing highmargin
food products contribution, and (iii) positive impact from the full-year
de-consolidation of loss-making Lotus Supercenter business in China this
year.
Thai Telecom sector underperformed the SET Index in Mar-Jun 2009 because
cyclicals led the early phase of the market recovery. Nonetheless, the sector
outperformed the market lately due to the progress of 3G license awarding.
We believe the sector is attractive, and the next share price catalyst would be
the award of 3G licenses. The National Telecommunication Commission
approved the first draft of the 3G regulation on 9 Sep. The trial auction and
final public consultation will be held in late September. The next few steps
would be announcing the final 3G regulation in October and awarding the
licenses awarded in early 2010. In our view, the replacement of four NTC
commissioners is unlikely to take place before the 3G regulation is officially
announced, and the NBTC is also unlikely to be set up before 2H 2010.
All the major cellular operators will benefit from 3G licenses, but DTAC will
benefit the most. DTAC is trading at only 12.8x FY10 PE and 5.0x EV/EBITDA,
Its current valuations reflect only the value of its 2G operations. We also
reiterate our Trading BUY call for TRUE.
KBANK and BBL
CPALL
DTAC
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