Thai Economic Recovery Towards the End of 2015 Remains Weak

7 TH ISSUE 3, SEPTEMBER 2015

Thai economic recovery towards the end of 2015 remains weak Investment opportunities in stocks with positive risk-adjusted returns Continued growth in the AEC economy Shingles...a lurking risk for the elderly Provision of "Green Loans" in line with sustainable development initiative KASIKORNTHAI

THAI ECONOMIC Overview

It is expected that Thai exports in 2015 will exhibit steeper-than-expected "THAI contraction. However, KResearch is keeping ECONOMIC abreast of the progress on public investment and spending (including budgetary disbursement RECOVERY and stimulus measures) and other economic IN 4Q15 developments. If public spending and tourism can help offset contractions in other sectors, REMAINS the 2015 Thai economic growth may lean WEAK" towards our projection at 2.8 percent.

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Global economy remains fragile in 2H15

In 4Q15, the global economic performance will remain The slowing economy during the remainder of 2015 may weak, especially in China, other Asian countries and emerging force the People’s Bank of China (PBOC) to trim its interest rates markets. Key industrialized countries will exhibit laggard and reserve requirement ratio (RRR) of commercial banks, economic recoveries, as well, with the exception of the US as well as allowing the Yuan to soften in the coming months. that has been able to sustain steady and substantial economic It should be noted, however, that the fragile Chinese economy growth. Given this, the global economy and financial market will likely steepen volatility in global capital movements and during the remainder of 2015 will hinge on economic threaten its key trade partners. developments in China and the timing of the first post-recession With regard to the Fed Funds rate at the FOMC meetings Fed Funds rate increase. during the remainder of 2015, important factors prompting • The Chinese economic growth in 2H15 will likely soften to the Federal Reserve (Fed) to raise its policy rate may not be below the 7.0 percent YoY pace achieved in 1H15. Due to its only economic developments within the US, but also downside economic reform and restructuring policies, public investment risks stemming from the global economy and financial/capital - the only driver for domestic spending - may fail to counter- markets (especially the Chinese and emerging economies) that balance negative effects of the anemic global economy on should prevail until the yearend. its export and manufacturing sectors. However, KResearch holds the view that there is a likelihood that the Fed may raise its Fed Funds rate at least once at either one of the two FOMC meetings on October 27-28, 2015 or December 15-16, 2015 due to steady recoveries in the US economy and labor market. The fragile global economic recovery in 2H15 will not only heighten volatility in global capital movements and forex markets, but also undermine the recovery of Thailand’s export sector.

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Thai Economic recovery will be limited in 4Q15 In 2H15, the state of Thai economy does not differ much from the global economy as domestic economic activities continue to rebound at a meager pace (although some sectors have been driven by accelerated public spending and stimulus measures implemented in late 3Q15). The export and manufacturing sectors may take more time to bounce back as does the agricultural sector that remains plagued by persistent drought.

Thai Economic Indicators (Excluding Tourism) Continue to Contract

5 % YoY % YoY 0.1 45 0 39.4 40 37.6 35 -5 -3.3 -3.7 -3.6 -4.7-5.0 -5.3 -5.8-6.3 30 -7.2 -7.5 24.7 -10 25 23.1 -9.8-9.8 -9.9 -11.1 -11.8 -12.5 20 -15 1Q-15 2Q-15 Jul-15 Aug-15 15 -20 10 -20.8 5 -25 0 Agricultural Agricultural Exports Manufacturing Car Sales No. of Foreign Prices Production Production Tourists Souce : BOT, OAE, OIE, F.T.I., Department of Tourism

KResearch has preliminarily assessed that the Thai economy GSP privileges, putting more pressure on overall Thai exports to will be able to sustain QoQ growth during the remainder of the EU that have already been hurt by dwindling purchasing 2015, supported by favorable growth in tourism and public power there. Tariff and non-tariff trade barriers, especially on spending, while adverse effects from the production suspension Thai agricultural product exports (e.g., China has increased of some car models will gradually ease. However, a high base import tariffs on compound rubber, based on the old formula, and external risks may put the Thai economic growth in 2H15 to support local producers of compound rubber, based on the at greater risk of slipping to 2.7 percent YoY, from 2.9 percent new formula) will likely make it more difficult for some export YoY reported in 1H15 categories to bounce back. The Thai export sector will exhibit slow recovery because However, the weakening Baht during the remainder of 2015 the rebound seen in key export categories, e.g., cars, may not will help alleviate pressure on exporters somewhat. Although be able to offset contractions in other export categories much. Thai exports may not be as competitive as our rivals in term of This is because the economies of our key trade partners in Asia, price (because their currencies, including the Chinese Yuan, including China, Japan and ASEAN remain weak and/or grow Vietnamese Dong, Malaysian Ringgit and Indonesian Rupiah quite slowly. In addition, export categories that are dictated by will likely weaken against the US Dollar and other key global oil and agricultural product prices, will remain stagnant currencies, as well), the softening Baht will allow exporters longer-than-expected, while shipments to the European Union to earn more income in Baht . (EU) will likely be undermined by the cancellation of the EU 3 Shareholder Newsletter 03/ 2015

In addition, there is likelihood that domestic spending will be revived in 4Q15 if budgetary disbursement, infrastructure investment and fund distribution to the grassroots economy (as part of an assistance measure for low-income earners, fiscal measure to support SMEs and assistance measure for drought-affected farmers) progress on track in 4Q15. These factors, coupled with thriving tourism, should help compensate contractions in the export, agricultural and industrial sectors, thus aiding in the 2015 economic growth to lean towards 2.8 percent as projected earlier.

Thailand’s Growth Forecast for 2015 % YoY % YoY 8 7.3 3 6 2 4 2.8 2.8 1 2 0.9 0 0 4Q-14 1Q-15 2Q-15 3Q-15f 4Q-15f 2012 2013 2014 2015 f Source: NESDB, KResearch Forecast as of 9 July 2015 Source : NESDB, KResearch Forecast as of 9 July 2015

With regard to investment in the financial market, although pressure on global financial markets, the Baht and yields of the Thai government bonds have eased somewhat after the Fed decided to keep the Fed Funds rate steady at its September 2015 meeting, KResearch is of the view that corrections of the Baht forex rate and domestic bond yields will be only temporary for we expect that the Baht will trend weaker, while yields of medium-and long-term debt instruments will rise, though such movements depend on the timing of the Fed Funds rate hike and the need for the government to mobilize more funds in FY2016 than in FY2015. Disclaimer This research paper is arranged for public information, which has been obtained from sources believed to be reliable. KResearch does not warrant its completeness, reliability or accuracy for commerce or fitness for a particular purpose. The information contained herein may be subject to change at any time without notice. Reliance upon any information contained herein shall be undertaken at a user’s own risk. KResearch shall not be liable to any user, or anyone else for any damage occurring from the use of any content herein. Nothing in this research paper shall be counted as containing any advice, recommendation or opinion for decision making in business.

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STOCK MARKET Condition

Buy on the correction Seeking stocks with good risk-reward return

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What’s going on? Limited downside at 1,200 pts. Based on 6 years of The SET Index has declined 10.7% YTD and 18.1% from its statistics (since the U.S.sub-prime crisis in 2008), we have peak in February amid weak exports, poor consumption and seen the SET Index experience 3 major corrections triggered a slump in the oil price. Moreover, trading sentiment has been by: 1) European debt crisis and Thai flooding in 2011 (PER fell 5 times); 2) the U.S. Federal announcement it would fragile due to fears about China’s economic problems, reduce quantitative easing (QE), which happened at the including slowing growth, a stock market bubble and currency same time as Thailand was be set with political turmoil in devaluation. At the current level, the SET is trading at a 2015 2013 (PER fell 3 times); and 3) the Greek debt crisis in early PER of 14.0, still above its average (2006-15) of 12.0x, but it 2015 (PER fell 3 times). In a major correction we can expect nevertheless looks attractive at a PBV of 1.80x, the same level PER to de-rate by 3-5 times. We thus see further downside this time limited given the SET Index’s PER has already fallen as its 15-year average for PBV with an earnings yield gap of by 4 times (from 18x to 14x). If the index falls to the full 5 5.0%. Therefore, we see the SET as currently at an attractive level times PER, it would imply a downside at 13x PER, or 1,200 pts. with limited downside. With this view in mind, we screened for New cabinet should shore up confidence. The stocks with high dividend yields, attractive PBVs, and strong EPS replacement of the new economic team, led by Deputy growth. Our search suggested ADVANC, INTUCH, LH, MINT, CPN Prime Minister for Economic Affairs Somkid Jatusripitak, should help breathe new life in the economy. Looking at and CK as our top picks. For investors with a greater appetite for the economic road map used in the Thaksin era, of which risk, PTT and IRPC should offer a reasonable risk-reward return. Somkid was one of the main architects, economic stimulus began with campaigns such as debt suspension for farmers, the setting up of village funds and the establishment of Key investment points the National Health Security Office (NHSO, or Bt30 universal health plan). Then, in the second term, the government The SET Index’s valuation has fallen to an attractive level rolled out projects to boost national competitiveness. Our top picks: ADVANC INTUCH LH CPN MINT CK. We despite the likelihood of further earnings cuts. We forecast have reviewed the risk-reward profiles of the stocks under market EPS for 2015 at about 95.7, in line with consensus at our coverage and screened for stocks that we think are 95.4. The potential downside for our earnings forecast will the best suited for this time. We pick ADVANC and LH depend on oil prices, which are averaging US$50-52USD/bbl based on valuation and yield, CPN and MINT for their YTD, compared to our 2015 assumption of $55USD/bbl. Our well-diversified revenue bases and expectations they will enjoy high EPS growth as they enter their high seasons in analysis suggests that for each USD1.00 fall in the oil price, 4Q, and CK on expectations it will benefit from the the energy sector’s earnings will be hurt by Bt13bn (equal to acceleration of government infrastructure spending. a market EPS of 1.37). In that case, it would imply further 4-6% Although we see risk from China’s economic slowdown, downside for the market’s earnings and a PER of 14.3-14.5x. PTT and IRPC also offer good risk-reward profiles given their strong cash flow and turn around stories, respectively.

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Economic slowdown causes SET Index to plunge Since Feb 2015, the SET Index has declined 19.68% from 1,620 pts to 1,301 pts in three phases. The main reason for the correction has been concerns about the sluggish economy, both domestically and internationally. The specific reasons for each phase were: First phase, Feb-Mar : Thai equities fell from 1,620 pts to 1,500 pts due to fears the domestic economy was deteriorating. In the meantime, the Bank of Thailand lowered its GDP forecast from 4.1% to 3.9% and cut its policy rate twice, from 2.0% to 1.75% Second phase, April-May : The SET Index corrected from 1,570 pts to 1,480 pts and then moved sideways in a range from 1,480 -1,540 pts. The market came under pressure from many factors such as China’s stock market bubble, the Greek debt crisis (Grexit fears), and concerns about the global economic slowdown following GDP cuts by the IMF and World Bank. Domestically, poor corporate earnings pushed the SET Index to trade at an expensive zone of 17x PER. Also, the safety alert issued by the ICAO on the local aviation industry and the MERS scare caused foreigners to sell a net Baht 9.2 Billion. Third phase, Jul-Aug : The Thai stock market plunged from 1,420 to 1,300 pts after key economic indicators fell short of targets. Trading sentiment is fragile, due to poor export data amid a global economic slowdown, weak consumption due to the severe drought in Thailand and earnings down grades in the Energy sector. There were also concerns about more GDP and earnings cuts when the blast at the Ratchaprasong Intersection happened.

Fig 1 Forward Price per Earnings (Forward PER)

Forward PER (x) 19

Greek Debt crisis 17 +2SD = 16.7x QE Tapering

15 +1SD = 14.3x

13 Mean = 12.0x

11 Coup Sep 2006 Thailand Political Tension -1SD = 9.6x 9 Euro Debt crisis & Thailand Flood -2SD = 7.2x 7 Sub-Prime crisis 2008 5 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Source: Bloomberg, KS Research

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Fig 2 Price per Book Value (P/BV)

P/BV (x) 3.2

3.0

2.8 +2SD = 2.61x QE Tapering 2.6

2.4 Greek Debt crisis +1SD = 2.20x 2.2

2.0 Mean = 1.80x 1.8 Thailand Political Tension 1.6 -1SD = 1.40x Coup Sep 2006 Euro Debt crisis & Thailand Flood 1.4

1.2 -2SD = 1.00x 1.0 Sub-Prime crisis 2008 0.8 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 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 Jan-14 Jan-15

Source : SET, KSResearch

Fig 3 Earnings Yield Gap

% Index 16 EYG - TH Mean +1SD -1SD SET Index (RHS) 1700

14 1500

12 1300 10 1100 8 900 6 700 4

2 500

0 300 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Oct-11 Oct-12 Oct-13 Oct-14 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Source: Bloomberg, KS Research

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New economic team to restore Small and Medium Entrepreneur (SMEs) - We believe the confidence new deputy PM for economic affairs will focus on helping SMEs Unique control over government economy team. In the to increase their competitiveness while boosting co-operation former cabinet, there was a conflict over economic policy between small businesses operating in the same segment. To between the 2 key men appointed to the junta government, create a good micro business environment, the government Pridiyathorn Devakula and Somkid Jatusripitak. We see the should promote and support these entrepreneurs as a recent reshuffle, which was focused on the economic team, strategic cluster (processing agricultural, tourism, trade and strengthening the effectiveness of the team as the PM has given etc.). Dr. Somkid wants to lift Thai SMEs to the point where they absolute power to his new deputy prime minister for economic can challenge on the international stage and has referred often affairs, Somkid. The key roles of Finance, Commerce and Industry to the Japanese “Three Musketeers” model, which involves: minister were assigned to ministers who are close to Somkid. 1) the improving the readiness of promotional organizations Also, the ICT Ministry, the key organization to drive the digital (such as Jetro); 2) good support from financial institutions; and economy strategy, was assigned to a minister who also has 3) the importance of networking, which means improving the Somkid’s support. We have no doubts about the expertise of supply chain between big Thai corporates and SMEs so they each economic minister and we are positive on the move to can work together as a group. ensure their work is synchronized. Competitiveness - In line with his marketing background, Dr. Somkid has spoken many times on increasing national What’s the vision of the new head of the competitiveness. To develop human resources, Thailand needs economic team? to promote specific expertise that is a good fit with the local Dr. Somkid’s background is in marketing and he is commonly conditions, and move away from the current centrally referred to as a guru in the field. He has written two books, dominant model. Also, better access to the Internet is needed. “The New Competition”, with his advisor Philip Kotler, and So, spending on IT and promotinge - commerce will be a priority “The Marketing of Nation”, with his disciple Dr. Suvit Maesincee. for the new economic team, we believe. Based on the many speeche she has given in recent years, Dr. Somkid’s focus is on the AEC, SMEs and increasing national What stimulus may be seen? competitiveness. Looking at the economic road map used in the Thaksin Asean Economic Community (AEC) - The AEC and how era, economic stimulus began with stimulus campaigns such Thailand can use its position at the geographical center of as debt suspension for farmers, the setting up of village funds thistrade grouping to become a key hub for Aseantrade should and the establishment of the National Health Security Office be at the top of the national agenda. Somkid sees an (NHSO, or Bt30 universal health plan). Then, in the second imbalance in the Thai economy, which has become too term, the government rolled out projectsto elevate reliant on exports and tourism, and wants to boost the income national competitiveness As such, we believe Dr. Somkid of grass-roots people as it would allow the economy to grow knows what to do and what policies should be applied in more sustainably on the back of domestic demand. Moreover, the short and long term. We expect a package of stimulus to while Thailand will get a boost from the rapid growth of be announced soon. The potential stimulus measures are: neighboring countries via border trade, we have to go further • Debt suspension to farmers (3-5 years) and produce more quality goods to prepare for wealthier • Soft loans to corporates, especially SMEs Asean neighbors and avoid competition from rivals. Also, • Acceleration of priority projects, including high-speed Thailand should look to play a larger role in Asean and be more trains, double-track rail lines and new motorways relevant on the global stage, according to Somkid. • Resumption of the digital economy strategy and 4G auction

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We believe the suspension of farmers’ debts will increase the purchasing power of low-income consumers, which will support a consumption recovery in the second half. For soft loans to SMEs, low-interest loans to small and medium business will prevent SMEs from defaulting on debts. Improving loan quality will indirectly help the NPL situation and provisioning in the Banking sector. We view the acceleration of many priority projects elevating the country’s competitiveness and boosting sentiment in the Construction services and ICT sectors. Our top picks While we see potential downside for the SET Index, we believe some stocks and sectors are approaching their fundamental support levels. We recommend bottom-fishing for attractive stocks. Following are our recommendations from screening the stocks under our coverage: Domestic plays 1) High-dividend yielding stocks should provide good shelter in a volatile market - ADVANC INTUCH LH 2) Beneficiary of government spending - CK 3) Stocks with strong EPS growth that will benefit from a consumption recovery and the arrival of high season in the 4th quarter - MINT CPN External play 4) Although we remain concerned about China’s economic slowdown impacting commodity-related segments, we see stocks that are trading at low PBVs and have strong cash flow or good turnaround story, offering a good risk-reward play for investors who can bear short-term swings - PTT IRPC Fig 4 Stocks that offers cheap valuations in some aspect (2016E)

Stock PE Stock PBV Stock DivYield (%) Stock ROE AP 5 .38 CKP 0 .36 HANA 13.87 INTUCH 117.52 SPALI 5 .50 TTA 0 .47 SIRI 8 .33 ADVANC 83.94 SIRI 5 .79 TCAP 0 .62 LH 7 .54 EA 48.93 SC 6 .02 PTTEP 0 .68 QH 7 .14 MAKRO 39.50 TISCO 6 .22 KKP 0 .68 SC 7 .06 CPALL 34.61 QH 6 .31 BANPU 0 .71 LPN 6 .98 GUNKUL 32.54 TCAP 6 .36 SIRI 0 .78 SPALI 6 .95 SAWAD 31.99 TOP 6 .80 SC 0 .82 STPI 6 .91 BH 30.58 BCP 6 .81 AP 0 .82 INTUCH 6 .71 KCE 30.23 LPN 7 .09 KSL 0.83 MC 6 .51 SPCG 28.76 PS 7 .15 BBL 0 .84 TISCO 6 .43 M 28.03 PTT 7 .18 GPSC 0 .85 KKP 6 .39 SAPPE 27.20 KTB 7 .34 AMATA 0 .85 CFRESH 6 .38 SVI 26.56 SPCG 7 .53 IRPC 0 .89 TOP 6 .35 LPN 24.54 SVI 7 .73 TICON 0 .90 AP 6 .24 DTAC 23.66 CFRESH 7 .79 PTTGC 0 .91 ADVANC 6 .00 KTC 23.46 IRPC 7 .84 PTT 0 .92 TCAP 5 .79 JAS 23.28 SCB 8 .35 AAV 0 .92 PTTEP 5 .57 DELTA 22.20 PTTGC 8 .36 KTB 0 .93 PTTGC 5 .56 CBG 21.91 BBL 8 .45 QH 0 .93 KTB 5 .45 TRC 21.87

Source : KS Research

Fig 5 Valuation table for top picks

Rating Price (Bt) Target Upside P/E (x) P/BV (x) Div. yield (%) Earnings gth (%) ROE ( %) Stock 25-Aug-15 (Bt.) ( %) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E ADVANC Outperform 229 274.00 19.65 17.47 16.68 13.98 14.01 5.66 6.00 6.25 5.22 81.66 83.94 INTUCH Outperform 77 90.20 17.14 16.53 14.91 17.53 17.53 6.08 6.71 6.35 10.83 105.80 117.52 LH Neutral 7.85 9.20 17.20 13.42 11.77 2.05 1.99 6.37 7.54 -7.16 20.07 15.12 17.39 CPN Outperform 42 60.00 42.86 23.40 20.81 4.01 3.57 1.71 1.92 10.25 12.47 18.16 18.15 MINT Outperform 25.25 31.00 22.77 20.08 16.73 2.99 2.63 1.98 2.38 12.72 36.01 17.72 18.38 CK Outperform 25.75 30.40 18.06 19.47 33.29 2.09 2.08 2.57 1.80 -72.95 388.27 11.12 6.26 PTT Outperform 252 310.00 23.02 7.81 7.18 0.97 0.92 5.16 5.16 125.21 -0.34 10.36 10.66 IRPC Outperform 3.52 3.90 10.80 6.56 7.84 0.96 0.89 5.18 4.34 251.21 15.91 15.30 11.71

Source : KS Research 10 KASIKORNTHAI

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Corporate Governance Report Disclaimer The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of companies listed on the Stock Exchange of Thailand and the Market of Alternative Investment disclosed to the public and able to be accessed by a general public investor at http://www.thai-iod.com/en/publications-detail.asp?id=170 The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the data appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. KS does not confirm nor certify the accuracy of such survey result. Structured Notes and Derivative Warrants Disclaimer KS may be the issuer of structured notes on these securities. KS acts as market maker and issuer of Derivative Warrants (“DWs”) on the underlying stocks listed below. Investors should carefully read the details of the DWs in the prospectus before making any investment decisions. DWs Underlying Stocks : AAV, ADVANC, AMATA, AOT, AP, BANPU, BBL, BCP, BDMS, BH, BLAND, BTS, CENTEL, CK, CPALL, CPF, CPN, DELTA, DTAC, EARTH, GFPT, GUNKUL, HANA, HMPRO, INTUCH, IRPC, ITD, IVL, JAS, KCE, KTB, KTC, LH, LPN, MAJOR, MINT, PS, PSL, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, SAMART, SAWAD, SCB, SCC, SPALI, SPCG, STEC, STPI, THAI, THCOM, TMB, TOP, TPIPL, TRUE, TTA, TTCL TUF, VGI and WHA

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INVESTMENT Channels

AEC Economy and Investments Temporarily Static

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Economic growth rates have been sustained within ASEAN that were higher than other regions over recent years, albeit now slowing somewhat. That impressive performance was attributed to the eased fiscal policies of member states to assist economic recovery after the 2008 financial crisis; such relaxations have succeeded in bringing about greater domestic demand. Subsequent to large injections of liquidity, global interest rates dropped to low levels and more money started flowing into emerging markets, including ASEAN, just as asset prices generally soared. Amid a rising number of wealthy households and stronger public confidence, spending and investment on durable assets surged, e.g., real estate, automobiles and hi-tech merchandise. Businesses thus scored better in sales turnover and profit, leading to plans for expansion to leverage growing demand, which in turn created marked growth in employment and earnings.

The US Fed signaled an impending policy rate hike early in 2015 that has caused volatility in fund flows and asset prices. The Chinese government’s attempts to cool their economy using "Economic growth rates have been various reforms have caused a concern about the degree of their national slowdown. Meanwhile, most central banks in Asia sustained within ASEAN that were higher have gradually phased out accommodative monetary policies than other regions over recent years, albeit in the hope of attaining greater economic stability. As a result, the economies of such countries have recorded lower growth now slowing somewhat" rates. As a Fed Funds Rate hike draws near, sell-offs have been seen in stocks, bonds and commodities, thereafter reinvested within The year 2015 has been quiet for the ASEAN economy and the US; the US Dollar has appreciated significantly versus other investments amid a global economic slowdown, especially in currencies. Given China’s anemic economy - as a key trade China. Since China is the top trade partner of Asia and also a partner and market rival to most Asian countries - along with the PBOC’s CNY devaluation, Asian currencies have weakened key consumer of commodities, their sluggishness has sent versus the US Dollar. However, market concern is now easing commodity prices downward, as seen in coal, crude oil, towards these matters because the PBOC has confirmed that rubber, etc. Malaysia, an important exporter of such products, they will now seek CNY stability after their currency weakened has been hurt by this situation in exports and state income. to a certain degree. As for ASEAN currencies that are more Presently, Malaysia’s public debt to GDP ratio stands at 70 percent, susceptible to market forces, depreciation has ranged between quite high when compared to the 30-percent of Indonesia - also 4.4-16.6 percent since early this year (to August 31), versus CNY an oil exporter - which will likely become an obstacle to the depreciation of only 2.3 percent. This circumstance suggests that ASEAN remains competitive vis-a-vis China, but ASEAN exports Malaysian government’s spending and investment in the future. may slow somewhat due to the sluggish economy in China. To enhance the long-term income prospects for their Moreover, ASEAN’s international reserves are adequate to cope government, a new Goods and Services Tax (GST) was introduced with fund outflows, a situation much more vigorous than that in April, comparable to Thailand’s VAT, which may initially seen before the 1997 economic crisis. pressure household spending.

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In most ASEAN nations, demand continues to expand at moderate rates, serving as a key economic driver counterbalancing lackluster foreign market demand and low commodity prices that constrain export recoveries. Low inflation allows them to keep their interest rates low, thus helping to shore up domestic spending. Fluctuating fund movements have been caused by a concern that the Fed may raise their key policy interest rate amid an economy that has shown clear improvement, a contrast made clearer by anxiety towards China’s falling economy. Because risk assets are facing sell-offs worldwide, regional markets have seen corrections since the 2014 yearend. As of August 31, the Jakarta Stock Exchange Composite Index has slipped 13.7 percent, while the FTSE Bursa Malaysia KLCI Index, PSE Composite Index and Thailand SET Index have slid 8.4 percent, 1.8 percent and 8.8 percent, respectively.

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AEC Macroeconomics Data

Malaysia Philippines Country 2012 2013 2014 2015f 2016f 2012 2013 2014 2015f 2016f Real GDP (YoY%) 5.5 4.7 6.0 4.9 5.0 6.7 7.1 6.1 6.0 6.2 CPI (YoY%) 1.7 2.1 3.2 2.0 3.0 3.2 2.9 4.2 2.0 3.2 Curr. Acct. (% of GDP) 5.6 3.9 4.4 3.0 4.0 2.7 4.2 4.4 4.1 3.6 Budget (% of GDP) -4.5 -4.0 -3.5 -3.4 -3.4 -2.3 -1.4 -0.6 -1.5 -2.0 Central Bank Rate (%) 3.0 2.99 3.23 3.15 3.25 3.5 3.5 4.0 4.0 4.5 Credit growth* (YoY%) 12.0 10.0 9.5 9.5 n.a. 12.5 13.1 21.8 12.0 n.a. FX 3.06 3.28 3.5 4.16 4.1 41.01 44.4 44.72 47.0 47.5 Indonesia Vietnam** Country 2012 2013 2014 2015f 2016f 2012 2013 2014 2015f 2016f Real GDP (YoY%) 6 5.6 5.0 4.8 5.5 5.3 5.4 6 6.1 6.3 CPI (YoY%) 4 6.4 6.4 6.5 5.3 6.8 6.0 1.8 1.6 4.2 Curr. Acct. (% of GDP) -2.7 -3.3 -2.9 -2.5 -2.2 6.0 5.6 5.4 3.1 2.7 Budget (% of GDP) -1.5 -2.5 -2.1 -2.3 -2.1 -- -- -5.5 -5.4 -5.1 Central Bank Rate (%) 5.75 7.5 7.75 7.45 7.0 9.0 9.0 9.0 n.a. n.a. Credit growth* (YoY%) 24.3 22.1 16.0 14.0 n.a. 8.9 12.5 14.4 13.0 n.a. FX 9793 12171 12388 14200 14581 20840 21095 21388 22500 22300 Thailand Country 2012 2013 2014 2015f 2016f Real GDP (YoY%) 7.3 2.8 0.9 2.8 3.5 CPI (YoY%) 3 2.2 1.9 -0.5 1.8 Curr. Acct. (% of GDP) -0.4 -0.8 3.3 4.4 3.7 Budget (% of GDP) -4.2 -2.3 -2.7 -2.5 -2.5 Central Bank Rate (%) 2.75 2.25 2 1.35 1.65 Credit growth* (YoY%) 15.9 12.3 6.8 7.4 n.a. FX 30.59 32.71 32.91 36.3 37.0 Source: Bloomberg Consensus, UBS*, SSI Research**

Towards the end of 2015, the new AEC economy is In the Philippines, their economy is expected to outpace expected to stabilize, given various stimulus measures launched many other nations (although at a slowing growth rate), to combat slowdowns during the first half of 2015. In Thailand, and general elections to be held in 2016 will assist in greater stimuli valued at over 100 billion Baht, focusing on farmers hurt liquidity to be circulated within their economic system. Also, by falling agricultural prices, as well as for SMEs to obtain greater anticipation towards a new government could benefit next access to funding, plus certain accelerated infrastructural year’s economic sentiment. investments, are being implemented. Concerning Malaysia, it is quite hard to make any As for Indonesia, a newly appointed Coordinating prediction. Recent protests against Prime Minister Rajib Nazak Economics Minister, Darmin Nasution (a former governor of over corruption allegations could be an important factor Bank Indonesia), is known for his support for growth-oriented affecting political stability there. Close monitoring should be policies. This change can be viewed as not only expediting maintained on investments in Malaysia over the rest of 2015. infrastructure projects, but also pointing towards greater Factors determining the economic trend in this region relaxation in economic policies, which are now confirmed via towards the end of this year include the success of economic tax privileges to value-added industries, such as oil refineries, stimuli devised by ASEAN member governments and their petrochemical plants and form steel producers. potential to enhance national competitiveness for long-term growth. It is hoped that we will all enjoy better performance within the foreseeable future.

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GOOD HEALTH Good mind

Shingles... A lurking risk for the elderly What is shingles? How does it occur? Shingles, or herpes zoster, is a viral infection caused by varicella-zoster, the virus that causes chickenpox. After recovering from a case of chickenpox, the virus may remain dormant in nerve tissues only to reactivate as shingles years later in life as the body weakens with age. The virus erupts in skin lesions and damages nerves, causing burning pain along nerve pathways. • What is shingles? What causes it? • What are the dangers? • Who is at risk? • How may shingles be prevented?

Why are the elderly most at risk for shingles? As we grow older our immune systems weaken and are less able to suppress a resurgence of the virus, which may have lain dormant from a previous bout of chickenpox. Symptoms include itching and sharp pains similar to that of a burn with a blistering rash on the torso, face or arm. The pain may resemble muscle inflammation and may become so intense that one suspects heart disease, kidney stones or appendicitis. If the virus attacks one side of the face, migraine or brain disease may be suspected. Some sufferers may develop a fever as well. Common complications include postherpetic neuralgia (PHN), or lingering pain after the lesions have healed. PHN occurs in 10-15 percent of all patients, half of those over 50 years old and over 70 percent of those 70 or older. The severity and duration increases with the patient’s age. The pain associated with shingles may be described as a constant deep burn and/or as sporadic stabbing pains triggered by even a light touch. Pain is normally more severe at night and with changes in the weather. Sometimes shingles pain is nearly unbearable and the disease may linger for years, especially for those in whom the face is affected. 17 Shareholder Newsletter 03/ 2015

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Who is most at risk for shingles? Persons over 50 are at the highest risk for shingles, especially those with chronic medical conditions such as diabetes, kidney disease and obstructive pulmonary disease.

Incidence of Shingles by Age (worldwide)1-12 15 Australia1 Canada2 France3 Austria4 Italy5 Japan6 Germany7 Netherlands8 Spain9 10 Taiwan10 United Kingdom11 United States12

1,000 persons year 1,000 persons 5 Number of cases per

0 0 10 20 30 40 50 60 70 80 Age (years)

How may shingles be prevented? What are the side effects of the vaccine? The shingles vaccine is recommended for people of over Only mild side effects of the vaccine have been observed. 50 years old, reducing the chances of developing the disease These include itching, redness and blisters near the injection by about half and reducing painful symptoms in those who site. Fatigue or a low-grade fever may also be experienced. develop it by about two-thirds. The vaccine has been in use Symptoms disappear within a few days. Vaccination does not in the US for more than 10 years and Thailand started to give cause shingles in those with healthy immune systems. it towards the end of last year. The latest data suggest that a Anyone who has ever had chickenpox is at risk of single vaccination guards against shingles for at least 10 years developing shingles later in life, especially after reaching 50, as and the US Centers for Disease Control and Prevention (CDC) the immune system weakens with age, giving the virus do not currently recommend re-vaccination. opportunity to re-emerge.

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“...Shingles... A Lurking Risk for the Elderly” Protect your parents ; consult your physician for more information

References : 1. CDC Fact Sheet, 2014 2. Ferri F. F. Clinical Advisor, 2016615-616, e2. 3. Royal College of Physicians of Thailand. Vaccination Recommendations for Adults and the Elderly, 2014 4. White RR, et al. Pharmacoeconomic, 2009; 27:781-92. 5. Kost RG, et al. N Engl J Med 1996; 335(1):32-42. 20 KASIKORNTHAI

KBank News update Embassy of China, Thai Red Cross, Artist Association The Embassy of the People’s Republic of China in the Kingdom of of Thailand and China, and KBank organize charity Thailand, the Thai Red Cross Society, the Artist Association of Thailand exhibition of Chinese brush calligraphy and painting arts and China, and KASIKORNBANK (KBank) organized the “Charity Exhibition of Chinese Brush Calligraphy and Paintings to Commemorate the 40th Anniversary of the Establishment of Diplomatic Relations between China and Thailand, and the 60th Birth Anniversary of Her Royal Highness Princess Maha Chakri Sirindhorn”, on September 18 at the Grand Hall, Plaza Athenee Bangkok. This event was graciously presided over by Her Royal Highness Princess Maha Chakri Sirindhorn, who was also presented with 60 million Baht in proceeds for the sales of 60 artworks to support the Thai Red Cross Society’s charitable tasks.

KBank elevates brand to international level with new THE WISDOM Lounge @ Suvarnabhumi KASIKORNBANK opened THE WISDOM Lounge @ Suvarnabhumi, making KBank the first financial institution to open a flagship lounge at Suvarnabhumi Airport. The lounge provides a superior experience to THE WISDOM customers whose lifestyles revolve around traveling - both for business and leisure. Through its key attribute, which is to provide excellent choices of world-class services, comparable to the world’s leading airlines, the lounge is sure to offer happiness and comfort to our customers. The new lounge at Suvarnabhumi Airport will help raise brand awareness of THE WISDOM and KASIKORNBANK towards international level, ahead of AEC+3 inception. The lounge can accommodate more than 200 customers a day.

KBank, LH Bank lend 3.4 billion Baht to B.Grimm Power (Laem Chabang) KASIKORNBANK and Land and Houses Bank have extended 3.4-billion Baht loan to B.Grimm Power Group, Thailand’s leading power producer. Denominated in Baht and US Dollars, this credit limit is to be utilized in the operation of two power plants, B.Grimm Power (Laem Chabang) 1 and 2. Both power plants have entered into power purchase agreements with EGAT and factories in the industrial estate, under the terms of 21 years and 5-15 years, respectively. The cogeneration plants produce a highly stable power supply, thereby being secure in terms of capacity and power purchasers. B.Grimm Power Group currently has 18 power plant projects with a combined capacity of 2,200 megawatts.

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KBank and French Development Agency jointly KASIKORNBANK signed a financial agreement with the Agence launch “Green Loans” Franeaise de Developpement (AFD) under the Green Building Credit Facility program, as an important step to achieve sustainable growth via business, social and environmental development. To promote competitiveness in the long run, businesses must effectively reduce electricity use and ensure energy efficiency. KBank, as the leader in green credit lines, thus signed a memorandum of cooperation with AFD, which is an organization embracing environmental responsibility - especially in emphasizing efficient energy consumption, to jointly launch the K-Green Building Program as a financial resource for green entrepreneurs who wish to turn their office buildings into green facilities, along with other initiatives to conserve the energy and save the environment - a trend that has recently thrived among businesses worldwide.

With world-class partners, KBank supports advanced KASIKORNBANK joins hand with IMD - the world’s top institution family businesses with international know-how for family business studies - and Bank Lombard Odier - an institution with more than 200 years of experiences in private banking and risk management. Under this collaboration, training courses and business advisory service are offered for Thai family businesses, to further empower their competitiveness in the fast-changing global trade environment. This world-class collaboration will greatly benefit our family business customers. With both institutions’ exceptional expertise which is different but working in perfect combination, family businesses will be fundamentally stable and steered towards growth and stability, helping increase the value of our economy overall. KBank is deemed a leader in family business segment whose total business value of 17 trillion Baht suggests its key role to the overall business in Thailand and thus underscores the significance of strategic family business development and solid succession.

KAsset reaffirms its market leadership, eyeing worldwide investment KASIKORN ASSET MANAGEMENT Co., Ltd. (KAsset) managed to keep hold of its market leadership with asset under management of 1.18 trillion Baht, securing around 20.6 percent of the market (data as of June 30, 2015). Market share-wise, KAsset has taken up the largest slices of 22.4 percent and 15.5 percent of the market for mutual funds and provident funds, respectively. Investors of KAsset’s 27 foreign investment funds (FIFs), Thai stock funds and property funds, received the dividend payout of over 4 billion Baht. KAsset also focuses on global investment. The firm’s leadership in FIFs has attracted customers with a raft of investment products in various regions being on offer.

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SHAREHOLDER News update Call Center Gangs Embezzlement of other people’s wealth has proliferated wherein new technology is sometimes used; “call center gangs” are one recent phenomenon. These gangs, which usually network their activities, lure victims using various methods in attempts to scam them out of large sums of money when those victims are unaware and have no time to react more cautiously.

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Methods Call center gangs may make random phone calls to a victim, perhaps saying that they represent a financial institution or other organization. They entice victims into conducting financial transactions via ATMs using the English language menu. Sometimes, they call to inquire into personal data. Precepts include telling victims that - 1. Their ‘deposit account has been frozen’ - This is a very common method; victims are told that their deposit account has been frozen due to an illegal act or overdue credit card debt. Then, the perpetrator entices the victims to transfer money to them using an ATM or CDM. 2. Their ‘deposit account has been involved in money laundering or drug-dealing’ - Victims are told that their deposit account has been found to engage in money laundering or drug-dealing and they are thus lured into transferring money to another account for investigation. 3. Rewards - Call center gangs may also claim that they represent an organization that has granted the victims a large prize or reward. They tell the victims to transfer money to pay the tax due on that prize/reward. 4. Erroneous money transfer - After acquiring the personal data of a victim, they use it to apply for a retail loan. After the loan is approved and deposited into the victim’s account, the perpetrator calls the victim to notify that a money transfer has been wrongly credited to the victim’s account and thereby asks the victim to remit the amount back to some other account. As such, the victim is unaware that his/her personal data has been used by a gang to secure a loan in his/her name. How to Identify a Call Center Gang? • They may ask for sensitive information and request that the victims conduct a transaction at an ATM using only the English language menu. • They may urge the victims to perform such a transaction without delay so that the victims have insufficient time to check with anyone about the authenticity of the perpetrator’s claims. • Financial institutions do not make initial contact with customers to ask them for their name, date of birth or bank account numbers because they already have that data. How to Protect Yourself from Call Center Gangs? • If you receive a phone call from any unknown person, consider carefully if the story told by the caller is plausible or not. • Don’t expect a reward when you have not participated in a particular game or contest. • Don’t release confidential financial data to any person, since neither government agencies nor banks will contact you first via telephone to obtain personal data. • No organization instructs customers via telephone to perform any ATM transaction that the customers have not previously agreed upon. • If an erroneous money transfer has supposedly been made, check with the financial institution about the source of the transaction. Normally, financial institutions will perform the correcting debit themselves if the remittance was wrongly made to an account. What to do when you have been victimized by call center gangs? Collect all evidence and notify your financial institution to cancel any relevant transaction that you have been duped into conducting. If it cannot be canceled, file a police report as evidence for later legal action, notify the financial institution that they should examine data relevant to a scam, and inform the Department of Special Investigation (DSI) of what has happened, because they are directly responsible for such cases.