THAILAND

STRATEGY NOTE

1 JULY 2013

Siam Senses
Revisiting Thai positions
The steeper market sell-off than we had expected leads us to revisit our portfolio from the angles of fund flows, rice pledging, the interest rate outlook and valuation matrix. We are even more cautious on banks and retail now but see value re-emerging elsewhere. New to our top picks list are INTUCH and CHG.
PIMPAKA NICHGAROON, CFA Head of Research
662 617 4900 pimpaka.nic@thanachartsec.co.th

Thanachart Securities Thanachart Securities

Addressing key market concerns

We think the main reason for the sharp SET fall has been fund outflows in anticipation of a potential QE tapering off later this year and believe this is why the tumbles have been region-wide. Coming along with the market slump has been lots of bad news at home. Of all the key concerns (ranging from the rice-pledging price cut, soft consumption, weak exports and rising bond yield, to a potential House dissolution), the planned pledging scheme price cut is most significant, in our view.

Top Picks
EPS growth 13F (%)
AOT BGH BTS CHG * GUNKUL INTUCH * JAS QH TTCL VGI 46.0 26.1 54.0 (6.3) 7.6 20.5 53.7 64.6 58.3 49.4

PE Yield 13F (x)

23.0 29.9 58.0 23.6 26.6 15.8 17.8 10.0 20.8 27.1

14F (%)
29.6 19.3 63.4 18.0 79.8 27.0 34.7 22.6 30.3 33.3

14F (x)
17.7 25.1 35.5 20.0 14.8 12.4 13.2 8.1 15.9 20.3

13F (%)
2.2 1.4 5.0 2.8 3.8 6.0 3.2 5.0 2.4 3.1

Our conclusions
First, we dont see fund outflows being sustained, at least not until the Fed funds rate reverses, as QE is still continuing in the US and Japan given the still-fragile world economic growth preventing monetary policy tightening. Secondly, we see Thailands structural growth drivers remaining intact from the middle-income transition, provincial penetration, easy credit environment and tourism, and we still like domestic-based and AEC stock stories. Thirdly, we expect the ricepledging price cut decision, a sensible one in our view, to hurt certain segments of consumption but we also anticipate another 25bp policy rate reduction this year. Fourthly, we dont see the louder political noise causing destabilization of the government.

Stocks taken out

CPALL DCC 4.1 25.6 49.9 20.0 30.6 16.3 20.4 13.6 2.3 6.1

Source: Thanachart estimates Note: * New addition. For BTS and VGI, their fiscal years end in March. Based on 26 June 2013 closing prices

What Look Cheap Again

Bad sentiment, re-emerging value

We believe the market correction has been so steep and fast that it should continue to weaken sentiment into 3Q13. That said we see value re-emerging at 14.3x 2013F PE, falling to 12.2x in 2014F versus 19% EPS growth in 2013F and 17% in 2014F and the ROE trend rising to 17% in 2013F and 18% in 2014F. Yield is 3.4% in 2013F and 4.1% in 2014F. Sector wise, we see property offering the best value with our top pick Quality Houses (QH) on PE of 10x in 2013F and 8x in 2014F. We forecast its yield at 5%. Overall we still prefer consumption and assetbased companies to banks (disintermediation, weak loan growth and margin) and energy (China weakness). Within the consumption space, we now prefer telecom and healthcare to retail, media and food.

(x) 20 15 10.0 10 5 QH 8.1 2013F

PE 2014F 17.8 15.8 12.4 13.2

INTUCH

JAS

Source: Thanachart estimates

What Look Cheap Again

(%) 10 8 6 4 2 0 QH INTUCH JAS 5.0 Dividend yield 2013F 2014F 7.8 6.2 6.0 3.2 4.5

Changes to our top picks

We add into our portfolio Shin Corporation (INTUCH) and Chularat Hospital (CHG) at the expense of Dynasty Ceramic (DCC) and CP All Pcl (CPALL). We reaffirm our top picks inside this report and also see most of them as stocks that have fundamentals with low exposure to potential QE cuts and Chinas slowdown. Energy and banks remain out of our portfolio.

Source: Thanachart estimates

This report is prepared by Thanachart Securities. Please contact our salesperson for authorisation. Please see the important notice on the back page

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SIAM SENSES

PIMPAKA NICHGAROON

Revisiting Thai positions

Our conclusions amid the market turbulence

When the market falls, any bad news can sound very loud, dampening sentiment even further. Before we address our key market concerns, we provide conclusions about our market view below: We dont see a major change in the trend of fundamentals for the Thai stock market and we believe downside risk to our 1,700 SET target this year is limited to banking and the retail sector. We dont see fund outflows as being sustained as quantitative easing (QE), despite the potential QE tapering by the Fed later on this year, should continue in both the US and Japan. We expect the still-fragile growth in the world economy to prevent a tightening of monetary policy by major world economies taking place too early. We see the risk of more sustained fund outflows happening when the Fed funds rate starts to reverse, the timing for which is we still expect to be two years away from now. We view Thailands structural growth drivers as remaining intact from the middle-income transition, subprime economy, provincial penetration, easy credit environment, tourism and ASEAN Economic Community (AEC) stories. This is despite us seeing downside risk to consumption from a potential scaling back of the governments rice-pledging subsidy scheme. We believe the planned cut in the paddy rice-pledging price from Bt15,000 to Bt12,000 per tonne is good news for the long term and the sensible thing to do but it should have a negative impact on consumption in certain segments. Weakness in Chinas economy isnt completely new news. Its impact isnt news either to soft commodities prices, hard commodities prices and Thai exports. We have already taken a bearish view on the export outlook. As we see fund outflows as temporary, we expect the jump in the bond yield and weakening Thai baht to be temporary too. With negative sentiment going around and inflation being quite benign at 2.3%, we expect the Bank of Thailands (BoT) Monetary Policy Committee (MPC) to have enough of an excuse to bring down the policy rate further later this year by 25bp to 2.25%. Political noise has become louder but we dont see a risk of the House being dissolved as some in the market fear. While the latest major cabinet reshuffle looks set to relieve some pressure, we dont expect it to have much impact or implication to the equity market. Given all of the above, our stock preferences lie more with domestic and AEC stories. We still dont like banks where we see a disintermediation trend with downside risk to loan growth and margin and energy (weak China and overall global demand) and they remain out of our top picks list.

Addressing key market concerns

We believe the main reason for the major SET correction has been fund outflows in anticipation of a potential QE tapering later this year and that is why market tumbles have been seen across the region rather than being country specific. However, coming in tandem with the sharp pullback has been louder bad news that has arrived in succession at home such as the rice-pledging scheme price cut, soft consumption, weak exports, rising bond yield, a potential House dissolution, etc. We address the key concerns below.
We expect fund flows to return, thus stabilizing the baht

Fund outflows, currency and interest rates: We see these three concerns as related and discuss them together here. Our view on fund outflows is that they are not sustainable and that the cycle of fund inflows to ASEAN and Thailand hasnt ended yet. This is because despite the potential winding down of QE later this year, money printing is continuing with the remaining

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uncut part and Japans ongoing QE which is scheduled to last for two years. To us the real concern is when the Fed reverses the Fed funds rate but the timing is still in doubt for now. As we expect fund outflows to be temporary and inflows to return, perhaps in 4Q13, we are therefore not overly concerned about the weakening baht trend (a weak baht has a strong correlation with softness in the equity market and vice versa) and the rising bond yield (fund outflows from a bond sell-off). Even with a stabilizing fund flow scenario, we dont expect the baht to depreciate substantially as the current account isnt in a big deficit with strong tourism income helping to offset the trade deficit to a certain degree.
We see another 25bp policy rate cut and a continued low rate environment

Ex 1: Current Account Supported By Strong Tourism

(US$ bn) 25 20 15 10 5 0 (5) (10) (15) (20) (25) 2005 2006 2007 2008 2009 2010 2011 2012 4M13
Source: Bank of Thailand

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Its no secret that the government wants further policy rate cuts. We see the previous 25bp reduction in May as a compromise by the BoT. However, given that there has been more bad news since then, especially on concerns over consumption weakness from the rice-pledging subsidy cut, the end of the first-car buyer scheme and China weakness dampening commodities prices further, we believe these provide enough of an excuse for the MPC to bring down the policy rate further this year. We expect another 25bp reduction to 2.25%. Note that inflation has been benign at only 2.3% in May and at 2.8% YTD. The BoT is forecasting 2.7% for both 2013 and 2014.

Ex 2: Our View On The Baht

(Bt/US$) 50 45 40 35 30 25 20 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2013F 2014F 2015F
Sources: Bank of Thailand; Thanachart estimates

Current account Trade balance (customs) Others (incl. tourism)

31 .0 29.8 30.1 30.0

Ex 3: Low Rate Environment To Continue

(%) 8 7 6 5 4 3 2 Expect another 25bp cut later this year 1 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 3.9 Thai Govt 10Y Bond Yield Policy Rate

Ex 4: Benign Inflation
(%) 10.0 8.0 6.0 4.0 2.0 0.0 (2.0) (4.0) Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
3

Headline Historically, Thai inflation has been problematic only w ith sharp oil price rises

Core

Bond yield still at low level below 4% and w e see the recent shoot-up as temporary on heavy bond sell-off.

May 2.3 0.9

Sources: Bank of Thailand; Thai Bond Market Association

Source: Bank of Thailand

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We expect the rice-pledging price cut to impact consumption in some areas

Rice-pledging cut and consumption outlook: We expect the governments planned cut in the rice-pledging price from Bt15,000 to Bt12,000 per tonne to have a negative impact on certain areas of consumption. This is despite our view that the reduction is positive news for the bigger picture of the overall economy and the governments balance sheet. After weaker consumption growth than wed expected in 1Q13 of only 4.2% y-y, it seems that the effect of too much spending on car purchases under the first-car scheme last year has been having a higher base effect on this years consumption than wed assumed earlier. The area where we see a consumption impact from the high base of first-car spending last year and the rice-pledging cut from 2H13 onward is consumer discretionary items. We expect a risk in the areas of car sales, electrical appliances, non-food products and home improvement. So, certain stocks may see some impact such as Robinson Department Store (ROBINS TB, Bt61.50, BUY), Big C Supercenter (BIGC TB, Bt189, HOLD), Home Product Center (HMPRO TB, Bt11.80, BUY), Global House (GLOBAL TB, Bt22.60, BUY), Dynasty Ceramic (DCC TB, Bt63.00, BUY), Tisco Financial Group (TISCO TB, Bt42.50, SELL) and Kiatnakin Bank (KK TB, Bt55.00, BUY).

But we dont see the structural trend of a new consumption era changing

That said we note here that we see the impact from the rice-pledging cut as limited to rice farmers, or a portion of the subprime economy, rather than the overall base of the economy. From a bigger-picture perspective we still see a continued structural trend of middle-income transition, provincial penetration via market share gains of modern trade operators over traditional stores and ongoing extreme populist policies by the government and state-owned banks, which should continue to provide easy credit access and a low rate environment to people with low incomes.

Ex 5: No Change In Structural Consumption Trend But 2012 Was A High Base

(Bt tr) 3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.7 1.5 2013F 2014F 2015F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Real private consumption % grow th (%) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 (1.0) (2.0)

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High base jump in 2012 from 1st car scheme and delayed spending from 2011 floods

Sources: NESDB, Thanachart estimates

Weak China and weak exports: This is not completely new news to us. Exports to China have been weak for a while with weak commodities prices (both petrochemical and agricultural products). We had already been bearish on exports though we still cut our export growth assumption in our GDP forecast a bit further from 4.5% to 3.3% in 2013F and from 7.0% to 5% in 2014F. We discuss our GDP revisions a bit later in this report.

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Ex 6: Weak Exports Not News

(US$ m) 23,000 21,000 19,000 17,000 15,000 13,000 11,000 9,000 7,000 5,000 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Exports - customs (LHS) % y-y (RHS) US$19.8bn in May (y-y%) 50 40 30 20 10 0 (10) (20) (30) (40)

Source: Bank of Thailand

Louder political noise but we dont see it leading to a House dissolution

House dissolution: Our earlier view on politics was that political noise would get louder approaching the new parliamentary session in August because of scheduled House debates on an amnesty bill, a reconciliation bill and charter amendment clauses. However, we dont expect serious repercussions to the point where the government is destabilized. With growing discontent among rice farmers over the cut in pledging prices, the market has become more jittery and concerned about the possibility of a House dissolution to pave the way for a new general election. Our view is that we do not expect the House to be dissolved at this juncture as we dont see it serving any clear purpose for the government. First of all, we dont believe an election at this time would yield a much better result in terms of numbers of MPs for the ruling Pheu Thai Party, especially given farmers anger and poor market sentiment. Secondly, we dont believe the government is at a point of destabilization where it needs a fresh peoples mandate to continue running the country. The most recent major cabinet reshuffle is also a good indication of low risk of a House dissolution in the near term. Despite being a major reshuffle, we still dont see having major implications or impacts on the equity market. We remain of the view that the most important issue for political stability to keep a watch on is former prime minister Thaksin Shinawatras potential homecoming. This issue relates to the reconciliation bill and charter amendment Article 68 (please refer to Siam Senses Santas coming to town part III, dated 7 May 2013) set to be debated in the upcoming parliamentary session. However, as the governments popularity is being hurt by the rice-pledging price cut, we expect the government to eventually put off the issue of Thaksins return.

GDP forecast revisions

GDP forecast cuts but we still expect 4-5% GDP growth for 2013-15

Because of weaker consumption growth than wed expected, the planned pledging price cut and Chinas economy slowing more than wed anticipated, we cut our GDP forecasts as shown in Exhibit 7 below. Key revisions for 2013F are lower consumption growth but a higher inventory figure (high in 1Q13). The key revision for 2014F is softer export growth as we expect China weakness to be a drag well into 2014. The big picture is that we expect Thailands economy to continue to grow by at least 4% p.a. over the next three years.

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Ex 7: GDP Revisions
New (%)
Real GDP

Old 2013F
4.3

Note

2011
0.1

2012
6.5

2013F
4.0

2014F
4.5

2015F
5.0

2014F
5.5

2015F
4.9 Cut consumption in 2013F, weak exports drag into 2014F.

Private consumption

1.3

6.7

3.5

4.0

3.5

5.2

4.0

3.5

Rice-pledging cut and end of first-car scheme impact. Cut 2013F, same growth in 2014-15F from lower base in 2013F. Still see slowing growth trend going forward from

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already high populist base.

Private investment

7.2

14.4

5.5

7.0

7.0

10.0

7.0

7.0

Cut 2013F on weaker-than-expected domestic car sales, thus production. Still see investment growth as organic going forward.

Public investment

(8.7)

8.9

14.7

11.0

13.0

14.3

11.0

13.0

More public spending from a very low base. We do not factor in much of the Bt1tr infrastructure bill.

Exports (%, US$, customs)

15.1

3.1

3.3

5.0

7.0

4.5

7.0

7.0

Weak China keeps commodities prices low. Weak China and global growth to drag into 2014F.

Imports (%, US$, customs)

25.1

8.2

4.3

4.3

7.0

5.5

5.8

7.0

Imports are stickier than exports in nature, especially oil imports.

Trade balance (US$ bn, customs)

(6.2)

(18.1)

(21.4)

(20.5)

(21.9)

(21.5)

(19.8)

(21.2)

A result of export-import forecasts.

Current account (US$ bn)

5.9

2.7

0.6

3.5

4.0

0.5

4.2

4.8

A result of export-import forecasts while the surplus is due to strong tourism offsetting weak trades.

Bt/US$

30.5

31.1

30.1

30.0

31.0

29.4

30.0

31.0

Already forecast a gradual weakening trend from falling current account surplus. We see the recent sharp fall as temporary and stabilization coming from inflow resumption.

Headline inflation

3.8

3.0

2.6

3.0

3.0

3.3

3.3

3.3

Weak China and global growth keeps inflation very low.

Policy rate

3.25

2.75

2.25

2.25

n.a.

2.25

2.25

n.a.

Expect another 25bp cut later this year.

Sources: NESDB, BOT, Thanachart estimates

Bad sentiment, better value

SETs PE has fallen from peaks of 16.5x and 14.0x in 2013-14F to 14.3x and 12.2x within a month

We think that the market correction has been so steep and fast that it should continue to hurt sentiment into 3Q13. That said we see value re-emerging as the SETs PE multiple has fallen from the peak index level in May at 16.5x and 14.0x on our 2013-14F earnings forecasts to 14.3x this year and 12.2x next. We view the multiples as looking inexpensive again versus our earnings growth forecasts of 19% in 2013 and 17% in 2014. We forecast dividend yield to rise back to high territory of 3.4% this year and 4.1% next. We also see ROE as still on a rising trend from 16% in 2012 to our forecasts of 17% in 2013 and 18% in 2014.

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Ex 8: More Reasonable PE Multiple

(x) 17 16 15 14 13 12 11 10 12.2 14.0 14.3 16.5 2013F 2014F

Ex 9: Against Strong Forecast EPS Growth

(%) 60 50 40 30 20 10 0 (10) 25 14 3 20 19 17 14 52 44 43 35
Market earnings grow th

Thanachart Securities

9 8 At peak of 1,643 SET

Source: Thanachart estimates

(20) (30)
2002 2003 2004 2005

(12)
2006

(16) (23)
2013F 2014F
2013F

Current

Sources: SET, Thanachart estimates

Ex 10: And A Rising ROE Trend

(%) 25.0 20.0 15.0 10.0 5.0 0.0 (5.0) (10.0)

Ex 11: Very High Dividend Yield

(%) 7.0 6.0 2014F 2.9 3.5 2.7 2013F 1.8 2.1 4.2 5.0 3.6 3.6 2.8 3.4 4.0 2.1 3.0 2.0 1.0 0.0 4.1 4.6 3.0 3.4 2015F
7

6.0

6.6

3.3

3.7

2.0 1.9 2.3

2013F

2014F

2015F

1989

1991

1993

1995

1997

1999

0.6

1.3

2001

2003

1.9

2005

2007

2009

2.9

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Sources: SET; Thanachart estimates

2012

Source: Thanachart estimates

We see limited downside risk to earnings for the overall market but sector wise, banks and retailers could get hit

Is there any downside risk to our earnings forecasts? Yes, but we dont see it as meaningful this year and it should be insignificant next year. While we see some downside risk to the banking sector and some retail stocks, some other consumption-related and defensive companies look as if they might enjoy earnings upgrade trends, in our view. Therefore, the downside to our overall market earnings growth looks to be limited. As for the banking sector, our banking analyst Sarachada Sornsong already downgraded her earnings forecasts with Neutral weighting maintained in April this year but she still sees downside risk remaining in the areas of loan growth (3.3% year-to-May versus her full-year forecast of 13%) and margin (potential further policy rate cut amid strong deposit competition posing downside risk to her assumption for flat NIM this year). As for retail stocks, we believe the downside lies with same-store sales growth and margin although companies store expansion plans remain intact with plenty of room to gain market share from traditional stores. Given the defensive nature of the retail business, we dont expect significant downgrades to the sectors earnings. Our retail analyst Phannarai Tiyapittayarut forecasts 10% earnings growth for the sector in 2013, weighed down by her expectation of CP

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2011

3.7

2015F

2007

2008

2009

2010

2011

2012

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All Pcls (CPALL TB) post-Siam Makro (MAKRO TB) acquisition flat growth, and 31% in 2014 (from a low 2013F earnings base given large financial advisory fees). Excluding CPALL, Phannarai forecasts sector EPS growth of 14% in 2013 and 23% in 2014.
We see property offering best value on PE and yield

Sector wise, given a sharp drop in share prices, we believe the property sector offers the best value at PE of 11.7x 2013F falling to 9.8x in 2014F while offering yield of 4.4% this year. Overall, we still prefer consumption and asset-based companies to banks and energy. Within the consumption space, we now prefer telecom and healthcare to retail, media and food.

Ex 12: Sector PE Property Offers The Best Value

(x) 40 35 30 25 20 15 10 5 0 Telecom Retail Hotel Construction Healthcare Transport Media 2013F 2014F

Ex 13: Sector Yield

(%) 7.0 6.0 5.0 4.0 2013F 2014F

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Property offers best value at low PE versus profit growth of 25%in 201 3F and 1 9%in 201 4F versus energy at only 6-9%. Banks still have profit downside and P/BV is 1 .7x 201 3F and 1 .5x 201 4F

11.7 9.8

3.0 2.0 1.0 0.0 Telecom Media Construction Retail Hotel Healthcare
8

Source: Thanachart estimates

Source: Thanachart estimates

Changes to our top picks

Out: CPALL and DCC In: INTUCH and CHG

We continue to leave banks out of our top picks (as we see a disintermediation trend with weaker loan growth and NIM) and energy (weak China). Within the consumption space, we reduce retail and home improvement exposure further (CPALL and DCC are out) and raise telecom and hospital exposure (INTUCH and CHG are in). DCC as the largest ceramic producer focusing mainly on the provinces is exposed quite directly to risk from the ricepledging price cut, in our view. Weak farm income could reduce and delay farmers house renovation decisions. As the top food convenience store operator, we dont expect CPALL to be hurt much by the pledging price cut but we believe it lacks share price catalysts over the next six months. Note that CHG is a newly listed stock which we believe offers a solid growth path in what we view as the sector with the best fundamentals healthcare. INTUCH is at a more attractive forecast yield level now.

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Transport

Property

Energy

Utilities

Materials

Materials

Property

Banks

Energy

Utilities

Banks

Food

Food

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Ex 14: Thanacharts Top Picks

Ticker Rating Current price (Bt/shr) AOT TB BGH TB BTS TB CHG TB * GUNKUL TB INTUCH TB * JAS TB QH TB TTCL TB VGI TB Stocks taken out CPALL TB DCC TB
Note: * New addition.

Target Upside price (Bt/shr) 230.00 215.00 9.30 10.00 30.00 115.00

Market cap

Norm EPS growth 2013F (%) 46.0 26.1 54.0 (6.3) 7.6 20.5 53.7 64.6 58.3 49.4 2014F (%) 29.6 19.3 63.4 18.0 79.8 27.0 34.7 22.6 30.3 33.3

Norm PE 2013F (x) 23.0 29.9 58.0 23.6 26.6 15.8 17.8 10.0 20.8 27.1 2014F (x) 17.7 25.1 35.5 20.0 14.8 12.4 13.2 8.1 15.9 20.3

EV/EBITDA 2013F (x) 14.4 22.2 97.7 14.2 34.9 13.2 10.2 18.6 16.8 19.7 2014F (x) 12.5 18.8 24.0 12.6 26.0 10.5 8.0 15.7 12.9 14.6

Yield 2013F (%) 2.2 1.4 5.0 2.8 3.8 6.0 3.2 5.0 2.4 3.1 2014F (%) 2.3 1.8 12.1 3.3 2.7 7.8 4.5 6.2 3.1 4.2

(%) (US$ m) 49.4 50.3 20.8 15.6 55.4 39.0 45.2 86.3 105.3 42.9 7,060 7,092 2,818 305 409 8,515 1,798 902 578 1,112

BUY BUY BUY BUY BUY BUY BUY BUY BUY BUY

154.00 143.00 7.70 8.65 19.30 82.75 7.85 3.06 37.50 115.50

BUY BUY

39.00 63.00

Thanachart Securities

11.40 5.70

77.00

165.00

70.00 88.00

79.5 39.7

11,243 825

4.1 25.6

49.9 20.0

30.6 16.3

20.4 13.6

23.5 12.3

14.9 10.4

2.3 6.1

2.7 7.4

Sources: Company data, Thanachart estimates

BTS and VGIs fiscal years end in March. Its FY13 ends in March 2013. To compare with other companies on next years numbers, its FY14 (ending March 2014) should be used to compare with other companies 2013 figures. Based on 26 June 2013 closing price Target prices of most stocks are DCF-based with the exception of BTS which includes the potential share price overshoot from a special dividend.

We reaffirm our top picks amid the new market concerns

Amid the current market concerns about fund outflows and the rice-pledging price cut, we see our top picks having quite limited exposure to these. AOT remains resilient in our view on strong tourism and its asset turnover story with the operating leverage effect. Broadband operator JAS is still enjoying the end of its capex cycle and a hefty operating leverage effect which is boosting earnings growth. BGH and CHG are enjoying structural growth in healthcare demand and their expansions in a consolidating industry. BTS remains in our top picks list despite the disappointment over its lum-sum special dividend plan. BTS instead plans to spread and smooth out its dividend payout throughout the next three years. That said, due to the sharp drop in share price from the peak of Bt9.4/share in March, continued earnings growth outlook and more stable dividend payment from its excess cash on hand, we continue to like BTS. TTCL and GUNKUL are enjoying the benefits of more power plant projects and both can be considered as AEC or Myanmar plays. We see TTCLs capital increase as coming at a bad time amid the major regional market correction but fundamentally we believe it remains a very solid company with such a large workload that its equity level has become too small. The capital call is to unlock its capacity to take on more EPC workload while the study of the potential 1,000MW power plant in Myanmar has been progressing well. We reaffirm our liking for QH on our view of it being a stock offering good value at a depressed PE of only 10x in 2013F, before falling further to 8x in 2014F with forecast dividend yield of 5.0% and 6.2% in those years.

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VGI is the only retail-media linked stock in our top picks as the majority of its earnings still come from its own parent company BTS while it is continuing to enjoy the benefits from skytrain capacity increases and line extensions with rising out-of-home media pricing.

Ex 15: AOT And JASs Operating Leverage Story

(%) 90 80 70 60 50 40 30 20 10 0 2012 2013F 76.9 59.6

Ex 16: BGH And CHG Enjoy A Resilient Industry

(%) 100 80 85.8

EPS grow th
AOT JAS

EPS grow th
BGH CHG

Thanachart Securities

53.7 46.0

60 39.2 40 25.4 18.7 20 0 (20) 2015F 2012 34.7 29.6

CHG saw dilution from this year's listing. We see its grow th at ~15% p.a. in 2016-18F from rising utilization of new hospitals 26.1 22.4 13.5

19.318.0

(6.3) 2013F 2014F 2015F

2014F

Sources: Company data; Thanachart estimates

Sources: Company data; Thanachart estimates

Ex 17: TTCLs Strong EPC Workload Growth

(Bt bn) 35 30 25 20 15 10 5 0 2010 2011 2012 2013F 2014F 2015F New contract value Revenue

Ex 18: GUNKULs Growing Power Plant Portfolio

(MW) 450 400 350 300 250 200 150 100 50 0 2011 2012 2013F 2014F 2015F 2016F 2017F 4 12 76 118 248 Pow er plant capacity (year-end) 418 368

Upside is from EPC contract from 1,000MW Myanmar plant of ~Bt35bn w ith 2014-17 construction period. Qatar bid result delayed from 2012 to 2013, causing high base in 2013

Sources: Company data; Thanachart estimates

Sources: Company data; Thanachart estimates

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Ex 19: QH As A Stock trading at very depressed levels

(x,%) 12.0 10.0 10.0 8.1 8.0 6.2 6.0 4.0 2.0 5.0 2013F 2014F

Ex 20: VGIs Resilient Growth From Its Parent

(%) 100 90 80 70 60 50 40 30 20 17 10 0 33 49 209 EPS grow th

We forecast QH's EPS grow th at 65% in 2013 and 23% in 2014

0.0 PE (x)
Sources: Company data; Thanachart estimates

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Yield (%)

FY13

FY14F

FY15F

FY16F

Sources: Company data; Thanachart estimates Note: VGIs fiscal year end is March.

Ex 21: BTS Still Offers Strong Growth And Decent Yield

(%) 70 60 50 40 30 20 10 0 FY13 FY14F FY15F FY16F Norm EPS grow th (LHS) Yield (RHS) (%) 14

Ex 22: INTUCHs Yield Back To Attractive Levels Again

(%) 9.0 Yield Yield at previous peak of Bt97/share Norm EPS grow th (RHS) 27.1 7.8 20.5 6.6 6.0 5.1 0.0 2013F
Sources: Company data; Thanachart estimates

(%) 30.0 25.0 20.0 15.0 10.0 5.0

If special dividend is spreaded out from FY14, average yield could be 7-8% p.a. over the next three years.

12 10 8 6 4 2 0

8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0

2014F

Sources: Company data; Thanachart estimates

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Ex 23: Airports of Thailand (AOT TB)

Y/E Sep (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 30,472 6,500 6,550 4.6 59.6 33.6 17.7 2.8 1.2 8.7 68.1 2013F 35,267 12,106 9,566 6.7 46.0 23.0 14.4 2.6 2014F 39,495 12,401 12,401 8.7 29.6 17.7 12.5 2.4 2.3 13.8 60.2 2015F 45,036 15,556 15,556 10.9 25.4 14.1 11.0 2.1 2.8 15.8 66.4

Ex 24: Bangkok Dusit Medical Services Pcl (BGH TB)

Y/E Dec (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 44,307 7,937 5,859 3.8 39.2 37.7 26.2 5.9 1.0 16.9 42.0 2013F 51,125 7,486 7,386 4.8 26.1 29.9 22.2 5.2 1.4 18.6 39.9 2014F 60,707 8,809 8,809 5.7 19.3 25.1 18.8 4.6 1.8 19.6 36.1 2015F 70,290 10,779 10,779 7.0 22.4 20.5 15.7 4.1 2.4 21.3 30.8

11.7 62.6

Sources: Company data, Thanachart estimates Based on 26 June 2013 closing price

Thanachart Securities
2.2

Sources: Company data, Thanachart estimates Based on 26 June 2013 closing price

Ex 25: BTS Group Holdings (BTS TB)

Y/E Mar (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%)
Note:

Ex 26: Chularat Hospital Group (CHG TB)

2015F 6,581 2,936 2,936 0.2 13.6 31.2 23.7 1.6 2.6 5.0 (35.5) 2016F 7,023 3,347 3,347 0.3 14.0 27.4 22.1 1.6 2.9 5.8 (36.3) Y/E Dec (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 1,863 335 335 0.4 85.8 22.1 12.7 8.5 4.9 32.3 (13.5) 2013F 2,143 404 404 0.4 (6.3) 23.6 14.2 4.2 2.8 24.0 (42.5) 2014F 2,531 477 477 0.4 18.0 20.0 12.6 3.9 3.3 20.3 (32.9) 2015F 2,959 541 541 0.5 13.5 17.6 11.3 3.6 3.7 21.3 (25.6)

2013 10,480 2,488 1,516 0.1 54.0 58.0 97.7 1.9 5.0 3.6 18.2

2014F 5,707

20,585

2,585

0.2

63.4 35.5 24.0

1.5 12.1 4.7 (39.9)

Sources: Company data, Thanachart estimates BTSs fiscal years end in March. Its FY13 ends in March 2013. To compare with other companies on next years numbers, its FY14 (ending March 2014) should be used to compare with other companies 2013 figures.

Sources: Company data, Thanachart estimates Based on 26 June 2013 closing price

Based on 26 June 2013 closing price

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Ex 27: Gunkul Engineering Pcl (GUNKUL TB)

Y/E Dec (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 4,306 780 446 0.7 190.0 28.6 20.7 6.6 1.9 28.7 121.0 2013F 4,751 1,207 480 0.7 7.6 26.6 34.9 4.3 2014F 7,242 863 863 1.3 79.8 14.8 26.0 3.8 2.7 27.2 283.5 2015F 7,168 1,789 1,789 2.7 107.4 7.1 10.1 2.7 5.6 44.5 260.6

Ex 28: Shin Corporation Pcl (INTUCH TB)

Y/E Dec (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 8,545 13,787 13,942 4.3 48.6 19.0 15.1 11.8 4.6 63.8 15.2 2013F 10,317 16,796 16,796 5.2 20.5 15.8 13.2 10.5 6.0 70.3 9.2 2014F 12,174 21,339 21,339 6.7 27.0 12.4 10.5 9.4 7.8 79.7 (3.5) 2015F 13,231 24,004 24,004 7.5 12.5 11.1 9.3 9.1 9.7 83.8 (11.7)

19.7 75.8

Sources: Company data, Thanachart estimates Based on 26 June 2013 closing price

Thanachart Securities
3.8

Sources: Company data, Thanachart estimates Based on 26 June 2013 closing price

Ex 29: Jasmine International Pcl (JAS TB)

Y/E Dec (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 10,369 2,137 2,065 0.3 76.9 27.4 12.4 6.5 1.2 26.1 35.4 2013F 11,341 2014F 13,092 4,229 4,229 0.6 34.7 13.2 8.0 4.5 4.5 37.0 2.7 2015F 14,481 5,020 5,020 0.7 18.7 11.2 6.8 3.9 6.3 37.2 (10.6)

Ex 30: Quality Houses Pcl (QH TB)

Y/E Dec (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 13,077 2,386 1,689 0.2 113.6 16.4 29.6 1.8 3.9 11.8 133.7 2013F 19,250 2,923 2,823 0.3 64.6 10.0 18.6 1.7 5.0 17.6 152.2 2014F 22,882 3,460 3,460 0.4 22.6 8.1 15.7 1.5 6.2 19.7 133.1 2015F 25,589 4,118 4,118 0.4 19.0 6.8 14.0 1.3 7.3 20.8 116.0

3,227 3,157

0.4

53.7 17.8 10.2

5.4 3.2 33.1 21.2

Sources: Company data, Thanachart estimates Based on 26 June 2013 closing price

Sources: Company data, Thanachart estimates Based 26 June 2013 closing price

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Ex 31: Toyo-Thai Corporation Pcl (TTCL TB)

Y/E Dec (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) 2012 11,358 546 548 1.1 37.1 32.9 25.6 8.9 1.7 29.7 (90.3) 2013F 17,861 867 867 1.8 58.3 20.8 16.8 7.2 2014F 21,750 1,129 1,129 2.4 30.3 15.9 12.9 5.7 3.1 40.0 (55.7) 2015F 26,020 1,335 1,335 2.8 18.2 13.5 10.4 4.7 3.7 38.1 (62.0)

Ex 32: VGI Global Media Pcl (VGI TB)

Y/E Mar (Bt m) Revenue Net profit Norm net profit Norm EPS (Bt) Norm EPS gr (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%)
Note:

2012 2,838 908 908 2.9 209.0 40.5 28.3 21.4 2.0 89.2 (69.1)

2013F 3,810 1,408 1,408 4.3 49.4 27.1 19.7 17.3 3.1 70.8 (83.9)

2014F 4,889 1,876 1,876 5.7 33.3 20.3 14.6 14.2 4.2 76.9 (87.2)

2015F 5,533 2,187 2,187 6.6 16.6 17.4 12.3 12.1 4.9 75.2 (95.9)

38.3

(47.9)

Sources: Company data, Thanachart estimates Based on 26 June 2013 closing price

Thanachart Securities
2.4

Sources: Company data, Thanachart estimates VGIs fiscal year ends in March. To look at its one-year forward numbers, its better to look at its FY14 figures.

Based on 26 June 2013 closing price

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DISCLAIMER

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General Disclaimers And Disclosures: This report is prepared and issued by Thanachart Securities Public Company Limited (TNS) as a resource only for clients of TNS, Thanachart Capital Public Company Limited (TCAP) and its group companies. Copyright Thanachart Securities Public Company Limited. All rights reserved. The report may not be reproduced in whole or in part or delivered to other persons without our written consent.

This report is prepared by analysts who are employed by the research department of TNS. While the information is from sources believed to be reliable, neither the information nor the forecasts shall be taken as a representation or warranty for which TNS or TCAP or its group companies or any of their employees incur any responsibility. This report is provided to you for informational

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purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities.

Neither TNS, TCAP nor its group companies accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

The information and opinions contained herein have been compiled or arrived at from sources believed reliable. However, TNS, TCAP and its group companies make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in

this report shall be at the sole discretion and risk of the user.

TNS, TCAP and its group companies perform and seek to perform business with companies covered in this report. TNS, TCAP, its group companies, their employees and directors may have positions and financial interest in securities mentioned in this report.

TNS, TCAP or its group companies may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this report.

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DISCLAIMER

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Recommendation Structure:

Recommendations are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% or more, the recommendation is SELL. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal recommendation.

For sectors, we look at two areas, ie, the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word Positive, is used when we see the industry trend improving. An arrow pointing down, or the word Negative, is used

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when we see the industry trend deteriorating. A double-tipped horizontal arrow, or the word Unchanged, is used when the industry trend does not look as if it will alter. The industry trend view is our top-down perspective on the industry rather than a bottom-up interpretation from the stocks we cover. An Overweight sector weighting is used when we have BUYs on majority of the stocks under our coverage by market cap. Underweight is used when we have SELLs on majority of the stocks we cover by market cap. Neutral is used when there are relatively equal weightings of BUYs and SELLs.

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Research Team 28 Floor, Siam Tower Unit A1 989 Rama 1, Pathumwan Road, Bangkok 10330 Tel: 662 - 617 4900
Pimpaka Nichgaroon, CFA Head of Research Economics & Strategy pimpaka.nic@thanachartsec.co.th Sarachada Sornsong Banks, Telecom sarachada.sor@thanachartsec.co.th Phannarai Tiyapittayarut Property, Retail phannarai.von@thanachartsec.co.th Saksid Phadthananarak Construction, Electronics, Transportation saksid.pha@thanachartsec.co.th Kalvalee Thongsomaung Food, Hotel, Media kalvalee.tho@thanachartsec.co.th Noppadol Pririyawut Senior Technical Analyst noppadol.pri@thanachartsec.co.th Adisak Phupiphathirungul, CFA Retail Market Strategy adisak.phu@thanachartsec.co.th Supanna Suwankird Energy, Utilities supanna.suw@thanachartsec.co.th Siriporn Arunothai Ad Hoc Research, Healthcare siriporn.aru@thanachartsec.co.th

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