Small/Mid Cap Strategy and Stock Picks - the DBS Vickers ...

Regional Small/Mid Cap Strategy Q2 2008
Country Assessment
STRATEGY AND STOCK PICKS
A. REVIEW
In 1Q08, our small cap picks gave investors an average
market cap-weighted return of 4.1%, ahead of the SET
Index's 2.7% loss. Leading the gains was Quality Houses
(QH TB), one of Thailand’s leading residential property
developer. The counter registered 34.6% gain during
the quarter. QH was still the best performer among the
small-cap stocks we selected for 1Q08. Regional
Container Lines (RCL TB) fell 16% as market sentiment
for container shipping was frail due to the anticipated
slowdown in the global economy and high bunker oil
price.
Review: 1Q08 Small Cap Picks
Stock Shares
Price (Bt) Market Cap (Btm)
(m) 25-Dec-07 25-Mar-08 Return 25-Dec-07 25-Mar-08 Return
MAJOR TB 880.34 18.00 18.30 1.7% 15,846 16,110 1.7%
QH TB 7,392.42 2.14 2.88 34.6% 15,820 21,290 34.6%
TISCO TB 544.62 28.75 29.00 0.9% 15,658 15,794 0.9%
RCL TB 663.00 29.00 24.30 -16.2% 19,227 16,111 -16.2%
Small Cap 5.2% 66,551 69,305 4.1%
SET 843.28 820.31 -2.7%
Out-performance 6.9%
Source: DBS Vickers
B. 2Q08 RECOMMENDATION
PS is a potential beneficiary of improving domestic
factors. We feature IRP for its bright earnings
prospects after expanding its PET capacity to become
the world’s second largest producer.
Review: 1Q08 Small Cap Picks
Mkt Price Target EV/ P/ Div Vol/day
Company Ticker Cap (Bt) Price % P/E EBITDA BV Yld ROE 6m
(US$m) 25-Mar-08 (Bt) Upside 08F 08F 08F 08F 08F (m shrs)
Indorama Polymers IRP TB 395 9.00 14.00 56% 6.8 6.8 1.8 4.4 30.3 0.5
Preuksa Real Estate PS TB 742 10.70 12.26 15% 12.2 9.3 2.4 2.5 19.9 2.7
Source: DBS Vickers
Indorama Polymers (IRP) will be the world’s 2nd
largest PET producer upon the completion of its
expansion to achieve its aggressive target capacity of
1.4m tpa by 2009. IRP’s production capacity was 603k
tpa at end 2007, while the acquisition of 355k tpa
facilities in the U.K. and Netherlands is expected to be
complete by end-Mar 2008. The greenfield 432k tpa
plant in the U.S.A. will fulfill its target. IRP is one of
the top growth stocks in our Thailand universe.
Valuations are cheap at just 6.8x 2008 PE, and
dividend yield moderate at 4.4%. Our Bt14/share
target price is based on 10.5x 2008 PE. Its earnings
prospects should improve in 2Q08.
Preuksa Real Estate (PS) is the largest residential
property developer in Thailand in terms of market share
(16%) and second largest in terms of market
capitalization. It focuses on low- to mid-priced
townhouses and detached houses. In 2007, PS
successfully expanded into the city condominium
market. PS’ presales rocketed to a record high of
Bt13.6bn in 2007, due to its aggressive new project
launches and expansion into the condominium market.
And its prospects remain positive. We re-iterate our BUY
rating for PS premised on (i) strong earnings growth
prospects, (ii) a quality management team, (iii) strong
balance sheet, and (iv) attractive valuation. Our target
price is Bt12.26 based on 14x FY08 PE. PS is now our
top pick in the residential property sector.
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