Thailand Thematic Research

2 October 2017 Retail, Hospitality, Healthcare

And Property Stocks Covered: 21 Ratings (Buy/Neutral/Sell): 14 / 2 / 5 Bright Skies Ahead For The Fantastic Four Last 12m Earnings Revision Trend: Positive

In the past decade, Thailand has gradually been moving away from Top Sector Picks Target Prices manufacturing, and focusing more on the service sector. As Thailand is Berli Jucker (BJC TB) THB59.50 best known for its retail shopping, tourism, hospitality and medical Bangkok Dusit Medical (BDMS TB) THB24.00 services, a dynamic and growing service sector can be a new, significant Minor International (MINT TB) THB47.00 growth engine that may help increase incomes and create more job Land and Houses (LH TB) THB11.70 opportunities. Government efforts to implement structural reforms to support companies in these industries can unleash the potential of the Table Of Contents service sector. OVERWEIGHT on the retail, hospitality, property sectors, and NEUTRAL on healthcare. Summary Of Sectors 2 Highlighted Stocks 3

Retailers looking for the light at the end of the tunnel. We remain upbeat on Sectors Thailand’s retail sector. Improving farming income and private investments may Retail 5 pass through to local consumption in the near term. Meanwhile, we expect Hospitality 12 consumer spending to perk up from 4Q17 onwards, and continue on to 2018. We Healthcare 19 anticipate retailers’ SSSG to improve gradually from a low base, supported by Property 28 positive changes in their merchandising mix to focus on high-margin products. In Company reports the long term, more retailers may venture abroad as part of their expansion Bangkok Dusit Medical 35 strategies, while retailers of staple goods may not be edged out by online trade Berli Jucker 43 Central Plaza Hotel 47 (while the opposite may be the case for retailers of discretionary items). Golden Land Property 51 Meanwhile, property players may turn their focus to mixed-use projects. The Minor International 61 aggregate core profit of the Thai retailers under our coverage may see a robust The Platinum Group 64 18% CAGR over 2016-2019. We keep our OVERWEIGHT rating on the retail sector, with a preference on the counters of retailers of staple items. Berli Jucker and CP All are the sector Top Picks. We also initiated coverage on The Platinum Group, with a BUY recommendation. Concrete outlook for the tourism sector. Thailand is set to remain a key holiday destination. We expect tourism income to grow strongly by an average of 10% in 2017-2018 (two-thirds of which would come from international visitors). An influx of Russian visitors and the return of tourists from China from a low base last year remain growth drivers. Meanwhile, government measures to boost domestic tourism may be implemented at the year-end. We expect Thai hotel operators to lift their room rates in 2017-2018, as occupancy rates have been healthy since 2016. This would boost the sector’s core profit growth, which may average 19% over the two-year period. In the longer term, we have confidence in Thailand’s ability to catch up quickly to dynamic trends, like millennials putting more emphasis on travel, the growing budget hotel segment and healthcare- related tourism. This would be supported by major developments in aviation infrastructure in major cities and tourist destinations. Preferred picks are Minor International and Central Plaza Hotel, based on their improving operations. OVERWEIGHT on the sector. The property sector is seeing a meaningful recovery since 2Q17 in terms of presales, revenue, new launches and earnings – thanks to healthy sales of mid- range to high-end condominium projects. Presales/new launches are likely to peak in 3Q17, before the Royal Cremation ceremony in October. Our full-year growth estimates for presales and the value of new launches are now at 20% and 30% respectively (from 10% and 20%), while balance sheets remain solid, with a net gearing average of 0.77x. More developers are set to develop rental assets to create an S-curve in the long run. Maintain OVERWEIGHT. We also initiated coverage on Golden Land with a BUY recommendation. Analysts Healthcare sector has bright long-term prospects despite a short-term hiccup. We rate the sector as NEUTRAL, given the tough outlook for the near Wanida Geisler term due to intense competition and an investment upturn. Also, it would take +66 2088 9748 time to grow the number of medical tourists from neighbouring countries, in order [email protected] to compensate for the sharp decline in Middle East patients. Long-term prospects, however, are bright, with double-digit growth in medical tourists, Vatcharut Vacharawongsith decent healthcare expenditure growth and room to increase medical service charges even as an ageing society opens up new opportunities. We prefer +66 2088 9736 BDMS to Bumrungrad in our stock pick. [email protected]

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Thailand Thematic Research 2 October 2017

Summary Of Sectors Figure 1: Summary of the healthcare, hospitality, real estate and retail sectors

Sector Heathcare Hospitality Real Estate Retail Rating NEUTRAL OVERWEIGHT OVERWEIGHT OVERWEIGHT Top BUYs Bangkok Dusit Medical (BDMS TB) Minor International (MINT TB) Land and Houses (LH TB) Berli Jucker (BJC TB) Ananda Dev (ANAN TB) CP All (CPALL TB) Top SELLs Bumrungrad Hospital (BH TB) Airports of Thailand (AOT TB) Quality Houses (QH TB) - LPN Dev (LPN TB) New None None Golden Land (GOLD TB) The Platinum Group (PLAT TB) Initiation Short-term  A slowdown of medical tourists  Expect a stronger rebound in  Flourishing mid- to high-end  Expect a gradual recovery for Outlook from the Middle East and Chinese and Russian visitor segment where buyers still have domestic consumption in 2H17, western countries numbers in 2H17 purchasing power and seek better as solid farm income growth  More alternatives from small- to  Upcoming government measures RoI and a decreasing household medium-sized private hospitals may be imposed in 4Q17 on  Mass market is tough, with debt-to-GDP ratio may reduce which had upgraded their enthusiast domestic travellers oversupply and high rejection pressure on weak local facilities and well-reputed public  Thai tourism would return to a rates from banks spending, mainly in the hospitals which have opened more buoyant environment after  Presales and new launches upcountry new special clinics and the royal cremation of King Rama should peak in 3Q17, while  SSSG to bottom out in 2017, campuses to tap middle- to IX in late Oct 2017 earnings may peak in 4Q17 before improving in 2H17F and high-income patients turning positive in 2018  Leading private hospitals are  Consumer spending is under the investment cycle expected to return to normal in  The Social Security Office the peak season of 4Q17, after recently approved an increase the royal cremation ceremony in payment rates for hospitals in late Oct 2017  Retailers of staple goods would benefit first from the recovery

Long-term  Thailand is ranked no.1 in the  Hotel occupancy rates to remain  Developing mixed-used projects  Thailand’s retail industry to Outlook world for medical tourism, with high, while an average room rate which can later be injected into grow steadily by 3% pa a 10-year CAGR of 11% for hike would drive RevPar growth REITs  Changes in merchandise mix to international patients  Thailand remains the most  Penetrating into different buyer help retailers lift their SSSGs  Personal health insurance popular overseas holiday segments to broaden their and enhance GPMs premiums are on an uptrend, at destination for Chinese tourists customer bases  Thai retailers may not quickly a 5-year CAGR of 13%  Being one of the world’s most  Marketing their projects abroad to diversify into online channels  The country’s healthcare value-for-money destinations may attract foreign buyers  Retailers of staple items and expenditure growth of 6% pa is attract millennials who are making  Entering into partnerships with shopping malls are likely to higher than average GDP more frequent trips large developers from overseas weather through Thailand’s growth  Long-term development plan for online trend  High potential from CLMV Thai aviation to facilitate tourism  Limited land space in Bangkok countries, where their growth to add value to existing retail healthcare standards are below  Expansive room for opening new projects Thailand’s budget hotels in Thailand  Mixed-use project development  A lot of room for price increases  Airbnb may not be a big threat to to enhance investment returns as medical services in Thailand Thai hotels  Seeking growth from business are far lower than that of expansion overseas, particularly developed countries in the CLMV countries

Short-term  Sluggish earnings outlook  Earnings volatility due to  Oversupply of low-end  Cannibalisation of sales risks for premium hospitals seasonal factors in the condominiums from the opening of new  Higher gearing following tourism sector  Speculation in high-end stores more upcoming investments  High competition in the luxury condominiums  Overseas investments may hotel segment by locations  Slowdown in business activities contribute losses at their  Economic and political during the royal cremation first stages of operation uncertainties in countries ceremony in Oct 2017  Volatile farm product prices and uncertain government measures to stimulate consumption Long-term  Rising healthcare expenses  Heavily reliant on tourists from  A delay in infrastructure projects  Opening of new stores in risks and medical prices China  Slow economic recovery Thailand may continue at a  Gap between hospitals in  Behavioural changes of  Interest rate may rise in the slower pace Bangkok and provinces tourists medium term  Faster-than-expected continues to widen  Popularity of alternative  Rapid price increase in inner city penetration of e-commerce  Insufficient medical staff in emerging tourist destinations residential units  Regulations of different the upcountry  Rising competition in the countries may obstruct economy and budget hotel foreign investments segments

Source: RHB

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Thailand Thematic Research 2 October 2017 Highlighted Stocks Figure 2: Six stocks to watch (Part I)

Bangkok Dusit Medical Services (BDMS TB) Berli Jucker (BJC TB) Central Plaza Hotel (CENTEL TB)

Share price Bangkok Dusit Medical (BDMS TB) Berli Jucker (BJC TB) Central Plaza Hotel (CENTEL TB) performance Price Close Relative to Stock Exchange of Thailand Index (RHS) Price Close Relative to Stock Exchange of Thailand Index (RHS) Price Close Relative to Stock Exchange of Thailand Index (RHS) 43 107 23 102 55 121 41 101

21 92 50 110 39 95 37 89 19 82 45 99 35 83 17 72 40 88 33 77 250 120 12 200 100 10

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Market cap 9,833 6,125 1,734 (USDm) Current price* THB21.00 THB50.75 THB42.50

Rating BUY, TP: THB24.00 BUY, TP: THB59.50 BUY, TP: THB49.50

Subsector Healthcare Retail Hospitality Company Bangkok Dusit Medical operates a group of Berli Jucker, a conglomerate, operates Central Plaza Hotel operates and manages a description leading private hospitals with a nationwide four key business lines – packaging chain of hotels and resorts under the Centara, network. The group provides services to both products (glass bottles and aluminium Centra and COSI brands. It is also a pioneer in local and foreign patients. Growth drivers cans), consumer products, technical & quick-service restaurants (QSR) in Thailand. come from local and regional expansion via healthcare products, and a modern retailer Currently, it is a franchisee of 11 QSR brands, greenfield projects and M&As. (Big C Supercenter). It also has a such as KFC, Mister Donuts, Ootoya Japanese presence in CLMV nations, mainly restaurant and Auntie Anne’s. Vietnam.

Business  Strong, leading network of hospitals in  A retail arm of the Thai Charoen  A hotel arm of Central Group, Thailand’s strengths Thailand Corporation (TCC) Group, one of largest retail conglomerate  Offers a complete range of medical Thailand’s biggest conglomerates  Diversified market segments, namely its services from preventive to curative to  Strong business foundations in hotel and food businesses rehabilitative care Thailand and Vietnam  Strong brand name in the mid-range  Diversified market exposure in terms  Fully-integrated supply chain for luxury hotel segment of geography and demography consumer products with its own  Riding the wave of medical tourists logistics and retail networks

Investment  Recovery signs from 3Q17 onwards,  Positive outlook for Big C’s SSSG in  Benefiting from the robust Thai tourism highlights due to growth of foreign patient 2H17 and 2018 after discontinuing sector, particularly its hotels in Pattaya numbers, EBITDA having bottomed unprofitable sales in mid-2016 and Phuket out and lesser financing costs, given  Glass bottle production has  Limited downside for the performance of its bonds redemption. resumed after a major maintenance its hotels in the Maldives  Investment cycle to end after 2020 shutdown of two furnaces in 1H17  To first launch its own-developed COSI  Room to improve economies of scale  Solid demand for aluminium cans, economy segment hotel in 4Q17, with a  Wellness centre and nine centres of mainly from energy drink exporters plan to offer hotel management excellence nationwide would create an while raw material prices are contracts for third-party property owners S-curve for growth secured  QSR business to gradually improve from  We expect it to book the strongest 4Q17 and continue into 2018 core profit growth among Thai  Expect 3-year core profit growth of 12% retailers (+100% YoY) in 2017 CAGR (2016-2019)

Valuations Trading below its own long-term P/E, P/BV TP implies 2017F P/E of 40x, or +1.5SD TP implies 28x 2018F P/E or +0.5SD from its 5- as well as that of its peers from its 5-year historical mean P/E year historical mean P/E Risks  Rising competition  Weak consumption in Thailand and  Weaker-than-expected tourism  Cost-saving programme is hard to the invested countries atmosphere and consumption implement due to the multi-location  Volatility in the price of its raw  Delays in the opening of new hotels and structure of its network materials QSR outlets  Economic conditions  Intense competition in hypermarkets  Rising competition in the food segment  Growing number of medical tourists and consumer products  Pricing pressure for hotel rooms  Delays in the opening of new retail stores

Note: Prices are as at 15 Sep 2017 Source: RHB

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Thailand Thematic Research 2 October 2017

Figure 3: Six stocks to watch (Part II)

Golden Land (GOLD TB) Minor International (MINT TB) The Platinum Group (PLAT TB)

Share price Golden Land Property (GOLD TB) Minor International (MINT TB) The Platinium Group (PLAT TB) performance Price Close Relative to Stock Exchange of Thailand Index (RHS) Price Close Relative to Stock Exchange of Thailand Index (RHS) Price Close Relative to Stock Exchange of Thailand Index (RHS) 8.8 135 44 107 8.5 123 42 102 8.0 118 7.8 123 40 97 7.5 113 6.8 110 38 92 7.0 108 36 87 6.5 103 5.8 98 34 82 6.0 98 4.8 85 32 77 5.5 93 50 45 60 45 40 50 40 35 35 30 40 30 25 25 30 20 20 15 15 20 10 10 10

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Market cap 576 5,206 669 (USDm) Current price* THB8.20 THB39.00 THB7.90

Rating BUY, TP: THB10.50 BUY, TP: THB47.00 BUY, TP: THB10.30

Subsector Real Estate Hospitality Retail Company The company engages in property Minor International is a global company The Platinum Group develops properties for description development. It also owns office buildings, focused on three primary businesses – leasing and operates a hotel business. Existing hotels and a mixed-use commercial project. restaurants, hotels and a distribution major properties that are its assets include The business featuring lifestyle brands. It is the Platinum Fashion Mall in Bangkok, The Wharf owner of Thailand’s leading hotel and food shopping centre in Koh Samui, and Novotel franchises including Anantara and Avani Bangkok Platinum Pratunam hotel. hotels and The Pizza Company

Business Well-diversified property developers under  Well-diversified businesses and  Market leader in shopping malls, strengths TCC group, a property arm of Thailand’s asset locations focusing on modern fashion, due to its wealthiest tycoon, Mr Charoen  Solid earnings growth from strong background in the clothing Sirivadhanabhakdi, with well-known businesses that have both asset- business residential brands covering all segments and heavy and asset-light models  Prime location for properties in rental assets which can later be monetised  Strong expertise in hotel Bangkok’s downtown shopping district via REITs management around the world  Potential development of mixed-use  Highly efficient restaurant business property projects

Investment  Fast-growing residential business with an  Favourable hotel performance in  Another recurring income play – its highlights estimated > 20% revenue growth in 2016- Thailand, Europe and Brazil, with major property is positioned as the 2020 limited downside for its hotels in the biggest wholesale mall for fashion in  Rental assets portfolio worth THB8bn in Maldives Bangkok book value, or THB12bn in fair value, which  Food business is doing well in  Solid operation of its Novotel Platinum can be monetised via REITs China, while its Thailand operation hotel  Expect double-digit earnings growth over may gradually improve in 4Q17F  Opening of The Market Bangkok project the next five years  Sales growth supports from time- in 4Q18 as a key catalyst  Significant upside from potential sharing and luxury residential-for-  Expect earnings to grow 11% YoY in participation in the THB120bn One sale business units 2017, 13% YoY in 2018, and jump 41% Bangkok project of TCC group  Expect robust core profit growth of YoY in 2019. 25% in 2017 and 18% in 2018

Valuations Our RNAV-based TP of THB10.50 TP implies 2017F P/E of 38x. Its core ROE TP implies 2018F P/E of 33x. Its prominent comprises: 2018F book value of THB6.70, may increase to 16% in 2019, from 12% in earnings outlook may bring its P/E down to 18x in THB2.30 for the adjusted fair value of rental 2016. 2019F, from 28x this year. Its ROE may also assets, THB0.70 for the adjusted fair value escalate to 13% in 2019, vs 9% projected for of its investment portfolio, and THB0.80 for 2017. the estimated value of Samyan Mitrtown. At such a TP, the company trades at +0.5SD from its long-term mean P/BV. Risks  Focuses only on landed properties  Extended weak food consumption in  Delays in the opening of new projects  Massive investment to build up its rental Thailand and Singapore  Popularity of online trading channels asset portfolio  Weaker-than-expected hotel room  Weak domestic consumption  Relatively low ROA rate hikes, mainly in Bangkok and  Possible political gatherings located  Small free float the Maldives close to its major properties in downtown  Delays in the opening of new Bangkok properties Note: Prices are as at 15 Sep 2017 Source: RHB

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Thailand Thematic Research 2 October 2017

Retail

Almost Seeing Light At The End Of The Tunnel Gradual recovery in domestic consumption in 2H17

Our outlook for Thailand’s retail sector in 2H17 remains optimistic, as the benefits of improving farming income and private investments may gradually pass through to local consumption in the near term. This is after local spending weakened – mainly in the upcountry – as like-for-like sales growth among the retailers was negative or flat – this led to a decrease in their ticket sizes over the past 3-4 quarters. Agricultural income grew by a sturdy 18% YoY in 1H17, the strongest in five years. This may point to an improved outlook for consumption in the upcountry over the near term. Data from the Office of Agricultural Economics indicates that demand for Thai rice products, from countries like the Philippines and Africa, is increasing. Meanwhile, the demand for palm oil and major Thai fruits is still positive. As such, there may be a possible rise in farmers’ income in 2H17, which may lead to an improvement in consumer confidence in rural areas. Meanwhile, private investments in areas including exports and services (such as tourism) which were key GDP growth drivers for 1H17 (+3.5% YoY, 2H16: +3.1% YoY) may continue in 2H17. Consequently, this may also boost the overall employment rate. These positive factors could be the strong foundation needed to lower Thailand’s household debt-to-GDP ratio for the second consecutive year to 78% (2016: 80%). Note that the household debt-to-GDP ratio declined for the fifth consecutive quarter in 1Q17 (78.6%), since hitting a peak in 4Q15 (81.2%). We expect this downtrend to continue over the remaining quarters and 2018.

Figure 4: Agricultural-related index growth (YoY) vs SSSG Figure 5: Household debt-to-GDP ratio vs retail SSSG

Farm income index Farm price index Farm production index SSSG - RHS Household debt to GDP SSSG - RHS

40% 14% 85% 9.0% 10% 81% 12% 80% 7.7% 80% 79% 30% 80% 78% 8% 10% 76% 20% 8% 75% 6% 6% 72% 10% 3.6% 4% 70% 4% 2% 66% 0% 2.0% 0% 65% 2% -10% -2% 60% -1.1% -1.1% -0.9% 0% -4% -20% -1.9% 3Q16-2Q17: Discontinuation of Big C's -6% 55% -2% unprofitable sales practices distorted SSSG -30% -8%

50% -4%

3Q11 1Q12 3Q14 1Q15 1Q17 3Q12 1Q13 3Q13 1Q14 3Q15 1Q16 3Q16 1Q11 2 11 2 12 2 1 2 1 2 1 2 1 2017F 2018F

Source: Thailand’s Office of Agricultural Economic, Companies data, RHB Source: Bank of Thailand, Companies data, RHB

A better outlook for retailers According to the Association of Thai Retailers, the overall value of the domestic retail sector grew slowly, at 2.8% YoY in 2015 and 3% to THB2.93trn in 2016, in tandem with the increase in the household debt-to-GDP ratio – which led to weak consumption. Nonetheless, the welcome decrease in this ratio may indicate that spending power could improve in the near term. This would benefit the retail sector, for which we expect growth to accelerate to 3.2% YoY this year (2016: 3% YoY) and 3.5% YoY in 2018. The performance of the Thai retailers under our coverage may move in the same direction as the market trend. In the short term, we still expect SSSG to recover in 3Q17 – which is typically the low season due to floods and heavy rains. However, the number is likely to turn positive in 4Q17, following the improved outlook for consumption, the peak season for the retail sector, and a low base in the same period last year. In late October, post the scheduled cremation ceremony of the late King Rama IX, we expect consumer spending to return to normal levels. Retailers may introduce exciting campaigns to boost topline sales, and the Government may impose further stimulus packages for shopping, food, and tourism – which would be a major boon for the sector.

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Thailand Thematic Research 2 October 2017

We expect the sector’s average SSSG to bottom out at -1.9% YoY in 2017, with an improving momentum in 2H17 before turning to a positive 2% in 2018 – the first time in four years. The continuous opening of new stores despite a slower pace of growth may support the total sales growth (9% for 2017F) of Thai retailers under our coverage. This growth may accelerate to 10% in 2018. Players that would benefit first from this trend are retailers of staple goods that focus on the middle- to lower-end segments – Berli Jucker and CP All. In speaking to the listed retailers under our coverage, we found that they recorded slight improvements in sales momentum in August.

Figure 6: Thailand’s retail sales vs GDP growth Figure 7: Listed Thai retailers’ quarterly SSSG

Thailand retail sales (THBtn) Retail sales growth - RHS GDP growth - RHS 4Q12: 4Q15: New Year 3Q16-2Q17: 11.2 11.2 Low base tax rebates for 7 Discontinuation 3.3 14% effect days of Big C's 3.13 9.2 unprofitable 12.0% 3.03 4Q13: 12% sales practices 2.93 High base 3.0 6.0 distorted SSSG 2.85 7.6 8.1 effect 2.77 7.0 6.9 10% 1Q14: Sluggish 2.68 5.6 5.6 3.5 2.7 8.7% consumption 2.51 begins 1.3 1.5 8% 0.3 6.3% -0.4 -0.5 2.4 -2.0 2.21 4Q11: -0.1 6% 1Q12: Pent- -1.0 6.5% Mega- up demand -1.1 -1.2 -4.2 2.1 4.2% flooding -2.0 -2.6 -5.1 3.2% 3.7% after floods 1Q13: 3.2% 4% -6.3 4.3% 4.5% 2.8% High base 3.5% effect 1.8 3.0% 3.2%

0.8% 2.8% 2%

4Q11 1Q12 2Q12 4Q13 1Q14 2Q14 3Q14 4Q15 1Q16 2Q16 3Q16 1Q11 2Q11 3Q11 3Q12 4Q12 1Q13 2Q13 3Q13 4Q14 1Q15 2Q15 3Q15 4Q16 1Q17 2Q17 1.5 0% 2 11 2 12 2 1 2 1 2 1 2 1 2017F 2018F Source: Bank of Thailand, Thai Retailers Association, RHB Source: Companies data, RHB

Figure 8: Total stores of listed Thai retailers Figure 9: Retailers’ annualised total sales growth and SSSG Total sales (THBbn) SSSG - RHS Total sales growth - RHS 800 25.0% 21.5 700 20.0% 17.2 600 15.0% 500 11.3

9.5 13,126 400 9.0 9.0 8.4 10.0% 12,278 7.7 11,430 6.6 10,491 5.2 5.8 9,662 300 8,837 3.6 8,046 5.0% 7,238 2.0 2.3 6,582 200 -1.1 -1.1 -0.9 -1.9 0.0% 100

0 -5.0% 2 11 2 12 2 1 2 1 2 1 2 1 2017F 2018F 2019F 2 11 2 12 2 1 2 1 2 1 2 1 2017F 2018F 2019F Source: Companies data, RHB Source: Companies data, RHB

Changes in merchandise mix to keep SSSG elevated Apart from a gradual improvement in domestic consumption, the retailers themselves have adjusted their merchandise mix to enhance SSSG and maximise profit margins. They attracted customers with new products or new product categories to boost their spending per bill, ie focusing on ready-to-eat food and fresh food, re-branding private label merchandise and improving product quality, and by venturing into becoming exclusive distributors of international brands. This strategy has proven to be successful, and has helped these companies differentiate themselves from other players within their particular sub-segment, like convenience stores, home improvement outlets, etc. It may remain another key support factor that could shore up SSSG over the next couple of years.

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Thailand Thematic Research 2 October 2017

Efficiencies continue to improve profit margins Reducing their operating expenses-to-sales ratios would be another mission for retailers to undertake, in order to improve their profitability and investment returns. We note many of them have applied policies to lower operation costs (mainly utilities, with the replacement of energy-saving systems at existing stores and incorporating these into new stores). In the near term, there could be more implementation of technology to improve the efficiency of sales personnel and inventory control, as well as the re-planning of store layouts to facilitate customers’ traffic flows and meet the competition from online trade. We expect their opex-to-sales ratios to stay flattish over the next few years due to such investments, the continued opening of new stores in Thailand and potentially in overseas destinations, and promotional campaigns – before gradually declining over the longer term.

Figure 10: Strategies to improve SSSG and GPM among the Thai retailers under our coverage Contribution to total Strategies sales

Big C Supercenter Berli Jucker - Fresh food: improve quality and launch more new products c.10% - Home line products: increase private label penetration c.10%

7-Eleven convenience stores RTE food: c.16% - Ready-to-eat food: continue launching new products and enhance distribution

coverage throughout the country Dry food: c.28% - Dry food: joint development of "Only at Seven" exclusive products with suppliers

CP All - Non-food: focus on healthcare and beauty merchandise Healthcare: c.10%

Siam Makro

- Gear towards fresh food products to serve hotels, Fresh food: c.12% restaurants, and catering (HoReCa) customers HoReCa sales: c.10%

Home Product - Re-launch, improve quality and worthiness of private brand products Private brands: c.19% Center - Source for more private-label merchandise for each category

- New store layout combining a leasable shopping mall with a department store in the same area to lift traffic Total private brands and - Focus on value-for-money home & living products under the "Great Value" concept Robinson exclusive - Growing its "Just Buy" and "Just Value" store networks, selling self-sourced Department Store international brands: products at a single, lower price c.11% - Add more exclusive international brands into its own merchandise portfolio

Source: Companies data, RHB

E-commerce would not edge out modern retail players Looking forward to 2018-2019, we believe that Thailand’s modern retailers are still enjoying growth in terms of both SSSG (at mild to moderate rates) and new outlet openings. A gradual increase in online trade would alert them about the importance of adapting to changes, and adopting dynamic, long-term trends. Nonetheless, we do not expect Thai retailers to move into the online space quickly. As a developing country, Thailand’s rural areas have only followed urbanisation trends over the past decade, which resulted in a big expansion of store networks among local retailers. The aggregate number of stores jumped by a 10% CAGR over the past six years (2010-2016) and we expect the number to continue increasing by an average of 8% over the next three years. In our view, visiting retail stores and shopping malls is still one of the most popular leisure activities of Thai people – rather than stay at home due to the year-round hot weather. However, spending patterns may change over time as their main purpose in going to stores or malls may be to dine or for entertainment at shopping centers, or purchasing necessities or staple groceries at retail stores.

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Thailand Thematic Research 2 October 2017

Figure 11: Thailand’s e-commerce landscape with examples of players

Source: Thai e-Commerce Association, RHB

Figure 12: Value of e-commerce in Thailand (includes e- Figure 13: B2C e-commerce value by country (USDbn) auction) (THBbn) B2B B2C B2G Indonesia 3.2 3,000 2.6 3.6 Singapore 3.5 2,500 Vietnam 4.1 413 3.0 4.2 2,000 400 Philippines 2.3 388 729 Malaysia 11.9 510 9.6 2 1 1,500 412 15.7 2 1 Thailand 11.7 1,000 38.9 South Korea 25.4 1,335 1,382 135.5 393 347 1,234 Japan 500 217 340 118.6 191 252 127 68 100 121 182 80 46 85 USA 492.1 66 63 344 359.3 178 237 291 272 291 283 239 0 143 China 672.0 2 2 2 7 2 2 2 1 2 11 2 12 2 1 2 1 2 1 2 1 322.1

Source: * Surveyed by Thailand’s National Statistical Office Source: Thailand’s Electronic Transactions Development Agency (ETDA) ** Surveyed by Thailand’s Electronic Transactions Development Agency (ETDA)

Figure 14: Breakdown of Thailand’s e-commerce value by Figure 15: Breakdown of Thailand’s e-commerce value for industry (excludes e-auction) (THBbn) retailing and wholesaling businesses (excludes e-auction) Automobiles & 1.7 Insurance 2.1 parts Others Furniture 2% 1% Sports, toys & 4% Other services 35.1 19.1 souvenirs 5% Arts, entertainment & leisure 11.3 9.5 Online Fashion department Transportation & logistics 70.3 Electronics, IT, 6% store 64.1 2 1 and telecom 32% 2 1 devices Information & telecommunication 281.9 232.7 8%

343.9 Production & manufacturing 428.7 Food & Hospitality 643.0 beverages Health & 559.7 23% beauty products 731.8 Retailing & wholesaling 536.7 20%

Source: Thailand’s Electronic Transactions Development Agency (ETDA) Source: Thailand’s Electronic Transactions Development Agency (ETDA)

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Thailand Thematic Research 2 October 2017

Staple goods retailers and shopping malls likely to survive Thailand’s online trend We note that Thai retailers are generally applying a strategy to become omni-channel operators. Grocery stores are now focusing on selling fresh food, and developing private labels or exclusive products with value-for-money retail prices to maintain customer loyalty. Over the next 3-5 years, we believe staple retailers would still be able to capture the middle- to low-income segment, both in Bangkok and the upcountry, which may have limitations in accessing new technology. In addition, their strong bargaining power would enable them to sell staple merchandise at attractive prices, even online, and eventually maintain their market shares. Online sales contribute less than 1% of total sales among our covered retailer companies, but we expect this number to increase slowly to 3% in the next five years. One positive for physical retailers is that they may continue to have profitable overall operations even after venturing into online trade. This is in contrast to pure online retailers, which may incur greater losses due to the ongoing fierce competition. Also, the country’s logistics infrastructure still needs to be improved, in order to enhance shipping and delivery efficiency for the online businesses. We are more concerned about the outlook for the discretionary consumer items sub- sector, which mainly involves department stores and the home improvement segment, rather than hypermarkets and convenience store ones. This is due to them selling products that have a high possibility of substitution from competitors, which are companies or individual smallholders who operate their businesses online. Meanwhile, commercial developers are taking steps to enhance their property projects to be able to cater to a whole range of lifestyles, and attract different types of consumers. Thus, online operators may still need to have actual brick-and-mortar outlets as showrooms and pick-up points for merchandise, in order to serve their clients. According to Central Pattana, its biggest proportion of tenants comprise food and beverage (F&B) outlet operators – which account for an average of 35% of its total leasable space. In the meantime, some of its new projects and existing shopping malls are undergoing major renovations, and this may lead to it having up to 40% of its space being taken up by F&B tenants.

Seeking growth from new stores overseas Some new developments in the sector indicate that some Thai retailers intend to expand overseas, mainly in the Cambodia, Laos, Myanmar, Vietnam (CLMV) region – which would help sustain their earnings growth in the long run. However, venturing overseas is rather new for the Thai retailers. This has also led them to carefully study overseas markets for business potential, as new target markets may have a solid growth outlook for consumption, but there would still be uncertainties that involve regulations, consumer behaviour and the ability to enlarge business operations scalable enough to cover office expenses there. We conservatively believe the Thai retailers may take at least three years to build up and strengthen their overseas retail segments. Among the Thai retailers under our coverage, we believe Berli Jucker has the most outstanding presence abroad. Over the past decade, the company has strengthened its upstream and mid-stream foundation for retail in CLMV countries, particularly in Vietnam.

Mixed-use properties as alternatives for enhancing returns For commercial properties, asset enhancement and contract renewals remain the key strategies for growth of existing properties while efficient cost management, such as energy cost-savings and cost-saving campaigns, would lift profit margins. However, due to a significant increase in land prices over the past decade – particularly in Bangkok and the major cities – there was some diversification of development projects into mixed-use properties, which helped to maximise the utilisation of the land and enhance investment returns. So far, leading real estate developers have plans to launch mixed-use projects in downtown Bangkok and major cities – mostly consisting of retail shopping centres, hotels, condominiums and office buildings.

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Thailand Thematic Research 2 October 2017

For-sale projects such as condominiums would help strengthen developers’ cash flow once the ownership is transferred to customers – despite offering lower profit margins compared to recurring leasable spaces. Hotel projects on top of shopping centres may also catch the ongoing strong flow of international tourists to Thailand and draw more customer traffic to the retail malls.

Figure 16: Presence of listed major Thai retailers abroad

Company Major existing overseas investments Contribution Future investment projects abroad Contribution to total to total sales sales Vietnam - Aluminum can prodction (TBC-Ball) - Glass production (Malaya-Vietnam Glass) Vietnam - B's Mart convenience stores - Expected purchase of MM Mega Market cash-and-carry - Product distribution, trading, and logistics stores from parent company TCC Group Berli (Thai Corp and Thai An)

Jucker - Tofu production (Ichiban Foods) c.8% Laos n.a.

- Possible opening of Big C Supercenter and Mini Big C Malaysia

- Glass production (Malaya Glass) Cambodia - Snacks production (BJC Foods Malaysia) - Potential opening of Big C Supercenter

Laos - M-Point Mart convenience store franchising

Business units under Siam Makro Business units under Siam Makro - Food services provider to food professionals - Makro cash-and-carry stores in Cambodia CP All c.2% n.a. in Hong Kong, Singapore, United Arab - Possible food retailing in China Emirates and Vietnam - Possible cash-and-carry stores in India

Central - Central i-City in Selangor, Malaysia Pattana None n.a. - Plans to open shopping centres in Indonesia and c.2% Vietnam are under study

Malaysia - To open more 1-2 stores in 2H17 with a long term target Home Malaysia to have 40 stores Product - Four HomePro stores in Putrajaya, Selangor, c.3% n.a.

Center Melaka, and Ipoh Cambodia - Possible opening of HomePro stores Vietnam - Own-operated Robins Department Store in Hanoi Robinson - Robins Department Store franchise in Ho Chi c.3% n.a. n.a. Minh City - Investment in Vietnamese electronics retailer Nguyen Kim Trading via an associate company, Power Buy

Source: Companies data, RHB

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Thailand Thematic Research 2 October 2017

Figure 17: Some new mixed-use development projects in Bangkok and major cities Approx. land size Land tenure Completion Developer Project Type (rais / sqm) Central Pattana (CPN TB) Central Plaza Nakhon Ratchasima Shopping center, hotel, condominium 65 / 104,000 Freehold 2017 (partial) Dusit Thani (DTC TB), Mixed-used project on existing Retail mall, hotel, condominium, 23.5 / 37,600 Leasehold c.2021-2024 Central Pattana (CPN TB) Dusit Thani Bangkok Hotel office building Golden Land Property Samyan Mitrtown, Bangkok Retail mall, condominium, office building 14 / 22,375 Leasehold 2019 Development (GOLD TB) LH Mall & Hotel Terminal 21 Pattaya Shopping center, hotel 33 / 52,800 Leasehold 2018 Magnolia Quality Development Corporation, Siam Piwat, Icon Siam, Bangkok Shopping center, condominium 50 / 80,000 Freehold 2018 Charoen Pokphand Group

Minor International (MINT TB) Mixed-use project on Silom Road Retail mall, office building 6 / 10,190 Leasehold 2024 The Platinum Group (PLAT TB) The Market Bangkok Shopping center, hotel, office building 20 / 32,300 Leasehold 2018 (partial) Raimon Land (RML TB) Mixed-use project on Ploenchit Road Retail mall, office building 6 / 9,600 Leasehold 2022 Singha Estate (S TB) Singha Complex, Bangkok Retail mall, office building 9 / 14,490 Freehold 2018 T.C.C. Group One Bangkok, Wireless Road Retail mall, hotel, office building 104 / 166,400 Leasehold 2021 (partial) The Mall Group, City Realty, Shopping center, condominium, hotel, Bangkok Mall, Bang Na 100 / 160,000 Freehold 2020 Property Perfect (PF TB) office building

Source: Companies data, Various media, RHB

Recommendation and valuations We maintain our OVERWEIGHT rating on Thailand’s retail sector, as we expect a better outlook for operations in 2H17 and 2018, based on an improving SSSG momentum for retailers, the addition of new stores and shopping malls and profit margin hikes. We expect the six companies under our coverage, including The Platinum Group (which we just initiated coverage on) to book an aggregated 3-year core profit CAGR of 18% for 2016-2019. It recorded strong earnings growth of 17% YoY in 1H17. The sector’s valuations are still undemanding as it trades at its -year historical mean P/E of 28x while the industry sentiment and earnings outlook would likely improve in 2H17 and 2018. Our current Top Picks are Berli Jucker and CP All, based on their improving outlook for operations, and having the strongest earnings growth potential amongst local peers.

Figure 18: Thailand retail sector valuations % Upside P/E (x) P/B (x) Yield (%) Company Name Rating Price Target (Downside) Dec-17F Dec-17F Dec-17F Berli Jucker BUY THB50.75 THB59.50 17.2 34.5 1.9 1.4 Central Pattana BUY THB73.00 THB71.75 (1.7) 31.7 5.6 1.3 CP ALL BUY THB64.25 THB72.00 12.1 29.3 10.2 1.8 Robinson Department Store BUY THB63.75 THB67.00 5.1 25.0 4.3 2.0 The Platinum Group BUY THB7.90 THB10.30 30.4 28.4 2.5 2.2 Home Product Center NEUTRAL THB11.00 THB10.20 (7.3) 31.3 8.0 3.0 Prices are as at 15 Sep 2017 Source: Company data, RHB Figure 19: SET commerce sector’s P/E and SD levels (x) SET COMMERCE SECTOR 40

35 SD: 33.2x

1 SD: 30.6x 30 Mean: 27.9x

25 -1 SD: 25.3x

- SD: 22.6x 20

15

Jul-15 Jul-12 Jul-13 Jul-14 Jul-16 Jul-17

Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Source: RHB

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Hospitality

On White Sandy Beaches With Blue Skies

Stronger rebound in Chinese and Russian visitor numbers We expect the outlook for Thailand’s tourism sector to be more upbeat in 2H17, compared to 1H. Apart from the return of Russian tourists, we also believe the number of tourist arrivals from China may surge from the low base of 2H16, when the crackdown on zero- dollar tours impacted overall tourism income. Thailand remains the most popular overseas holiday destination for Chinese travellers. The country may also benefit from the Chinese Central Government’s recent ban on travelling to South Korea. We expect visitors from China to hit 9.5m (+10% YoY) this year, contributing to 27% of total arrivals as the number of chartered flights from China may improve in 4Q17. Growing interest in Thai culture, significantly lower living costs than China, and value-for- money accommodations attract the Chinese to Thailand. In the longer term, we expect China tourist arrivals to increase by up to 1m a year – which would lift its contribution to total visitor numbers by 1% annually.

Figure 20: Tourist arrivals and foreign tourist income trends Figure 21: Monthly international tourist arrivals Tourist arrivals (m) Foreign tourist income (THBbn) - RHS ('000 visitors) New high in Oct 2016: China zero- Jan 2017 40 37.0 2,500 3,500 dollar tour raids and 35.0 national mourning period 35 32.6 29.9 2,000 3,000 30 26.7 2 1 24.8 2,500 2 11 25 22.4 1,500 2 12 19.2 20 2,000 2 1 15.9 13.814.514.614.1 1,000 2 1 15 11.711.5 10.110.810.0 1,500 PDRC rally: Nov 2 1 10 2013 - May 2014 2 1 500 1,000 5 Coup d'etat & curfew 2 17 : May-Jun 2014 Mega flood: Oct 2011 0 0 500 Red shirt rally: Apr 2010

2 11 2 0

2 2 2 1 2 2 1 2 2 2 2 2 2 7 2 2 1 2 12 2 1 2 1 2 1 2 2018F 2017F Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: Thailand’s Tourism and Sports Ministry, RHB Source: Thailand’s Tourism and Sports Ministry, RHB

Figure 22: Monthly growth of Chinese and Russian tourist Figure 23: Breakdown of tourist numbers by country of arrivals (% YoY) origin (%) China Russia 200%

33 33 39 36 37 Others 150% 43 41 Political unrest in Singapore BKK + military coup USA 100% 3 3 4 3 3 3 UK 4 3 3 3 3 4 3 3 4 4 3 3 4 Russia 4 4 4 4 50% 4 7 6 4 5 6 4 India 5 4 4 5 4 4 5 5 4 4 5 4 Laos 5 4 5 0% 5 5 4 5 6 5 11 11 South Korea 5 5 6 6 Japan -50% Chinese zero-dollar tour raids 6 11 11 11 Malaysia 13 Russian financial crisis 13 27 27 China -100% 17 19 12

7 9

Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

Oct-13 Oct-14 Oct-15 Oct-16

Apr-13 Apr-14 Apr-15 Apr-16 Apr-17

Jan-13 Jan-15 Jan-16 Jan-17 Jan-14 2 1 2 11 2 12 2 1 2 1 2 1 2 1 Source: Thailand’s Tourism and Sports Ministry, RHB Source: Thailand’s Tourism and Sports Ministry, RHB

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The Russian economy is recovering. As such, Russian tourists have been returning to Thailand since mid-2016, and the trend may strongly continue over this year and the next. We expect Russian tourist numbers to improve to 1.4m (+28% YoY) and contribute 4% of the total foreign visitors this year. The number may also return to almost 2m, or 6% of total visitors, by 2019 – as was the case in 2013, vs the bottom of 3% in 2015. Foreign visitor numbers for 1H17 accounted for 49% of our conservative full-year estimate of 35m (+7% YoY). Income from international tourists for 1H also made up 47% of our 2017 forecast of THB1,850bn (+13%). Hence, for 2H17, we estimate international tourist and revenue growth to accelerate to 11% YoY and 19% YoY respectively, driven by a 16% YoY spike in Chinese tourist arrivals.

Government measures continue boosting local tourist numbers Domestic tourists also play an important role in buoying the industry. Local tourists contribute as much as % of the country’s overall tourism revenue. Domestic tourist numbers saw a 5-year CAGR of 6% (2011-2016) in terms of visitor trips, and 12% in terms of revenue over the same period. We expect local tourist numbers to continue growing at a resilient pace of 9% pa in terms of revenue. This could boost tourism revenue to hit THB1trn by 2018, while the number of Thai tourists may steadily grow by 6% YoY to 154m trips this year and by another 5% YoY to 162m trips in 2018. Key support factors that have kept domestic travel strong include: i. The Government’s campaigns to promote new holiday destinations throughout Thailand, particularly in the north and north-east; ii. The tax deduction for domestic travel expenses, ie tour packages and hotel rooms; iii. Bi-annual travel fairs held by the private sector, such as Thai Teaw Thai (ie Thailand Travel Fair). These events offer tour packages and hotel rooms throughout Thailand at attractive discounted prices – these have garnered an enthusiastic response from Thai travellers, and such fairs are always crowded with people throughout the day.

Figure 24: Domestic tourist numbers and income Figure 25: Guest profile breakdown Domestic tourists (m trips) Domestic tourist income (THBbn) - RHS Asia Europe Middle East Oceania Thailand The Americas Others

180.0 1200.0 3 12 1,036 13 10 160.0 950 1000.0 5 870 9 3 15 10 803 4 3 140.0 800.0 701 7 661 589 32 17 120.0 600.0 38 483 162 403 154 145 100.0 139 400.0 132 134 118 109 45 101 38 80.0 200.0 30

60.0 0.0 2 1 2 11 2 12 2 1 2 1 2 1 2 1 2017F 2018F Central Plaza Hotel Minor International The Erawan Group Source: Thailand’s Tourism and Sports Ministry, RHB Source: Company data, RHB

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Figure 26: Thailand Travel Fair in Bangkok is always packed Figure 27: Both leading chain and mid-to-small hotels with the locals seeking hotel rooms at special discounted booths at Thailand Travel Fair are crowded rates

Source: RHB Source: RHB

Since 2014, the Government has introduced initiatives to encourage domestic travel every year – these mainly feature tax deductions for travel expenses up to THB15,000. It allows personal income taxpayers to use official tax receipts from domestic tour packages and hotel rooms in Thailand for a tax break. This year, the Government has introduced a new scheme on tax deduction – we expect this to come into effect in Sep-Dec 2017. i. Thai nationals who visit eight major cities – eg Bangkok, Chiang Mai, Krabi, Pattaya and Phuket – would be able to spend up to THB10,000 on travel-related expenses to qualify for a tax break. This may include tour packages, registered hotel accommodations, air tickets, food and beverages and souvenirs; ii. Thai nationals who travel to 24 second-tier cities – eg Lampang, Phrae, Nan, Phetchabun, Phitsanulok and Ratchaburi – would be able to spend up to THB15,000 for the tax break; iii. Thai nationals who travel to the recent flood-damaged areas in the north-east provinces – Sakon Nakhon, Nakhon Phanom, and Bueng Kan – would be able to spend up to THB20,000 for the tax break. This initiative may indicate that an eligible personal income taxpayer can spend up to a maximum of THB45,000 on travel expenses in order to qualify for the tax deduction. We expect this campaign to boost local tourism moving forward – compared to the past 12 months when the country underwent the mourning period for the late King Bhumibol Adulyadej, who passed away in Oct 2016. These measures would also help Thailand hit its domestic tourism revenue target. For Thai hotel operators under our coverage, locals account for c.5-15% of their guests (according to rooms booked). We expect the expanding domestic tourism market and the tourism promotion campaigns to strongly benefit The Erawan Group (Erawan), as it operates Hop Inn budget hotels in 22 provinces throughout the kingdom – including second-tier cities. The hotel chain may contribute 7% of the company’s topline this year, before accelerating to a double-digit contribution by 2019. Other players like Central Plaza Hotel (Centel) and Minor International (Minor) may also benefit from these – although this would only be for their hotels that are located in leading resort destinations.

2017-2018: higher room rates? In talking to Thai hotel operators, we believe the ongoing strong flow of foreign visitors and a normal situation for the country would enable the hotels to be busy throughout the remainder of 2017 and in 2018. Also, it is much more likely that Thai tourism would return to a more buoyant environment after the Royal Cremation of King Bhumibol Adulyadej in late October.

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We expect the average occupancy rate to stay above 70% for luxury properties and over 80% for the mid-scale and economy segment. This would allow them to raise the average room rate by more than 3-5% and result in positive organic revenue per available room (RevPar) growth, compared to the past few years when hotels were affected by negative incidents and political uncertainties. A higher room rate growth implies a bigger increase in GPM that the company would be able to book.

Figure 28: Key assumptions for the performance of hotels belonging to Thai companies under our coverage 2011 2012 2013 2014 2015 2016 2017F 2018F Number of owned-hotel rooms Central Plaza Hotel 3,389 3,561 3,814 3,814 3,814 3,814 3,965 4,190 Minor International 2,335 2,412 2,676 2,753 3,629 7,118 7,118 7,143 The Erawan Group 3,353 3,512 3,885 5,289 5,676 6,385 7,161 7,874 Occupancy rate (%) Central Plaza Hotel 64% 70% 80% 75% 81% 82% 81% 80% Minor International 58% 66% 68% 59% 67% 64% 72% 74% The Erawan Group 69% 75% 79% 61% 72% 77% 78% 78% Average room rate growth (%) Central Plaza Hotel 7% 2% 17% 11% -1% 1% 3% 3% Minor International 12% 14% 6% 10% -6% -12% 6% 4% The Erawan Group 3% 4% 1% 1% -10% -10% -3% -2% RevPar growth (%) Central Plaza Hotel 18% 12% 33% 4% 7% 3% 2% 2% Minor International 15% 29% 10% -5% 5% -16% 20% 7% The Erawan Group 23% 13% 7% -17% -1% -4% -2% -2% Source: Company data, RHB

Erawan would benefit the most, as it is a pure hotel operator and nearly 100% of its properties are in Thailand. Centel and Minor may be undermined by the weak performance of their quick-service restaurant (QSR) businesses in Thailand in 2Q17. However, we expect domestic consumption to gradually improve in 3Q17-4Q17 – which would strengthen their earnings for 2H17. Of the companies under our coverage, we expect Minor to record the strongest 2017 core profit growth (25% YoY), followed by Erawan (21% YoY) and Centel (14% YoY).

Figure 29: Core profit and growth for Thailand’s hospitality sector 2010 2011 2012 2013 2014 2015 2016 2017F 2018F Central Plaza Hotel -56 550 1,021 1,346 1,085 1,664 1,850 2,105 2,365 % growth n.a. n.a. 86 32 -19 53 11 14 12 Minor International 1,236 1,623 3,078 3,720 4,181 4,704 4,620 5,777 6,839 % growth -12 31 90 21 12 13 -2 25 18 The Erawan Group -279 -176 30 65 -173 188 363 440 507 % growth n.a. n.a. n.a. 115 n.a. n.a. 93 21 15 Total 902 1,997 4,129 5,132 5,093 6,556 6,833 8,322 9,711 % growth n.a. 121 107 24 -1 29 4 22 17 Source: Companies data, RHB

Millennials are making more frequent trips Thailand is always a top Asian destination to visit. It is ranked by most of the polls for being one of the world’s most value-for-money destinations for food and beverages, accommodations, land transport, etc. These support factors may attract the demand of millennials aged 18-36 years, who are saving for a desired lifestyle. Millennials have more short-term goals, with travel as one of their biggest priorities in spending. They are adventurous and seek new cultural discoveries in order to broaden their experience. Millennials are also less sensitive to economic uncertainties, political unrest and epidemics – compared to travellers in older age groups. This trend may sustain the growth of Thailand’s tourism sector over the longer term.

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Thailand Thematic Research 2 October 2017

Based on qSample surveys, millennials are investing time and money in travel. The majority of them (61%) travel 5-7 times a year vs 1-2 times a year for Gen X-ers and Baby Boomers. Most of them also prefer to take trips that span more than five days and up to 10 days, while the other generations take vacations that last less than seven days, on average. The United Nations World Tourism Organisation (UNWTO) has estimated global youth travel expenditure to grow by 5.7% pa by 2020.

Long-term development plan for Thai aviation to facilitate tourism growth Air travel is the chief method of transportation for international visitors coming into Thailand. It has also enhanced mobility within the country. Due to the country’s attractive geographical location in South-East Asia and its tourism infrastructure, the Government is taking major steps to turn Thailand into an aviation hub. Airports of Thailand’s (AOT) -year development plan aims to enhance total maximum capacity by one-third, and it expects to serve an additional 60.5m passengers a year by 2021, from 186m passengers a year currently. The enhancement of major city airports, ie in Phuket, Hat Yai, and Chiang Mai, may support and boost domestic travel. Improved facilities would also better facilitate more direct international flights to those destinations. Apart from that, long-term projects including the commercialised Suvarnabhumi Airport City would add value to the industry. Meanwhile, the Government’s attempt to push the long-term development of U-Tapao Airport next to Pattaya City as Thailand’s third aviation hub to welcome up to a maximum of 60m passengers would create upside to sustain the growth of foreign visitors. The U-Tapao Airport project can be a good infrastructure support for promoting Thailand’s Eastern Economic Corridor (EEC).

Figure 30: AOT’s airport capacity vs utilisation rate

Aircraft (flights/hour) Passengers (m/year) Airport Actual utilisation Actual utilisation Capacity Capacity FY15 FY16 FY15 FY16 Suvarnabhumi Airport 68 62 63 45 52.38 55.47 Don Mueang International Airport 40 49 54 30 28.59 34.69 Phuket International Airport 20 21 22 12.5 12.54 14.72 Chiang Mai International Airport 24 20 20 8 8.07 9.21 Hat Yai International Airport 18 13 11 2.5 3.57 3.87 Mae Fah Luang-Chiang Rai International Airport 16 8 9 3 1.64 1.96

Note: The actual utilisation number is the first highest hour of annual passenger flow Note 2: The designed capacity of each airport is the 30th highest hour of annual passenger flow Source: Airports of Thailand

Figure 31: Airport development projects

Investment Completion Additional capacity Description costs (THBbn) year (m passengers) Suvarnabhumi Phase 2 62.5 2019 15

Suvarnabhumi Terminal 2 34.7 2021 30

Third runway 20.3 2020 -

Don Mueang International Terminal 3 26.0 2021 10

Chiang Mai International New international terminal 12.8 2030 12

Phuket International Terminal 3 6.3 2021 5.5

Source: Airports of Thailand, RHB

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Figure 32: Thailand’s Eastern Economic Corridor project Figure 33: U-Tapao Airport development project

Source: Thailand’s Ministry of Industry Source: Thailand’s Ministry of Industry

Improving role of the budget hotel segment We believe the trend of opening new hotels in Thailand may gear towards the lower-end segments, particularly for budget hotels. Led by Erawan’s Hop Inn budget hotel chain, other listed firms are following suit. Centel Hotel is launching its owned COSI budget hotel brand, while Dusit Thani is planning to launch stylish budget hotels in major tourist destinations. There is room for expansion, as current players in this segment are mostly local hotel owners scattered across different locations, while those with standardised budget hotel chains are very few in number. The demand is likely increasing. This is supported by the trend of millennial-generation tourists growth – which is ramping up hand in hand with the growth of budget carriers, as well as domestic leisure and business travellers who are looking for value-for-money accommodations for their trips. Erawan’s current statistics show that its Hop Inn chain has an average occupancy rate of 83%, which is proof of its budget-friendly hotels’ success. Earnings contributions from the lower-end hotel segment may be small currently, but could be significant enough to drive earnings growth over the longer term. It also offers high profit margins and can achieve a break-even point for room occupancy rates as low as 40- 45%. This is because such properties also offer fewer services compared to luxury hotels, ie this implies that they serve less food and beverages, have fewer facilities and a smaller number of in-house staff.

Figure 34: Leading budget hotel players in Thailand (as of 1Q17)

Number of hotels 23 29 5 3 Rooms 1,807 1,833 815 341 Average room rate (THB) 650 900 1,070 1,150 Locations 23 provinces 11 provinces 4 Provinces Bangkok, Chiangmai Expansion plan 10 hotels in 2017 8 hotels in 2016-2017 N/A N/A Source: Companies, RHB

New luxury hotels are in a super high-end sub-segment New supply of luxurious rooms is in the pipeline. These include Park Hyatt Bangkok (222 keys) which is scheduled to be opened in mid-2017 and Waldorf Astoria Bangkok (170 keys) in 2018. Both are top-notch boutique hotels which are classified in a higher sub- segment, and they may have room rates that are 20-30% higher than existing normal 5- star hotels.

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Going forward, the skyrocketing land prices in Bangkok’s metro areas may narrow the RoI and make the pure investments in luxury hotels (which require high capex) unfeasible. We therefore expect Bangkok’s luxury hotels under the portfolios of our covered Thai hotel companies to continue growing, in tandem with the robust outlook for Thailand’s tourism industry. This is due to the expected limited impact of such a small number of new hotel rooms entering the market.

Airbnb is not a big threat to Thai hotels On whether the popularity of the room distributor website airbnb.com may affect the demand for hotel rooms, the management teams of our covered Thai hospitality stocks were not so concerned, as they said that the prices of hotel rooms in Thailand are still affordable. As such, Airbnb would be a better option for those travelling to other major cities in countries like Japan, France, UK and US – where hotel room rates are significantly higher. We think the certification of Airbnb’s independent room hosts could remain an issue currently. However, those companies – as property owners – may be able to market their hotel rooms via the website if competition escalates in the longer term.

Recommendations and valuations We maintain our OVERWEIGHT rating on Thailand’s hospitality sector, based on its bright outlook for both the demand and supply sides. In the short term, we expect travel sentiment to improve after the Royal Cremation of the late King Bhumibol Adulyadej in late October. AoT’s and Erawan’s share prices have rallied over the past few months. Hence, our current Top Picks are Minor and Centel, based on their improving outlook for operations in both hotel and restaurant businesses. Minor has a strong hotel presence overseas and its food outlets in underperforming hubs are likely on a recovery step. Centel is also a laggard play in terms of valuations (26x FY17F P/E vs 30x P/E local hotel peer average). We expect both of them to deliver a better performance throughout 2H17.

Figure 35: Thailand’s hospitality sector valuations % Upside P/E (x) P/B (x) Yield (%) Company Name Rating Price Target (Downside) Dec-17F Dec-17F Dec-17F Central Plaza Hotel BUY THB42.50 THB49.50 16.5 27.3 5.0 1.5 Minor International BUY THB39.00 THB47.00 20.5 29.8 3.9 1.1 The Eraw an Group BUY THB5.95 THB5.90 (0.8) 33.8 2.7 1.0 Airports of Thailand TAKE PROFIT THB57.75 THB51.50 (10.8) 38.1 6.1 1.3 Note: Data is as at 15 Sep 2017 Source: Company data, RHB

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Healthcare Long-Term Potential Is Robust Tough near-term outlook Medical tourism slowdown would hurt premium hospitals. Weak oil prices, political tensions and an economic slowdown have put downward pressure on medical tourist numbers, especially from Middle East countries. This is on top of the United Arab Emirates’ (UAE) strict policy on benefits under the Thiqa programme, in which it encouraged UAE citizens to check medical expenses incurred abroad and stay within its borders instead to receive medical care. Medical tourists from Europe, meanwhile, are still feeling the brunt of a slow economic recovery, with the issues presented by Brexit. Premium hospitals like Bumrungrad Hospital and Bangkok Dusit Medical (BDMS), over the past few years, have shifted their focus to patients from China and the CLMV countries. They have set up clinics, hospitals and referral centres in this region in order to broaden their customer base. We note that the number of patients from CLMV has increased, but also believe that it would take time for the momentum of growth to pick up.

Figure 36: Foreign patient numbers have been growing at a slower pace

'000 3,500 2011-17F CAGR 7-8% 3,000 2,500 2001-10 2,000 CAGR 15% 1,500 1,000 500 - 2001 2003 2005 2007 2009 2011 2013 2015 2017F

Source: Ministry of Commerce, Industry experts

More alternatives have led to fierce competition in Bangkok Since 2012, five new hospitals (Chularat Hospital, Ekachai Hospital, Ladprao Hospital, Rajthanee Hospital and Ratchaphruek Hospital – have been listed on the Stock Exchange of Thailand. This takes the total of listed hospital companies in Thailand to 19. The healthcare sector’s market capitalisation has also tripled over the past five years. Small- to medium-sized private hospitals have come up fast, and gradually upgraded their image, quality of services and facilities. In addition, leading public hospitals such as Siriraj Hospital, Chulalongkorn Hospital, Ramathibodi Hospital and Chulabhorn Hospital have expanded their special clinics and new campuses to tap into the mid- to high-income patient segments. The country’s hospitals and medical centres that are Joint Commission International (JCI)- accredited have increased to 58 currently, from just 22 in 2012. This is the highest growth in the number of hospitals in ASEAN. Premium, high-end hospitals are facing challenges, given the fierce competition and large pricing gap.

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Thailand Thematic Research 2 October 2017

Figure 37: Prices (THB) for medical services for both inpatients and outpatients

Source: Companies data, TH1&TH2: Thonburi hospital 1&2, RAM: Ramkhamhaeng hospital

Investment cycle According to the spending plans of leading hospitals, their combined investments should reach c.THB62bn over the next five years. In additional, public hospitals like Ramathibodi Hospital and Chulabhorn Hospital have investment plans worth almost THB10bn each to develop their own 400-room new campuses.

Figure 38: Investment plans over the next five years

Mkt. cap (USDm) Investment plan THBbn BDMS (BDMS TB) 8,410  Two new hospitals in Surat and Chiengrai 3.5  Upgrade existing hospitals into nine centres of excellence, and expansion of its Soonvijai campus 3.5

 Phoenix project 4.5

 Wellness Park Nai Lert (acquisition) 11

 Wellness Park Nai Lert (renovation) 2  Expansion of existing facilities and new Bumrungrad (BH TB) 3,570 campus on Petchburi road 14.4 Thonburi Healthcare Group To be listed soon  Expansion of existing facilities 1.5  Development of Jin Wellbeing county 3.3

 Development of Thonburi Rehab centre 3

RSU International Hospital non-listed  New hospital on Petchburi Road 6 Vimuddhi Hospital by Pruksa Holding (PSH TB) 970  New hospital in Sapankwai area 5 Bangkok Chain Hospital 960  Four new hospitals in other provinces 3.3 Chularat Hospital 750  Four new projects 1.5 Source: Company data, RHB

Better social security scheme helps mid to small hospitals Thailand has three main public health insurance schemes that cover almost 99% of the population. The Civil Servant Medical Benefit Scheme (CSMBS) is a free medical fee programme for government employees and their family (parents, spouse and three children younger than 21 years old), which represent 8% of the population. The source of funds is the government budget. Formal private employees (15% of the population) fall under the Social Security Scheme (SSS). Funds for this programme are contributed by employees and employers at the rate of 1. % of the employee’s salary (maximum of THB15,000 a month), while the Government also makes some contribution to this fund. Any expenses above the maximum rate would be paid by the patient. The Universal Coverage Scheme (UCS), which features a charge of THB30 per visit, covers around 75% of population that is mainly unemployed or informal sector workers that do not qualify for CSMBS and SSS. The source of funds for the UCS is the government budget.

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In mid-2017, the SSO made a major announcement that it will increase payment rates for hospitals under its scheme. This is the first increase since the SSS was introduced in 2012. The new payment rates took effect on 1 Jul. Any incremental fees received from the SSO will go directly to hospitals under the SSS: i. Fixed payments per person would increase by 2.7% to THB1,500 per year from THB1,460; ii. For chronic cases (relative weight: <2%), the average rate per person would increase by 3.5% to THB447 per year from THB432 previously; iii. For high-intensity cases (relative weight: >2), the average rate would increase to THB640 a person pa, from THB560 previously. The scheme is detailed in Figure 39.

Figure 39: Revenue of hospitals with patients under SSS

Source: Chularat Hospital

Figure 40: Hospitals under each health scheme

Hospital Public hospital Private hospital 1400 1200 1000 800 600 400 200 0 UCS (75% of SSS (15% of CSMBS (9% of population) population population)

Source: SSO

Healthcare facilities in Thailand As of 2015, there are around 17,000 healthcare facilities in Thailand. The majority of these comprise public primary care centres, while private hospitals account for 2%. There are around 330 private hospitals (44,000 beds), of which 10% are large-scale (more than 200 beds), 73% are medium-sized (31-200 beds) and 18% are small-sized (1-30 beds). Private healthcare facilities in Bangkok account for 30% of hospitals and 40% of hospital beds in Thailand.

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The distribution of health workers across the nation is severely unequal. While Bangkok has enough doctors and nurses, other regions have a severe shortage of physicians – particularly in the north-eastern part of Thailand. According to the Ministry of Public Health, Thailand can produce , doctors per year. At this rate, the country’s doctor-to- population ratio per year should reach 1:1,500 by 2020, compared to 1: 2,400 in 2011- 2012. Nevertheless, people in CLMV countries are facing a more critical stage in terms of healthcare facilities and physicians. This should benefit Thailand, Malaysia and Singapore, which are equipped with higher standards of healthcare facilities.

Figure 41: Healthcare facilities in Thailand Figure 42: Private hospitals in Thailand Public Private Hospital hospitals hospitals 350 6% 2% 300 250

General 200 clinics 150 28% Public 100 primary care 50 64% 0 2011 2012 2013 Bangkok Provinces

Source: United Nations data (2014 ) Source: OECD Figure 43: Physician-to-population ratios

WHO standard Thailand Bangkok Central North-East North South

Doctor 1: 1,000 1: 2,399 1: 886 1: 2,220 1: 3,763 1: 2,821 1: 2,792 Nurse 1: 500 1: 492 1: 240 1: 497 1: 646 1: 543 1: 466 Source: Ministry of Public Health data (2011-2012)

Figure 44: Comparison of skilled health workers in ASEAN

90

80 13.6 19.2 Doctors 70 Nurses 60

50

40 12 70.2 30 63.9 3.9 20 2.9 32.8 12.2 10 20.8 20.4 5 2.7 2.3 10.1 8.6 9.7 8.8 0 Brunei Singapore Malaysia Thailand Indonesia Vietnam Myanmar Lao PDR Cambodia

Source: World Health Organization

Thailand is well-positioned to be the medical hub of Asia Thailand is well-positioned to be the medical hub of Asia, given its: i. Premium medical services; ii. Qualified healthcare specialists; iii. Many international accredited medical facilities.

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The Government has set a goal for Thailand to become a hub for wellness and medical services in four major areas – wellness, medical services, academia and products – within a 10-year timeframe, ie 2016-2025. Thailand has given the healthcare industry top priority, as seen in the Government’s expenditure on healthcare. The Government spends 14% of its total budget on the healthcare industry, which accounts for slightly more than % of Thailand’s GDP – which puts it on par with Malaysia, higher than Indonesia but lower than Singapore.

Figure 45: Thailand aims to become a hub for wellness and Figure 46: Thailand’s healthcare expenditure as a medical services in four areas percentage of GDP

Source: Board of Investment Source: World Bank data (as of 2015)

Thailand is top-ranked in the world for medical tourism Several million international patients (11% CAGR from 2008-2019F) travel to Thailand for medical treatment. Thus, Thailand is ranked number one in the world for medical tourism. The main reasons that have enabled Thailand to dominate this growing market are: i. Affordable medical treatments; ii. The high quality of treatments provided by private medical centres; iii. The highly-developed tourism industry; iv. Thai hospitality, which is unique. There are over 1,000 hospitals in Thailand, of which over 470 are private facilities. The country takes pride in having the largest private hospital in Asia, as well as the first Asian hospital to receive ISO 9001 certification and JCI accreditation. The country has about 58 JCI-accredited hospitals/medical centres in Bangkok, Pattaya, Phuket and Chiang Mai and other provinces. This is much higher than its neighbours – there are only 21 in Singapore and 14 in Malaysia. Leading the list of private hospitals are Bumrungrad Hospital, BDMS and Samitivej Hospital. These hospitals are widely becoming renowned across the world. About 30-50% of their patients are foreigners, due to the fact that Thai medical services are much cheaper than that of their home countries.

Figure 47: Top medical and other health-related services

Top Five Medical Treatments Top five health and wellness related services -Musculoskeletal and spine degenerated condition -Medical health check-up packages -Joints replacement -Plastic surgery and skin laser -Heart and related vascular diseases -Wellness package (Traditional, Alternative, etc.) -Cancer -Anti-aging, Rejuvenation -Brain and spinal cord related diseases -Body shape-up

Source: Phayathai, Industry expert

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Figure 48: The number of medical tourists is growing

Source: Economic Intelligence Center, SCB and Ministry of Commerce

Sturdy healthcare expenditure growth Healthcare expenditure is forecasted to grow at an average rate of around 6% pa, higher than the average GDP growth of 2-3% pa. Healthcare also contributes around 4% of Thailand’s GDP – which is still low, compared to other major Asian countries like China or South Korea, or developed western countries like the UK, Germany and the US.

Figure 49: Healthcare expenditure in Thailand Figure 50: Healthcare expenditure in some ASEAN countries

Source: World Health Organization, Economic Intelligence Center, SCB, BMI, Source: Ipsos Business Consulting BDMS

Personal health insurance premiums are on an uptrend The proportion of the population with health insurance has grown to 5.3% in 2013, from 2.3% in 2006. Meanwhile, personal health insurance premiums have been growing at an average of 13% pa (CAGR for 2011-2015). The main customers are the elderly and children. A sharp increase in medical expenses is the main driver behind the double-digit growth in personal health insurance premiums. We note that the proportion of patients who paid private hospital bills by themselves had dropped to 64% in 2015, from 75% in 2010. In the meantime, the proportion of patients covered by personal insurance, SSS, group insurance and so forth increased to 36% from 25% over the same period.

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Figure 51: Proportion of population with health insurance Figure 52: Personal health insurance premiums trend THBm 5.30% % 1.2 1.2

4.10% 1 1 3.70% 0.8 0.8 0.6 0.6 2.30% 2.30% 0.4 0.4 0.2 0.2 0 0

2005 2006 2007 2008 2009

Source: National Statistics Office Source: Office of Insurance Commission and K-Research

Ageing society opens up new opportunities Thailand is becoming an ageing society, as the proportion of the elderly (ie over 65 years old) to the total population is increasing. According to the National Economic and Social Development Board (NESDB), the percentage of the elderly (aged 60 and over) to the total population stood at 16% in 2015 and it is projected to increase to 19% in 2020 and 23% in 2025 and 26% in 2030. An ageing society not only means higher demand and more expensive medical treatment, it also implies the need for other health-related businesses such as home-care services, wellness centres, rehabilitation centres, aged-assisted living facilities and medical equipment, etc. Leading hospital groups such as BDMS, Bumrungrad Hospital and Thonburi Hospital Group have been expanding into these areas to capture such great opportunities.

Figure 53: Population growth and ageing profile Figure 54: Global ageing profile

Source: United Nations Source: United Nations

Medical tourists According to the Ministry of Public Health, Thailand received 2.5m medical tourists in 2013, followed by Singapore and Malaysia which recorded around 850,000 and 583,000 medical tourists respectively. Foreign patients in Thailand mainly come from Japan, the US, the UK, Middle East and other ASEAN countries. While the Eurozone economy has been recovering slowly and Middle East economies remained subdued – with oil prices being sustained at low levels over the past few years – ASEAN countries (with high single-digit GDP growth), particularly Myanmar and Cambodia – have come up fast. Bumrungrad Hospital opened Bumrungrad Yangon Clinic in Myanmar last year while BDMS has a full-service hospital in Phnom Penh, Cambodia. Also, Thonburi Hospital Group has a plan to develop a hospital in Yangon with some local partners.

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Figure 55: Medical tourists in Thailand, Singapore, Malaysia

Source: Malaysia Healthcare Tourism Council, Singapore Tourism Board

High potential from CLMV, where healthcare standards are lower The accelerating urbanisation rate in ASEAN, together with a growing income base, is the key driver of healthcare demand in this region. A growing ageing population among more developed countries in Asia such as China, Japan, South Korea and Singapore as well as European countries is also a plus, as patients may travel to Thailand for medical services.

Figure 56: Urbanisation rates (%) Figure 57: GDP (Thailand vs CLMV)

2010 2015 2020 2025 GDP % 12 80 10 60 8 40 6 20 4 - 2 0

Cambodia Lao PDR Myanmar Vietnam Thailand

ASEAN

Thailand

Malaysia

Lao PDR Lao

Viet Nam Viet Myanmar

Indonesia 2003-7 2011-13 2017-21 Cambodia Philippines Source: UN (2014) Source: OECD

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Figure 58: Medical tourists in Thailand, Singapore and Malaysia

Source: EIU Canbank, The Economist Intelligence Unit Room for prices to increase Prices of medical services in Thailand are far lower than that of hospitals in the US or Europe. Thailand also marginally edges out Singapore in surgery price comparisons. Nevertheless, such prices are from premium private hospitals like Bumrungrad Hospital or BDMS, which sometimes charge rates 50% higher than average private hospitals or 2-3 times higher than public hospitals. We note that over 2009-2014, medical expenses have surged by 25-55%.

Figure 59: Price comparison of medical procedures

USD USA India Thailand Malaysia Singapore Spinal Fusion 11,000 10,300 9,500 6,000 12,800 Heart Bypass 123,000 7,900 15,000 12,100 17,200 Hip Replacement 40,364 7,200 17,000 8,000 13,900 Gastric Bypass 25,000 7,000 16,800 9,900 13,700 Hysterectomy 15,400 3,200 3,650 4,200 10,400 Lasik (2 eyes) 4,000 1,000 2,310 3,450 3,800 Dental Implant 2,500 900 1,720 1,500 2,700 Breast Implant 6,400 3,000 3,500 3,800 8,400 Knee Replacement 35,000 6,600 14,000 7,700 16,000

Source: World Health Organization

Valuations

Figure 60: Peer comparison

Company Bloomberg Mkt Cap P/E (x) EV/EBITDA (x) P/BV (x) Dividend Yield (%) ROE (%) ROA (%) Ticker (USDm) FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F Bangkok Dusit Medical BDMS TB 9,785 36.4 31.2 22.0 19.6 5.0 4.6 1.4 1.6 14.1 14.9 7.2 8.3 Bumrungrad BH TB 4,713 39.0 36.1 23.3 21.4 8.4 7.5 1.4 1.5 24.3 23.7 18.7 19.0 Bangkok Chain BCH TB 1,153 36.9 31.8 18.7 16.7 6.3 6.0 1.5 1.7 17.8 19.1 9.4 10.6 Chularat CHG TB 858 36.9 31.9 24.1 20.9 7.6 6.7 1.4 1.7 19.9 21.3 14.6 16.0 Vibhavadi VIBHA TB 1,146 37.4 32.0 22.5 20.0 4.9 4.5 1.1 1.0 12.2 13.5 6.3 7.3 Ladproa LPH TB 188 31.0 28.8 18.3 16.5 3.6 3.6 2.7 2.8 12.0 12.7 9.1 9.2 Average Thailand Healthcare 36.3 32.0 21.5 19.2 5.9 5.5 1.6 1.7 16.7 17.5 10.9 11.7 IHH HEALTHCARE BHD IHH MK 11,780 43.4 35.2 18.8 15.8 2.1 2.0 0.7 0.8 4.9 5.8 2.8 3.4 KPJ HEALTHCARE BERHAD KPJ MK 1,092 26.6 23.7 13.2 11.9 2.6 2.5 1.8 2.0 10.0 10.7 4.7 5.0 RAFFLES MEDICAL GROUP LTD RFMD SP 1,441 28.8 28.8 19.5 18.1 2.6 2.4 1.8 2.0 9.3 9.0 6.3 6.3 SILOAM INTERNATIONAL HOSPITA SILO IJ 1,021 83.4 64.6 12.9 11.3 3.6 3.4 0.1 0.1 4.3 5.1 3.3 4.0 MITRA KELUARGA KARYASEHAT TB MIKA IJ 2,393 40.6 37.0 29.3 26.0 7.7 7.5 1.6 1.8 19.8 20.6 16.2 18.5 APOLLO HOSPITALS ENTERPRISE APHS IN 2,309 34.8 22.9 16.9 13.4 3.5 3.2 0.8 1.2 10.5 14.3 5.5 8.0 FORTIS HEALTHCARE LTD FORH IN 1,213 32.3 19.5 15.0 - 1.4 1.3 0.1 - 4.4 5.6 2.9 3.9 CHINA RESOURCES PHOENIX HEAL 1515 HK 1,582 26.2 22.7 13.3 10.9 2.0 1.9 0.9 1.0 7.8 8.3 7.2 7.8 Average Regional Healthcare 39.5 31.8 17.3 13.4 3.2 3.0 1.0 1.3 8.9 9.9 6.1 7.1 Note: Data is as at 15 Sep 2017 Source: Company data, RHB

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Property Good Momentum Going Into 2H17 Numbers rebound in 2Q17 2Q17 presales grew 27.5% QoQ. The combined presales of property developers under our coverage increased 27.5% QoQ or 40% YoY to THB65bn, which was slightly higher than our earlier expectation of THB63bn. The main reasons are: i. Sentiment improved after the end of the 3-month mourning period for the late King Rama IX; ii. Some macro-economic numbers such as consumer confidence, business sentiment and developers’ sentiment have improved; iii. More new projects are being launched. The mourning period for the late King, which started in mid-Oct 2016 and ended in late January, adversely impacted property sales in 4Q16. Combined earnings for 2Q17 surged by 58% QoQ. However, net profit slipped 1% YoY, due to the lack of a property stimulus package – the previous one ended in end-Apr 2016. We expect quarterly earnings to gradually improve QoQ in 3Q17-4Q17. As usual, the sector’s earnings should peak in 4Q. 1H17 sector presales are at 50% of developers’ guidance. Judging from 1H17’s combined presales of THB115bn (+32% YoY), AP Development (AP) should clearly beat its full-year target while Sansiri and Quality Houses (QH) need to put in more effort to reach theirs. Presales of the other players are still on track. Pruksa with YTD presales of THB26bn, remains the market leader while Ananda, AP, Land and Houses (LH), Sansiri and Supalai should be able to fetch around THB13-15bn in presales each. QH came in last, clocking presales worth about THB8bn.

Figure 61: Quarterly presales Figure 62: New launches

THBm +30% 300,000 YoY 250,000 200,000 150,000 100,000 50,000 - 2014 2015 20162017F 1Q17 2Q17 3Q17 4Q17

Source: Company data Source: RHB

3Q17 is set to be this year’s peak quarter Many developers are likely to bring forward their new project launches to 3Q17, so as to not clash with the royal cremation ceremony of the late King Bhumibol Adulyadej. We expect the value of the sector’s new launches to peak in Q17, growing 30% QoQ. The latest successful condominium project is AP’s Life One Wireless, worth THB7.5bn. It was 87%-sold at its official launch by end-Jul 2017. As a result, AP has booked YTD presales of THB23bn – which is equivalent to 90% of its full-year target. Sansiri, in the meantime, recently lifted its presales target to THB40bn from THB36bn, after achieving 7M17 presales of THB17.3bn.

Outlook for 2017 The property sector’s 1Q17 performance was sluggish, and 1Q17 should be this year’s lowest quarter. Presales and new launches should peak in 2Q and 3Q and may soften in 4Q, particularly during the period of the funeral of the late King Rama IX.

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Given the healthy 1H presales, AP and Pruksa have raised the value of their full-year new launches, while LH, QH and LPN Development (LPN) cut theirs. All in all, the value of the sector’s 2 17 new launches should grow % YoY, up from the 2 % YoY set earlier. For the full year, new launches and presales are set to grow at a double-digit rate. 2017 earnings, on the other hand, are estimated to be at around THB32bn – which implies flat growth over the past four consecutive years. Developers under our coverage currently have THB117bn worth of backlogs waiting to be realised as revenue over the next few years. Note that there is also another THB91bn worth of condominium projects developed via joint ventures (JVs) with both overseas and local partners. These would also help to cushion their revenues when the market slows down.

Figure 63: Annual presales Figure 64: Annual earnings +20% (THBm) +17% THBm YoY 40,000 YoY -5% Property SPALI SPALI 200,000 -16% YoY 35,000 stimulus from YoY SIRI 4Q15-1Q16 SIRI 30,000 150,000 QH Pent-up QH 25,000 Military demand PS govt PS 20,000 Floods 100,000 LPN Military LPN LH 15,000 coup 10,000 LH 50,000 AP ANAN 5,000 ANAN 0 - AP 2008 2011 2014 2017F -5,000 2008 2010 2012 2014 2016 2018F

Source: Company data, RHB Source: Company data, RHB

Long-term outlook: Big new moves to create an S-curve The sector has been at a slow growth stage since 2015, given its flat revenue and earnings, while presales fluctuate depending on the macro-economic outlook and government stimulus package. In the longer term, developers would look for new growth drivers: i. Development of commercial properties together with residential projects, ie mixed- used developments, which can monetised via REITs; ii. Penetration into different segments to broaden their customer base; iii. Marketing their projects overseas in order to attract foreign buyers; iv. Partnering international developers.

Watch out for new Bangkok landmarks These include: i. One Bangkok on Rama IV Road, worth THB120bn. It was developed by companies affiliated with the tycoon Mr Charoen Sirivadhanabhakdi; ii. Singha Complex on Asoke Road worth approximately THB10bn, by Singha Estate (S TB, NR). Singha Estate is a subsidiary of the Singha group; iii. A mixed-used project at the corner of Silom Road, which is a JV project between Dusit Thani (DTC TB, NR) and Central Pattana (CPN TB, Buy, TP:THB71.75) worth THB37bn; iv. ICONSIAM, worth THB54bn, by non-listed Siam Piwan group (which also developed Siam Paragon and the Emporium/Emquartier shopping complex) on the bank of the Chao Phraya river; v. The THB26bn Langsuan Village by the Crown Property Bureau in Langsuan, near Lumpini Park. vi. Bangkok Mall by the The Mall group and Bangkok Bank worth THB20bn, in the Bangna area, which is not far from Suvarnabhumi airport. The total value of these six projects is almost THB270bn, with a development period of over the next 5-7 years.

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More international developers have paired up with local developers

Figure 65: Listed developers in partnership with foreign developers Listed Thai Project value of developer Partner Country JV since JVs (THBbn) Ananda Mitsui Fudosan Japan 2013 80 AP Thailand Mitsubishi Estate Japan 2014 40 Singha Estate Hong Kong Land HK 2017 6 Sena Dev Hankyu Realty Japan 2017 7 Origin Property Nomura Real Estate Japan 2017 8.6 Pace Dev Citic China 2017 7.5 Beauty Honor (under Thai Factory Dev Country Garden) China 2017 6.8 Source: Company data, RHB

Also, developers like Sansiri have formed JVs with companies like BTS Group, the skytrain operator. Meanwhile, Origin Property acquired a stake in Proud Property, another local developer which owns the THB17bn high-end condominium project, Park24. Singapore’s Fraser Property from Singapore bought a % stake in Golden Land since 2015. Moving forward, we still expect to see such M&As or partnership deals done in order to develop bigger and well-diversified projects. International developers from more mature economies like Japan, Singapore and China are interested to build their presence in overseas markets in order to diversify their portfolio. They also seek higher yields from developing projects in countries that have faster economic growth, upcoming infrastructure projects and rapid urbanisation rates. Also, consolidation among local developers would continue, as size does matter amidst a tough operating environment.

New-generation developers are coming up fast New-generation developers like Ananda, Golden Land, Singha Estate, Origin Property and SC Asset have seen their market shares gradually increase, given their aggressive new launches. Meanwhile, long-established developers like LPN, QH and even LH are opting to be more conservative. In addition, new-generation developers have witnessed their asset sizes and new launches double or triple over the past three years. Also, we note that more property companies – particularly those run by new-generation players – are moving towards developing rental assets which later can be monetised via REITs.

Figure 66: Market share by new launches Figure 67: Market share by revenue

Source: Company data Source: Company data

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Foreign buyers spice up high-end condominium market Land prices in the inner city have consistently hit record highs. This is mainly due to: i. The scarcity of land in prime areas near mass transit stations; ii. Upcoming new mass transit lines – Pink, Yellow, Orange, Gold and the extension phase of existing lines such as Purple, Blue, Green and Red. Hence, new residential or commercial property projects are designed to lure high-income earners and foreigners. For some specific property projects in Bangkok’s central business district (CBD), the portion of foreign buyers has increased to 10-15% from less than 5% few years ago. Condominium projects developed in partnership with international developers can also lead to local property players being able to tap into networks of foreign buyers overseas. We also noticed that some developers, which used to mainly focus on local buyers, like LPN and LH, are now using foreign agents to help sell their high-end condominiums. Also, property prices in the world’s top real estate markets like the US, UK as well as in Asia (eg Singapore, Japan, Taiwan and Hong Kong) are far higher than in Thailand – by 2-6 times. Both Thais and foreigners are upping their investments in condominiums due to the potentially handsome annual returns (rental yield: 3-4%, capital gains: 7-8%) amid a low interest rate environment. We referred to the following link for this data: http://www.globalpropertyguide.com/most- expensive-cities According to Colliers International Thailand, The average take-up rate for all condominium units launched from 2013 until 2Q17 was approximately 81%. New condominium units launched in 2Q 2017 were 58%-sold, but some projects done by listed developers that are in good locations were almost completely sold out within only a few days after their official launches. Recent projects with strong take-up rates include: i. AP’s THB7.6bn Life Ladprao (75%-sold); ii. AP’s THB . bn Life Wireless ( %-sold); iii. Pruksa’s THB1.6bn Chapter One Shine Bangpo (80%-sold); iv. LPN’s THB1bn The Selected Kaset (100%-sold); v. Singha Estate’s THB3.6bn The Esse at Singha Complex (80%-sold). vi. Ananda’s THB bn Ideo Q Victory (1 %-sold) The mass market is still feeling the impact of strict lending measures imposed, amid: i. High household debt; ii. Increasing banks’ non-performing loans (NPLs); iii. The oversupply in other provinces and some Bangkok suburbs. Over the past few years, strict lending measures have been the key obstacle for mid- to low-end buyers. Since the percentage of NPLs from the residential sector has risen to 3.23% currently from 2.34% in 1Q13, banks are likely to continue with their strict lending measures. Hence, the recent lending rate cut of 50 bps may not be able to spur the whole market. Large-scale new launches of low-end condominium projects over the past few years would also continue to put pressure on developers of low-end projects. Since early 2017, both LPN and Pruksa – the leading low-end project developers – have launched several mid- to high-end projects that have seen good take-up rates so far.

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Figure 68: NPLs by sector Figure 69: Household-debt to-GDP ratio (2011-2016)

Source: Bank of Thailand (BoT) Source: BoT Figure 70: Newly-launched condominiums by quarter and by price range

Source: Colliers Thailand

Maintain OVERWEIGHT We keep our OVERWEIGHT rating on the sector, premised on: i. Better GDP growth of 3.7% in 2017F, vs 3.1% in 2016; ii. The benchmark policy rate is expected to remain at 1.5% for 2016-2017; iii. Rising prices of homes, due to a cost-push effect; iv. Bids of mega infra projects progress as planned; v. The high household debt-to-GDP level is anticipated to gradually ease. Valuations The residential property sub-sector is currently trading at its P/E mean level, offering a 4- 5% annual dividend yield.

Figure 71: Peer comparison Earnings growth* EPS (THB) EPS (THB) PE(x) PE(x) P/B(x) P/B(x) Yield(%) Yield(%) Curr price TP Recc Valuation 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F THB THB ANAN 40.8 23.3 0.60 0.70 9.2 7.9 1.4 1.2 2.6 3.3 5.50 6.0 BUY on 10x PE AP 18.3 11.5 0.98 1.10 8.1 7.2 1.2 1.1 4.5 5.0 7.95 8.8 BUY on 9x PE, Mean GOLD 21.1 14.3 0.54 0.62 15.1 13.2 1.3 1.2 3.3 3.8 8.20 10.5 BUY SOTP LH 13.8 2.4 0.73 0.75 13.8 13.4 2.4 2.4 7.4 6.3 10.70 11.7 BUY SOTP LPN (38.5) 23.2 0.91 1.12 13.1 10.6 1.4 1.3 3.1 3.8 11.50 9.5 SELL on 8x PE, -0.5SD PSH (4.1) 7.0 2.61 2.79 9.3 8.7 1.4 1.3 5.4 5.7 24.30 23.5 NEUTRAL on 9x PE, -0.5SD QH (4.5) 2.6 0.27 0.28 9.8 9.6 1.2 1.1 4.1 4.2 2.70 2.4 SELL SOTP SIRI (9.1) 4.0 0.21 0.22 10.8 10.4 1.1 1.0 3.7 3.9 2.28 2.0 Take profit on 9x PE , Mean SPALI 11.0 8.5 3.16 3.05 7.3 7.6 1.4 1.5 - 5.0 23.00 27.0 BUY on 10x PE, Mean Note: Prices are as at 15 Sep 2017 Source: Setsmart, RHB

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Thailand Thematic Research 2 October 2017

Top Picks We prefer companies that have partnerships with top foreign developers, new-generation management teams, strong backing from billionaire shareholders/landlords and well- diversified product portfolios. AP, LH and Ananda are BUY stocks. LH should generate outstanding 2Q17 earnings from around THB1bn gains from the sale of its asset to a REIT. We also initiate coverage on Golden Land with a BUY call and a SOP-based THB10.50 TP (22% upside). This is due to its resilient residential business, well-diversified rental assets and investment portfolio, and solid balance sheet with low gearing. It is also due to its strong major shareholders and management, and potential double-digit earnings growth over the next five years. Upsides for this counter are the sale of assets into a REIT, and participation in a new gigantic mixed-use project, One Bangkok. Risks These include: i. The pace of recovery for GDP, business sentiment and consumer confidence; ii. Potential delay in the start-up of new infrastructure projects; iii. Demand for properties in the upcountry has yet to recover; iv. The slow upcountry market; v. Fierce competition in the condominiums market; vi. The seriousness of banks’ asset quality problems.

Figure 72: Price trend of residential homes Figure 73: Re-sale prices of high-end condominiums

Index 180.0 Land 170.0 160.0 150.0 140.0 Condominium Townhouse 130.0 120.0 Single-detached house 110.0 100.0 90.0 1Q09 1Q11 1Q13 1Q15 1Q17

Source: BoT Source: CB Richard Ellis

Figure 74: Residential price vs building materials price Figure 75: Policy rate to stay at 1.5% until end-2017 index

Source: BoT, REIC Source: BoT, RHB

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Thailand Thematic Research 2 October 2017

Figure 76: New launches, new completed residential Figure 77: The property sector’s P/E and SD levels projects and GDP

Source: BoT, REIC Source: SETSMART, RHB

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Thailand Company Update Bangkok Dusit Medical

2 October 2017 Consumer Non-cyclical | Healthcare Buy (Maintained) Bangkok Dusit Medical Target Price: THB24.00 Price: THB20.70 Harnessing The Power Of a Healthcare Network Market Cap: USD9,628m Bloomberg Ticker: BDMS TB

BDMS, Thailand’s top nationwide hospital group, offers a complete range Share Data of healthcare services from preventive to curative and rehabilitative Avg Daily Turnover (THB/USD) 596m/17.8m treatments. We expect its performance to rebound in 2H17 from a low 52-wk Price low/high (THB) 18.2 - 23.3 base in 1H. Meanwhile, its long-term outlook remains solid, given the room for efficiency improvements, synergy in its hospital network and Free Float (%) 52 influx of medical tourists from the strong government support, and Shares outstanding (m) increasing demand for medical care due to a growing ageing population. Estimated Return 16% Maintain BUY, with a DCF-based THB24.00 TP (14% upside). Shareholders (%) Thailand is well-positioned to be the medical hub of Asia given its premium medical services at affordable prices, qualified healthcare specialists and many Prasarttong-osoth family 23.4 internationally accredited medical facilities as well as a highly-developed Thongtang family 8.4 tourism industry. There are over 1,000 hospitals in the country, of which over Bangkok Airways 7.8 470 are private facilities. Thailand also has about 58 JCI-accredited hospitals and medical centres – much higher than its neighbours (there are only 21 in Share Performance (%) Singapore and 14 in Malaysia). Several million international patients (11% YTD 1m 3m 6m 12m CAGR in 2008-2019F) travel to Thailand for medical treatment. More than 30% Absolute (10.4) 1.5 7.8 (1.4) (5.9) of foreign patients are from Cambodia, Laos, Myanmar and Vietnam (CLMV), Relative (18.7) (4.5) 2.5 (7.8) (18.0) where medical care coverage is insufficient. Around 10-12% of international Source: Bloomberg patients are from China, 8-10% from Japan and 18-20% from the US and UK.

Bangkok Dusit Medical (BDMS TB) The leading hospital group with a nationwide network. Bangkok Dusit Price Close Relative to Stock Exchange of Thailand Index (RHS) Medical (BDMS) provides services to both local (70%) and foreign patients (30%). Currently, it has 45 hospitals (14 are JCI-accredited). Of these, nine are 23 104 centres of excellence (CoE) capable of providing treatment for complex 21 94 diseases that meet international quality standards. By 2020, it would have a 19 84 complete healthcare services network with 50 hospitals, a THB13bn wellness 25017 74 centre and also rehabilitation service facilities. The group’s solid balance sheet 200 and low gearing ratio of less than 0.5x could accommodate it making massive 150 100 investments over the next three years. 50

Recovery signs. The company’s EBIT, moving forward, should gradually Vol m

Apr-17

Jan-17 Jun-17

Nov-16 Aug-17 improve from a record low in 2Q17. It is anticipated to book a better revenue Sep-16 momentum in 2H17, with higher revenue growth from foreign patients as well as from its hospitals in the upcountry. It is also set to see double-digit growth in Source: Bloomberg patient numbers from China, US, Japan and Russia along with a slight recovery in Middle East patients after the Ramadan period. It is also set to book lesser additional financing costs related to the redemption of convertible bonds after 3Q17. Lastly, there is still much room to improve its efficiency, especially in its mid- to small-sized hospitals in the upcountry. Main long-term growth should come from normal hospital revenue growth of 6-7% pa, efficiency improvements in 50 hospitals which should drive EBITDA margin to 23-24% from 20% currently, the influx of medical tourists given the strong government support, its wellness centre operating at 100%, and the synergy between the nine CoEs and other hospitals within its network.

Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 62,834 67,984 71,131 76,053 81,678 Reported net profit (THBm) 8,021 8,386 10,092 8,886 9,861 Recurring net profit (THBm) 7,812 8,177 7,792 8,886 9,861 Recurring net profit growth (%) 5.7 4.7 (4.7) 14.0 11.0 Recurring EPS (THB) 0.50 0.53 0.50 0.57 0.64 DPS (THB) 0.36 0.32 0.39 0.34 0.38 Recurring P/E (x) 41.0 39.2 41.2 36.1 32.5 P/B (x) 6.63 6.25 5.69 5.42 5.03 P/CF (x) 22.4 26.2 25.3 21.3 19.4 Dividend Yield (%) 1.7 1.6 1.9 1.7 1.8 Analyst EV/EBITDA (x) 16.9 16.5 18.2 15.9 14.3 Wanida Geisler Return on average equity (%) 17.1 16.8 18.8 15.4 16.1 Net debt to equity (%) 26.8 29.5 34.1 29.6 22.6 +66 2088 9748 Our vs consensus EPS (adjusted) (%) (16.2) 2.4 (2.1) [email protected]

Source: Company data, RHB

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Thailand Company Update Bangkok Dusit Medical

Financial Exhibits

Financial model updated on : 2017-08-31. Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 0.50 0.53 0.50 0.57 0.64 Consumer Non-cyclical EPS (THB) 0.52 0.54 0.65 0.57 0.64 Bangkok Dusit Medical DPS (THB) 0.36 0.32 0.39 0.34 0.38 Bloomberg BDMS TB BVPS (THB) 3.12 3.31 3.64 3.82 4.11 Buy Weighted avg adjusted shares (m) 15,491 15,491 15,491 15,491 15,491

Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F DCF-based (WACC:8%, TG: 2%) Recurring P/E (x) 41.0 39.2 41.2 36.1 32.5 P/E (x) 40.0 38.2 31.8 36.1 32.5 Key drivers P/B (x) 6.63 6.25 5.69 5.42 5.03 i. Faster-than-expected non-hospital business FCF Yield (%) 1.3 0.9 (0.1) 1.8 2.1 expansion; Dividend Yield (%) 1.7 1.6 1.9 1.7 1.8 ii. Better economies of scale. EV/EBITDA (x) 16.9 16.5 18.2 15.9 14.3 Key risks EV/EBIT (x) 25.1 25.3 29.0 25.6 22.9 i. The slower-than-expected domestic economic recovery; Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F ii. Potential margin contraction; Total turnover 62,834 67,984 71,131 76,053 81,678 iii. Longer-than-expected gestation periods for Gross profit 21,683 22,707 23,208 25,175 27,227 greenfield projects; EBITDA 13,422 13,866 14,309 16,021 17,432 iv. An overhang on a new Drug & Medical Act Depreciation and amortisation (4,387) (4,803) (5,328) (6,057) (6,541) Company Profile Operating profit 9,035 9,063 8,981 9,965 10,891 Net interest (1,136) (881) (1,505) (1,257) (1,100) Bangkok Dusit Medical operates a group of leading private hospitals with a nationwide network. The group Income from associates & JVs 1,259 1,370 1,429 1,500 1,575 provides services to both local and foreign patients. Pre-tax profit 10,230 10,693 12,212 11,315 12,584 Growth drivers come from local and regional Taxation (1,895) (1,922) (1,697) (1,963) (2,202) expansion via greenfield projects and M&As. Minority interests (314) (385) (424) (466) (522)

Recurring net profit 7,812 8,177 7,792 8,886 9,861

Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Change in working capital 3,093 246 585 1,152 1,213 Cash flow from operations 14,347 12,241 12,699 15,060 16,561 Capex (10,235) (9,242) (12,986) (9,149) (9,876) Cash flow from investing activities (10,235) (9,242) (12,986) (9,149) (9,876)

Dividends paid (3,562) (5,575) (5,032) (6,055) (5,332) Cash flow from financing activities (4,041) (3,791) 4,685 (6,471) (6,893) Cash at beginning of period 5,486 5,557 4,765 9,163 8,604 Net change in cash 71 (792) 4,398 (559) (207) Ending balance cash 5,557 4,765 9,163 8,604 8,397

Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 5,557 4,765 9,163 8,604 8,397 Tangible fixed assets 53,247 56,461 68,243 71,159 74,308 Intangible assets 16,932 16,932 16,932 16,932 16,932 Total investments 16,524 17,590 14,519 16,019 17,594 Total other assets 2,049 3,359 3,527 3,703 3,888 Total assets 102,335 106,939 120,712 125,308 130,658 Short-term debt 2,939 5,920 2,098 1,330 3,168 Total long-term debt 17,376 16,060 28,000 26,600 21,280 Other liabilities 14,666 14,697 16,167 17,783 19,562 Total liabilities 47,338 48,634 59,303 59,960 59,635 Shareholders' equity 48,399 51,270 56,331 59,162 63,691 Minority interests 2,498 2,586 2,715 2,851 2,994 Total equity 54,997 58,305 61,409 65,348 71,023 Net debt 14,758 17,215 20,934 19,326 16,051 Total liabilities & equity 102,335 106,939 120,712 125,308 130,658

Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 12.1 8.2 4.6 6.9 7.4 Recurrent EPS growth (%) 5.7 4.7 (4.7) 14.0 11.0 Gross margin (%) 34.5 33.4 32.6 33.1 33.3 Operating EBITDA margin (%) 21.4 20.4 20.1 21.1 21.3 Net profit margin (%) 12.8 12.3 14.2 11.7 12.1 Dividend payout ratio (%) 69.5 60.0 60.0 60.0 60.0 Capex/sales (%) 16.3 13.6 18.3 12.0 12.1 Interest cover (x) 7.95 10.29 5.97 7.93 9.90

Source: Company data, RHB

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Thailand Company Update Bangkok Dusit Medical A nationwide healthcare network All of BDMS’ hospitals (Figure 1) are divided into four groups based on geographical area: i. Bangkok and Cambodia; ii. East iii. North and North-East; iv. South. Another group under the Samitivej brand, BNH Hospital as well as one group under the Phyathai and Paolo brands cater to demand from the mid-end market. Another five new hospitals are now under construction and scheduled to be completed from 2017 to 2020. We note that the group’s hospitals focus on the mid- to high-end customers and 30% of its revenue is derived from foreign patients. Its top five hospitals (Bangkok Hospital/Bangkok Heart Hospital, Wattanosoth Hospital, Samitivej Sukhumvit, Phyathai 2, Bangkok Pattaya and BNH Hospital) generate 44% of total revenue and % of total EBITDA. The group’s hospitals in the north and north-east and south have not performed well since 2016, due to weak economic conditions in the north and north-east regions while the south region was impacted by the soft number of foreign patients (mainly from Russia and Australia). Nevertheless, BDMS has started to see a recovery in the performance of its hospitals in the South region, as tourists have gradually returned.

Figure 2: BDMS has 45 hospitals under its umbrella

Source: Company data

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Thailand Company Update Bangkok Dusit Medical Upgrading nine top-tier hospitals into centres of excellence BDMS is about to complete its plan to upgrade nine top-tier hospitals (Figure 2) – four in Bangkok, one in the north region, one in the south region, one in the north-east region, one in the Eastern Seaboard area, and one in Phnom Penh – as CoEs are capable of providing treatment for complex diseases that meet international quality standards. It hopes that this would encourage more patients from nearby provinces and neighbouring countries to use medical services from these centres, as they are targeted to have the same standards found in Bangkok Hospital – its headquarters. As at mid-2017, around 30% of hospital revenue was derived from international patients, up from 25% in 2012. The top five places of origin for international patients are Japan (2.4%), Myanmar (1.9%), the UK (1.7%), UAE (1.6%) and the US (1.6%). BDMS expects to grow its international patient numbers from neighbouring countries as well as China as they can comfortably receive medical treatment in provinces not far from their countries of origin. It is also targeting to attract expatriates working in countries around Thailand.

Figure 2: Locations of the nine CoEs

Source: Company data

Complete healthcare services In addition to the 45 hospitals currently in its network, it is scheduled to open a wellness centre by end-2017. The centre is set to be the first to provide comprehensive medical services for high-end Thai and foreign clients with the aim of longevity and prevention of critical diseases. Also, it is developing Chiva Transitional Care Hospital as a rehabilitation centre. Its wellness centre, located in Bangkok’s central business district, would comprise eight clinics for outpatient (OPD) services and an inpatient (IPD) clinic which would be exclusive only to members. It expects to have 100 new members per year over the next five years, with international members making up approximately 70-75% of the total. The first batch of members would be brought in via invitation. Up until now, 50 selected high-potential members are waiting to be signed up. Since its acquisition of a 280-room 5-star hotel, Park Nai Lert, and two buildings in the same compound at a total of THB10.8bn in 3Q16, the land price has already appreciated by 30% – since the plot of land is in the prime area of Bangkok’s central business district. Using DCF and a raised project value (Figure 3), its wellness centre should add around THB0.95-1.00 to its TP.

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Thailand Company Update Bangkok Dusit Medical Figure 3: Value of BDMS’ wellness centre Figure 4: BDMS’ wellness centre Royal Life Appraised Regenerative Wellness project sq.m. value (THBm) Remark medicine clinic THB2m-2.2m/sq wah Musculoskelatal and of British Embassy Sports medicine Land 24,000 13,200 land nearby clinic Cardiology & Buildings: 60,000 1,123 Cardiometabolic Clinic

Park Nai Lert Neuroscience Clinic Hotel 280 rooms 28,600 Gastrointestinal Clinic Front building 31,000 Small back Breast screening building 400 Clinic

Fertility Clinic

Total acquisition International Dental cost (THBm) 10,800 14,323 +33% from 3Q16 Clinic Source: Company data, RHB Source: Company data

A strong balance sheet can accommodate its investment programme Figure details the projects in BDMS’ pipeline. Of these, the Phoenix project and wellness centre should be the two most expensive, costing THB4bn and THB2bn respectively. Its yearly capex budget for 2017F-2020F is set at 7% of sales. Its normalised capex per year, thereafter, should be around 5% of sales. Note that its cash outflow peaked in early 2017, when it paid THB10.8bn (90% land) to acquire Park Nai Lert Hotel and two buildings in the same compound. Its net debt-to-equity ratio has been well-maintained, at lower than 0.5x, against its covenant of a maximum of 1.75x. Also, its net debt-to-EBITDA and interest coverage ratios have always been better than its ceilings of 3.25x and 4x, respectively.

Figure 5: Details of BDMS’ expansion programme Total Province beds Commission Type of projects Remark Surathani, Secondary care Target: middle-income segment, networking with Bangkok hospital South 150 2017 hospital Samui Basic tertiary care Target: northern region patients and foreigners Bangkok hospital Chiangrai 80 2018 hospital from Southern China, Myanmar and Laos Royal Care Bangkok 58 2018 Step-down care Elderly care and rehabilitation centre Hospital and Phoenix project Bangkok 220 2019 rehabilitation centre Focus on international patients Expansion of Liver and Samitivej Sukhumvit Bangkok 45 2019 Gastrointestinal Focus on Japanese patients From end- 2017 Wellness centre Bangkok 280 to mid-2018 Wellness centre OPD, IPD and membership scheme

Source: Company data

Earnings growth drivers These are: i. Normal hospital revenue growth of 6-7% pa, which is equivalent to two to three times of the country’s annual GDP growth; ii. Efficiency improvements among 50 hospitals, which should drive EBITDA growth to 23-24% from 20% currently; iii. Influx of medical tourists (10-year CAGR of 11%) given strong support from the Thai Government; iv. The full of its wellness centre; v. Synergy among nine centres of excellence and other hospitals within its network.

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Thailand Company Update Bangkok Dusit Medical Around % of BDMS’ revenue is derived from well-diversified international patients. The top five international patients’ countries of origin are Japan (2.4%), Myanmar (1.9%), the UK (1.7%), United Arab Emirates (UAE) (1.6%) and the US (1.6%). With nine CoEs (including Royal Phnom Penh hospital), the group expects to grow its international patients from neighbouring countries, as well as China. Visitors can comfortably come to receive medical treatments in provinces not far from their own countries. Expatriates working in countries around Thailand are also a target market. New facilities like its wellness centre, the Phoenix project at its Bangkok Hospital headquarters, the new phase of Samitivej Sukhumvit also would help to increase the proportion of revenue from foreign patients to an estimated 35%, from 30% currently, over the longer term, assuming that the nine CoEs are booking 50% of their revenues from foreign patients.

Figure 6: Revenue and EBITDA margin Figure 7: Number of hospitals

THB 60 m 50 90,000 48 24% 50 43 45 80,000 42 70,000 22% 40 37 31 60,000 20% 28 29 30 50,000 18% 40,000 18 18 18 18 16% 20 16 30,000 10 12 14% 20,000 10 5 10,000 12% 0 10% 0 2003 2007 2011 2015 2019F 2003 2005 2007 2009 2011 2013 2015 2017F 2019F

Revenue EBITDA margin

Source: Company data, RHB Source: Company data

Figure 8: Ratios Figure 9: Revenue per visit (IPD and OPD)

50% THBm IPD OPD-RHS THBm 45% GPM 90,000 3,600 40% 80,000 35% 3,400 70,000 30% 3,200 SG&A exp to 60,000 25% 3,000 sales ratio 50,000 2,800 20% 40,000 2,600 15% 30,000 10% NPM 20,000 2,400 5% 10,000 2,200 0% - 2,000 2003 2007 2011 2015 2019F 2012 2014 2016 2018F

Source: Company data Source: Company data

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Thailand Company Update Bangkok Dusit Medical Valuations Our DCF-based TP of THB24.00 is near 1SD above its long-term mean, or 44x P/E, and long-term mean P/B of 6x. At the current price, the stock trades at 1SD from the trailing P/E and P/BV means. Its P/E is based on its recurring profit remaining at levels close to its mean. Bangkok Dusit trades on par with the sector average – but at cheaper levels than its regional peers.

Figure 10: Peer comparison Company Bloomberg Mkt Cap P/E (x) EV/EBITDA (x) P/BV (x) Dividend Yield (%) ROE (%) ROA (%) Ticker (USDm) FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F Bangkok Dusit Medical BDMS TB 9,785 36.4 31.2 22.0 19.6 5.0 4.6 1.4 1.6 14.1 14.9 7.2 8.3 Bumrungrad BH TB 4,713 39.0 36.1 23.3 21.4 8.4 7.5 1.4 1.5 24.3 23.7 18.7 19.0 Bangkok Chain BCH TB 1,153 36.9 31.8 18.7 16.7 6.3 6.0 1.5 1.7 17.8 19.1 9.4 10.6 Chularat CHG TB 858 36.9 31.9 24.1 20.9 7.6 6.7 1.4 1.7 19.9 21.3 14.6 16.0 Vibhavadi VIBHA TB 1,146 37.4 32.0 22.5 20.0 4.9 4.5 1.1 1.0 12.2 13.5 6.3 7.3 Ladproa LPH TB 188 31.0 28.8 18.3 16.5 3.6 3.6 2.7 2.8 12.0 12.7 9.1 9.2 Average Thailand Healthcare 36.3 32.0 21.5 19.2 5.9 5.5 1.6 1.7 16.7 17.5 10.9 11.7 IHH HEALTHCARE BHD IHH MK 11,780 43.4 35.2 18.8 15.8 2.1 2.0 0.7 0.8 4.9 5.8 2.8 3.4 KPJ HEALTHCARE BERHAD KPJ MK 1,092 26.6 23.7 13.2 11.9 2.6 2.5 1.8 2.0 10.0 10.7 4.7 5.0 RAFFLES MEDICAL GROUP LTD RFMD SP 1,441 28.8 28.8 19.5 18.1 2.6 2.4 1.8 2.0 9.3 9.0 6.3 6.3 SILOAM INTERNATIONAL HOSPITA SILO IJ 1,021 83.4 64.6 12.9 11.3 3.6 3.4 0.1 0.1 4.3 5.1 3.3 4.0 MITRA KELUARGA KARYASEHAT TB MIKA IJ 2,393 40.6 37.0 29.3 26.0 7.7 7.5 1.6 1.8 19.8 20.6 16.2 18.5 APOLLO HOSPITALS ENTERPRISE APHS IN 2,309 34.8 22.9 16.9 13.4 3.5 3.2 0.8 1.2 10.5 14.3 5.5 8.0 FORTIS HEALTHCARE LTD FORH IN 1,213 32.3 19.5 15.0 - 1.4 1.3 0.1 - 4.4 5.6 2.9 3.9 CHINA RESOURCES PHOENIX HEAL 1515 HK 1,582 26.2 22.7 13.3 10.9 2.0 1.9 0.9 1.0 7.8 8.3 7.2 7.8 Average Regional Healthcare 39.5 31.8 17.3 13.4 3.2 3.0 1.0 1.3 8.9 9.9 6.1 7.1 Note: Prices are as at 15 Sep Source: RHB, Bloomberg

Risks to our call are: i. Rising competition; ii. Shortage of skilled nurses and doctors; iii. Its cost-saving programme is hard to implement due to the multi-location structure of its network; iv. A deterioration in economic conditions.

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Thailand Company Update Bangkok Dusit Medical SWOT Analysis

 Strong, leading network of hospitals in Thailand  Rising competition  Diversified market exposure in terms of geography and demography  Shortage of skilled nurses  Economies of scale from hub-and-spoke model and doctors  Longer-than- expected gestation period for  M&A greenfield opportunities projects  Expansion in the upcountry region and into neighbouring countries

 Minimum exposure outside of Thailand  Cost control is difficult to achieve due to the multi- location structure of its network

Recommendation Chart

Date Recommendation Target Price Price Price Close 2017-09-01 Buy 24.0 20.7 25

Recommendations & Target Price 2016-11-15 Buy 26.1 22.0

22.2 22.2 19.3 17.5 17.5 18.0 17.6 22.1 24.2 18.9 21.5 21.5 23.4 26.1 26.1 24.0 23 12.6 2016-08-02 Buy 26.1 21.6

2016-05-03 Neutral 23.4 23.9 17.9 17.9 21 13.7 19 2016-03-02 Neutral 21.5 22.1 2015-12-01 Neutral 21.5 20.1 17 2015-10-30 Neutral 19.3 19.0 15 2015-08-14 Neutral 18.9 19.8 13 2015-03-02 Buy 24.2 21.4 11 2015-01-29 Buy 22.1 18.9 9 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB, Bloomberg Sep-12 Jan-14 Apr-15 Jul-16

Source: RHB, Bloomberg

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Thailand Company Update Berli Jucker

2 October 2017 Consumer Cyclical | Retailing Buy (Maintained) Berli Jucker Target Price: THB59.50 Price: THB52.50 A Better Outlook In 2H17F Market Cap: USD6,295m Bloomberg Ticker: BJC TB

We remain positive on Berli Jucker. A stronger earnings outlook in 2H17 Share Data may act as a near-term catalyst, supported by the improving operations of Avg Daily Turnover (THB/USD) 263m/7.88m Big C and its packaging businesses. We still expect its core profit to 52-wk Price low/high (THB) 42.3 - 55.3 double this year despite a forecasted cut. Its business synergies and plan to become a fully-integrated retailer in the CLMV market may boost its Free Float (%) 21 earnings growth outlook in the longer term. Maintain BUY, as it is our Top Shares outstanding (m) 3,992 Pick for the retail sector, with a lower DCF-based FY17F TP of THB59.50 Estimated Return 13% (from THB62.50, 13% upside). Shareholders (%)

A stronger Big C. We are positive on the performance of its retailing unit, Big TCC Corporation Co 73.8 C Supercenter (Big C)(7 % of Berli Jucker’s total sales) in 2H17F. This is after DBS Bank 5.4 its SSSG returned to positive territory at c.3-4% after the discontinuation of unprofitable sales brought down SSSG to negative double-digit figures in 3Q16- BBL Bualuang Long-Term Equity Fund 2.8

2Q17. Also, changes in the assortment of fresh food and non-food products Share Performance (%) (1 % and % of Big C’s revenue) have recovered SSSG in those categories since 1Q17. Also, the opening of new stores (hypermarkets and small formats) YTD 1m 3m 6m 12m is likely on target and would accelerate topline growth and profit margins in 2H, Absolute 4.5 16.0 11.7 11.7 24.3 mainly in the high season (ie 4Q17). We expect Big C to deliver 17% YoY net Relative (3.8) 10.0 6.4 5.3 12.2 profit growth this year and an average 13% over the next two years. Source: Bloomberg Packaging business in good stead. Berli Jucker’s glass bottle production is likely to pick up in 2H17 as two of its furnaces (2 % of the group’s total Berli Jucker (BJC TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) production capacity) have resumed operating after a maintenance shutdown in 1H17. Meanwhile, its aluminium can business may also receive more purchase 55 125 orders from energy drink manufacturers continuing into 2018, supported by 50 114 strong export demand and a re-packaging plan. Enhancement of production 45 103 efficiency may help offset the rise in material costs, such as energy and cullets, 12040 92 and sustain its GPM. We expect its packaging business sales (13% of total) to 100 80 grow by an average 8% this year and the next. 60 Earnings growth still superior. We lower Berli Jucker’s 2 17F-18F earnings 40 20 by 19% and 13% respectively. This follows its 1H17 results and a revaluation of Vol m

Big C following the acquisition last year, which lifted its depreciation expense by

Apr-17

Jan-17 Jun-17

Nov-16 Sep-16 Aug-17 c.THB800m pa. After the cut, we expect its core profit growth to remain at double-digits in 2017. This would be due to a full-year consolidation of its Source: Bloomberg retailing business, a smaller impact on the deduction of minority interests and a possible reversal in corporate income tax expenses at a significant amount in 4Q17. Its expanding Big C operations could drive earnings to grow further by an average 18% CAGR in 2018-2019. Maintain BUY. Our new DCF-based TP of THB59.50 implies 2017F P/E of 40x or +1.5SD from its 5-year historical P/E. Berli Jucker is still our Top Pick for the Thai retail sector. Apart from its strong core profit growth, we expect more synergies to be captured from the full business integration as well as from its parent company, TCC Group, which may enhance its profitability further. A planned presence of its retail arm in the Cambodia-Laos-Myanmar-Vietnam (CLMV) region may also sustain Big C’s growth over the longer term. The stock may see heightened interest by investors from Big C’s potential delisting exercise.

Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 42,893 125,330 158,878 169,280 179,970 Reported net profit (THBm) 2,792 4,001 5,819 6,904 8,190 Recurring net profit (THBm) 1,958 2,937 5,870 6,904 8,190 Recurring net profit growth (%) 17.4 50.0 99.9 17.6 18.6 Recurring EPS (THB) 1.23 0.74 1.47 1.73 2.05 DPS (THB) 0.84 0.50 0.73 0.87 1.03 Recurring P/E (x) 42.7 71.3 35.7 30.3 25.6 P/B (x) 4.75 2.02 1.98 1.91 1.84 P/CF (x) 18.0 9.7 11.0 15.9 11.9 Dividend Yield (%) 1.6 1.0 1.4 1.6 2.0 Analyst EV/EBITDA (x) 17.3 22.0 17.4 15.2 13.7 Vatcharut Vacharawongsith Return on average equity (%) 16.7 6.6 5.6 6.4 7.3 Net debt to equity (%) 66.7 132.8 125.5 121.5 112.2 +66 2088 9736 Our vs consensus EPS (adjusted) (%) (13.0) (12.0) (9.6) [email protected]

Source: Company data, RHB

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Thailand Company Update Berli Jucker

Financial Exhibits

Financial model updated on : 2017-09-28 Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 1.23 0.74 1.47 1.73 2.05 Consumer Cyclical EPS (THB) 1.75 1.00 1.46 1.73 2.05 Berli Jucker DPS (THB) 0.84 0.50 0.73 0.87 1.03 Bloomberg BJC TB BVPS (THB) 11.1 26.0 26.5 27.4 28.6 Buy Weighted avg adjusted shares (m) 1,592 3,990 3,990 3,990 3,990

Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F DCF Recurring P/E (x) 42.7 71.3 35.7 30.3 25.6 P/E (x) 29.9 52.3 36.0 30.3 25.6 Key drivers P/B (x) 4.75 2.02 1.98 1.91 1.84 i. Overseas business expansion; FCF Yield (%) 2.3 (105.4) 4.3 1.6 4.4 ii. Production capacity increases; Dividend Yield (%) 1.6 1.0 1.4 1.6 2.0 iii. Aggressive opening of new Big C stores. EV/EBITDA (x) 17.3 22.0 17.4 15.2 13.7 EV/EBIT (x) 27.8 33.3 24.1 20.7 18.5 Key risks i. Domestic consumption remains weak; ii. Raw material price volatility; Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F iii. Intense competition in hypermarkets that may Total turnover 42,893 125,330 158,878 169,280 179,970 squeeze profit margins. Gross profit 9,822 22,561 28,912 31,306 33,461 EBITDA 5,654 15,752 19,682 22,607 24,724 Company Profile Depreciation and amortisation (2,141) (5,337) (5,478) (6,020) (6,478) Berli Jucker is a Thai consumer conglomerate. It Operating profit 3,512 10,415 14,204 16,587 18,246 operates four business lines including packaging Net interest (493) (5,203) (5,702) (6,480) (6,379) products (glass bottles and aluminum cans), consumer products (tissue paper, snacks, and Exceptional income - net 833 1,064 (51) 0 0 personal products), technical & healthcare products, Pre-tax profit 3,853 6,276 8,451 10,107 11,867 and modern retailers. The company also has presence Taxation (400) (1,246) (1,700) (2,021) (2,373) in CLMV nations, particularly Vietnam. Minority interests (661) (1,029) (931) (1,182) (1,303)

Recurring net profit 1,958 2,937 5,870 6,904 8,190

Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Change in working capital (832) 8,056 (1,020) (447) 2,137 Cash flow from operations 4,647 21,668 19,080 13,212 17,556 Capex (2,766) (242,362) (10,138) (9,773) (8,238) Cash flow from investing activities (2,708) (243,711) (10,163) (9,804) (8,271) Proceeds from issue of shares 0 83,490 0 0 0 Dividends paid (955) (1,258) (2,971) (3,181) (3,774) Cash flow from financing activities (1,932) 224,399 (10,619) (3,373) (10,010) Cash at beginning of period 1,123 1,130 3,486 1,784 1,819 Net change in cash 7 2,356 (1,702) 35 (725) Ending balance cash 1,130 3,486 1,784 1,819 1,094

Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 1,130 3,491 1,784 1,819 1,094 Tangible fixed assets 19,046 51,659 57,090 61,623 64,174 Intangible assets 2,902 192,174 183,105 182,241 181,389 Total investments 3,533 19,872 19,275 18,581 17,888 Total other assets 839 2,145 2,175 2,206 2,239 Total assets 44,701 301,843 297,408 302,997 304,652 Short-term debt 7,521 20,641 13,000 15,000 8,500 Total long-term debt 7,454 131,361 132,000 130,000 130,000 Other liabilities 719 4,710 6,410 6,310 6,301 Total liabilities 23,950 189,986 183,311 185,177 182,135 Shareholders' equity 17,610 103,714 105,785 109,508 113,925 Minority interests 3,688 8,426 8,595 8,595 8,876 Total equity 20,750 111,857 114,097 117,820 122,517 Net debt 13,845 148,512 143,216 143,181 137,406 Total liabilities & equity 44,701 301,843 297,408 302,997 304,652

Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 2.9 192.2 26.8 6.5 6.3 Recurrent EPS growth (%) 17.3 (40.1) 99.9 17.6 18.6 Gross margin (%) 22.9 18.0 18.2 18.5 18.6 Operating EBITDA margin (%) 13.2 12.6 12.4 13.4 13.7 Net profit margin (%) 6.5 3.2 3.7 4.1 4.6 Dividend payout ratio (%) 34.2 31.4 31.4 31.4 31.4 Capex/sales (%) 6.4 193.4 6.4 5.8 4.6 Interest cover (x) 7.13 2.00 2.49 2.56 2.86

Source: Company data, RHB

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Thailand Company Update Berli Jucker

Figure 3: Berli Jucker’s DCF valuation

THBm 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F EBIT 14,204 16,587 18,246 19,801 21,196 22,485 23,834 25,212 26,622 28,097 EBIT (1-t) 11,363 13,270 14,596 15,841 16,957 17,988 19,067 20,170 21,298 22,478 Depreciation & Amortization 5,478 6,020 6,478 6,894 7,167 7,440 7,713 7,921 7,874 8,073 Net working capital (1,020) (447) 2,137 (2,027) 1,144 (407) 85 (608) 43 (54) Capex (10,138) (9,773) (8,238) (7,483) (4,875) (4,878) (4,871) (3,733) (3,731) (3,723) Net free cash flow to firm 7,723 9,964 10,699 17,279 18,105 20,957 21,824 24,965 25,398 26,882

Terminal value 519,608 PV 7,457 8,968 8,976 13,513 13,198 14,241 13,824 14,741 13,980 280,393 Terminal growth 2.0% WACC 7.3% Total discounted firm value 389,290 Less: Net debt 143,216 Less: Minority interest 8,595 Equity value 237,479 Number of shares (m) 3,990 Equity value per share (THB) 59.50

Source: RHB

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Thailand Company Update Berli Jucker SWOT Analysis

 A retail arm of the Thai Charoen Corporation (TCC)  Weak Group, one of Thailand’s largest conglomerates consumption and intense  Strong business foundations in Thailand & Vietnam competition  Fully-integrated supply chain for consumer products among FMCG with its own distribution, logistics & retail networks manufacturers and leading market share in several categories in Thailand  Vietnam’s economy can fluctuate greatly

 Business  Regulations of expansion and each country diversification may obstruct overseas foreign  Further M&As investments of consumer  New product product substitution to companies glass bottles  Low penetration and aluminium rate of modern cans retail businesses in Vietnam  Unlocking  Operations of certain acquired businesses have business remained inefficient opportunities of the recently-  No expertise in managing retail business acquired Big C  Volatility in raw material prices and in purchase Supercenter orders from technical & healthcare businesses

Recommendation Chart

Date Recommendation Target Price Price Price Close 2016-11-14 Buy 62.5 52.3

92 Recommendations & Target Price

2016-08-16 Buy 62.5 45.8

82 2014-10-03 Neutral 46.0 42.9 2014-05-21 Sell 31.0 42.0 72 2013-11-13 Sell 31.0 42.9 62 2013-05-20 Neutral 57.0 61.7 52 2013-04-02 Buy 57.0 69.0 2012-11-12 57.0 56.7 42 2012-08-01 Buy 50.0 38.0 32 Source: RHB, Bloomberg

22 Buy Neutral Sell Trading Buy Take Profit Not Rated Sep-12 Jan-14 Apr-15 Jul-16

Source: RHB, Bloomberg

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Thailand Company Update Central Plaza Hotel

2 October 2017 Consumer Cyclical | Leisure & Entertainment Buy (Maintained) Central Plaza Hotel Target Price: THB49.50 Price: THB43.50 In Better Shape Market Cap: USD1,763m Bloomberg Ticker: CENTEL TB

Centel’s business outlook remains promising, when compared with its Share Data local peers. An improving performance at both its hotels and food Avg Daily Turnover (THB/USD) 132m/3.96m business units, and its venture into the economy hotel segment may help sustain its earnings CAGR of 12% over the next three years. Its stronger- 52-wk Price low/high (THB) 34.3 - 43.8 than-ever balance sheet should support further business expansions as Free Float (%) 47 well. Maintain BUY, as we roll over our FY18F DCF-based TP to THB49.50 Shares outstanding (m) 1,350 (from THB46.00, 14% upside). Estimated Return 14% Improving hotel performance. Central Plaza Hotel (Centel) would benefit from the robust Thai tourism environment, as 37% of its revenue comes from Shareholders (%) its local hotels. Its resort destinations, particularly Pattaya and Phuket, have Tiang Chirathivat Co Ltd 5.0 benefitted from the return of Russian guests and continued growth in Chinese The Bank of New York Mellon 3.7 visitor numbers. Although its Maldives hotels (10% of revenue) were pressured Mr Niti Osatanukrau 2.7 by competition in 1H17, we expect a limited downside and better momentum in 2H17 and next year. We expect revenue per available room (RevPar) to rise Share Performance (%) 2% in FY17-18, driven by room rates growing 3% pa. Its average occupancy YTD 1m 3m 6m 12m rate is expected to remain flat due to the addition of a new economy hotel Absolute 9.4 8.8 17.6 26.1 9.4 segment. Relative 1.1 2.8 12.3 19.7 (2.7) Cutting the ribbon for the economy hotel segment. Centel is likely to launch Source: Bloomberg its own-developed COSI economy hotel in Koh Samui in 4Q17 and Pattaya in

2018. We expect the brand, which offers average room rates of c.THB1,200- Central Plaza Hotel (CENTEL TB) 1,500/night in city centre locations, to strengthen its performance. Having fewer Price Close Relative to Stock Exchange of Thailand Index (RHS) 45 108 services vs upper-segment hotels may also underpin more attractive profit 43 103 41 98 margins. However, its contribution to Centel’s revenue may only be less than 39 93 37 88 1% next year. It plans to offer the COSI brand to third-party property operators 35 83 under management contracts, but we believe it may take another 3-4 years to 1233 78 enlarge its network in order to contribute significantly to earnings. 10 8 Food business recovering slowly. Its quick-service restaurant (QSR) 6 business (53% of sales) is only in Thailand, and saw weak SSSG in 1H17 due 4 2

to weak consumption. Although sentiment may improve from 4Q17, we expect Vol m

SSSG to be flat this year, before improving to 2% next year. The opening of

Apr-17

Jan-17 Jun-17

Aug-17 Sep-16 Nov-16 new stores may stay at a normal pace (30-35 outlets pa), with a focus on heavy foods – this may boost its food revenue CAGR to 4% (2017F-2019F). Source: Bloomberg Trimming estimates. We cut our net profit forecasts for 2017-2019 by 3-5% to reflect the impact of its weak food business. However, its core profit CAGR would be 12% (2017F-2019F), similar to the average of 11% over the past three years. This would be supported by total sales CAGR of 5%, GPM enhancement of 0.2ppts and cost controls that would lead to lower opex.

Maintain BUY. Rolling over the valuations to FY18F from FY17F, its new DCF- based TP of THB49.50 implies 28x FY18F P/E or just +0.5SD. The stock is trading at 25x FY18F P/E slightly below its 5-year historical mean P/E of 26x. We believe Centel’s EPS growth is firm and stable, while its solid balance sheet (gearing of 0.3x this year) may facilitate its expansion for both the hotel and food businesses. Near-term catalysts include possible government measures to boost tourism and consumption among locals, and a brighter country outlook after the cremation ceremony of the late King Bhumibol Adulyadej in late October. Key risks include rising competition and pricing pressure.

Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 18,823 19,448 20,505 21,779 22,687 Reported net profit (THBm) 1,664 1,850 2,105 2,365 2,607 Recurring net profit (THBm) 1,664 1,850 2,105 2,365 2,607 Recurring net profit growth (%) 53.3 11.2 13.8 12.3 10.3 Recurring EPS (THB) 1.23 1.37 1.56 1.75 1.93 DPS (THB) 0.50 0.55 0.62 0.70 0.77 Recurring P/E (x) 35.3 31.8 27.9 24.8 22.5 P/B (x) 6.53 5.77 5.11 4.51 4.00 P/CF (x) 15.0 15.4 13.0 12.9 12.5 Dividend Yield (%) 1.1 1.3 1.4 1.6 1.8 Analyst EV/EBITDA (x) 14.3 13.7 12.3 11.2 10.5 Vatcharut Vacharawongsith Return on average equity (%) 19.7 19.3 19.4 19.3 18.8 Net debt to equity (%) 82.4 59.0 36.8 15.9 net cash +66 2088 9736 Our vs consensus EPS (adjusted) (%) (3.2) (1.4) 8.8 [email protected]

Source: Company data, RHB

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Thailand Company Update Central Plaza Hotel

Financial Exhibits

Financial model updated on : 2017-09-28 Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 1.23 1.37 1.56 1.75 1.93 Consumer Cyclical EPS (THB) 1.23 1.37 1.56 1.75 1.93 Central Plaza Hotel DPS (THB) 0.50 0.55 0.62 0.70 0.77 Bloomberg CENTEL TB BVPS (THB) 6.7 7.5 8.5 9.6 10.9 Buy Weighted avg adjusted shares (m) 1,350 1,350 1,350 1,350 1,350

Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F DCF Recurring P/E (x) 35.3 31.8 27.9 24.8 22.5 P/E (x) 35.3 31.8 27.9 24.8 22.5 Key drivers P/B (x) 6.53 5.77 5.11 4.51 4.00 i. Robust outlook for tourist arrivals and spending; FCF Yield (%) 3.2 3.9 5.3 5.3 5.5 ii. Opening of new self-owned hotels and Dividend Yield (%) 1.1 1.3 1.4 1.6 1.8 restaurant outlets; iii. Successful launches of new food products or EV/EBITDA (x) 14.3 13.7 12.3 11.2 10.5 EV/EBIT (x) 26.0 24.3 21.4 18.9 16.7 food marketing campaigns; iv. Economies of scale in the operation of its business units. Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

Total turnover 18,823 19,448 20,505 21,779 22,687 Key risks Gross profit 7,756 7,993 8,468 9,044 9,502 i. Weaker-than-expected tourism atmosphere and EBITDA 4,655 4,751 5,147 5,420 5,608 consumption; ii. Delays in the opening of new hotel properties; Depreciation and amortisation (2,093) (2,082) (2,196) (2,192) (2,098) iii. Rising competition in the food segment; Operating profit 2,562 2,669 2,952 3,228 3,510 iv. Pricing pressure among 4-star hotels in Phuket Net interest (380) (299) (211) (149) (115) and the Maldives. Pre-tax profit 2,183 2,371 2,741 3,079 3,395

Taxation (431) (415) (548) (616) (679) Company Profile Minority interests (88) (107) (88) (99) (109) Central Plaza Hotel operates and manages a chain of Recurring net profit 1,664 1,850 2,105 2,365 2,607 hotels and resorts. It is also a pioneer in quick-service restaurants (QSR) in Thailand. Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Change in working capital (298) (271) 166 7 (13)

Cash flow from operations 3,917 3,802 4,533 4,563 4,692 Capex (2,019) (1,514) (1,440) (1,440) (1,440) Cash flow from investing activities (1,913) (1,407) (1,994) (1,437) (1,447) Dividends paid (540) (675) (740) (842) (946) Cash flow from financing activities (2,201) (1,754) (2,452) (2,338) (854) Cash at beginning of period 646 448 1,089 1,176 1,965 Net change in cash (197) 641 86 789 2,392 Ending balance cash 448 1,089 1,176 1,965 4,357

Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 448 1,143 1,229 2,018 4,410 Tangible fixed assets 19,646 18,993 18,332 17,659 17,066 Intangible assets 700 687 607 543 493 Total investments 1,068 1,020 1,005 989 975 Total other assets 695 654 1,209 1,205 1,212 Total assets 24,443 24,397 24,330 24,465 26,278 Short-term debt 4,522 1,847 1,574 0 800 Total long-term debt 4,101 5,854 4,280 4,280 3,480 Other liabilities 358 401 503 470 438 Total liabilities 14,523 13,280 11,749 10,251 10,278 Shareholders' equity 8,998 10,172 11,503 13,025 14,687 Minority interests 696 713 846 957 1,082 Total equity 9,921 11,117 12,581 14,215 16,001 Net debt 8,175 6,558 4,625 2,262 (130) Total liabilities & equity 24,443 24,397 24,330 24,465 26,278

Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 5.4 3.3 5.4 6.2 4.2 Recurrent EPS growth (%) 53.3 11.2 13.8 12.3 10.3 Gross margin (%) 41.2 41.1 41.3 41.5 41.9 Operating EBITDA margin (%) 24.7 24.4 25.1 24.9 24.7 Net profit margin (%) 8.8 9.5 10.3 10.9 11.5 Dividend payout ratio (%) 32.5 36.5 36.5 36.5 36.5 Capex/sales (%) 10.7 7.8 7.0 6.6 6.3 Interest cover (x) 6.75 8.94 14.00 21.70 30.48

Source: Company data, RHB

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Thailand Company Update Central Plaza Hotel Figure 4: Centel’s DCF valuation

THBm 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F EBIT 3,228 3,510 3,695 3,829 3,940 3,978 3,989 3,998 4,057 4,062 EBIT (1-t) 2,582 2,808 2,956 3,063 3,152 3,183 3,191 3,198 3,246 3,249 Depreciation & Amortization 2,192 2,098 2,119 2,155 2,199 2,250 2,305 2,363 2,424 2,486 Net working capital 7 (13) 16 (19) 2 2 (1) 10 1 (5) Capex (1,440) (1,440) (1,215) (1,215) (1,215) (1,215) (1,215) (1,215) (1,215) (1,215) Net free cash flow to firm 3,327 3,479 3,844 4,022 4,134 4,216 4,283 4,336 4,454 4,525

Terminal value 93,123 PV 3,081 2,982 3,051 2,956 2,813 2,656 2,498 2,342 2,227 45,207 Terminal growth 3.0% WACC 8.0% Total discounted firm value 69,813 Less: Net debt 2,315 Less: Minority interest 957 Equity value 66,540 Number of shares (m) 1,350 Equity value per share (THB) 49.50

Source: RHB

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Thailand Company Update Central Plaza Hotel SWOT Analysis

 Diversified market segments, namely its hotel and  Competition in the 4- food businesses star and economy hotel segments  Strong brand name in the mid-range luxury hotel segment  Lower domestic consumption results in slow SSSG

 Expansion into the budget hotel segment  Overseas expansion via hotel management contracts  Expansion of its food business in the upcountry

 Earnings volatility due to seasonal factors in the tourism sector

Recommendation Chart

Date Recommendation Target Price Price Price Close 2016-12-01 Buy 46.0 39.8

49 Recommendations & Target Price

2016-07-28 Neutral 47.0 42.0

44 2016-06-14 Neutral 43.0 39.3

2016-03-02 Neutral 42.0 40.0 39 2015-11-19 Neutral 42.0 45.8 34 2015-09-02 Neutral 37.0 36.3 29 2015-08-03 Neutral 38.5 37.5 2015-07-16 Neutral 38.5 37.3 24 2014-09-16 Buy 47.0 39.5 19 2014-01-15 Buy 38.0 26.5 14 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB, Bloomberg Sep-12 Jan-14 Apr-15 Jul-16

Source: RHB, Bloomberg

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Thailand Company Update Golden Land Property i

28 September 2017 Property | Real Estate Buy (Maintained) Golden Land Property Target Price: THB10.50 Price: THB9.45 Shining Bright Market Cap: USD659m Bloomberg Ticker: GOLD TB

We initiate coverage on Golden Land with BUY and an SOP-derived TP of Share Data THB10.50 (11% upside). Golden Land has a resilient residential business, Avg Daily Turnover (THB/USD) 38.5m/1.16m well-diversified rental assets and investment portfolio, and a solid balance 52-wk Price low/high (THB) 5.15 - 9.50 sheet with a low gearing. Also the company has strong major shareholders and management, and could benefit from double-digit Free Float (%) 16 earnings growth over the next five years. Catalysts for this counter are the Shares outstanding (m) 1,638 sale of assets to a REIT, and participation in a new gigantic mixed-use Estimated Return 11% project, One Bangkok. Shareholders (%)

Fast-growing residential business. Golden Land Property (Golden Land) has Univentures 39.3 made a strong comeback under its new major shareholders. In 2014, residential Frasers Property Holdings 35.6 sales almost quadrupled YoY. Afterwards, the company has been able to grow Well base development Ltd 9.3 its residential sales by 140% YoY in 2015 and 34.5% YoY in 2016 to almost

THB10bn. Moving forward, the company estimates that its residential sales are Share Performance (%) set to continue growing at c.20% pa in 2016-2020F. It also believes it is able to YTD 1m 3m 6m 12m keep current the gross margins at 34-35%. New launches for 2017 are set at Absolute 45.4 27.7 23.5 42.1 57.5 THB18bn, with presales and revenue targets of THB20bn (1H17: THB11bn) and THB1 bn respectively. The company’s main strengths are its well-known Relative 37.1 21.7 18.2 35.7 45.4 landed property brands that cover all market segments and fast turnover with Source: Bloomberg competitive margins. This is given its relatively small-sized projects in sub- streets of major residential areas in Bangkok’s south, north-east and east Golden Land Property (GOLD TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) areas. 10.7 155 9.7 143 8.7 132 Well-diversified business model. Apart from its residential business, Golden 7.7 120 Land has several rental assets (ie office buildings, hotels and serviced 6.7 108 5.7 97 apartments) worth a combined book value of THB8bn (fair value: THB12bn). 1404.7 85 These assets could be monetised via a REIT later. Its latest THB8.5bn mixed 120 100 project – Samyan Mitrtown, a joint venture (JV) project with TCC Assets Co 80 (TCC Assets), ie the property arm of beverage tycoon Mr Charoen 60 40 Sirivadhanabhakdi – is now under construction and slated for completion in 20

2020F. This project, located in Bangkok’s central business district (CBD), Vol m

Apr-17

Jan-17 Jun-17

Nov-16 Sep-16 comprises of 64,000 sqm of offices, 36,000 sqm of residence/serviced Aug-17 apartments, and 65,000 sqm of retail/multi-purpose space. Recently, Golden Land’s shareholders, TCC Assets and Frasers Property Holdings (Thailand) Co Source: Bloomberg Ltd (Frasers Property), unveiled the THB120bn One Bangkok development. This project comprises five hotels, five offices, three luxury condominiums and retail space. The company is confident that it would be offered to take part in such a gigantic development.

Double-digit earnings growth over the next five years. Based on management’s guidance, Golden Land has bright prospects ahead, with a 3-year CAGR for revenue and earnings of c.16-17%. Upside would come from gains as a result of asset monetisation. Our SOP-derived THB10.50 TP comprises THB6.70 in 2018F book value,

THB2.30 for the adjusted rental assets, THB0.70 for its adjusted investment portfolio and THB0.80 for the estimated value of Samyan Mitrtown (Figure 2). At THB10.50, it would trade at 1.5x P/BV, or +0.5SD from its long-term mean.

Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 8,520 11,022 13,080 15,266 17,478 Reported net profit (THBm) 659 1,046 1,260 1,441 1,672 Recurring net profit (THBm) 659 1,041 1,260 1,441 1,672 Recurring net profit growth (%) 2237.4 58.0 21.1 14.3 16.0 Recurring EPS (THB) 0.40 0.53 0.54 0.62 0.72 DPS (THB) 0.10 0.23 0.27 0.31 0.36 Recurring P/E (x) 23.5 18.0 17.4 15.2 13.1 P/B (x) 1.90 1.56 1.48 1.41 1.33 Dividend Yield (%) 1.1 2.4 2.9 3.3 3.8 Analyst Return on average equity (%) 8.4 9.4 8.7 9.5 10.4 Wanida Geisler Return on average assets (%) 3.0 4.1 4.2 4.4 4.8 Net debt to equity (%) 121.0 26.5 42.9 46.9 40.3 +66 2088 9748 Our vs consensus EPS (adjusted) (%) (1.4) 1.6 9.0 [email protected]

Source: Company data, RHB

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Thailand Company Update Golden Land Property

Financial Exhibits

Financial model updated on: 2017-09-27. Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 0.40 0.53 0.54 0.62 0.72 Property EPS (THB) 0.40 0.53 0.54 0.62 0.72 Golden Land Property DPS (THB) 0.10 0.23 0.27 0.31 0.36 Bloomberg GOLD TB BVPS (THB) 4.99 6.05 6.37 6.72 7.12 Buy Weighted avg adjusted shares (m) 1,638 1,981 2,324 2,324 2,324

Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F RNAV Recurring P/E (x) 23.5 18.0 17.4 15.2 13.1 P/E (x) 23.5 17.9 17.4 15.2 13.1 Key drivers P/B (x) 1.90 1.56 1.48 1.41 1.33 i. Economic growth; FCF Yield (%) 7.4 (15.3) (5.8) (1.1) 6.6 ii. Consumer confidence; Dividend Yield (%) 1.1 2.4 2.9 3.3 3.8 iii. Banks' lending measures. EV/EBITDA (x) 8.94 5.33 5.97 5.23 4.06 Key risks EV/EBIT (x) 11.7 7.2 7.5 6.5 5.0 i. Low backlog; ii. High household debt, Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F iii. Fierce competition. Total turnover 8,520 11,022 13,080 15,266 17,478 Gross profit 2,856 3,765 4,514 5,198 5,955 Company Profile EBITDA 1,265 1,658 1,959 2,234 2,551 Golden Land Property engages in property Depreciation and amortisation (300) (438) (399) (437) (474) development. It also has office buildings and serviced Operating profit 965 1,220 1,559 1,797 2,077 apartments for rent. Net interest (279) (122) (126) (146) (146) Income from associates & JVs 23 37 41 45 49 Exceptional income - net 0 6 0 0 0 Pre-tax profit 779 1,256 1,554 1,780 2,068 Taxation (133) (220) (303) (347) (404) Minority interests 13 10 9 8 7 Recurring net profit 659 1,041 1,260 1,441 1,672

Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

Change in working capital 1,312 (2,779) (1,707) (387) 1,048 Cash flow from operations 2,235 (2,815) 217 1,253 2,932 Capex (1,084) (56) (1,501) (1,498) (1,488) Cash flow from investing activities (1,566) 3,868 (1,978) (1,573) (1,567) Proceeds from issue of shares (1,262) 4,972 0 0 0 Dividends paid 0 (116) (534) (630) (720) Cash flow from financing activities (629) (696) 1,260 370 (720) Cash at beginning of period 195 235 592 91 140 Net change in cash 40 357 (501) 50 644 Ending balance cash 235 592 91 140 784

Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 235 592 91 140 785 Tangible fixed assets 3,335 3,619 3,661 3,713 3,775 Total investments 7,114 9,588 10,883 12,146 13,375 Total other assets 488 885 630 630 630 Total assets 22,042 28,817 31,581 33,771 35,192 Short-term debt 6,021 571 2,300 2,800 2,800 Total long-term debt 3,802 3,685 4,000 4,500 4,500 Other liabilities 1,438 1,151 750 750 750 Total liabilities 14,118 15,010 17,098 18,508 19,012 Shareholders' equity 8,166 14,061 14,794 15,605 16,556 Minority interests (272) (283) (311) (342) (377) Total equity 7,924 13,807 14,482 15,263 16,180 Net debt 9,588 3,664 6,209 7,160 6,515 Total liabilities & equity 22,042 28,817 31,581 33,771 35,192

Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 110.3 29.4 18.7 16.7 14.5 Recurrent EPS growth (%) 1973.4 30.6 3.2 14.3 16.0 Gross margin (%) 33.5 34.2 34.5 34.1 34.1 Operating EBITDA margin (%) 14.8 15.0 15.0 14.6 14.6 Net profit margin (%) 7.7 9.5 9.6 9.4 9.6 Capex/sales (%) 12.7 0.5 11.5 9.8 8.5 Interest cover (x) 3.46 10.00 12.38 12.31 14.22

Source: Company data, RHB

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Thailand Company Update Golden Land Property Investment Thesis We like Golden Land for its: i. Resilient residential business; ii. Well-diversified rental assets and investment portfolio; iii. Solid balance sheet with low gearing; iv. Strong major shareholders and management team. At a TP of THB10.50 (Figure 2), Golden Land would trade at 1.5x P/BV, ie +0.5SD to its long-term mean.

Figure 1: Golden Land’s P/BV and SD levels Figure 2: Golden Land’s SOP valuation THB/share BV 6.7 Diff. between fair and book value Investment property 2.3 Samyan Complete end-2019 0.8 Mitrtown Associates 0.7 SOP 10.5

Source: SETSMART Source: Company data, RHB

Figure 3: Peer comparison

Earnings growth* EPS (THB) EPS (THB) PE(x) PE(x) P/B(x) P/B(x) Yield(%) Yield(%) Curr price TP Recc Valuation 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F THB THB ANAN 40.8 23.3 0.60 0.70 9.2 7.9 1.4 1.2 2.6 3.3 5.50 6.0 BUY on 10x PE AP 18.3 11.5 0.98 1.10 8.1 7.2 1.2 1.1 4.5 5.0 7.95 8.8 BUY on 9x PE, Mean GOLD 21.1 14.3 0.54 0.62 15.1 13.2 1.3 1.2 3.3 3.8 8.20 10.0 BUY SOTP LH 13.8 2.4 0.73 0.75 13.8 13.4 2.4 2.4 7.4 6.3 10.70 11.7 BUY SOTP LPN (38.5) 23.2 0.91 1.12 13.1 10.6 1.4 1.3 3.1 3.8 11.50 9.5 SELL on 8x PE, -0.5SD PSH (4.1) 7.0 2.61 2.79 9.3 8.7 1.4 1.3 5.4 5.7 24.30 23.5 NEUTRAL on 9x PE, -0.5SD QH (4.5) 2.6 0.27 0.28 9.8 9.6 1.2 1.1 4.1 4.2 2.70 2.4 SELL SOTP SIRI (9.1) 4.0 0.21 0.22 10.8 10.4 1.1 1.0 3.7 3.9 2.28 1.9 Take profit on 9x PE , Mean SPALI 11.0 8.5 3.16 3.05 7.3 7.6 1.4 1.5 - 5.0 23.00 27.0 BUY on 8x PE, Mean Note: Data as at 15 Sep 2017 Source: SETSMART, RHB

Risks The risks to our recommendation are: i. Fierce competition among the top listed developers; ii. Strict lending measures; iii. High household debt; iv. Delays in the construction of the mass transit system; v. Massive investments needed to build up the rental portfolio until these assets are ready for divestment into a REIT.

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Thailand Company Update Golden Land Property Business Structure Three steps to a successful transformation. Golden Land was taken over by Univentures – which is owned by the family of local beverage tycoon Mr Sirivadhanabhakdi – in 2013. After putting in a new management team, the company declared its 3-step turnaround plan for 2013-2015 (Figure 4). This included: i. Re-branding; ii. Re-financing loans; iii. Restructuring of the business model; iv. Acquisition of high-end developer Krungthep Land; v. Divestment of non-core assets (eg vacant landbank in the provinces); vi. Asset monetisation via Golden Ventures Leasehold REIT, among others.

Figure 4: Sharp turnaround in Golden Land’s financial position

Source: Company data

Well-diversified business model Golden Land’s property business comprises landed residential projects under eight brands, as well as some commercial developments, eg three office buildings and three hotels.

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Thailand Company Update Golden Land Property Figure 5: Golden Land’s corporate profile

Source: Company

Key Competitiveness Strong shareholders and professional management Univentures – owned by the family of beverage tycoon Mr Sirivadhanabhakdi – bought a majority stake in Golden Land in 2013. In 2015, Fraser Property – a global property play (and also under the property arm of Mr Sirivadhanabhakdi) – stepped in. This has helped to strengthen the company’s competitiveness. Golden Land turned profitable in 2014, ie one year after the entry of the new major shareholder. Its top management consists of highly professional industry experts. They include: i. President, Mr Thanapol Sirithanachai, who has held top management posts at Univentures; ii. Senior executive vice president of accounting and finance, Mr Somboon Wasinchutchawal who is the former CFO of Property Perfect and Pruksa (PSH TB, NEUTRAL, TP: THB23.50); iii. Managing director Mr Saenphin Sukhee also used to be part of the top management team at Quality Houses (QH TB, SELL, TP: THB2.40).

Well-known brands covering all segments The Golden brand was established before the 1997 Asian Financial Crisis (AFC) as one of the country’s well-known high-end residential names. Over the past few years, it has successfully diversified into other segments – eg via the acquisition of Krungthep Land for The Grand luxury brand – and also penetrated into the mass and affordable markets.

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Thailand Company Update Golden Land Property Figure 6: Product segments

Source: Company data

Focused on fast turnover with competitive margins Golden Land’s residential projects – particularly townhouses – are primarily focused on fast turnover and competitive margins. This is because they are relatively small-sized projects (no more than 200 units per project) in sub-streets of major residential areas in Bangkok’s south, north-east and east areas. Additionally, when compared to other developers’ similar projects, Golden Land’s affordable townhouse developments provide bigger and grander clubhouses with swimming pools. Generally, it takes less than two years to complete, between land acquisition and a project’s closing date. As condominium prices are skyrocketing, affordable townhouses in areas not far from mass transit stations look like a better choice for property buyers. For instance, along the Purple Line Mass Rapid Transit (MRT) network, there is an oversupply of small-sized condominiums priced at less than THB100,000 per sqm. Buyers can also find townhouses or houses at the same absolute price, but with more usable space. We noticed rooms with an average space of 30 sqm in condominiums along the main road near a Purple Line station priced in the THB2-3m per unit range. A similarly priced townhouse around the same area in a sub-street had a useable space of 100-120sqm.

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Thailand Company Update Golden Land Property Figure 7: Golden Land’s project locations

Source: Company

Its first residential project outside Bangkok was a success Golden Land recently launched the THB1.2bn Golden Town Sriracha in Thailand’s eastern seaboard area, its first residential project outside Bangkok. This development was a success, with a take-up rate of 60% during its launch. Hence, the company seems more confident in going outside the capital city, particularly around industrial zones such as Rayong, Chonburi and Ayudhaya.

Another 14 projects worth THB15bn to be launched in 2H Golden Land plans to launch 10 new projects worth THB9.5bn, driving total new launches this year to 15 projects worth a total of THB18bn, slightly lower than its previous target of THB21bn. Next year, its new launches should be no less than 20 projects, mostly in Bangkok and few in other provinces. Large landbank in hand comprises a 100-rai land plot in Navamin, which would be developed into 4-5 phases, a 70-80-rai land plot in the Kubon area and 160-rai land plot in the Srinakarin area (1 rai = 0.16 ha).

Presales, revenue and new launches Golden Land has seen a sharp turnaround after the entry of new shareholders and a new team. Hence, its 3-year CAGR for revenue, new launch, and presales are expected to be 43%, 50% and 36% respectively. We note that its current backlog stands at THB3.2bn, which would be realised as revenue in 3Q17. Presales for 1H17 were THB11bn (+67% YoY) accounting for 55% of its latest full-year target of THB20bn (up from THB18bn set at early-2017).

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Thailand Company Update Golden Land Property Figure 8: Historical trends

THBm 20,000 3-year 43% 50% 36% CAGR 15,000

10,000

5,000

- Revenue New launch Presales

2014 2015 2016 2017F

Source: Company data

Valuable commercial properties portfolio Apart from its residential business, Golden Land has several rental assets (office buildings, hotels and serviced apartments) worth a combined book value of THB8bn (fair value of THB12bn). These assets can be monetised via REITs later. In 2016, it sold the 73,000sqm Sathorn Square office building to Golden Ventures Leasehold Real Estate Investment (GVREIT TB, NR). Rental income in 2016 stood at THB1.1bn, slightly down YoY after the divestment of Sathorn Square. Its new commercial project – Samyan Mitr Town, a JV project with TCC Assets – a property arm of Mr Sirivadhanabhakdi – is now under construction and due to be completed in 2 2 . This project is located in Bangkok’s central business district near Chulalongkorn University, the top-ranked university in Thailand. It has direct access to underground train stations, and comprises 48,000 sqm of office space, 554 residential units, a 104-key hotel and 36,000 sqm of retail and multi-purpose space. The total value of this project is around THB8.5bn. The main concept of the project is “The Urban Life Library”, which comprises The Eating Library, The Living Library and The Learning Library.

Figure 9: Office buildings Figure 10: Hotels and serviced apartments

Source: Company data Source: Company data

High potential to participate in the large One Bangkok project One Bangkok, a JV between TCC Assets (80%) and Fraser Centerpoint (20%), is a fully integrated district located in a prime area of central Bangkok, at the corner of Wireless Road and Rama IV Road, right next to Lumpini Park. It has direct connections to the underground stations. The project, worth THB120bn (USD3.5bn), is on 16.7ha (104 rai) of leased land area (from the Crown Property Bureau), with a gross floor area of 1.83m sqm. It comprises five Grade-A office towers, five hotels, three luxury residential condominiums, retail space and art & culture spaces. Around eight ha (50 rai) would be set aside for green areas and open spaces. It is likely that this project would take 7-8 years to complete. Given its gigantic size, it is likely that listed companies under Mr Sirivadhanabhakdi’s group such as Golden Land and Univentures (UV TB, NR) and other JVs would take part in the development of this project. Note that Golden Land specialises in developing office towers, hotels and retail space, while Univentures’ main business is in developing condominium projects.

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Thailand Company Update Golden Land Property Figure 11: One Bangkok

Source: Company

Financial Analysis Golden Land estimates its residential sales to continue growing at around 20% pa from 2 1 to 2 2 F. The company’s current gross margin should be sustained at -35%. New launches for 2017 are set at THB18bn, with a presales target of THB20bn (up from THB18bn set in early-2017) and revenue target of THB13bn. Rental revenue accounted for 10% of its total revenue in 2016 and we expect it to grow at around 10% pa over the next three years, mainly from the newly-completed FYI Center. The next round of asset divestment should take place around 2019, once the first rental contracts are renewed. From 2020, rental income from Samyan Mitr Town would kick in, which could help drive its rental revenue up further.

Figure 12: Revenue breakdown Figure 13: Margin trend

THBm % 20,000 50.0 Rental GP 18,000 40.0 Residential GP 16,000 30.0 14,000 12,000 20.0 SG&A exp to sales 10,000 10.0 8,000 Net margin - 6,000 2010 2012 2014 2016 2018F 4,000 (10.0) 2,000 (20.0) - 2010 2013 2016 2019F (30.0) (40.0) Residential sales Rental revenue

Source: Company data, RHB Source: Company data, RHB

As Golden Land’s SG&A expenses-to-sales ratio has been stable at 22-23% during 2015- 2016, we maintain our estimated ratio at this level going forward. We conservatively expect its net margins to be around 10%. Profitability ratios, ie return on equity (RoE) and return on assets (RoA) remained on the uptrend while its net gearing ratio (net D/E) fell below 0.5x in 2016. Despite its investment in Samyan Mitr Town, Golden Land should be able to maintain its gearing ratio at around 0.5x moving forward.

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Thailand Company Update Golden Land Property SWOT Analysis

Well-diversified developer with landed property under Fierce competition the Golden brand covering almost all segments, as among top listed well as recurring income from assets such as office developers buildings and hotels High household debt Strong shareholders (TCC Group and Fraser) as well Delay in the as professional management team construction of the mass transit system Slow recovery in upcountry demand Further expansion into the provincial market Asset monetisation via REITs High potential to participate in upcoming gigantic THB120bn

mixed use One Bangkok project, under Focuses only on landed property business TCC group/ Massive investment to build up rental asset portfolio Fraser Relatively lower RoA than peers

Recommendation Chart

Date Recommendation Target Price Price Price Close 2017-09-28 Buy 10.5 9.5 18 Recommendations & Target Price

Source: RHB, Bloomberg na 16 14

12

10

8

6

4 Buy Neutral Sell Trading Buy Take Profit Not Rated Sep-12 Jan-14 Apr-15 Jul-16

Source: RHB, Bloomberg

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Thailand Company Update Minor International

2 October 2017 Consumer Cyclical | Leisure & Entertainment Buy (Maintained) Minor International Target Price: THB47.00 Price: THB40.75 Making a Mint Market Cap: USD5,404m Bloomberg Ticker: MINT TB

We continue to favour Minor as our Top Pick for Thailand’s hotel Share Data industry. The solid outlook of its hotel segment for the next three Avg Daily Turnover (THB/USD) 567m/17.0m quarters, improving operations of its food outlets in major hubs and firm 52-wk Price low/high (THB) 33.5 - 42.3 backing from supportive businesses may turn its performance and lead to robust core profit growth of 25% YoY this year and 18% YoY over 2018- Free Float (%) 58 2019, while profit margins widen. As such, maintain BUY, with an Shares outstanding (m) 4,402 unchanged DCF-based 2017F TP of THB47.00 (15% upside). Estimated Return 15%

Better outlook for hotels. We are optimistic that the earnings of Minor’s hotel Shareholders (%) unit would strengthen in 2H17, and continue in 1Q18. Its Thai hotels are Minor Holding (Thai) Limited 16.5 benefiting from a strong tourism environment, which has helped to keep its UBS AG Singapore Branch 14.8 overall occupancy rate high and boost room rates for resort destinations. It Mr. Nithi Osathanugrah 7.9 acquired the Tivoli hotels in Portugal and Brazil, which are entering the high season (3Q17-4Q17F). Some of its rebranded properties in Europe are also Share Performance (%) seeing revenue per available room (RevPar) grow by double digits. We also YTD 1m 3m 6m 12m see a limited downside for its hotels in the Maldives, which are patronised by Absolute 14.0 5.2 (3.0) 12.4 5.2 European guests. We expect its hotel revenue to grow 17% YoY in 2017 and Relative 5.7 (0.8) (8.3) 6.0 (6.9) % YoY in 2 1 , contributing 2% of the group’s revenue. Source: Bloomberg

Food business is recovering. Its food business is doing well in China (13% of Minor International (MINT TB) food revenue) in terms of SSSG and new outlets opening, while its Australian Price Close Relative to Stock Exchange of Thailand Index (RHS) hub saw mild total sales growth. For its core Thailand hub (63% of food sales), 44 108 42 103 the gradual recovery in domestic consumption – particularly in the high season 40 98 38 93 of 4Q17 – may benefit the company. That, and its strong branding, may turn 36 88 SSSG positive in 2H17 (it was negative in 2Q17). We expect its Singapore hub 34 83 8032 78 (13% of food sales) to take a few years to turn around. 70 60 50 Supportive businesses in good shape. Minor’s time-share unit, Anantara 40 30 Vacation Club, which accounts for c.7% of group sales, may see its sales 20 10

growth turn positive this year (+10% YoY). This is after tweaking its business Vol m

model, and offering smaller packages to attract new subscribers. Its residential

Apr-17

Jan-17 Jun-17

Aug-17 Sep-16 Nov-16 units-for-sale segment also provides strong revenue and margins support. Three super-luxury villas (Anantara Residences in Phuket) were transferred to Source: Bloomberg buyers in 1Q17. It expects to see more bookings in 2H17. More high-end residential projects are under construction in Desaru, Malaysia and Ubud, Indonesia may deliver a new inventory and smoothen this segment’s earnings in 2018-2019.

BUY, as solid growth outlook is intact. Its outlook is still promising and earnings remain strong. We expect core profit to grow 25% YoY in 2017, and 18% each in 2018-2019. We also estimate its core profit margin to improve by 0.8-1.1ppts over the 3-year period. We like its diversified businesses and asset locations, which help minimise operational risks. Its earnings outlook for 3Q17F-1Q18F is bright. Our THB47.00 TP also implies 38x 2017 P/E. Minor is our Top Pick for Thailand’s hotel sector. Key downside risks include an extended slowdown of food consumption in Thailand and Singapore, weaker- than-expected hotel room rate hikes (particularly in Bangkok and the Maldives), and a volatile AUD, as Minor’s Australian unit accounts for 1 % of total revenue.

Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 42,345 51,152 59,065 63,870 68,538 Reported net profit (THBm) 7,040 6,590 5,777 6,839 8,063 Recurring net profit (THBm) 4,704 4,620 5,777 6,839 8,063 Recurring net profit growth (%) 12.5 (1.8) 25.0 18.4 17.9 Recurring EPS (THB) 1.12 1.05 1.31 1.55 1.83 DPS (THB) 0.35 0.35 0.44 0.52 0.61 Recurring P/E (x) 36.4 38.9 31.1 26.3 22.3 P/B (x) 5.22 4.53 4.07 3.67 3.29 P/CF (x) 85.2 12.7 18.2 16.3 14.6 Dividend Yield (%) 0.9 0.9 1.1 1.3 1.5 Analyst EV/EBITDA (x) 20.7 18.7 16.3 14.5 12.7 Vatcharut Vacharawongsith Return on average equity (%) 22.5 17.8 13.8 14.7 15.5 Net debt to equity (%) 113.0 111.4 102.0 82.6 59.5 +66 2088 9736 Our vs consensus EPS (adjusted) (%) 1.5 4.8 1.0 [email protected]

Source: Company data, RHB

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Thailand Company Update Minor International

Financial Exhibits

Financial model updated on : 2017-09-28 Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 1.12 1.05 1.31 1.55 1.83 Consumer Cyclical EPS (THB) 1.68 1.50 1.31 1.55 1.83 Minor International DPS (THB) 0.35 0.35 0.44 0.52 0.61 Bloomberg MINT TB BVPS (THB) 7.8 9.0 10.0 11.1 12.4 Buy Weighted avg adjusted shares (m) 4,202 4,406 4,410 4,410 4,410

Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F DCF Recurring P/E (x) 36.4 38.9 31.1 26.3 22.3 P/E (x) 24.3 27.2 31.1 26.3 22.3 Key drivers P/B (x) 5.22 4.53 4.07 3.67 3.29 i. Strong outlook for tourist arrivals and spending; FCF Yield (%) (9.9) (2.5) 3.2 3.6 5.7 ii. Opening of new owned or JV hotels and Dividend Yield (%) 0.9 0.9 1.1 1.3 1.5 restaurant outlets; iii. Consolidation of financial statements of EV/EBITDA (x) 20.7 18.7 16.3 14.5 12.7 EV/EBIT (x) 30.6 28.4 23.9 20.7 17.7 acquired entities; iv. Successful launches of new products; v. Economies of scale in the operation of its Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F business units. Total turnover 42,345 51,152 59,065 63,870 68,538

Gross profit 24,564 29,390 34,513 37,537 40,683 Key risks EBITDA 9,634 11,352 12,948 14,237 15,625 i. Weaker-than-expected tourism environment and consumption; Depreciation and amortisation (3,124) (3,875) (4,145) (4,265) (4,367) ii. Delays in the opening of new properties; Operating profit 6,510 7,477 8,803 9,972 11,259 iii. Rising competition among hotel and restaurant Net interest (1,301) (1,606) (1,686) (1,547) (1,326) operators. Exceptional income - net 2,336 1,970 0 0 0

Pre-tax profit 7,545 7,841 7,117 8,425 9,933 Company Profile Taxation (411) (1,032) (1,068) (1,264) (1,490) Minor International is a global company focused on Minority interests (94) (219) (272) (322) (380) three primary businesses – restaurants, hotels and a Recurring net profit 4,704 4,620 5,777 6,839 8,063 distribution business featuring lifestyle brands.

Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Change in working capital (6,170) 11,242 (5,749) (35) (54) Cash flow from operations 2,010 14,117 9,860 11,008 12,279 Capex (19,009) (18,615) (4,120) (4,500) (2,000) Cash flow from investing activities (16,665) (14,620) (4,464) (4,526) (2,042) Proceeds from issue of shares 422 293 0 0 0 Dividends paid (1,411) (1,609) (1,618) (2,022) (2,394) Cash flow from financing activities 13,285 899 (5,057) (6,098) (10,059) Cash at beginning of period 5,372 4,003 4,399 4,738 5,121 Net change in cash (1,370) 396 339 383 179 Ending balance cash 4,003 4,399 4,738 5,121 5,300

Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 4,003 4,399 4,738 5,121 5,300 Tangible fixed assets 36,978 50,684 50,998 51,565 49,520 Intangible assets 17,893 18,483 18,212 17,942 17,678 Total investments 15,944 16,173 15,104 15,043 14,985 Total other assets 7,742 7,098 8,442 8,468 8,510 Total assets 98,382 108,453 109,216 110,422 108,757 Short-term debt 4,101 7,821 7,008 9,508 10,508 Total long-term debt 41,373 42,010 42,010 35,510 27,010 Other liabilities 6,718 7,637 6,556 6,383 6,036 Total liabilities 61,670 67,656 65,806 62,098 54,582 Shareholders' equity 34,362 39,705 44,203 49,020 54,689 Minority interests 3,909 3,395 1,511 1,607 1,789 Total equity 36,711 40,797 43,410 48,324 54,176 Net debt 41,471 45,433 44,281 39,898 32,219 Total liabilities & equity 98,382 108,453 109,216 110,422 108,757

Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 14.5 20.8 15.5 8.1 7.3 Recurrent EPS growth (%) 7.2 (6.3) 24.9 18.4 17.9 Gross margin (%) 58.0 57.5 58.4 58.8 59.4 Operating EBITDA margin (%) 22.8 22.2 21.9 22.3 22.8 Net profit margin (%) 16.6 12.9 9.8 10.7 11.8 Dividend payout ratio (%) 20.0 24.4 24.4 24.4 24.4 Capex/sales (%) 44.9 36.4 7.0 7.0 2.9 Interest cover (x) 5.00 4.66 5.22 6.45 8.49

Source: Company data, RHB

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Thailand Company Update Minor International SWOT Analysis

 Strong expertise in hotel management in Thailand  Domestic and around the world consumption growth has  Highly-efficient quick-service restaurant (QSR) softened business  External factors, eg political uncertainty, natural disasters and

 Improving epidemics number of international tourist arrivals to Thailand  Rising number of tourists travelling across the region

 Low take-up rates from overseas hotels under its management  Uncertainty in transactions pertaining to acquisitions

Recommendation Chart

Date Recommendation Target Price Price Price Close 2017-08-10 Buy 47.0 40.0

46 Recommendations & Target Price

2016-11-18 Buy 47.0 34.0

na

41 2016-05-23 Buy 44.0 38.8 2016-03-03 Buy 44.0 36.0 36 2016-02-23 Buy 44.0 35.8 31 2016-02-09 Buy 44.0 35.3 26 2015-11-19 Buy 39.0 34.0 2015-08-05 Buy 37.0 27.3 21 2015-07-16 Buy 37.0 29.3 16 2014-08-12 Buy 40.0 29.1 11 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB, Bloomberg Sep-12 Jan-14 Apr-15 Jul-16

Source: RHB, Bloomberg

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Thailand Initiating Coverage The Platinum Group

28 September 2017 Property | Real Estate Buy (Maintained) The Platinum Group Target Price: THB10.30 Price: THB9.15 Harnessing The Power Of Recurring Income Market Cap: USD769m Bloomberg Ticker: PLAT TB

We initiate coverage on Platinum, a recurring income-based firm that suits Share Data long-term investment, with BUY and a DCF-based FY18F TP of THB10.30 Avg Daily Turnover (THB/USD) 26.5m/0.80m (12% upside). The solid performance of its major mixed-use properties may allow for a favourable hike in upcoming rental rate renewals. Also, its 52-wk Price low/high (THB) 5.80 - 9.15 new hotels and shopping malls in prime locations, to be opened in 2018- Free Float (%) 26 2019, may add value to existing properties and boost earnings growth to Shares outstanding (m) 2,800 average 21% over a 3-year period. Its (debt-free) balance sheet and huge Estimated Return 12% cash pile also supports capex. The stock offers a 3% dividend yield. Shareholders (%) Recurring income play. The Platinum Group (Platinum) operates shopping malls and hotels in Bangkok and Koh Samui. Two-thirds of its revenue comes Mr Surachai Chotjurangkool 28.3 from sources that offer recurring turnover. We expect secured earnings from its Ms Punjaporn Chotjurangkool 17.6 major property, The Platinum Fashion Mall in Pratunam, due to its positioning Mr Wuttichai Wijitthanarak 8.0 as the biggest wholesale mall for value-for-money modern clothing in the prime Bangkok shopping district, which attracts local retailers and foreign tourists. Share Performance (%) YTD 1m 3m 6m 12m More mixed-use assets. Its Novotel Bangkok Platinum Pratunam (Novotel), located in the same compound as the fashion mall and catering to international Absolute 26.2 22.8 32.6 25.3 45.2 tourists, is a success. Novotel has booked robust revenue per available room Relative 17.9 16.8 27.3 18.9 33.1 (RevPar) growth almost every year since opening in 2011. Given the value-add Source: Bloomberg from mixed-use assets, it aims to open more three hotels – two at its The Wharf

Samui by 4Q18 and one at its The Market Bangkok in 2021. These may The Platinium Group (PLAT TB) strengthen its integrated projects’ operations over the longer term. Price Close Relative to Stock Exchange of Thailand Index (RHS) 9.4 139 The Market Bangkok to be a key growth driver. Platinum plans to open a 8.4 128 retail mall, The Market Bangkok, in 4Q18. The new bazaar may be successful, 7.4 117 as it is located in the last vacant land plot of the Ratchaprasong shopping area 6.4 105 5.4 94 and focuses on the middle- and lower-income segments. This differentiates it 60 50 from other mid- to high-end retail projects there. It could become the company’s 40 biggest project in terms of leasable space (3x larger than The Platinum Fashion 30 Mall) and may contribute 27-28% of total revenue in time. This would be a 20 10

significant earnings growth driver in 2019. Vol m

Apr-17

Jan-17 Jun-17

Aug-17 Nov-16 3-year earnings CAGR of 21%. We expect earnings to grow 11% YoY to Sep-16 THB779m this year, 13% YoY to THB878m in 2018, and jump by 41% YoY to THB1.23bn in 2019. This is on the back of new project openings, the rental rate Source: Bloomberg hike from contract renewals, and economies of scale in its operations that would lead to opex savings. The rising net profit growth may drive its ROE to

13.2% in 2019F from 8.5% in 2016. Its healthy balance sheet (without interest- bearing debt), sturdy cash pile and solid operating cash flow would be able to support a combined investment capex of THB6.7bn over 2017-2019. Initiate coverage with a BUY call. Our DCF-derived TP of THB10.30 implies a

FY18F target P/E of 33x. The superior earnings growth in the next three years may lower the company’s current FY1 F P/E to an attractive 21x, while a moderate average dividend yield of 3% is expected. Meanwhile, a strong outlook for Thailand’s tourism and a focus on wholesales at its key shopping mall should help limit concerns over online retail trade. Downside risks include delays in opening of new projects, weak local consumption and political gatherings (protests used to be located close to Platinum’s shopping malls).

Forecasts and Valuations Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total turnover (THBm) 1,623 1,718 1,895 2,150 3,551 Reported net profit (THBm) 630 704 779 878 1,235 Recurring net profit (THBm) 630 704 779 878 1,235 Recurring net profit growth (%) 43.6 11.9 10.7 12.6 40.7 Recurring EPS (THB) 0.26 0.25 0.28 0.31 0.44 DPS (THB) 0.06 0.16 0.17 0.20 0.28 Recurring P/E (x) 35.6 36.4 32.9 29.2 20.7 P/B (x) 3.12 3.02 2.93 2.82 2.65 Dividend Yield (%) 0.7 1.7 1.9 2.1 3.0 Analyst Return on average equity (%) 11.6 8.4 9.1 9.9 13.2 Vatcharut Vacharawongsith Return on average assets (%) 9.2 7.3 7.8 8.6 11.4 Net debt to equity net cash net cash net cash net cash net cash +66 2088 9736 Our vs consensus EPS (adjusted) (%) 2.0 3.5 3.8 [email protected]

Source: Company data, RHB

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Thailand Initiating Coverage The Platinum Group

Financial Exhibits

Financial model updated on : 2017-09-28 Asia Financial summary Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Thailand Recurring EPS (THB) 0.26 0.25 0.28 0.31 0.44 Property EPS (THB) 0.26 0.25 0.28 0.31 0.44 The Platinium Group DPS (THB) 0.06 0.16 0.17 0.20 0.28 Bloomberg PLAT TB BVPS (THB) 2.93 3.03 3.12 3.24 3.46 Buy Weighted avg adjusted shares (m) 2,450 2,800 2,800 2,800 2,800

Valuation basis Valuation metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F DCF Recurring P/E (x) 35.6 36.4 32.9 29.2 20.7 P/E (x) 35.6 36.4 32.9 29.2 20.7 Key drivers P/B (x) 3.12 3.02 2.93 2.82 2.65 i. Positive outlook for tourist arrivals and FCF Yield (%) 0.1 1.0 (7.6) (6.2) 5.8 consumer spending; Dividend Yield (%) 0.7 1.7 1.9 2.1 3.0 ii. Opening of new development projects; iii. Enhancement of existing properties to improve EV/EBITDA (x) 18.3 19.1 17.2 17.3 12.6 EV/EBIT (x) 22.0 22.6 20.6 22.4 15.3 foot traffic.

Key risks Income statement (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F i. Delay in opening of new projects; Total turnover 1,623 1,718 1,895 2,150 3,551 ii. Popularity of online trading channels; Gross profit 992 1,069 1,187 1,342 2,023 iii. Uncertainties stemming from events like natural EBITDA 950 1,043 1,168 1,422 1,887 disasters, riots and terrorism. Depreciation and amortisation (160) (161) (193) (325) (343) Company Profile Operating profit 790 882 975 1,098 1,544 Net interest (0) (1) (1) (1) (1) The Platinum Group develops properties for leasing and operates a hotel business. Properties that are its Pre-tax profit 790 881 974 1,097 1,544 assets include The Platinum Fashion Mall in Bangkok, Taxation (160) (177) (195) (219) (309) The Wharf Samui, and Novotel Bangkok Platinum Recurring net profit 630 704 779 878 1,235 Pratunam hotel.

Cash flow (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F

Change in working capital (208) 485 (73) 53 166 Cash flow from operations 329 1,121 900 1,255 1,744 Capex (317) (861) (2,850) (2,850) (250) Cash flow from investing activities (5,252) (733) (400) (700) (1,100) Proceeds from issue of shares 5,110 0 0 0 0 Dividends paid (174) (441) (504) (553) (623) Cash flow from financing activities 4,950 (439) (504) (553) (623) Cash at beginning of period 79 107 56 52 54 Net change in cash 28 (51) (4) 2 20 Ending balance cash 107 56 52 54 74

Balance sheet (THBm) Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Total cash and equivalents 5,755 5,658 5,554 1,056 1,927 Tangible fixed assets 3,279 3,737 4,057 8,945 8,865 Intangible assets 108 255 242 228 215 Total investments 1 1 1 1 1 Total other assets 40 62 62 62 62 Total assets 9,547 9,822 10,047 10,436 11,290 Other liabilities 796 738 711 764 881 Total liabilities 1,344 1,356 1,305 1,370 1,613 Shareholders' equity 8,207 8,471 8,746 9,070 9,682 Total equity 8,203 8,466 8,741 9,066 9,678 Net debt (5,755) (5,658) (5,554) (1,056) (1,927) Total liabilities & equity 9,547 9,822 10,047 10,436 11,290

Key metrics Dec-15 Dec-16 Dec-17F Dec-18F Dec-19F Revenue growth (%) 16.7 5.8 10.3 13.4 65.2 Recurrent EPS growth (%) 18.6 (2.1) 10.7 12.6 40.7 Gross margin (%) 61.1 62.2 62.6 62.4 57.0 Operating EBITDA margin (%) 58.5 60.7 61.6 66.2 53.1 Net profit margin (%) 38.8 41.0 41.1 40.8 34.8 Dividend payout ratio (%) 27.6 62.6 62.6 62.6 62.6 Capex/sales (%) 19.5 50.1 150.4 132.6 7.0 Interest cover (x) 2,733 1,653 1,949 2,196 3,088

Source: Company data, RHB

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Thailand Initiating Coverage The Platinum Group Investment Merits Why Platinum is a BUY Established mixed-use property. Located at the heart of Bangkok’s Pratunam shopping district, Platinum’s key asset – The Platinum Fashion Mall – offers a one-stop wholesale and retail experience for shoppers looking for modern fashion. It focuses on a mass, middle-income segment that has strong purchasing power, while its tenants frequently update their new collections. These are key factors of the mall’s success. The mall has attracted much customer traffic and has a 98% occupancy rate, with a possible average rental rate hike of 5% pa. It is now Thailand’s largest fashion mall, and a well-known destination among small fashion retailers throughout the kingdom. The mall is also one of the must-visit places for international tourists who come to shop. We believe its wholesale positioning would be a major factor that helps to sustain the project’s earnings over the long run, amidst the advent of online retail shops. Apart from the buoyant environment for Thai tourism, its prime location would also help strengthen the operations of its 4-star hotel business. The hotel is located under the same roof as the mall – and Novotel has an occupancy rate of over 85%. This mixed-used project is the biggest source of the company’s cash flow and may act as an alternative source of financing for major expansion projects in the longer term. Upcoming new value-added projects to accelerate earnings growth. Platinum has three upcoming projects to be opened in 2018: i. Holiday Inn Resort Samui; ii. Holiday Inn Express Samui; iii. The Market Bangkok retail mall. The two hotels in Koh Samui have a combined 350 keys, and will be located in the same compound as its owned beachfront shopping mall, The Wharf Samui. As they will be operated by the world-class Holiday Inn chain, we assume that the hotels could add value to the shopping mall. This would also increase The Wharf Samui’s customer traffic and raise the project’s occupancy rate to 7 % by 2 1 , from a moderate 2% currently. Meanwhile, Platinum’s other large-scale bazaar, The Market Bangkok, is set to open its retail space by end-2 1 . We expect this to significantly boost the company’s earnings growth in the following year. Focusing on the middle- to low-income segments may also fulfil demand at Bangkok’s prime shopping street, Ratchaprasong. Its leasing progress is set to begin by 3Q17 and we expect its occupancy rate to be at 75% when operations commence. A longer-term plan to construct a hotel and office building at the project may create further upside for its earnings. We estimate Platinum’s net profit growth to accelerate to 13% YoY in 2018 and jump to 41% YoY in 2019, from 11% YoY in 2017, based on the full-year operation of the two hotels in Samui and the new retail mall in Bangkok. Valuations become more attractive. We believe Platinum offers value as a long-term investment, based on its solid cash flow from established projects. Its dividend may be paid at moderate yields of 3-4%, while accelerating earnings growth over the next three years may bring down its forward P/E to 21x in 2019F, from 33x in 2017F. As such, we also expect ROE to increase to 13% in 2019 from just 8% last year. Such valuations make it deserving of an investor’s attention (and eventual entry).

Valuation And Recommendation We initiate coverage on Platinum with a BUY rating, and expect it to post strong net profit growth of 11% YoY in 2017, and 13% YoY in 2018, mainly due to the expected hikes in rental rates for retail malls and hotel average room rates. The opening of two new hotels in Samui and one new retail mall, The Market Bangkok, at end-2018 would boost earnings growth to 41% in 2019. We also think its long-term earnings prospects remain attractive, based on; i. The buoyant outlook for Thai tourism ii. The addition of further developments such as retail malls, hotels and office buildings to complete its mixed-use projects which may offer some upside to our forecasts.

Its superior earnings outlook over the 3-year period may bring down its P/E and PEG to 18x and 0.4x respectively in 2019, from 28x and 2.7x this year. Our TP of THB10.30 is

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Thailand Initiating Coverage The Platinum Group derived from a DCF (WACC: 8.7%, TG: 3%) valuation. Our TP implies 33x FY18F P/E and offers an upside of 12%. We expect moderate dividend yields of 2.5-4% over 2017-2019, assuming a payout ratio of 71%. This is based on its average payment record for FY15 and FY16 performances (vs the company’s policy of less than % of net profit after tax). Its ROE may also escalate to 13% in 2019, vs 9% projected for this year.

Figure 1: Platinum’s DCF valuation THBm 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F EBIT 1,098 1,544 1,659 1,766 1,839 1,908 1,979 2,054 2,132 2,214 EBIT (1-t) 878 1,235 1,327 1,413 1,471 1,526 1,583 1,643 1,706 1,771 Depreciation & Amortization 325 343 345 349 526 340 343 345 350 360 Net working capital 126 113 (125) (14) 3 (3) 2 1 0 1 Capex (2,850) (250) (100) (50) (50) (50) (50) (50) (100) (200) Net free cash flow to firm (1,773) 1,215 1,697 1,725 1,945 1,820 1,874 1,937 1,956 1,930

Terminal value 34,889 PV (1,631) 1,028 1,321 1,236 1,282 1,103 1,045 994 923 15,992 Terminal growth 3.0% WACC 8.7% Total discounted firm value 23,295 Less: Net debt (5,554) Less: Minority interest 0 Equity value 28,849 Number of shares (m) 2,800 Equity value per share (THB) 10.30 Source: RHB

Figure 2: Regional peer comparison Name Ticker Mkt. Cap. Net profit growth (%) Net P/E (x) P/BV (x) EV/EBITDA (x) Dividend yield (%) ROE (%) (USDm) 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F MITSUI FUDOSAN CO LTD 8801 JP 21,605 12.8 12.2 18.8 16.9 1.2 1.2 16.2 14.8 1.3 1.5 6.5 7.0 HONGKONG LAND HOLDINGS LTD HKL SP 17,223 5.9 4.7 18.2 17.1 0.5 0.5 19.7 19.3 2.7 2.8 3.0 3.1 CAPITALAND LTD CAPL SP 15,322 17.0 7.1 17.7 17.4 0.8 0.8 16.9 17.7 2.8 3.0 6.1 5.4 AEON MALL CO LTD 8905 JP 4,202 6.3 14.1 17.9 15.8 1.3 1.3 9.2 8.5 1.3 1.6 7.6 8.2 AGILE PROPERTY HOLDINGS LTD 3383 HK 6,100 72.3 15.7 9.0 7.8 1.0 0.9 6.4 5.8 4.5 5.2 11.1 12.0 SHUI ON LAND LTD 272 HK 2,178 0.7 -4.7 7.9 8.3 0.3 0.3 9.3 9.6 2.5 2.6 4.2 4.2 SM PRIME HOLDINGS INC SMPH PM 19,857 12.6 13.9 36.8 32.5 4.0 3.6 23.9 21.2 0.8 0.9 11.4 11.9 IGB CORPORATION BHD IGB MK 900 15.5 -24.6 11.8 15.7 0.8 0.7 n.a. n.a. 3.5 3.5 6.4 4.6 SIAM FUTURE DEVELOPMENT PCL SF TB 344 -10.9 15.1 13.3 11.6 1.2 1.1 15.4 13.9 3.3 3.6 7.8 8.3 CENTRAL PATTANA PUB CO LTD CPN TB 9,394 11.9 21.2 31.7 26.2 5.5 4.8 18.6 15.7 1.3 1.5 18.4 19.6 THE PLATINUM GROUP PLAT TB 669 10.7 12.6 28.4 25.2 2.5 2.4 18.9 15.6 2.5 2.8 9.1 9.9 Average (ex-PLAT TB) 14.42 7.46 18.30 16.92 1.66 1.53 15.06 14.07 2.40 2.61 8.25 8.42 Note: Data as of 15 Sep 2017. Valuations in red are from RHB. Consensus valuations are in black. Source: Bloomberg, RHB

Business Overview Platinum was established in 2002 to develop retail property projects. It currently operates three businesses including rental and services, hotels, and a food & beverage (F&B) centre. The company went public in 2014 and listed on the Thai stock exchange in Mar 2015. As of end-2016, it has four key properties in Bangkok and Koh Samui: i. The Platinum Fashion Mall (opened in 2005) – the country’s largest clothing wholesale and retail centre. It is located in the heart of Bangkok’s Pratunam shopping district. Designed to be a national wholesale centre, the mall has vendors selling men’s and women’s apparel, bags, leatherwear, shoes and ornaments. It comes equipped with various facilities. ii. The Wharf Samui (opened in Jan 2015) – the new seafront shopping mall located on Koh Samui’s Bophut beach. This project’s architecture features a combination of vintage western and eastern styles. It offers products and services that cater to all lifestyles and attracts both Thai and foreign tourists. iii. Novotel Bangkok Platinum Pratunam (opened in 2011) – a 4-star hotel with 283 rooms located in The Platinum Fashion Mall. It is fully equipped with facilities like dining outlets, banquet rooms, a spa, a swimming pool and fitness centre.

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Thailand Initiating Coverage The Platinum Group iv. Neon Night Market Bangkok (opened in Dec 2016), an outdoor night market in Bangkok’s downtown Pratunam area. It has over vendors selling fashion, miscellaneous gadgets and food. It also has a food truck zone, which is open all night and a container zone, where businesses have shops in containers.

Figure 3: Platinum’s current projects

Source: Company data

As of 2016, The Platinum Fashion Mall is the biggest property, and contributes 63% of total revenue. However, from 2018 onwards, its revenue mix profile may significantly change as three new properties are set to be injected into its portfolio; i. The Market Bangkok – The first fully air-conditioned market, located in the city centre, ie the Ratchaprasong area. This market will have a variety of products and services to meet demand from a whole spectrum of customers. Potential tenants include food & beverage vendors, grocery stalls, small fashion retailers, and healthcare & beauty shops. The investment cost for the 12-storey project is THB5.8bn. The Market Bangkok is scheduled to open by end-2018. Going forward, Platinum may construct a hotel and office building within this project – these would have a combined investment cost of THB2.9bn, and could be completed in 2Q21. ii. Holiday Inn Resort Samui – a 4-star hotel with 150 rooms, located on the Bophut beach of Koh Samui and next to The Wharf Samui’s shopping mall. Total investment is THB475m and operations are expected to kick off in 4Q18. iii. Holiday Inn Express Samui – the 3-star hotel with 200 rooms close to the Holiday Inn Resort Samui. Total investment is THB425m and it is scheduled to open its doors in 4Q18.

Figure 4: Platinum’s future projects

Source: Company data

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Thailand Initiating Coverage The Platinum Group

Industry Overview Less supply of new retail malls while occupancy rates are high We expect consumer spending to increase, based on the improvement in Thailand’s Consumer Confidence Index since Dec 2 1 . The index’s trend is likely to continue going forward, as: i. The cut in the personal income tax rate may benefit consumption in big cities; ii. A rise in certain major farm product prices may boost consumption in rural areas. Consequently, tenants at Platinum’s shopping malls, which mainly focus on apparel for the middle- to low-income segments, may benefit from such a recovery. According to CBRE, the total supply of retail space in Bangkok amounted to 7.33m sqm (+3% YoY). 30% of the total new supply (ie 0.23m sqm) in 2016 was for Show DC shopping mall. However, the incremental number was still lower than that of 2014-2015. In terms of occupancy rate, Bangkok’s overall market was at % at end-2016, which was higher than 93% recorded in end-2 1 . Platinum’s occupancy rate of % was well beyond the industry average. It is likely that retail developers have focused on enhancing existing properties and selectively expanding their businesses in the upcountry. Future supply of retail space in Bangkok may be limited, which would lift occupancy rates. Meanwhile, the increase in rental rates could be capped by the growing competition and uncertainties over the recovery in domestic consumption. The Pratunam area, where The Platinum Fashion Mall is located, is the centre of Thailand’s clothing distribution industry. The improving domestic economy and strengthening tourism environment may continue to boost spending and demand – but new supply of leasable space may be limited as the land surrounding the area is fully occupied.

Figure 5: Bangkok’s retail market (m sq m) Total supply Total take-up Occupancy rate - RHS (%) 8.0 100

7.0

6.0 95

5.0

4.0 90

3.0

2.0 85

1.0

0.0 80 2 12 2 1 2 1 2 1 2 1

Source: CBRE, RHB

Recovery in consumption to benefit the mass market We expect consumer spending to increase, as Thailand’s Consumer Confidence Index has been improving since Dec 2016. This is likely to continue going forward, as the personal income tax rate cut may also benefit consumption in big cities, while rising farmers’ income could also boost consumption in rural areas. Consequently, tenants of Platinum’s shopping malls – which mainly focus on value-for- money products, especially apparel, for the middle- to low-income segments may benefit from the recovery. Meanwhile, the market for modern fashion is very dynamic, as new collections are released every week. It may attract demand among youngsters and adults who indulge in frequent purchasing.

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Thailand Initiating Coverage The Platinum Group Coping with fast-growing online trade We believe that Platinum’s shopping mall business would be able to cope with the rapid growth of e-commerce transactions, including fashion purchases. Leading clothing wholesalers that have opened their own online trade channels may also be tenants of The Platinum Fashion Mall – and they need to have their own physical shops as collection points and showrooms. These types of tenants would help to sustain the mail and Platinum’s earnings growth over the long run.

Investment Highlights Largest shopping mall for clothing The Platinum Fashion Mall is considered as Thailand’s biggest one-stop wholesale shopping centre for clothing. Foot traffic into the mall is high – it clocked 38,000 visitors per day in 2016. The success of the mall lifted its occupancy rate to over 98% throughout the past seven years. Its superior average rental rate of c.THB3,000 psm per month is also on par with that of Central Pattana’s top-tier shopping malls like Central Plaza Ladprao in northern Bangkok. A key reason behind the mall’s success hails back to 2 -2005, when it marketed space and focused on small and medium enterprises (SMEs) in the fashion and garment industries that have their own production facilities, as well as strong growth potential. A major portion of Platinum’s shareholders also have a solid background in the wholesale clothing business – which gives the company an added advantage. The mall’s target customers are in the low- to middle-income segments, where tastes are ever-changing. Thus, the frequent introduction of new fashion collections would be a boost for the number of transactions made there. We conducted ground checks and found that the store layout and shopping atmosphere at The Platinum Fashion Mall is the liveliest compared to other malls in the Pratunam area.

Most small fashion retailers throughout Thailand and from neighbouring countries try to visit the mall every week to update and pick up new items for sale. Apart from local retail vendors and shoppers, foreign visitors – mainly from Malaysia, Indonesia and Hong Kong – also flock to the mall. In fact, foreign visitors account for over half of the mall’s traffic. The ongoing uptrend in foreign visitors coming to Thailand may continue to support the popularity of the mall. We believe that recurring income from the well-established Platinum Fashion Mall may sustain the company’s earnings and act as its key generator of operating cash flow over the long term.

Figure 6: Breakdown of The Platinum Fashion Mall’s tenants Figure 7: Guest profiles at Novotel according to nationality by rental area

Fashion Storage 15% Others 33% Singapore clothing and 29% accessories 68% Restaurants 8% Indonesia 10% Services 4% Hong Kong Malaysia Banks 3% 4% China 4% 10% Other products 2% India 5% Thailand 5%

Source: Company data Source: Company data

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Thailand Initiating Coverage The Platinum Group Figure 8: The Platinum Fashion Mall’s main building Figure 9: Skywalk connecting BTS mass transit with Platinum’s projects

Source: RHB Source: RHB Figure 10: The Platinum Fashion Mall offers a one-stop Figure 11: The Platinum Fashion Mall is always busy, even shopping experience for those looking for trendy apparel on weekday mornings

Source: RHB Source: RHB

Figure 12: Other fashion wholesale malls in the Pratunam Figure 13: Other fashion wholesale malls in Pratunam area area are seeing less foot traffic are less busy than Platinum’s project

Source: RHB Source: RHB

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Thailand Initiating Coverage The Platinum Group Opening of The Market Bangkok is a catalyst The Market Bangkok is set to become Platinum’s biggest shopping centre in its portfolio when it opens in 4Q18. Its net leasable area of 64,740 sqm would be three times larger than that of The Platinum Fashion Mall. The mall is positioned to cater to the lower- to middle-income segments, ie the remaining segments that do not have retail space dedicated to them in Ratchaprasong’s shopping area. We believe there is still demand for retail space among small vendors in Bangkok’s prime shopping area, for both locals and foreigners. Apart from small fashion retailers, food & beverage vendors and healthcare & beauty store chains have shown strong interest to open outlets in The Market Bangkok. The leasing process is set to kick off by 3Q17, and we conservatively expect it to have an occupancy rate of 75% when it opens in 4Q18. We also anticipate the occupancy rate to increase gradually to 80% in FY19.

Figure 14: An artist’s impression of The Market Bangkok Figure 15: Construction progress as of end-Jul 2017

Source: Company Source: RHB

Hotels complete Platinum’s mixed-use property projects We like Platinum’s approach of applying the mixed-use concept to add value to its properties. To facilitate international customers at The Platinum Fashion Mall, it opened its first hotel, Novotel, under the same roof in 2011. Novotel has been a success, recording a solid room occupancy rate of up to 87% and an average room rate hike of 4% YoY in 2016. We expect Novotel to continue delivering a strong performance over the next three years, based on popularity of the shopping mall. Two more properties, 3-star and 4-star hotels in Samui Island with a total of 350 rooms, are scheduled to open in 4Q18. Applying the worldwide Holiday Inn franchise may help strengthen their operations, and we expect the hotels to help boost incoming traffic for The Wharf Samui. The beachfront shopping centre’s occupancy rate may grow to 7 % in 2019, from a moderate 62% in 2016. Over the longer term, Platinum plans to construct hotels and leasable office spaces at its The Market Bangkok project, which it expects to complete in 2021. These hotels and office space are not included in our earnings forecasts, but may be factors that could trigger a rerating of the stock.

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Thailand Initiating Coverage The Platinum Group Figure 16: Platinum’s key assumptions for its shopping centre business Shopping centre projects Opening Land NLA (sqm) Full-year average occupancy rates period tenure As of 2016 2014 2015 2016 2017F 2018F 2019F The Platinum Fashion Mall Pratunam 2005 Freehold 22,840 99% 98% 98% 98% 98% 98% The Wharf Samui Jan 2015 Leasehold 5,303 70% 62% 62% 65% 70% Talad Neon Night Market Pratunam Dec 2016 Leasehold 3,550 8% 95% 97% 97% The Market Bangkok 4Q18 Leasehold 64,740 9% 80% Total all projects Year-end net leasable area (NLA) (sqm) 22,330 27,633 31,693 31,693 96,433 96,433 Full-year average occupancy rate 99% 97% 97% 97% 94% 88% Blended average rental rate (THB/sqm/month) 2,767 2,495 2,229 2,560 1,892 1,966

Source: Company data, RHB Figure 17: Platinum’s key assumptions for its hotel business 2014 2015 2016 2017F 2018F 2019F Novotel Bangkok Platinum Pratunam Number of rooms 283 283 283 283 283 283 Full-year average occupancy rate 70% 86% 87% 89% 90% 90% ARR (THB) 2,498 2,960 3,078 3,263 3,426 3,529 RevPar (THB) 1,754 2,541 2,674 2,904 3,083 3,176 Holiday Inn Resort Samui (to be opened in 4Q18F) Number of rooms 150 150 Full-year average occupancy rate 10% 60% ARR (THB) 3,000 3,300 RevPar (THB) 600 1,980 Holiday Inn Express Samui (to be opened in 4Q18F) Number of rooms 200 200 Full-year average occupancy rate 10% 65% ARR (THB) 1,500 1,650 RevPar (THB) 300 1,073 Source: Company data, RHB

Financial Analysis Established recurring income Platinum’s total revenue grew 17% YoY in 2 1 on the opening of its project, The Wharf Smui, a shopping mall in Koh Samui, and a low base of earnings in the previous year (as its performance was affected by political gatherings in downtown Bangkok, which were next to The Platinum Fashion Mall). Revenue moderately grew 6% YoY in 2016, on a normal increase in the rental rate for its shopping centre and the solid performance of its hotel business. However, we expect the company’s revenue to grow at stronger rates of 10% YoY in 2017 and 13% in 2018, before accelerating even more to 65% in 2019. This would be supported by the following: i. Renewal of short-term 1-3 year contracts for 968 tenants (54% of total tenants and 58% of occupied net leasable area) in 2017, and renewal of 10-year contracts for all 752 long-term tenants (33% of leasable area) in 2019; ii. Solid RevPar growth of 9% YoY this year and 6% YoY next year for Novotel Bangkok Platinum Pratunam; iii. The opening of two 4-star hotels in Koh Samui – Holiday Inn Resort and Holiday Inn Express in 4Q18 – which may improve The Wharf and boost 2019F earnings once they are in operation for a full year; iv. The opening of its biggest retail mall project, The Market Bangkok, by end-2018 which should strongly boost the company’s topline in 2 1 . We expect the revenue contributions from Platinum’s shopping malls to remain at % over the next three years. However, The Platinum Fashion Mall’s contribution to the company’s shopping mall revenue may decrease to 35% in 2019 from 55-60% in 2017

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Thailand Initiating Coverage The Platinum Group and 2018 respectively, as The Market Bangkok could also begin contributing to revenue (27% of shopping mall revenue) that year. Platinum’s overall gross profit margin may increase to 2. % in 2 17 (2 1 : 2.2%) following the rental rate hike from the renewal of a big chunk of short-term leasable contracts at The Platinum Fashion Mall. The gross margin may gradually decline to 57% in 2 1 , as we assume The Market Bangkok’s retail segment may record lower rental rates and a slimmer GPM than The Platinum Fashion Mall. We expect earnings to grow 11% YoY to THB779m this year, 13% YoY to THB878m in 2018, and jump by 41% YoY to THB1.23bn in 2019 on the back; i. New project openings; ii. The rental rate hike stemming from contract renewals; iii. Economies of scale in its operations, which would lead to opex savings. The rising net profit growth may also drive its RoE to 13.2% in 2019F, from 8.5% in 2016. Platinum has no interest-bearing debt, and net cash amounting to THB54m as of 2016. We expect its healthy balance sheet position to continue throughout 2017-2019, giving it ample room to finance major investments in the longer term. We expect its THB5.6bn current investments (received since its IPO in 2015) and operating cash flow of THB1- 1.2bn for FY17F-18F to support the construction of The Market Bangkok and two new hotels. The combined capex for the three projects is THB6.7bn.

Figure 18: Platinum’s revenue breakdown % Contribution to total revenue 2014 2015 2016 2017F 2018F 2019F Shopping centre business 66% 64% 64% 65% 65% 65% The Platinum Fashion Mall Pratunam 66% 62% 63% 60% 55% 35% The Wharf Samui 2% 1% 1% 1% 1% Talad Neon Night Market Pratunam 0% 4% 4% 3% The Market Bangkok 5% 27% Hotel business 18% 21% 21% 21% 20% 18% Novotel Bangkok Platinum Pratunam 18% 21% 21% 21% 19% 12% Holiday Inn Resort Samui 0% 4% Holiday Inn Express Samui 0% 2% Revenue from food and beverage sales Food center at The Platinum Fashion Mall 16% 15% 14% 14% 15% 16% Total revenue (THBm) 1,391 1,623 1,718 1,895 2,150 3,551 % total revenue growth 25% 17% 6% 10% 13% 65%

Source: Company data, RHB

Figure 19: Tenants’ leasing contracts at The Platinum Fashion Mall (as of end-2016) Leasing contracts Rental Occupied area Average rental Unit (sq m) rate (2016) 1-3 Years 1,052 13,913 3,821 10 Years 752 8,287 1,605 Total 1,804 22,200 2,974 Occupancy rate 98%

Contract expiration (units) Expired in Expired in Expired in 2017 2018 2019 onwards 1-3 Years 968 12 4

10 Years 752 Source: Company data

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Thailand Initiating Coverage The Platinum Group Figure 20: Profit margin trend Figure 21: Net profit, net profit growth and ROE Gross margin SG&A/sales ratio EBITDA margin Net profit margin (THBm) Net profit ROE - RHS 70% 66.2 1,400 20% 62.2 62.6 18.1 61.1 +40.7% 60.1 18% 57.0 60% 62.5 1,200 60.7 61.6 16% 58.6 50% 53.1 1,000 14% 51.7 +12.7% 41.0 41.1 40.8 11.6 38.8 +10.7% 13.2 12% 40% 800 34.8 +11.9% 31.5 +43.6% 10% 30% 600 9.9 23.4 9.1 8% 21.4 +65.6% 8.5 19.4 19.4 19.4 19.0 20% 400 6% 4% 10% 200 2%

0% 0 0% 2 1 2 1 2 1 2017F 2018F 2019F 2 1 2 1 2 1 2017F 2018F 2019F Source: Company data, RHB Source: Company data, RHB

Risks Delay in opening of new projects including The Market Bangkok and the two hotels in Koh Samui. There are also future plans to launch a hotel and office building at The Market Bangkok project by 2021, but they are not reflected in our forecasts. Popularity of online trading. Penetration of e-commerce activities in Thailand are likely to surge over the next decade. We expect Platinum’s key shopping malls to remain healthy, based on their key positioning that focuses on wholesales and tourism. The company’s diversification into hotel and office building businesses may also help balance its recurring income portfolio. A potential new project in Pratunam. An independent entity, SPC Properties and Development Co Ltd (SPC), owned by one of Platinum’s major shareholders, has won its bid to Thailand’s Royal Crown Property Bureau to utilise the 7-rai leasehold land plot (c.11,200 sqm) which is the current location of Pratunam Market (Chalermlarp Market). The site is opposite The Platinum Fashion Mall. SPC plans to develop a new fashion wholesale mall there, and Platinum has the first right to run this project. If it does so, this may help boost Platinum’s earnings and add value – over the long term – to The Platinum Fashion Mall. Note that we have not yet factored this into our numbers. Presently, however, the Royal Crown Property Bureau is in the midst of expropriating the land from previous lessees, and this may take few more years before it is finalised. A delay in the expropriation process may lengthen the period of development for the new project. Political uncertainty. The company’s major projects – The Platinum Fashion Mall, Novotel Bangkok Platinum Pratunam and The Market Bangkok – are located next to the Ratchaprasong shopping district, where political gatherings like the 2010 and 2013-2014 anti-government protests were held. Any further demonstrations may block public traffic headed towards the malls and this could lead to a weaker performance.

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Thailand Initiating Coverage The Platinum Group Figure 22: Pratunam Market land plot (shophouses) located opposite The Platinum Fashion Mall

Source: Google Map, RHB

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Thailand Initiating Coverage The Platinum Group SWOT Analysis

Market leader in shopping malls focusing on modern Popularity of fashion, with its strong background in the clothing online retail business distribution Prime location for properties in Bangkok’s downtown channels shopping district Political unrest Potential development of mixed-use property projects and weak economic recovery may

threaten consumer spending Strong outlook for Thailand’s tourism industry Trend of new graduates who opt to start their own businesses creates demand for small retail spaces Ability to develop new projects in

the upcountry or abroad in the Earnings are highly dependent on a few major longer term development projects Difficulty in penetrating the upper market segment due to its focus on the middle-to-lower middle income group

Recommendation Chart

Date Recommendation Target Price Price Price Close 2017-09-27 Buy 10.3 9.2 9.0 Recommendations & Target Price Source: RHB, Bloomberg 8.5 na

8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 Buy Neutral Sell Trading Buy Take Profit Not Rated Mar-15 Nov-15 Jul-16 Mar-17

Source: RHB, Bloomberg

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Thailand Thematic Research

RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

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