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Thematic Research Thailand 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] See important disclosures at the end of this report 1 Powered by the EFA Platform 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

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