Thailand Strategy : 3Q19 Team Up!

Thailan d Strategy July 1, 2019

Quarterly Strategy – 3Q19

Team Up! Krungsri Securities Research Team

Analysts Expectations of US Fed rate cut(s) coupled with easing rhetoric by other key central banks would help to extend the current economic cycle, Isara ORDEEDOLCHEST despite further US-China trade talks being a wild card. Against this Fundamental investment analyst on securities backdrop, risk assets would benefit from “synchronized dovishness”. In +662 659 7000 ext. 5001 [email protected] Thailand, political parties teaming up to create a functioning government means there will be more effective policies to revive the domestic Varorith CHIRACHON Fundamental investment analyst on securities economy, especially consumption. On this note, we prefer stocks that are +662 659 7000 ext. 5012 influenced by domestic consumption, foreign fund inflows, and promised [email protected] government stimuli packages. Our top picks for 3Q19 are AP, CPALL, Kaushal LADHA, CFA GLOBAL, VGI and WORK. Fundamental investment analyst on securities

+662 659 7000 ext. 5013 The path to extend the late economic cycle [email protected] Policy setters have accepted that the global economy is slowing down. Despite this, the recent drop in inflation expectations in several countries were still Nalinee PRAMAN Assistant Analyst alarming. This is why central banks have tuned more dovish, especially the Fed. +662 659 7000 ext. 5011 Meanwhile, the positive effects of China’s economic stimulus measures will be [email protected] visible in the coming quarters. Given all the juices, equities should outperform Amornrat KAKANANKUL other assets going forward. Given expectations of stronger global activity, the US Assistant Analyst dollar index is expected to stay soft at 94-95. Again, we maintain our view that 662-659-7000 ext. 5019 capital will continue to flow into emerging markets, particularly Thailand. [email protected]

Thailand’s priority is to jump-start the domestic economy Thailand needs to operate on the assumption that external risks will continue to escalate. This means it is extremely crucial to support the domestic economy (consumption and investment). Despite moderating recently, private consumption has been resilient. This means it would be fairly sensitive to government stimulus packages. Meanwhile, the government is expected accelerate public investment to create crowding-in effect on private investment.

Thai equities remain in a sweet spot, revised SET year-end target to 1850 Thai equities will remain attractive to foreign investors, supported by (1) high external volatility – trade talks, geopolitical risks and Brexit; (2) continuous foreign fund inflows amid a weaker USD; and (3) government implementing promised stimuli to boost consumption and investor confidence. We expect these to push the SET to trade at +1.6SD of its 3-year average PER, or 1850, by end 2019.

Top picks for 3Q19: AP, CPALL, GLOBAL, VGI and WORK We select stocks that (i) have large exposure to the domestic economy, which would shelter them from external volatilities; (ii) will benefit from foreign fund inflows; and (iii) will benefit from promised stimuli packages. We expect them to outperform in 3Q19.

3Q19 top picks – valuation summary Ticker Rating Price Target Upside Net profit (Btm) EPS growth (%) P/E (x) P/BV (x) ROE (x) Div. Yield (%) (Bt) (Bt) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F AP Buy 7.85 9.3 18.5 3,652 4,203 (5.5) 15.1 6.8 5.9 0.9 0.8 13.7 14.3 5.2 6.0 CPALL Buy 86.00 100.0 16.3 24,537 28,718 17.5 17.0 31.5 26.9 7.8 6.7 26.8 26.9 1.6 1.9 GLOBAL Buy 17.70 19.5 10.2 2,474 3,199 17.6 22.8 30.1 24.5 4.5 4.2 15.7 18.1 1.7 2.0 VGI Buy 9.00 11.0 22.2 1,693 2,337 53.7 38.0 45.5 33.0 4.5 4.4 9.9 13.3 1.1 1.5 WORK Buy 24.70 35.0 41.7 498 636 44.3 27.7 21.8 17.1 2.5 2.4 11.2 14.1 2.3 3.0 Source: SET, Krungsri Securities

Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to 1 invest in any securities.

Thailand Strategy | 3Q19 July 1, 2019

Table of Contents

Contents Page

Team Up! 3

United States 6

Eurozone 10

Japan 14

China 17

Thailand 20

3Q19 Investment Strategy: Team Up! 23

AP 35

CPALL 39

GLOBAL 49

WORK 55

VGI 58

Thailand Sector Update

Property 61

Krungsri Securities Research 2

Thailand Strategy | 3Q19 July 1, 2019

Team Up!

Global economy continues to slow down

It appears signs of stabilizing global growth we saw in early 2Q19 was a head fake as overall economic activity – reflected by PMI and CAI – has continued to slow down in recent months. In addition, the weakness has been more broad based. It is also interesting that the US slowdown has been deeper and more rapid than other economies in the past few months. We see more downside risk to the International Monetary Fund’s (IMF) global growth forecast, which had revised down to +3.3% (from +3.5%) in April. At this point, two major factors that could interrupt the slowing cycle are (i) successful US-China trade talks at the G20 summit, and (ii) meaningful policy easing on a global scale.

Figure 1: Global growth continues to slow … Figure 2: … with falling inflation expectations

58.0 (pt) Markit Global PMI (%yoy) 7.0 USD 5y5y EUR 5y5y JPY 5y5y (RS) 3.5 (%) 1.6 57.0 Global CAI (RHS) 6.0 1.4

56.0 5.0 3.0 1.2

55.0 1 2.5 4.0 0.8 54.0 3.0 0.6 53.0 2.0 0.4 52.0 2.0 0.2 1.5 0 51.0 1.0 1.0 -0.2

50.0 0.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Are investors ahead of themselves?

Against the current economic weakness, equity markets have been performing well with spikes in the World MSCI as well as US S&P. Nonetheless, the market strength has been mainly running on expectations the Fed would cut rates as soon as July. The probability of a July rate cut is 100% at the time of writing. Besides expectations of the Fed easing, investors seem to have priced-in as many as three rate cuts this year (July, September and December). This is where we think investors are well ahead of themselves. While we anticipate one or two insurance rate cuts, three cuts are unlikely as overall economic activity remains considerably decent (see our special topic).

Krungsri Securities Research 3

Thailand Strategy | 3Q19 July 1, 2019

Figure 3: Global equities have performed well despite Figure 4: …but divergence has appeared in the US slowing growth…

Global CAI 65.0 (pt yoy) 600 5.5 (pt) (pt yoy) 120 (pt) US ISM Chg. US SPX Chg. MSCI world (RHS) 5.0 500 60.0 70 400 4.5 300 55.0 4.0 200 20 3.5 100 50.0 0 3.0 -30 -100 2.5 45.0 -200

2.0 -80 40.0 -300

2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

What are the key implications?

At some point, some investors might be disappointed if the Fed deliver fewer rate cuts than expected, but easing monetary policy would help to extend the life of the late cycle. The outlook for both manufacturing and exports would be the function of outcomes of the US-China trade talks, while a stronger housing market would be the key support for the economy. Nonetheless, the US economic growth has passed its peaked and the growth trajectory would soften to 1.8-2.3% in the coming years (based on IMF projections).

Figure 5: Lower interest rate environment would extend the expansionary economic cycle

45 # of weeks 40 40 40 35 35 31 30 24 25 20 20 14 15 12 13 12 10 8 4 5

0

2009-Present

Duration of economic expansion Averaged Fed funds rate

Source: FRED, Krungsri Securities

Polar has shifted for key currencies

The key thesis in our 2Q19 strategy report was a weaker USD (stronger EM currencies and THB) would trigger foreign fund flows into the region, Thailand included. Although that happened late in the quarter, both the US dollar index and Thai baht did hit out target of 95 and 30.8:USD, respectively. Moreover, our call for that foreign funds would return to the Thai market (Strategy 2Q19: Return of the Fa-rang) is materializing. Our model suggests positive fund flows in 2H19. In fact, actual flows in 2Q19 have been slightly stronger than our model predicted.

Krungsri Securities Research 4

Thailand Strategy | 3Q19 July 1, 2019

Figure 6: Narrowing growth gap (US vs. world) has Figure 7: Deep budget deficit also puts pressure on the US forced the USD down greenback

(%yoy) US-ROW (Lead 3-month) (pt) 2.0 20 160 DXY Chg. (RS) 1.5 15 150 140 1.0 10 IndexDollar 130 0.5 5 120 110 0.0 0 100

-0.5 -5 90 80 -1.0 -10 70

-1.5 -15 60

-12 -10 -8 -6 -4 -2 0 2 4

-5.1% proposed by Trump in 2020 Budget balance

Source: Bloomberg, Krungsri Securities Source: The White House, Bloomberg, Krungsri Securities

Figure 8: Our foreign fund flow model (FFF) proved 200 (Btbn) 100

0

- 100

- 200

- 300 Actual foreign fund flows (FFF)

- 400 Predicted fund flows

4Q02 4Q03 4Q04 4Q06 4Q07 4Q08 4Q10 4Q11 4Q12 4Q14 4Q15 4Q16 4Q18 4Q19 4Q09 4Q13 4Q17 4Q05 Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 5

Thailand Strategy | 3Q19 July 1, 2019

United States

Economic outlook continues to deteriorate

The US economy remains in an expansionary phase, but there has been a noticeable slowdown. The highly reliable US CAI and ISM indicators confirm this as they continue to trend lower. The Federal Reserve’s projection for economic growth has been revised down considerably, with the Atlanta Fed’s GDPNow tracker pointing to 1.5% growth in 2Q19 (as at June 28) following strong 3.2% growth in 1Q19. (Figure 10). We had expected a slower US economy as fiscal stimulus from last year fade, however there is clearly downside risk to growth expectations given lingering uncertainty over the global trade regime.

Figure 9: Fed projections (May 2019) indicate US will Figure 10: but downside risk to projections as Atlanta remain in expansionary mode, albeit slowing… Fed’s seen lowering 2Q19 growth expectations to 1.5% (%) (%) 2.3 GDP Nowcast

4.5 2.1 3.9 3.9 1.9 4.0 3.7 1.7 3.5 3.0 1.5 3.0 1.3 2.4 1.5% 2.5 1.1 2.1 1.9 2.0 2.0 1.9 2.0 1.8 1.8 0.9 0.7 1.5 0.5 1.0

0.5

0.0 GDP Growth Unemployment Inflation Manufacturing

Source: The Federal Reserve, Krungsri Securities Source: Atlanta Federal Reserve, Krungsri Securities

Figure 11: Falling US CAI and ISM data affirm worsening Figure 12: Expect US GDP growth to trend down as US outlook for US economy ISM leads by 6 months

6.0 65 (Index) (%) US CAI US ISM (RHS) (pt) (%) GDP (YoY) US ISM (RHS, Leads 6M) 5.0 4.0 65 60 4.0 3.5 60 55 3.0 3.0 2.5 55 2.0 50 2.0 1.0 1.5 50 45 1.0 0.0 45 0.5

-1.0 40 0.0 40

2011 2012 2013 2014 2015 2016 2017 2018 2019 2010

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 6

Thailand Strategy | 3Q19 July 1, 2019

On the consumption front, signals are mixed. Consumer confidence remains robust but has not translated into stronger retail sales recently. Retail sales grew at a slower pace of 3.1% YoY in May compared to 3.8% in March. We expect retail sales to remain subdued in the near-term as the economic outlook continues to weaken, unemployment may rise (from a record low of 3.6%), and there is upside risk to product prices if the US-China trade war escalates. In contrast, new home sales remained strong and continued to trend up supported by low mortgage rates. We expect this trend to continue, as the Fed is likely to remain somewhat dovish, keeping interest rates low.

Figure 13: US retail sales remain subdued despite strong Figure 14: New home sales continue to rise, supported by consumer confidence low mortgage rates

7.0 (%) (pt) 110 (Index) (%) 30 1.4 6.0 100 25 1.6 5.0 90 20 1.8

15 2.0 4.0 80 10 2.2 3.0 70 5 2.4

2.0 60 0 2.6 -5 2.8 Retail sales 1.0 50 -10 3.0 US consumer confidence (RHS) 0.0 40 -15 New home sales 10Y US (RHS, inverted) 3.2

-20 3.4

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Starting to see cracks in employment …

May non-farm payroll data missed expectation significantly (+75,000 vs +185,000 expectation). The sharp drop might be transitory, but the direction remains negative. Non-farm payroll data has been showing signs of softening since the beginning of this year. This shift is notable because employment has been one of the few bright constants for the US economy in the last two years. Although it may be premature to conclude this is an entrenched trend, it has significant implications on policy setting. The Philips Curve which is closely followed by the Fed, dictates that full employment leads to inflation. Although the relationship between the two (inflation and full employment) has broken down in the recent past, central bankers insist the underlying theory remains valid and have maintained a hawkish bias with expectations of a surge in inflation further down the road. However, the deteriorating employment outlook might make this stance questionable.

Krungsri Securities Research 7

Thailand Strategy | 3Q19 July 1, 2019

Figure 15: Large misses in non-farm payroll in 2019; Figure 16: Non-farm payroll data has been dropping in similar magnitude of misses was last seen in 2016 2019

400 (000') Actual-Estimates Non-farm payroll (000' Non-farm payroll 400 Non-farm payroll (3MA) 300 350 200 300

100 250 200 0 150 -100 100 50 -200

0

2015 2016 2017 2018 2019

01-2015 04-2015 07-2015 10-2015 01-2016 04-2016 07-2016 10-2016 01-2017 04-2017 10-2017 01-2018 04-2018 07-2018 10-2018 01-2019 04-2019 07-2017 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

… while inflation remains subdued

US core PCE has continued to trend down and is currently at 1.6%, below the Fed’s % target. However, recent studies show that trimmed mean core PCE might be a better gauge for inflation; and that is currently at 2%. Therefore, we believe the inflation outlook remains fuzzy at this point. On the demand front, consumption remains expansionary but is unlikely to heat up as unemployment is starting to tick up and growth momentum is slowing. On the supply front, it is difficult to make a case for sharply higher crude prices given structural issues. There is upside risk to inflation arising from the US-China trade war but the jump is likely to be one-off due to the base-effect, and inflation is likely to trend down in the longer term. Indeed, inflation has remained stubbornly low. The Fed has repeatedly cautioned the softer inflation might be transitory but we are hard- pressed to find catalysts that could lead to a sustained pickup in inflation.

The case for a Fed rate cut: sooner rather than later

The market is placing 100% probability for a Fed rate cut in July and 84% probability for a September rate cut. Over the past months, the market has become increasingly convinced the Fed will cut rates because of the weakening economic outlook, subdued inflation, and rising risk to growth if the trade war escalates further. The recent weak non-farm employment also supports this view. The market’s pessimistic growth outlook is reflected in the -year treasury yield, which has slumped to a low of 2.03% (a level briefly seen in 2017 and more firmly in 2016). Recession fears are ripe as the 10-year yield has inverted with 3-month treasury bill which stands at 2.09%.

Krungsri Securities Research 8

Thailand Strategy | 3Q19 July 1, 2019

Figure 17: Inverted 3M-10Y treasury yield curve has Figure 19: 100% probability of Fed rate cut in July sparked recession fears

6.0 (%) Recession probability (lag 9M) (%) -5.0 100.0 5.0 10Y3M (RS, inverted) 100.0 -4.0 89.4 4.0 90.0 84.0 78.0 3.0 -3.0 80.0 2.0 70.0 -2.0 1.0 60.0 0.0 -1.0 50.0 -1.0 40.0 -2.0 0.0 32.6 24.2 -3.0 30.0 1.0 -4.0 20.0 -5.0 2.0 10.0

0.0

Jun-19 Jul-19 Sep-19 Oct-19 Dec-19 Jan-20

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

There is no question the Fed like other central banks will maintain an accommodative stance. The recent dovish rhetoric from Powell is a shift from the March FOMC press conference where they had emphasized no change in rates for 2019 and a “patient” approach. This has led us to believe there will be a rate cut this year, but the question is the magnitude of easing. We view that the market might be getting ahead of itself (expecting a rate cut as soon as July and three cuts this year) and might be disappointed. We draw attention to the Fed’s dual mandate of price stability and full employment, which is key to its interest rate policy. As inflation remains subdued, the focus should be employment. We assumed the Fed’s threshold for unemployment is % (currently at 3.6%). If non- farm payroll data remains weak, unemployment could creep up to the 4% range and support the Fed’s decision to cut rates. Our preliminary estimates suggest the Fed is likely to make one or two cuts an insurance to limit a further drop in inflation expectations.

Figure 20: Continued weak non-farm payroll will push Figure 21: Changes in unemployment rate has been a up unemployment key factor in driving Fed rate policy

(Persons) Non-farm payroll (%) Chg. Fed funds effective rate % 2,000 -4.0 4.0 (%) (%) -2.0 Unemployment gap (RS, inverted) Chg. Unemployment rate (RS, inverted) -3.0 3.0 1,500 1,000 -2.0 2.0 -1.0

500 -1.0 1.0 0.0 0.0 0 0.0 1.0 -500 -1.0 2.0 1.0 -2.0 -1,000 3.0 -3.0 -1,500 4.0 2.0 -4.0 -2,000 5.0

-2,500 6.0 -5.0 3.0

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 9

Thailand Strategy | 3Q19 July 1, 2019

Eurozone

Signs of stabilizing but growth will remain sluggish

Following a slump in economic activity and confidence in 2018, Eurozone had shown first signs of a stabilizing in 1Q19. Recent data suggests Eurozone will remained in “stabilization” mode in Q , and there is rising possibility growth had bottomed out in 1Q19. Nonetheless, it would be premature to claim economic growth would gain momentum moving forward as the key growth drivers - domestic consumption and exports – may remain subdued. Uncertainty over global trade direction and slowing global growth, especially in China (one of EU’s key trading partner), remain key risks. It will be challenging for the EU to stage a strong recovery. Key leading indicators such as Current Activity Indicator (CAI) and Markit Purchasing Manager Index (PMI) have halted their downward trend, but there is no clear sign of a turnaround. We would monitor these closely.

Figure 22: CAI and PMI show signs of stabilization, but Figure 23: Promising pick-up in Italy’s PMI while Germany we would wait for a clear uptrend seems to be stabilizing

4.0 (%) EU CAI EU PMI (pt) 60 58 3.0 56

54 2.0 52 1.0 50 48 0.0 46

-1.0 44

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Underlying fundamentals remain stable, could support consumption and industrial production which have been muted so far …

Despite the economic slowdown and political headwinds, the Eurozone’s overall economic fundamentals remain constructive. Gross fixed capital formation (domestic investment) growth has continued to trend up with capacity utilization still buoyant. (Figure 24). Similarly, the job market remains robust with unemployment at a decade-low of 7.6% and negotiated wage growth firmly trending higher (Figure 25). Despite these positive conditions, domestic consumption and production have been a drag as weakening consumer confidence and exports remained major headwinds. We see room for a positive surprise here, although probability remains low. The return of confidence and easing trade tensions, coupled with positive conditions, could send consumption and production skywards.

Krungsri Securities Research 10

Thailand Strategy | 3Q19 July 1, 2019

Figure 24: Investment and capacity utilization remain Figure 25: Job market remains robust resilient

% YoY % (% labor force) EU unemployment rate (%yoy) 10 90 13.0 EU negotiated wage growth (RHS) 3.2 8 6 85 12.0 4 2.7 2 80 11.0 0 -2 75 10.0 2.2 -4 9.0 -6 70 1.7 -8 8.0 -10 65

7.0 1.2

Jul-04 Jul-09 Jul-14 Jul-99

Jan-07 Jan-12 Jan-17 Jan-97 Jan-02

Mar-06 Mar-11 Mar-16 Mar-96 Mar-01

Nov-07 Nov-12 Nov-17 Nov-97 Nov-02

Sep-03 Sep-08 Sep-13 Sep-18 Sep-98

May-05 May-10 May-15 May-00

EU GFCF % YoY EU capacity utilization (RS)

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Figure 26: Recent recovery appeared to be a head fake Figure 27: No clear direction for consumer spending

8.0 (%yoy) 6.0 (%yoy) EU retail sales (pt) 0 EU consumer confidence (RHS) 6.0 4.0 -5 4.0 2.0 -10

0.0 -15 2.0 0.0 -2.0 -20

-2.0 EU export growth (3MMA) -4.0 -25 EU import growth (3MMA) -6.0 -30

-4.0

5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

… while inflation expectations have slumped

Core CPI and headline CPI fell unexpectedly in May, to 0.8% and 1.2% from 1.3% and 1.7% in the prior month (Figure 28). This is significantly below the ECB’s % target rate. The y/ y inflation swap rate is at its lowest since , at 1.23% (Figure 29). Inflation is likely to remain subdued going forward as inflation expectation keeps falling. On the domestic front, despite the favorable conditions, we do not see domestic drivers firing up significantly as we enter a period of late-cycle dynamics and rising external risks.

Krungsri Securities Research 11

Thailand Strategy | 3Q19 July 1, 2019

Figure 28: Inflation unexpectedly fell in May Figure 29: Market expects inflation to be very low ahead as 5Y/5Y inflation swap rates slump

3.5 (%) (%yoy) EU CPI EU core CPI 3.0 1.9 2.5 1.8 2.0 1.7 1.5 1.6 1.5 1.0 1.4 0.5 1.3 0.0 1.2 -0.5 1.1

-1.0 1.0

Jul 18

Apr18 Oct18 Apr19

Jan 18 Jun 18 Jan 19 Jun 19

Mar 18 Mar 19

Feb 19 Feb 18

Sep18 Nov18 Dec18 Aug18

May 18 May 19

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Which could be a reason for the ECB to push forward simulative policy

Given that inflation remains stubbornly below the ECB’s target with low probability of rising, this could prompt the ECB to turn more accommodative (e.g. restart asset purchase program, negative rates, etc.) to drive inflation closer to their desired range. In early June, the ECB had extended its forward guidance for zero interest rate policy (ZIRP) to 2H20 from end of 2019. Although markets were disappointed, we see this as a natural progression for the ECB to turn more dovish in the future. We would keep an eye on the EUR/USD rate as well. If the Fed turns more dovish (cut rates) while the ECB maintains its hawkish tilt, we could see a stronger EUR moving forward. We doubt the ECB wants a strong EUR at this juncture, therefore, there is greater chance they would cut rates.

Figure 30: ECB’s balance sheet is stable Figure 31: Rising expectations for the ECB to resume asset purchase program

(Euro, bn) (% GDP) 95.0 (Euro, bn) (% YoY) 2.3 5,000 45 85.0 2.1 4,500 ECB balance sheet 75.0 4,000 ECB balance sheet % GDP (RHS) 40 65.0 1.9

3,500 55.0 1.7 35 45.0 3,000 35.0 1.5

2,500 30 25.0 1.3 2,000 15.0 1.1 1,500 25 5.0 -5.0 0.9 1,000 20

500

03-2014 06-2014 03-2015 06-2015 09-2015 12-2015 06-2016 09-2016 12-2016 03-2017 12-2017 03-2018 06-2018 09-2018 03-2019 06-2019 12-2014 03-2016 06-2017 09-2017 12-2018 0 15 09-2014

ECB asset purchase program

ECB Survey of Professional Forecasters GDP Growth 1 Year Ahead (RS)

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 12

Thailand Strategy | 3Q19 July 1, 2019

Fiscal stimulus remains a viable option

Given lackluster growth and subdued inflation, we expect policy makers to use all tools at their disposal to support economic expansion. With the ECB’s key policy rates already close to zero, their monetary policy options might be limited to asset repurchase or TLTRO programs. This does not mean the ECB will not set negative policy rates, just less likely (with possibly smaller impact on economic conditions). From a fiscal policy perspective, we still see room for stimulation. Countries in the Eurozone have to comply with a cap of 3% government deficit to GDP. In Figure 32, a quick calculation suggests that if each country in the Eurozone were to increase their budget deficit to 3% of their GDP, this would make available over US$300bn of firepower. Germany and Netherlands are the few nations running a budget surplus while the rest are mostly running a deficit.

Figure 32: If every EU country targets deficit at 3% of GDP, the EU would gain more than US$300bn extra firepower

($Bn) Firepower remaining (if 3% deficit of GDP) (%) Current % Deficit of GDP (RHS) 200 2.0 1.7 1.5 1.0 150 0.9 0.0 -0.7 100 -0.4 -1.0 -2.5 -2.5 -2.0 50 -2.8 -3.0

0 -4.0

Italy

Spain

France Poland

Belgium

Sweden

Germany Netherlands

Note: Largest 8 EU countries by GDP Source: Fred, Bloomberg, Krungsri Securities

Brexit and Italy budget crisis will create uncertainty

Political drama surrounding Brexit and possibly sanctions on Italy over its deteriorating public finances will be key themes in 3Q19. This would add to the uncertainty as markets remain cautious whether the current stabilization we see in Eurozone is sustainable. The low probability of a hard Brexit suggests any negative impact on growth would be marginal, but the current volatility may remain elevated. The Italy situation is more complicated. Given a stagnant economy after recently exiting from a technical recession, coupled with a rising debt ratio and few means to get out of the debt trap, it is on a collision path with the EU. However, we remain hopeful and expect Italy and the EU commission to come to an understanding soon and push budget crisis concerns to the future.

Krungsri Securities Research 13

Thailand Strategy | 3Q19 July 1, 2019

Japan

Strong GDP growth in 1Q19 is not sustainable

1Q19 GDP grew 2.2% YoY, beating market expectations of a 0.2% contraction. The surprise reading was led by net-trade as imports plunged, but this strength is not sustainable and reflects future weakness as exports will remain subdued. Japan’s economic outlook has deteriorated in the last two months. The economy first contracted (PMI <50) in February this year. Although the PMI has inched back up past 50, the level remains weak with no signs of a strong turnaround. We remain cautious of Japan’s economy. The slowing global trade and heightened trade uncertainty, coupled with a stronger yen (we expect USD to soften as the US catches up with RoW), will remain headwinds for Japan. GDP growth is likely to fall short of potential, which means the BOJ will maintain a loose policy.

Figure 33: Key indicators remain in contraction mode Figure 34: Exports remain weak along with international trade 58 (%) JP CAI (pt) 60.0 (%yoy) JP export growth JP import growth 5.0 JP PMI (RHS) 56 40.0 3.0 54 20.0

52 1.0 0.0 50 -20.0 -1.0 48 -40.0

-3.0 46 -60.0

2009 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010

2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2015 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Consumer sentiment continues to slump, limiting consumer spending

Consumer sentiment has continued its free-fall. Note that consumer sentiment had peaked at end 2017, earlier than most countries and interestingly, even before trade war concerns entered the spotlight. This suggests the weak consumer sentiment is partly structural, and even if global policy risks ease and US-China reach a trade deal, consumer sentiment would remain subdued. It is evident that weak consumer sentiment has prompted consumers to tighten spending despite a solid job market. Unemployment remains at multi-decade lows while wage growth remains positive, albeit slowing (Figure 36). Given these dynamics, it would be challenging to spur a strong turnaround in retail sales in the near-term, especially with plans to hike consumption tax (from 8% to 10%) this October.

Krungsri Securities Research 14

Thailand Strategy | 3Q19 July 1, 2019

Figure 35: Falling consumer confidence hurts consumer Figure 36: Wage growth collapse which is not a good spending indicator for consumption outlook 6.0 8 (%yoy) JP retail sales (% labor force) JP unemployment rate (%yoy) (pt) JP consumer confidence (RHS) 5.5 JP wage growth (RHS) 6 10.0 46

44 5.0 4

5.0 42 4.5 2

40 4.0 0 0.0 38 3.5 -2 36 3.0 -4 -5.0 34 32 2.5 -6

-10.0 30 2.0 -8

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Japan may delay VAT hike (originally scheduled for October) if the economy deteriorates sharply

For now, Japan will proceed to hike Consumption Tax for a second time, from 8% to 10% in October 2019. In our 1Q19 strategy paper, we had analyzed the previous VAT hike (in April 2014) and found it had hurt private consumption growth substantially. The Japanese government will be cognizant of this fact, especially given the weak retail sales, a deteriorating economic outlook, and significant external risks on the horizon. We would not be surprised if the government delays the VAT hike to later in the year or early next year.

We could argue that inflation is picking up (Figure 37) and that might limit the government’s ability to delay the consumption tax hike (a rising consumption theoretically leads to inflation). But this is unlikely as inflation has been largely supply-driven and a stronger yen and tighter financial conditions will restrain inflation from running up significantly.

Figure 37: Inflation seems to be firming up ... Figure 38: … but stronger Yen and tighter financial conditions will limit further rise in inflation

4.0 (%yoy) JP CPI JP core CPI 104 (pt) JP financial condition (yen/usd) 130 yenusd (RHS) 3.0 103 120 2.0 102 110 1.0 101 100 0.0 100 90 -1.0

-2.0 99 80

-3.0 98 70

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 15

Thailand Strategy | 3Q19 July 1, 2019

BOJ has stimulus levers to pull but benefits may be limited, and there is rising risk of negative side-effects

Japan has the world’s biggest monetary stimulus program, so it can be argued the BOJ has been the most aggressive central bank. It has embarked on a two- decade journey from zero interest rate to massive asset purchases, negative rates and yield-curve control. Stubbornly low inflation (below 2% target rate) and a deteriorating economic outlook, coupled with rising external risks, should compel the BOJ to remain accommodative. The challenge is that extra stimulus will have limited benefits as all the stimulus levers have been pushed to the extreme. The rising probability of a Fed rate cut may prompt the BOJ to find ways to ease because a stronger yen will tighten financial conditions and would be a headwind for exporters.

The BOJ could push four levers: (i) cut short-term interest rates (currently at negative 0.1%), (ii) control yield curve (manage long-term rates), (iii) expand asset purchase program (ETF-stocks), and (iv) expand monetary base (buy bonds). Of these, the BOJ is likely to want to manage the yield curve. The BOJ is unlikely to employ the other levers at this point because a further cut in short- term interest rates will hurt banks, and the BOJ already holds 50% of Japanese government bonds and 80% of outstanding Japanese ETF equities, raising concerns of unwinding risk. Nonetheless, BOJ might lean towards tinkering instead of pulling the lever outright.

Figure 39: BOJ’s balance sheet as % of GDP has risen Figure 40: Yield curve management is intended to boost significantly bank profitability and spark economic activity and inflation

120 BOJ Fed ECB (% of GDP) 4.0 (%) Japan CPI Japan 10Y (RHS) (%) 1.6 1.4 100 3.0 Yield curve 1.2 80 control was 1.0 2.0 implemented 0.8 60 1.0 0.6 40 0.4 0.0 0.2

20 0.0 -1.0 -0.2 0

-2.0 -0.4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2010 2011 2012 2014 2015 2016 2017 2018 2019 2013

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 16

Thailand Strategy | 3Q19 July 1, 2019

China

Waiting for the dragon to rise

China’s economy is likely to slow down further, as suggested by the CN CAI which is trending lower (Figure 41). 1Q19 GDP grew 6.4% but there is downside risk in the near-term as domestic consumption remains weak, manufacturing production and fixed asset investment are easing, and there is rising risk the US- China trade war could escalate. The green shoots we saw earlier in March (Official and Caixin PMI beat expectations, uptick in CAI) supported by a pickup in credit impulse have failed to grow legs. This has largely disappointed markets and suggests policy easing measures to date have not been sufficient (1Q19 new loans grew 12% yoy but fell 5% on YTD basis). Given rising external risks and stubbornly weak domestic drivers, continued policy easing is in the cards. We could see the PBOC partially ease their selective and cautious policy stance and implement broader stimulus measures, albeit on a small scale. We could see a pickup in growth in 4Q19.

Figure 41: CN CAI points to further moderation ahead Figure 42: Chinese exports remain under pressure as trade war escalates

16.0 (%yoy) CN CAI CN GDP 56.0 (pt) CN PMI CN export growth (RHS) (%yoy) 60 14.0 54.0 40 12.0

10.0 52.0 20

8.0 50.0 0

6.0 48.0 -20 4.0

2.0 46.0 -40

2009 2010 2011 2011 2012 2012 2013 2013 2014 2015 2015 2016 2016 2017 2018 2018 2019

2009

2010 2011 2012 2013 2014 2015 2016 2017 2019 2009 2018

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Keeping focus on sluggish domestic drivers

Once largely an export-centric nation, China’s key GDP growth drivers have shifted to domestic consumption and investment in fixed capital, which together account for over 80% of GDP. This notable shift can be attributed to the surge in household income and policy shift biased towards infrastructure investment. China’s domestic drivers had lost considerable growth momentum in . Vehicle and retail sales, reliable indicators of private consumption, remain weak (Figure 43). We saw an uptick in May retail sales data but would wait for a firm trend. Keep eyes on these two data because a reversal could signal a broad turnaround in the economy and boost market confidence. Fixed asset investment continues to grow, albeit at a subdued level (Figure 44). FAI could pick up following the PBOC’s latest decision to allow local governments to use special bonds as equity for infrastructure projects (previously proceeds from bonds could only be used as “debt”). These measures could make it easier for projects to meet the minimum capital ratio requirements and firms to get larger bank loans.

Krungsri Securities Research 17

Thailand Strategy | 3Q19 July 1, 2019

Figure 43: Domestic consumption indicators remain Figure 44: Fixed asset investment has moderated while weak Construction PMI remains expansionary 20 11.5 (%yoy) Auto Sales (%yoy) (%yoy) Fixed asset investment (Index) Retail Sales (RHS) 15 PMI construction (RHS) 10.5 30 66 10 25 64 5 9.5 0 20 62 -5 8.5 15 60 -10 10 58 7.5 -15 5 56 -20 6.5

0 54

2015 2016 2017 2018 2019

03-2017 05-2017 07-2017 09-2017 11-2017 05-2018 07-2018 09-2018 11-2018 01-2019 03-2019 05-2019 03-2018 01-2018

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

China has a lot of firepower left, but needs to balance caution with growing external risks and slumping confidence

We see ample room for China to stimulate the economy as the benchmark rate is at 4.35% (ample room to cut), while its fiscal war chest stands at US$3.65 trillion (unspent budget for central and local authorities). However, the ability to and willingness to stimulate are two separate things. The PBOC is in a tricky place in terms of policy setting. On one hand, China is losing economic momentum, recent economic data remain weak, stimulus efforts have yet to translate into a sustainable recovery, while external risks (trade war) are growing. Ideally, China would want to negotiate from a position of power. On the other hand, China is willing to tolerate slower growth (set official GDP target at 6.0 – 6.5%) and is aware that repeating massive stimulus would increase systemic risk with marginal benefits. In addition, an excessively loose policy will put undue pressure on the renminbi which is currently at 6.93 to a USD.

Figure 45: China’s benchmark rate is at 4.35%, highest Figure 46: Loose monetary policy may pressure the among major central banks worldwide already-weak Yuan

7.0 (%) PBOC rate - Fed rate 5.9 8 (%) Fed BOJ PBOC ECB (Pt) Yuan Spot (reverse,RHS) 7 6.5 6.1 6 6.0 5 6.3 5.5 4 6.5 5.0 3 6.7 2 4.5 1 4.0 6.9 0

-1 3.5 7.1

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2000 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 18

Thailand Strategy | 3Q19 July 1, 2019

China is likely to maintain its easing policy. The PBOC could implement broader stimulus measures (currently they are targeted measures), albeit on a smaller scale, especially because its previous targeted efforts have failed to drive sustainable growth. There is a risk that if the PBOC fails to stabilize or revive growth quickly, it might fall behind the curve. The risks to the global economy and China (trade war escalation) are greater now than in early last year.

We expect the PBOC to continue to target the RRR. With the Fed turning dovish (potentially cutting rates), this could reduce pressure on the renminbi and give PBOC an option to loosen. China’s decision to cut VAT earlier in the year and latest decision to allow local governments to use proceeds from special bonds to take equity in infrastructure projects are examples of how the government is looking to support growth. We may see more of these initiatives in the next few quarters.

Krungsri Securities Research 19

Thailand Strategy | 3Q19 July 1, 2019

Thailand

Riding the global current

GDP growth decelerated to 2.8% YoY in 1Q19 from 3.6% in 4Q18, the slowest since 4Q14 when it grew by 2.4%. As an export-centric nation, we had expected a certain level of slowdown triggered by the weaker global economy, exacerbated by uncertainty over global trade direction. However, the downward revisions to 2019 GDP growth forecasts (by banks and official agencies) had been rather deep, largely premised on elevated external risks and dampened domestic and public activity due to lingering uncertainty in domestic politics. Our economic team at Bank of Ayudhya have revised down their 2019 GDP growth forecast from 3.8% to 3.2%. Amid this soft economic patch, private consumption remains the last beacon of light, notching 4.6% YoY growth in 1Q19. We expect it to remain strong.

The clear external headwinds justify a cautious view on Thailand, but we are not in the bear camp. We see upside risk to Thailand’s GDP growth forecast for 2H19 as the global economy is likely to bottom-out premised on the pronounced dovish tilt in most major central banks. Furthermore, we feel more sanguine about Thailand’s geopolitical risks in the near-term than the market. This should support private sector sentiment and activity.

Figure 47: 1Q19 GDP slowed to 2.8% from 3.6% in 4Q18 Figure 48: Slowing global growth and trade uncertainty has been an overhang

19.0 (%yoy) TH CAI (%yoy) TH exports (%yoy) 30 7.0 16.0 TH GDP YoY Global CAI (RHS)

6 per. Mov. Avg. (TH CAI) 20 5.0 13.0 10 10.0 3.0 0 7.0 1.0 -10 4.0 -1.0 1.0 -20

-2.0 -30 -3.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2009

2009 2011 2012 2013 2015 2016 2017 2019 2014 2018 2010 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Hazy export outlook will limit private investment

Thai exports have slumped in line with slowing global trade, registering a contraction in every month of 2019. In May, Thai exports fell 5.9% YoY. The US- China trade war has disrupted China’s supply chains and uncertainty over the global trade direction has dragged growth in Thailand’s largest trade partners, which are hurting Thai exports. This negative impact overshadows any benefits Thailand might have reaped from the substitution effect (Thai exports replacing Chinese exports to the US). Note that Thailand has experienced limited direct impact from the trade war but the indirect impact (corporations withholding investments until there is clearer trade direction) has had greater repercussions on growth. We suspect that even if global economic growth bottoms out and

Krungsri Securities Research 20

Thailand Strategy | 3Q19 July 1, 2019

turns around, if US-China trade tensions escalate, global trade and Thai exports (as proxy) would still be subdued.

A study by our economic team at Bank of Ayudhya reveals that Thailand’s export cycle leads the investment cycle by 1-2 quarters. Since Thai exports had been soft and is only expected to turn around in late 2H19 in line with the global economy, private investment should find firmer footing in early 2020. Capacity utilization, a leading indicator of private investment, had ticked up in May to 67.7 from 63.6 in April, which leads us to believe the current level of private investment is sustainable. Then again, the progress of the trade talks between US-China (reflects in the global policy risk data below) would be one of the key determinant for magnitude of investment growth in the coming periods.

Figure 37: An uptick in capacity utilization suggests Figure 38: … but still-cloudy export outlook continues to private investment is sustainable at current level ... weigh down investment outlook

(%yoy) TH private investment index (%yoy) TH exports 50 11.0 TH Chg. Capacity utilization TH private consumption YoY 40 30 6.0 20

1.0 10 0 -4.0 -10 -20

-9.0 -30

2009 2010 2011 2012 2013 2014 2015 2017 2018 2019 2016

2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2016 2017 2017 2018 2018 2019 2014 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Besides the dynamics of private investment, public investment is also a crucial to help the economy weather the storm of uncertainty. In fact, the government has considerable room to employ public investment to counter the slowdown. Public investment as % of GDP had surged in the early days of PM Prayut's administration but the momentum faded ahead of the election campaign. With the restoration of a fully functional administration, it is feasible for the government to lift public investment back towards the long-term average of around 6.5% of GDP.

Figure 39: Receding of global uncertainty would help Figure 40: Near-term target is to ramp public investment jack up investment back to its average level PII (%yoy, 3M mov) 7.0 (%) (chg) -200 (%GDP) Public investment % GDP Global policy risk (chg, RHS) 12.0 6.0 -150 5.0 11.0 averaged since 2000 -100 4.0 10.0 3.0 -50 2.0 9.0 0 1.0 8.0 0.0 50 7.0 -1.0 100 -2.0 6.0 -3.0 150 5.0 -4.0 200

4.0

04-2013 08-2013 12-2013 08-2014 12-2014 04-2015 12-2015 04-2016 08-2016 04-2017 08-2017 12-2017 08-2018 12-2018 04-2019 08-2015 12-2016 04-2018

04-2014

4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18 4Q97 4Q10 4Q11 4Q12 4Q96 Source: policyuncertainty.com, Bloomberg, Krungsri Securities Source: NESDC, Krungsri Securities

Krungsri Securities Research 21

Thailand Strategy | 3Q19 July 1, 2019

Private consumption appears resilient

On a good note, it appears consumer spending in Thailand has been resilient to external uncertainty as growth has remained above-trend rate. This is despite the recent moderation which we think was due mainly to falling confidence. Consumers still have strong spending power because of high savings rate, which suggest consumption growth should pick up once overall sentiment recovers. In addition, government stimulus measures to boost consumption should encourage spending going forward. Nonetheless, high household debt levels and more restrictive lending criteria would remain a drag on consumption in the near future.

Figure 41: Private consumption stays above trend growth Figure 42: Strong household saving rate reflect ability to despite looming uncertainty spending once confidence restored

Private consumption HP (%) Thailand household saving rate 15.0 (%yoy) 36 (index) 105 TH CCI 13.0 34 100 11.0 32 9.0 95 7.0 30 90 5.0 28 3.0 85 1.0 26 80 -1.0 24 -3.0 75

-5.0 22

4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9

9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1

9 20 70

Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2002 2015

Source: NESDC, Krungsri Securities Source: NESDC, Krungsri Securities

Krungsri Securities Research 22

Thailand Strategy | 3Q19 July 1, 2019

3Q19 Investment Strategy: Team up!

The global economy is slowing as the extended US-China trade war has started to have visible impact on global trade. Meanwhile, geopolitical risks such as Brexit and conflict in the Middle East could inject volatility into the global investment horizon. However, the Thai equity market seems to be in a sweet spot as foreign fund inflows have bottomed out and will pick up driven by a strong THB and the government’s promised stimuli policies. We expect stocks with the following criteria to perform well in 3Q19: (i) larger exposure to the domestic economy; (ii) benefit from FFF; and (iii) benefit from government stimuli. Our top picks are

AP, CPALL, GLOBAL, VGI and WORK.

Set Index: We revised down year-end 2019 target to 1850 (from 1900)

Our year-end target implies 15.9x PER or +1.6SD of average multiple. We revised down our target after Bloomberg trimmed 12M-forward EPS to Bt116 for 2020F from Bt120 in 1Q19. We still believe the SET deserves to trade at a premium to its historical average given upcoming and potential government stimuli and stronger foreign fund inflows. PER valuation had risen YTD supported by politics and economic outlook for Thailand, and prospect of central banks starting to ease monetary policies.

Figure 43: SET has been re-rated to +1.0SD of 3-year average Figure 44: Promised stimuli will keep SET PER valuation at a PER from -1.0SD in May 2019 premium to its historical average PEPE(x) PE(x) +2SD 16 16

14 14

-2SD

12 12

4) Trade war

10 10 3) Chinese market rout

2) QE tapering 8 Global 8 economic 1) The flood crisis

6 6

Fwd -2SD -1SD AVG +1SD +2SD EPS 13.7 14.3 14.9 15.5 16.2 End of 2018 106 1,440 1,510 1,570 1,640 1,710 End of 1Q19 108 1,480 1,540 1,610 1,680 1,750 End of 2Q19 111 1,510 1,580 1,650 1,720 1,790 End of 3Q19 114 1,550 1,620 1,690 1,760 1,830 End of 2019 116 1,580 1,650 1,730 1,800 1,870

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 23

Thailand Strategy | 3Q19 July 1, 2019

Thailand is still a sweet spot for foreign investors

Although the SET Index has outperformed global equity markets, we expect Thailand to remain in a sweet spot as external investment-related risks remain high – trade war, geopolitical risks, Brexit and slowbalization. Thailand has shown that (i) the domestic economy and stock market are among the least affected by the extended US-China trade war; (ii) foreign funds continue to flow into Thailand as the THB is considered a safe-haven currency among ASEAN region; and (iii) there are expectations that current and proposed government stimuli would lift consumer and investment confidence.

Figure 45: Thai stocks to remain in a sweet spot for global investors

Source: Krungsri Securities

1) Expect trade war to have positive impact in the long- term

The US-China trade war has had a significant influence on global stock markets since the beginning of 2018. It had caused the benchmark MSCI World AC Index to tumble 11% in 2018. However, stock markets had rebounded strongly this year, especially the China market which fell almost 20% last year, driven by positive progress in US-China trade talks, before Trump wildly accused China of back-stepping on the deal. This sent global investors into risk-off mode once again in May when the global stock market fell as much as 4.1% within a month.

At the time of publication of this report, investors around the world were still hoping for positive progress in trade talks at the G20 summit on 28-29 June. We are mildly optimistic, seeing 60% subjective probability of a status quo or de- escalation outcome as China has explicitly said it has no grounds to back off anymore. The ball is now in Trump’s court – he can still call off the plan to impose tariffs on another US$300bn in Chinese goods. Meanwhile, we see 40% subjective probability of the trade war escalating in the near-term with Trump threatening to impose tariffs at any rate on the remaining Chinese goods.

Krungsri Securities Research 24

Thailand Strategy | 3Q19 July 1, 2019

We expect a positive outcome over the long-term, with 60% subjective probability of a trade truce because the two countries would not want to risk falling into a man-made recession. This would incentivize both Donald Trump and Xi JinPing to agree on a deal to partially unwind or remove the imposed tariffs. Stock markets will respond positively to this outcome. However, the risk of falling into “no-deal” territory remains substantial at % probability. If this happens, the world economy risks falling into a recession as major economies have started to see visible impact from tariffs imposed last year. Stocks would tumble. For now, until we see signs of a firm trade deal or further talks, global stock markets will be more volatile.

Figure 46: We expect a trade truce as the long-term outcome

Source: Krungsri Securities

Krungsri Securities Research 25

Thailand Strategy | 3Q19 July 1, 2019

1) Thai economy and exports will receive windfall from US- China trade dispute

Based on our observations and analysis of the US-China tariffs, China and US would lose the most from the current level of imposed tariffs. Global Trade Analysis and Krungsri Research forecast the world economy would lose 0.04% and 0.41% of GDP and exports, respectively, from baseline levels. At individual country level, China and US would lose 0.28% and 0.11% of GDP (from baseline) and 3.50% and 2.47% of exports (from baseline).

But fortunately, most other economies would benefit from the trade war. The magnitude could range from mild positive to 0.14% of GDP (Vietnam). In exports, the impact would vary between -0.14% for Laos to +1.11% for Cambodia. Thailand is expected to see 0.02% increase in GDP and 0.39% rise in exports from baseline levels. These figures might contradict what we have experienced recently - slowing global GDP growth and exports - but the studies look at the long-term impact. We expect more windfalls in the following years.

For Thai exports, the model predicted a positive contribution of +0.39% of total exports. In detail, exports to most destinations would drop, especially to South Korea (-1.76%), Japan (-1.69%), Hong Kong (-1.61%) and China (-1.28%). However, Thai exports to the US is expected to increase by much as 10.87%, followed by exports to Cambodia (+0.28%) and Mexico (+0.21%). To conclude, the trade tariffs are positive for Thai exports.

Figure 47: China and US economies would lose the most from the ongoing trade dispute

Source: Global Trade Analysis, Krungsri Research

Krungsri Securities Research 26

Thailand Strategy | 3Q19 July 1, 2019

Figure 48: Thai exports to almost all destinations would be affected, but exports to the US would increase significantly

Source: Global Trade Analysis, Krungsri Research

1) Thai stocks are more resilient to negative developments in the trade war

Each time the trade war escalated, stock markets around the world reacted differently. We looked at several episodes since the beginning of 2018. The very first tariffs imposed on steel and aluminum imports into the US did not hurt the China A-share market. However, after the US turned to focus on imported Chinese goods, Chinese stocks started to underperform while US stock markets outperformed during each subsequent episode. The MSCI Asia ex-Japan performed badly during those episodes (-4.7% within 3 weeks of Episode 2), as did the SET (-6.4% within 2 weeks). But recently, the SET has been more resilient when there was negative news flow about the trade dispute (-4.1% vs MSCI Asia ex-Japan -7.3% and China A-share -8.0%).

Figure 49: Trade war escalation episodes Figure 50: Chinese stocks were hardest hit 6% Ep. What happened? China A-share 4% 2% 1 US threatens to impose tariffs on imported steel and 0% aluminum -0.79% -2% 2 Trump slaps 25% tariffs on up to $50bn in Chinese goods -4% Eps 1 -6% Eps 2 3 Trump threatens tariffs on another $267bn in Chinese -8% Eps 3 -8.0% imports -10% Eps 4 -10.0% 4 Trump threatened to hike 10% tariffs on $200bn worth of -12% 0D 1D 1W 2W 3W imported Chinese goods to 25%

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 27

Thailand Strategy | 3Q19 July 1, 2019

Figure 61: AxJ fell significantly in the same period Figure 62: SET did slightly better than regional markets 4% 6% MSCI AxJ Eps 1 SET Index 4% 2% Eps 2 2% Eps 3 0% Eps 4 -0.49% 0% -2% Eps 1 -2% Eps 2 -4.1% -4% -4% Eps 3 -4.7% -6% Eps 4 -6% -6.4% -7.3% -8% -8% 0D 1D 1W 2W 3W 0D 1D 1W 2W 3W Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

2) Foreign funds will continue to flow into Thailand

In 2Q19, foreign funds returned to the SET for the first time in 8 quarters, notching approximately Bt50bn net buy position in the quarter. We expect foreign funds to continue to flow into the SET in 3Q19 driven by expectations of a weaker USD (see Page 5) and seasonal THB/USD movements. Over the last 10 years, the THB had strengthened in 7 of those years by a median magnitude of 1.7%. In terms of foreign fund flows, they registered net buy positions in 5 of the 10 years - in 3Q of each year - with median at Bt2.1bn. This is a positive signal given that they racked up a cumulative Bt430bn net sell position in the SET over the last 10 years.

There is a correlation of -0.63 between the THB/USD movement (THB strengthens = THB/USD goes down) and foreign fund inflows. Based on 12M cumulative foreign flow/SET Index ratio, which has picked up since 2Q19, there is still Bt40-130bn upside to foreign inflows in 3Q19.

Figure 51: THB is seasonally stronger in 3Q (+1.7% median) Figure 52: Coincidentally, 3Q showed positive FFF (on average) 2.0% Avg. Med. 1Q 2Q 3Q 4Q 10,000 Avg. Med. 1Q 2Q 3Q 4Q 1.5% 2009 2.2% -4.1% -1.8% -0.2% 6,098 5,369 2009 -5,546 25,740 35,031 -16,994 1.5% 2010 -3.1% 0.4% -6.5% -1.0% 2010 42,537 -59,864 58,907 40,144 0.9% 5,000 1.0% 2011 0.7% 1.5% 1.5% 1.1% 5,344 2011 -577 -14,100 -20,675 30,232 0.6% 2,073 2012 -2.3% 2.4% -2.3% -0.8% 0 2012 82,770 -19,228 1,475 11,371 0.5% 2013 -4.3% 6.1% 0.6% 4.7% 2013 3,894 -80,479 -29,835 -87,492 0.0% 2014 -0.9% 0.1% 0.0% 1.5% -5,000 2014 -20,788 -20,245 37,281 -32,832 -0.1% 2015 -1.1% 3.9% 7.6% -0.9% 2015 -8,456 -7,211 -91,875 -46,803 -0.5% -10,000 2016 -2.5% 0.0% -1.5% 3.6% 2016 18,978 17,533 95,969 -54,553 -1.0% -0.6% 2017 -4.1% -1.2% -1.8% -2.2% 2017 6,287 7,166 -3,792 -35,417 -15,000 2018 -4.3% 6.0% -2.2% 0.0% 2018 -58,117 -121,960 -28,797 -78,585 -1.5% 2019 -1.8% -0.7% -20,000 2019 -13,086 50,286 -1.7% -2.0% Pos. 2 7 3 5 -24,810 Pos. 5 3 5 3 -2.0% Neg. 8 3 7 5 -25,000 Neg. 5 7 5 7 -2.5% -28,215 -2.4% -3.0% Quarter Avg. -2.0% 1.5% -0.6% 0.6% -30,000 -27,265 -27,093 Avg. 6,098 -27,265 5,369 -27,093 1Q 2Q 3Q 4Q Med. -2.4% 0.9% -1.7% -0.1% 1Q 2Q 3Q 4Q Med. 5,344 -24,810 2,073 -28,215 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 28

Thailand Strategy | 3Q19 July 1, 2019

Figure 53: USD/THB and FFF move in tandem (reverse RHS) Figure 54: SET did slightly better than regional markets 150 -8% 300 2000 (Bt, bn) (Btm/pt) Bt40bn-Bt130bn FFF (pt) -6% 200 remaining 1800 100 -4% 100 1600 1400 50 -2% 0 0% 1200 0 -100 2% 1000 -200 -50 4% Return of the "Fa-rang" 800 -300 6% 600 -100 -400 400 FFF (quarter) 8% Foreign flow/SET (LHS) -500 USDTHB change (qoq, RHS) 200 -150 10% SET Index (RHS)

-600 0

2Q2009 2Q2010 4Q2010 2Q2011 4Q2011 4Q2012 2Q2013 2Q2014 2Q2015 4Q2015 4Q2016 2Q2017 4Q2017 2Q2018 2Q2019 2Q2012 4Q2013 4Q2014 2Q2016 4Q2018 4Q2009 Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

2) Bank, Property, Energy and Construction Service sector will benefit from foreign fund inflows

Over the last 10 years, the SET registered more than Bt400bn in accumulated foreign net outflows. This is partly explained by foreign investors employing the buy low-sell high strategy. However, in the analysis that adjusted for foreign net buying/selling at several SET Index levels, they were still net sellers.

In addition, we looked at (i) how foreign investors allocated weighting for each major sector when they net buy or net sell Thai stocks; and (ii) how changes in foreign ownership affected sectoral returns. The positive correlation in the first study revealed consistency in all periods – since 2006, 2007, 2009, 2016 to present day – in Bank, Property, Energy and Construction Service, which means these sectors were the beneficiaries when there were foreign fund inflows, and vice versa. On the flip side, major sectors like Tourism and Automotive revealed a negative correlation, which means foreign ownership levels in these sectors fell when there were foreign fund inflows. In the second study, the Energy, Property, Bank, Construction Material, ICT and Construction Service sectors saw an increase in foreign ownership levels (and higher stock prices) when there were foreign fund inflows. It was again the reverse for Automotive and Tourism sectors.

Figure 55: Study on how foreign fund flows influence foreign ownership and sectoral returns

Source: Krungsri Securities

Krungsri Securities Research 29

Thailand Strategy | 3Q19 July 1, 2019

Figure 56: FFF vs FO had positive correlation with Bank, Property, Energy and Construction Service sectors (1) Correlation (SET Foreign flow vs %FO by sector) AGRI AUTO BANK COMM CONMAT CONS ENERG ETRON FIN FOOD HELTH ICT INSUR MEDIA PETRO PROP TOUR TRANS 2006 0.06 -0.15 0.21 0.10 0.14 0.31 0.14 0.15 0.20 0.03 0.12 -0.02 0.10 0.12 0.27 -0.15 0.03 2007 0.06 -0.16 0.34 0.09 0.15 0.31 0.11 0.11 0.22 0.09 0.12 0.02 0.12 0.11 0.28 -0.16 0.01 2009 0.05 -0.18 0.32 0.12 0.14 0.21 0.11 0.11 0.20 0.08 0.10 0.01 0.10 0.14 0.22 -0.14 -0.12 2016 -0.08 -0.11 0.36 0.07 0.47 0.41 0.04 0.12 0.25 -0.08 -0.09 0.14 0.14 -0.05 -0.02 0.32 -0.02 0.24

Median 0.05 -0.16 0.33 0.09 0.15 0.41 0.26 0.12 0.13 0.20 0.06 0.12 0.01 0.10 0.12 0.28 -0.15 0.02 Source: Krungsri Securities

Figure 57: FO levels had impact on stock prices in Energy, Property, Bank, Construction Material, ICT and Construction Service sectors (2) slope-sensitivity (%return vs %FO change by sector)

AGRI AUTO BANK COMM CONMAT CONSENERG ETRON FIN FOOD HELTH ICT INSUR MEDIA PETRO PROP TOUR TRANS

2006 0.47 -1.42 1.70 0.97 3.14 4.97 0.65 0.02 1.47 2.57 2.89 0.91 -0.02 0.84 4.87 -3.16 2.12 2007 0.47 -1.47 3.61 0.78 3.36 5.89 0.50 -0.35 1.43 3.24 2.96 0.99 0.09 0.84 5.06 -3.85 2.28 2009 0.53 -1.43 4.31 0.83 3.30 3.43 0.08 -0.55 1.42 2.37 2.46 0.89 1.02 1.05 4.04 -3.95 0.46 2016 -1.62 -0.42 5.75 0.56 4.53 2.71 5.67 0.11 2.23 0.38 -0.55 5.08 2.75 -0.15 1.16 1.31 -4.35 3.19 Median 0.47 -1.43 3.96 0.80 3.33 2.71 5.32 0.31 -0.16 1.43 2.47 2.93 0.95 0.04 0.95 4.46 -3.90 2.20

Source: Bloomberg, Krungsri Securities

3) Promised government stimuli are huge

During the March 2019 election campaign, many political parties promised massive spending to support agricultural prices, and improve social welfare and labor income policies. After it became clear Gen. Prayuth would become the 29th prime minister of Thailand, we reviewed the promises made by the coalition parties. Based on news sources, the total value of the promised stimuli would reach Bt500-700bn. If the government disburses 50-70% of that, it would be equivalent to 2-3% of 2018 nominal GDP. Hence, disbursement will lift sentiment and improve confidence in both domestic consumption and investment.

Krungsri Securities Research 30

Thailand Strategy | 3Q19 July 1, 2019

Figure 58: Promised stimuli package to boost consumption is equivalent to 2-3% of 2018 nominal GDP Palang Pracharath Democrat Pheu Thai Campaign Value (Btm) Campaign Value (Btm) Campaign Value (Btm) Rice plantation, harvesting and storing support Profit sharing scheme for farmer and 230,000 Paddy price guarantee 60,000 - fund (approx. Bt8.5k/t) manufacturers Agriculture price guarantee (Palm price Bt4/kg, Agriculture Palm subsidy harvest and plantation Subsidy for paddy harvest and plantation 550 rubber price Bt60/kg - 25 rais/family, rice 100,000 270,000 price Bt1,500/rais (max 20 rais per family) Bt5,000/cart (max 15 carts) or Bt36,000/ 7 carts Bt10k/cart) village fund 4-year interest payment suspension Water resource fund 30,000 3-years suspension of agricultural debt Village fund (Bt2.0m/village) 130,000 Shadow banking reform 27629.22 Est. budget 360,550 217,629 270,000 Nursing home for elders 417 First home soft mortgage 20,000 Citizens pension fund Bt3,000/mth 240,969 Allowance for an elders Bt1,000/person (from Allowance for an elders Bt1,000/mth (from 80,400 80,400 Free education for 15 years Bt800) Bt800) Allowance for low income persons Bt800/mth General welfare: Bt1000/person/month 136,200 136,200 (from Bt300/mth from welfare card) Maternity support program: Bt3,000/mth during pregnancy, Bt10,000 during childbirth and 119,460 Allowance for disabled persons Bt1,000/mth 24,000 Bt2,000/mth during 0-6 year (Bt0.18m/child) Social Newborn receives Bt5,000/child 17,832 welfare 0-8 year receives Bt1,000/mth 59,000 Nursery center 4,555 Free education through high vocational 23,852 certificate Free school breakfast and lunch 28,441 English for all 5,500 Increase compensation for village health 739 volunteer BTS fare at Bt15 Est. budget 336,477 400,519 240,969 Increase minimum wage to Bt400-425/day 4,668 Tax credit on annual wage of Bt120,000/year 50,000 Increase minimum wage to Bt350/day in 6 mth 4,085 Cut personal income tax for revenue below Cut personal income tax 10% 50,000 Smart small business center 20,000 Bt2.0m per year to 20% Labor income 2 year tax free for on-line business Increase minimum salary in 6 mth 5 year tax cut for new graduates Privilege for SME business in non EEC area Business tax reform in 6 mth Personal income tax reform in 6 mth Est. budget 54,668 50,000 24,085 Energy/ Oil 5 year roadmap for EV car Desel oil price fixing at Bt30 Fuel tax reform price Total budget 751,695 668,148 535,054 Source: Various news sources, Krungsri Securities

3) Minimum wage hike and support for agricultural prices will boost consumption and confidence

The campaign promises ranged from strategic long-term investment policies to short-term and easy-to-implement policies. We expect two major policies – minimum wage hike (or minimum wage guarantee by Democrat Party) and support for agricultural prices – to be the major consumption boosters.

For minimum wage, Palang Pracharat Party promised to hike minimum wage from Bt308-330/day currently to Bt400-425, implying a 30% hike. Meanwhile, the Democrat Party promised an income tax credit guarantee of Bt120k/year, implying Bt400-460/day or 20-40% hike. No matter which policy is selected, the impact on consumption would be similar. The difference is whether the burden would fall on the private sector or government.

To support agricultural prices, the Palang Pracharat Party proposed to increase the harvest support fund by 10-30% depending on ownership of the agriculture land. The Democrat Party proposed a price guarantee system, where the government would pay the difference between market price and guaranteed price (the guaranteed price would be determined later). Bhumjaithai Party proposed a profit-sharing program which would increase farmers’ income by about 10%. Most of these policies have been implemented before, so we see very few hurdles to implement them now.

Krungsri Securities Research 31

Thailand Strategy | 3Q19 July 1, 2019

Figure 59: Proposals to hike minimum wage and support agricultural prices will boost domestic consumption

Source: Various news sources, Krungsri Research

3) Thailand has room to consume more

In Thailand, accumulated savings has increased from 26% of GDP in 2014 to 33% currently without much reinvestment, while in other EM countries, household savings have been trending down from the peak of 34% to 31% currently. Some theories posit that when people consume, household savings would be low. But Figure 60 below shows accumulated household savings in Thailand reached 34% of GDP in 2017 when consumption grew at close to 4% per annum. We expect the high level of household savings to be exploited to drive consumption growth following a boost in confidence after the government inauguration ceremony and policy announcements.

Krungsri Securities Research 32

Thailand Strategy | 3Q19 July 1, 2019

Figure 60: Thailand accumulated household savings without Figure 61: Household savings can rise during periods of much reinvestment in the past 5 years strong consumption 35 (%GDP) 36 (%GDP) Thailand household saving rate (%yoy) 8 TH consumption (RHS) 34 7 34 33 6

32 5 32 31 4

30 30 3

29 2 28 28 1

27 0 26 26 -1 Thailand household saving rate Avg. EM

25 24 -2

Source: IMF, Krungsri Securities Source: IMF, NDSDC, Krungsri Securities

3Q19 Strategy: Team up!

Despite rising risks from the trade war, geopolitical risks, Brexit and slowbalization, foreign funds have continued to flow into Thai stocks and the THB remains strong. This supports our view that Thai equities are in a sweet spot in portfolio allocation. In addition, the upcoming government inauguration and policy announcement would support consumption and investment confidence. We expect stocks with the following criteria to outperform in 3Q19: (i) large exposure to domestic economy, which would shield them from external volatilities; (ii) targets of foreign fund inflows; and (iii) those which would benefit from promised stimuli measures. On this note, we prefer Commerce, Property and Media sectors. Our top picks are AP, CPALL, GLOBAL, VGI and WORK.

Figure 62: Stocks with exposure to domestic economy and beneficiaries of foreign fund inflows and government stimuli package will outperform

Source: Krungsri Securities

Krungsri Securities Research 33

Thailand Strategy | 3Q19 July 1, 2019

Benefit from Domestic Benefit from Stocks government Investment summary Exposure FFF stimuli AP is expected to see pronounced recovery with support from strong transfer momentum since 1Q19. The current backlog would secure AP   82% of our forecast condominium transfer, while low-rise units had improved more than what we have expected. Stock price offers good bargain on valuation. A leading operator of convenience stores with more than 10,000 branches, CPALL would be the prime beneficiary of (i) upcoming government stimulus package, (ii) recovering tourism industry, and CPALL    (iii) El Nino conditions in Thailand currently. These would boost SSSG to 6.5% in 2020. The stock also offers 3-year earnings growth (CAGR) of 17% p.a. One of the most beneficiary from agriculture price support policy with highly correlation of 80.1% between its SSSG and paddy price. Solid GLOBAL   SSSG, store expansion, and private brand expansion brought an appealing earnings growth of 19% (3-yr CAGR). VGI would be a prime beneficiary of structural changes in ad spending, and the industry turns away from traditional TV to OOH and online segment. There is room to grow earnings as utilization VGI    rate is still low at 68%. The recent earnings upswing marks the beginning of a multi-year upcycle. We expect EPS to grow by 42% CAGR in the next two years. Valuation is attractive at 1x 2019F PEG. Earnings had bottomed out in 4Q18. Operations have been recovering since 1Q19 and earnings are expected to improve. Lower WORK    cost burden arising from the NBTC’s offer and higher revenue from shopping business would also support earnings from 2Q19F. Current PE valuation is below historical level of 30x.

Krungsri Securities Research 34

Company Research July 1, 2019

AP Thailand PCL BUY (AP TB/ AP.BK) Target price Bt9.3 (18.5%) Price Bt7.9

Solid progress toward recovery

Presales and transfer should soften this year painting a discouraging outlook for AP; however, we believe the negatives have been priced-in. While AP is still trading at bargain valuation, the company begins to show solid progress toward recovery. We conservatively applied 8x target PE (-

0.25SD of L-T trading multiple) to derive our Bt9.3 TP. Yet, there is still 18% Ratasak PIRIYANONT upside from the current share price and the stock offers 6% dividend yield. Fundamental investment analyst on securities Hence, we reinstate coverage of AP with an BUY rating. +662 659 7000 ext 5016 [email protected]

Presales softened on product mixed AP plans to launch Bt58bn worth of projects this year (+28.5% yoy), comprising Bt35bn low-rise and Bt22bn condominium projects. Meanwhile, they are targeting Bt39bn presales (-5.6% yoy) with Bt33.8bn from residential projects (-8.4% yoy). Since AP is geared towards more low-rise projects this year, we believe it would Key data Unit

drag presales momentum because take-up rate on housing is normally lower than 12M high/ low (Bt) 9.6/ 5.8 for condominiums. Adding salt to the wound, stricter mortgage rules introduced by Market cap (Btm/ US$m) 24,695/ 805 Bank of Thailand might also hamper demand this year. 3M avg. daily turnover (Btm/ US$m) 82.0/ 2.6 Free float (%) 76.7 Low-rise transfer rising strong Issued shares (m shares) 3,146 We expect overall residential transfers to weaken in 2019 because AP will transfer Major shareholders: % only three condominium projects this year compared to four in 2018. However, 1) Asavabhokhin Anuphon 21.3 transfer revenue from low-rise housing should come in strong at Bt20bn (+12% 2) Stock Exchange Of Th 11.3 yoy), implying Bt5bn per quarter compared to Bt4.5bn average in 2018 and 3) Krungsri Asset Mgmt 7.0

Bt3.3bn in 2017. So far, residential transfer from low-rise housing improved Stock price performance stronger than we expected at Bt6bn (+49% yoy) in 1Q19. Meanwhile, presales (Bt) AP (pt) progress has been solid at Bt12.6bn rising 26% yoy and 19% qoq in 1Q19. 10.0 1,850 SET (RHS) BUY, TP Bt9.3/sh; Progress toward recover 9.0 1,800 1,750 Some stocks are cheap for a reason, sometimes due to poor earnings outlook and 8.0 company-specific concerns. And the weak transfers and earnings momentum 1,700 7.0 paint a discouraging outlook for AP in this case. Since the BOT tightened LTV 1,650 6.0 measures, the share price has tumbled from Bt9.6 to a low of Bt5.8. Although it 1,600 has recovered from the trough, the stock is still trading as low as 6.7x to FY19 5.0 1,550 estimated earnings. Because we opine that the negatives have been priced-in and 4.0 1,500 seeing solid progress toward recovery notably on its low-rise housing. We Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 conservatively derive target price for AP at Bt9.3 applied L-T average PER Unit YTD 1M 3M 12M discounted by 0.25SD. Yet, there is still a considerable 18% upside to our TP and Total return (%) 37.7 (0.6) 19.8 (3.3) offers 6% dividend yield, thus we reinstate AP with BUY rating. Total return vs SET (%) 24.9 (6.7) 13.0 (14.9)

Financial Summary Krungsri vs Bloomberg consensus Year to 31 Dec Unit 2017 2018 2019F 2020F 2021F Unit (+) (=) (-) Revenue (Btm) 22,176 27,700 26,500 27,700 28,900 Bloomberg consensus (Cnt.) 18 3 2 Revenue growth (%) 9.5 24.9 (4.3) 4.5 4.3 Unit KSS BB %diff EBITDA (Btm) 4,008 4,875 4,492 5,078 5,465 Target price (Bt) 9.3 8.7 7.3 EBITDA growth (%) 16.4 21.6 (7.9) 13.1 7.6 Profit, core (Btm) 3,157 3,865 3,652 4,203 4,553 2019F net profit (Btm) 3,652 3,626 0.7 Profit growth, core (%) 16.8 22.4 (5.5) 15.1 8.3 2020F net profit (Btm) 4,203 4,098 2.6 Profit, reported (Btm) 3,157 3,865 3,652 4,203 4,553 Profit growth, reported (%) 16.8 22.4 (5.5) 15.1 8.3 Krungsri's earnings revision EPS, core (Bt) 1.00 1.23 1.16 1.34 1.45 Unit 2019F 2020F EPS growth, core (%) 16.8 22.4 (5.5) 15.1 8.3 Earnings revision (%) 0 0 DPS (Bt) 0.35 0.40 0.41 0.47 0.51 P/E, core (x) 9.1 4.9 6.8 5.9 5.4 P/BV, core (x) 1.3 0.8 0.9 0.8 0.8 ROE (%) 14.6 15.9 13.7 14.3 14.0 Dividend yield (%) 3.8 6.7 5.2 6.0 6.5 Source: Bloomberg, Krungsri Securities

Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to 35 invest in any securities.

Company Update | AP July 1, 2019

Figure 1: New launches Figure 2: Presales Bt bn Bt bn 70 60

60 50 16 50 18.8 17.1 40 15.5 14 14 4 40 14.1 4.0 12 24.7 3.3 3.6 30 24 3 30 3.0 3 0.0 8 0.0 12 12.9 20 0 8 4 20 13.9 4 32.6 0.0 10.8 2.7 33.7 35.4 37.2 10 0 3 6 8.4 3.5 3 28.1 0.0 4.4 24.9 28.1 7 23.5 10 10 19.7 13.2 12.3 14.8 10.6 13.6 12.4 11.5 13.0 9.8 8.5 11.8 0 0 2019F 2020F 2021F 2019F 2020F 2021F

Low-rise AP Condo JV Condo Low-rise AP Condo JV Condo

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Figure 3: Transfers Figure 4: Transfers forecast and backlog Bt bn Bt bn 45 45.0 40 40.0 35 35.0 13.0 10.3 11.0 30 30.0 7.0 3.0 25 6.8 4.0 25.0 0.0 4.7 8.8 5.0 0.0 20.0 40.0 20 0.0 37.0 0.0 11.2 9.1 7.9 32.0 15 9.8 6.7 15.0 7.9 24.0 22.0 10.0 10 17.8 20.0 17.8 12.5 12.9 13.2 12.0 12.7 5 9.3 10.1 11.7 5.0 0 0.0 2019F 2020F 2019F Backlog 2020F Backlog 2021F Backlog

Low-rise AP Condo JV Condo Overall transfer forecast (AP+JV) Backlog More required

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Krungsri Securities Research 36

Company Update | AP July 1, 2019

Figure 5: Transfer from low-rise came in strong Figure 6: PER Bt mn (X) 8 +3 S.D. = PE 7.2x 7,000 5,985 6,000 7 +2 S.D. = PE 6.2x 4,460 5,000 6 +1 S.D. = PE 5.2x

4,000 3,237 3,299 2,937 3,137 5 L-T Average at 4.2x 3,000 -1 S.D. = PE 3.2x 4 2,000 -2 S.D. = PE 2.3x

1,000 3

Mar-14 Jun-14 Dec-14 Mar-15 Jun-15 Sep-15 Avg Mar-16 Jun-16 Sep-16 Dec-16 Jun-17 Sep-17 Dec-17 Avg Mar-18 Sep-18 Dec-18 Avg Jun-19 Dec-19 Avg Dec-15 Avg Mar-17 Jun-18 Mar-19 Sep-19

0 Sep-14 2

Jul-14 Jul-15 Jul-16 Jul-17 Jul-18

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Sep-14 Nov-14 Sep-15 Nov-15 Sep-16 Nov-16 Sep-17 Nov-17

May-17 May-14 May-15 May-16 May-18 Transfer from low-rise housing

SSource: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Peer table Market PE P/BV EPS Div Yld ROE Share Price Cap (x) (x) (%growth) (%) (%) Performance BB Ticker Name US$ 19F 20F 19F 20F 19F 20F 19F 19F 1M 3M 6M YTD

Thailand AP TB AP THAILAND PCL 805 6.8 5.9 0.9 0.8 (5.5) 15.1 5.2 13.7 1.3 11.3 30.8 30.8 ANAN TB ANANDA DEVELOPMENT PCL 417 6.0 5.8 0.7 0.6 (12.4) 5.0 6.6 11.0 5.5 6.7 18.5 18.5 LH TB LAND & HOUSES PCL 4,325 12.8 11.3 2.5 2.5 (1.2) 13.0 6.8 19.9 4.7 2.8 12.1 12.1 LPN TB LPN DEVELOPMENT PCL 348 7.9 7.4 0.8 0.8 0.8 6.7 8.3 10.3 5.8 5.0 16.7 16.7 PSH TB PRUKSA HOLDING PCL 1,520 7.9 7.5 1.0 1.0 (2.2) 5.4 7.0 13.2 5.4 18.3 23.1 23.1 QH QUALITY HOUSES PCL 1,083 9.3 8.6 1.2 1.1 (5.9) 7.9 6.8 13.0 2.6 4.0 18.3 18.3 SIRI TB SANSIRI PCL 682 9.2 8.3 0.7 0.7 16.3 10.8 8.1 7.6 5.0 11.3 25.4 25.4 SPALI TB SUPALAI PCL 1,642 8.2 7.6 1.3 1.2 6.9 6.9 4.8 16.0 5.4 20.5 29.1 29.1 Average (simple) 8.5 7.8 1.1 1.1 (0.4) 8.8 6.7 13.1 Source: Company data, Bloomberg, Krungsri securities

Krungsri Securities Research 37

Company Update | AP July 1, 2019

Financial statement

Profit and Loss Statement FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total revenue (Btm) 23,115 22,079 20,253 22,176 27,700 26,500 27,700 28,900 Cost of goods sold (Btm) 15,304 14,545 13,292 14,262 18,339 17,322 18,048 18,774 Gross profit (Btm) 7,811 7,534 6,961 7,914 9,361 9,178 9,652 10,126 SG&A (Btm) 4,140 3,969 4,012 4,543 5,731 5,300 5,540 5,780 Other income (Btm) -101 154 108 83 -49 40 40 40 Interest expense (Btm) 344 280 189 150 123 139 149 159 Pre-tax profit (Btm) 3,242 3,356 3,321 3,887 4,633 4,329 4,903 5,277 Corporate tax (Btm) 627 733 619 739 778 686 711 735 Equity a/c profits (Btm) 2,615 2,623 2,703 3,148 3,856 3,643 4,192 4,541 Minority interests (Btm) 0 0 0 -9 -10 -9 -11 -12 Core profit (Btm) 2,615 2,623 2,703 3,157 3,865 3,652 4,203 4,553 Extra-ordinary items (Btm) 0 0 0 0 0 0 0 0 Net Profit (Btm) 2,615 2,623 2,703 3,157 3,865 3,652 4,203 4,553 EBITDA (Btm) 3,737 3,532 3,445 4,008 4,875 4,492 5,078 5,465 Core EPS (Bt) 0.83 0.83 0.86 1.00 1.23 1.16 1.34 1.45 Net EPS (Bt) 0.83 0.83 0.86 1.00 1.23 1.16 1.34 1.45 DPS (Bt) 0.26 0.30 0.30 0.35 0.40 0.41 0.47 0.51

Balance Sheet FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total current assets (Btm) 33,736 33,281 33,118 37,741 43,280 48,259 52,224 56,590 Total long-term assets (Btm) 1,828 2,866 4,672 6,195 6,004 6,486 7,094 7,617 Total assets (Btm) 35,564 36,147 37,790 43,936 49,284 54,744 59,318 64,207 Total current liabilities (Btm) 8,952 7,451 9,721 12,491 11,247 12,719 13,295 13,871 Total long-term liabilities (Btm) 10,763 11,042 8,645 9,812 13,657 15,281 16,558 17,922 Total liabilities (Btm) 19,715 18,493 18,366 22,303 24,904 28,000 29,853 31,793 Paid-up capital (Btm) 3,146 3,146 3,146 3,146 3,146 3,146 3,146 3,146 Total equity (Btm) 15,848 17,654 19,424 21,633 24,379 26,744 29,465 32,413 Minority interest (Btm) 0 0 1 -4 -13 -23 -33 -45 BVPS (Bt) 5.04 5.61 6.17 6.88 7.75 8.50 9.37 10.30

Cash Flow Statement FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Core Profit (Btm) 2,615 2,623 2,703 3,157 3,865 3,652 4,203 4,553 Depreciation and amortization (Btm) 50 50 42 54 70 64 66 69 Operating cash flow (Btm) 956 -468 -397 -6,392 -2,931 23 1,363 1,312 Investing cash flow (Btm) 119 966 -136 -1,002 -465 -545 -675 -592 Financing cash flow (Btm) -1,501 -540 1,199 7,362 3,293 1,052 -523 -583 Net change in cash (Btm) -426 -42 666 -32 -103 531 164 138

Key Financial Ratios FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Gross margin (%) 33.8 34.1 34.4 35.7 33.8 34.6 34.8 35.0 EBITDA margin (%) 16.2 16.0 17.0 18.1 17.6 16.9 18.3 18.9 EBIT margin (%) 15.9 15.8 16.8 17.8 17.3 16.7 18.1 18.7 Net profit margin (%) 11.3 11.9 13.3 14.2 14.0 13.8 15.2 15.8 ROE (%) 16.5 14.9 13.9 14.6 15.9 13.7 14.3 14.0 ROA (%) 7.4 7.3 7.2 7.2 7.8 6.7 7.1 7.1 Net D/E (x) 1.2 1.0 0.9 1.0 1.0 1.0 1.0 0.9 Interest coverage (x) 10.4 13.0 18.6 26.8 38.7 32.1 33.9 34.2 Payout Ratio (%) 31.3 36.0 34.9 34.9 32.6 35.0 35.0 35.0

Main Assumptions FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F New launch (Btm) 23,100 28,770 19,090 49,640 45,190 52,518 56,084 59,923 Presales (Btm) 22,679 28,185 22,365 42,977 41,298 38,827 45,735 52,577 Transfer (Btm) 22,942 21,637 24,391 27,921 36,957 32,000 37,000 40,000

Krungsri Securities Research 38

Company Research July 1, 2019

CP ALL BUY (CPALL TB/ CPALL.BK) Target price Bt100.0 (16.3%) Price Bt86.0

King of the castle

Campaign promises, especially to hike minimum wage and support agriculture prices, are expected to improve consumption and lift retail sales. CPALL, a leading convenience store operator in Thailand, would be a beneficiary. We expect the group to book ~5% p.a. average SSSG over

the next three years, which would offset the impact of rising labor cost due Chananthorn PICHAYAPANUPAT, CFA to wage hike. Revenue is expected to grow by ~10% p.a. (CAGR) while Fundamental investment analyst on securities earnings growth would be more impressive at 17% p.a. We have a BUY +662 659 7000 ext 5009 [email protected] rating for CPALL with a TP of Bt100, based on DCF valuation (7.8% WACC), implying 16.3% upside from the last closing price.

Government policies would drive 5% p.a. SSSG (3-year CAGR) We expect the new government will give priority to raising minimum wage (by ~30%) and supporting agriculture prices. This would boost consumption and Key data Unit

Thailand retail sales, like in 2012-2013 (when CPALL booked 9.4% average 12M high/ low (Bt) 87.0/ 61.5

SSSG). We expect CPALL, which plans to grow its network from 10,988 stores in Market cap (Btm/ US$m) 772,547/ 25,179 2018 to 13,000 by 2021, to book 5% p.a. average SSSG over the next three years 3M avg. daily turnover (Btm/ US$m) 1,854.3/ 58.8 (3.2%, 6.5%, and 4.0% in 2019-2021, respectively). Free float (%) 63.2 Issued shares (m shares) 8,983 Solid SSSG to offset higher cost arising from wage hike Major shareholders: % The minimum wage hike policy is a double-edged sword; it would boost 1) Cp Merchandising Co 30.6 consumption but also increase operating costs. For CPALL, salaries account for 2) Stock Exchange Of Th 9.9 ~ 3) State Street Corp 4.0 c.25% of total SG&A costs, so a 30% wage hike will hurt profits. However, we expect the hikes to be gradual over two years, like in 2012. Our sensitivity analysis Stock price performance indicates a 10% rise in wages would reduce CPALL’s earnings by 8%. (Bt) CPALL (pt) 90.0 1,850 Expanding margins, impressive earnings growth (17% p.a. 3-year CAGR) SET (RHS) We expect gross margin to expand from 22.3% in 2018 to 22.7% in 2021 driven by 80.0 1,800 a better product mix (Food 70% vs Non-food 30%) and margin expansion (Food 70.0 1,750 26.5% in 2018 to 27.2% in 2021; Non-food 25.3% to 25.8%). Meanwhile, earnings 60.0 1,700 are expected to grow from Bt20.9bn in 2018 to Bt33.4bn in 2021, implying 50.0 1,650 impressive 3-year CAGR of 17% p.a. 40.0 1,600 BUY, TP Bt100/sh; a key beneficiary of policies to boost consumption 30.0 1,550 Our TP is based on DCF valuation (7.8% WACC, 2% LT growth, and Rf 3.5%) and 20.0 1,500 implies 16.3% upside from the last closing price. Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Unit YTD 1M 3M 12M Total return (%) 27.0 6.8 17.6 16.9 Total return vs SET (%) 14.3 0.8 10.8 5.3

Financial Summary Krungsri vs Bloomberg consensus Year to 31 Dec Unit 2017 2018 2019F 2020F 2021F Unit (+) (=) (-) Revenue (Btm) 471,069 508,552 559,238 622,838 682,739 Bloomberg consensus (Cnt.) 24 2 4 Revenue growth (%) 8.4 8.0 10.0 11.4 9.6 Unit KSS BB %diff EBITDA (Btm) 40,244 41,815 46,846 51,470 56,189 Target price (Bt) 100.0 86.6 15.4 EBITDA growth (%) 11.7 3.9 12.0 9.9 9.2 Profit, core (Btm) 19,908 20,890 24,537 28,718 33,369 2019F net profit (Btm) 24,537 23,465 4.6 Profit growth, core (%) 19.9 4.9 17.5 17.0 16.2 2020F net profit (Btm) 28,718 26,834 7.0 Profit, reported (Btm) 19,908 20,930 24,537 28,718 33,369 Profit growth, reported (%) 19.4 5.1 17.2 17.0 16.2 Krungsri's earnings revision EPS, core (Bt) 2.2 2.3 2.7 3.2 3.7 Unit 2019F 2020F EPS growth, core (%) 19.9 4.9 17.5 17.0 16.2 Earnings revision (%) 0 0 DPS (Bt) 1.1 1.2 1.4 1.6 1.9 P/E, core (x) 34.7 29.6 31.5 26.9 23.2 P/BV, core (x) 9.2 7.3 7.8 6.7 5.8 ROE (%) 30.5 26.1 26.8 26.9 26.8 Dividend yield (%) 1.4 1.7 1.6 1.9 2.2 FCF yield (%) 2.4 3.1 3.2 4.1 4.7 Source: Bloomberg, Krungsri Securities

Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to 39 invest in any securities.

Company Update | CPALL July 1, 2019

Improving political scene and confidence will boost consumption in Thailand

In the last six successful elections, PCI had trended up after the election. And given strong correlation between PCI and PCE, in 2011-13, average SSSG in the Commerce sector had risen, supported by minimum wage hike, rice pledging scheme, and first-car buyer scheme. PCI was strong in that period, especially for durable goods which drove SSSG. But since 2014, durable goods PCI has tumbled and non-durable goods PCI became the major SSSG driver for CPALL, GLOBAL and ROBINS (R-squared: 47%). This time, we expect the implementation of two major policies – hike minimum wage and support agriculture prices - to lift non- durable goods PCI by 5 points, the same magnitude when these policies were implemented in the past. Hence, we forecast SSSG in the Commerce sector would rise by 6% p.a. in 2020F.

Figure 1: Political clarity will improve confidence and Figure 2: In 2011-2013, elevated SSSG was supported by

encourage consumption (PCI) strong PCI 8 PCI 10 4 (% yoy) First rice (%) 7 SSSg avg. (RHS) pledging scheme 3 harvestment 9 6 2 5 8 1 4 0 7 3 -1 2 6 011 -2 00 Political clarity 1 00 5 -3 0 001 Flood Min. wage hike Min. wage hike Political -4 Median -1 in 7 provinces nation-wide unrest 4

-2M -1M 0M 1M 2M 3M 4M 5M 6M

1Q11 3Q11 4Q11 1Q12 2Q12 4Q12 2Q13 3Q13 3Q12 1Q13 4Q13 2Q11

SSource: BoT, Krungsri Securities Source: BoT, Company Data, Krungsri Securities

Figure 3: Strong correlation between SSSG and Non-durable Figure 4: SSSG is expected to rise to 6% in 2020F goods PCI 135 (pt, PCI) PCI non-durable (%, SSSg) 8 6 (%, SSSg for CPALL, PCI non-durable projection GLOBAL, ROBINS) 6 SSSg for CPALL, GLOBAL, ROBINS 4 130 SSSg projection 4 2 125 2 0 0

-2 120 -2 y = 0.4694x - 55.922 -4 R² = 0.4693 -4 115 -6 -6 110 -8 -8 (pt, PCI non-durable) 105 110 115 120 125 130

0 0

1Q14 4Q14 1Q15 2Q15 1Q16 2Q16 3Q16 4Q16 3Q17 4Q17 1Q18 4Q18 1Q19 2Q19 3Q19 3Q14 3Q15 4Q15 1Q17 2Q17 2Q18 3Q18 4Q19 2Q14

SSource: Company data, Krungsri Securities Source: Company Data, Krungsri Securities

Krungsri Securities Research 40

Company Update | CPALL July 1, 2019

GLOBAL’s and CPALL’s SSSG superior to ROBINS’

We compared SSSG of each company (CPALL/ GLOBAL/ ROBINS) with the sector average in 1Q11 – 1Q19 (Fig. 5 – 8). CPALL’s and GLOBAL’s SSSG saw bigger movements than the sector average. For CPALL, SSSG beat the sector average when consumption improved. This means CPALL would register stronger SSSG than the sector when consumption picks up, and SSSG would drop less than sector average when consumption slows down. GLOBAL’s SSSG beat the sector average when consumption moved in either direction. ROBINS’ SSSG outperformed peers slightly when consumption picked up but underperformed peers in a downturn.

We expect the government to lift consumption in 2020 by hiking minimum wage and supporting agriculture prices. Based on historical data, GLOBAL seems to achieve a higher momentum of SSSG than peers and ROBINS achieved the least, especially in year 2012 (combination of both wage policy and agriculture policy). As such, we forecast GLOBAL would book 8% SSSG, CPALL 6%, and ROBINS 1%, in 2020.

Figure 5: SSSG - CPALL vs Sector Average (CPALL/ Figure 6: SSSG - GLOBAL vs Sector Average (CPALL/

GLOBAL/ ROBINS) GLOBAL/ ROBINS)

25.0% 25.0%

20.0% 20.0%

15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% -5.0%

-5.0% -10.0%

-10.0% -15.0%

1Q14 2Q18 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 3Q18 4Q18 1Q19

1Q15 1Q19 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

CPALL Average GLOBAL Average

SSource: Company data, Krungsri Securities Source: Company Data, Krungsri Securities

Figure 7: SSSG – ROBINS vs Sector Average (CPALL/ Figure 8: SSSG (2019F-2020F) GLOBAL/ ROBINS)

20.0% 8.0

15.0%

6.0 6.0 10.0% 5.5 5.0 5.0%

3.2 3.3 0.0% 3.1 3.1

-5.0% 1.0 0.7 0.5

-10.0%

1Q12 1Q16 2Q11 3Q11 4Q11 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 1Q11 CPALL GLOBAL ROBINS Average

ROBINS Average 1Q19 2019F 2020F

SSource: Company data, Krungsri Securities Source: Company Data, Krungsri Securities

Krungsri Securities Research 41

Company Update | CPALL July 1, 2019

Figure 9: CPALL’s SSSG during government stimulus programs 25.0%

- Tax braek for home repair expense 20.0% - Tax break for auto repair - Corporate income tax cut from 30% to 23% Minimum wage increase - Corporate income tax cut from 23% to 20% Minimum wage increase - Minimum wage increase 15.0% - Shop Chuychart - Tax break for low income buyer - Tourism spending New year - Tax break for first home buyer - Mortgage and transfer fee cut to 0.01% - Shop chuaychart 10.0% Political unrest - Shop Chuychart - Shop Chuychart

- Tourism spending

5.0%

- Tax break for first home buyer - Tax break for first car buyer - Tourism spending 0.0% Thailand Great Flood

Minimum wage increase -5.0% - Tourism spending - Domestic seminar

-10.0%

2Q13 3Q13 4Q13 3Q17 4Q17 1Q18 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 2Q18 3Q18 4Q18 1Q19 1Q10 Source: Company data, Krungsri securities

Figure 10: GLOBAL’s SSSG during government stimulus programs 25.0% - Tax break for first home buyer - Tax braek for home repair expense - Tax break for auto repair - Personal income tax cut from 30% to 23% 20.0% Minimum wage increase

- Shop Chuychart - Personal income tax cut from 23% to 20% 15.0% Thailand Great Flood - Minimum wage increase - Shop Chuychart - Tourism spending New year - Tax break for low income buyer 10.0% - Mortgage and transfer fee cut to 0.01% - Shop chuaychart - Shop Chuychart - Tourism spending 5.0% Political unrest

0.0% - Tourism spending Minimum wage increase

- Tax break for first home buyer -5.0% - Tax break for first car buyer - Tourism spending - Domestic seminar Minimum wage increase

-10.0%

-15.0%

3Q12 4Q12 1Q13 2Q16 3Q16 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 1Q10 Source: Company data, Krungsri securities

Figure 11: ROBINS’ SSSG during government stimulus programs 20.0% - Tax break for first home buyer - Tax braek for home repair expense - Tax break for auto repair - Personal income tax cut from 30% to 23% Thailand Great Flood Minimum wage increase 15.0% - Personal income tax cut from 23% to 20% - Minimum wage increase

- Shop Chuychart - Tourism spending New year 10.0% Political unrest - Tax break for low income buyer - Mortgage and transfer fee cut to 0.01% - Shop Chuychart - Shop chuaychart

- Tourism spending 5.0% - Shop Chuychart

Minimum wage increase 0.0% - Tourism spending - Domestic seminar - Tax break for first home buyer - Tax break for first car buyer

Minimum wage increase -5.0% - Tourism spending

-10.0%

2Q13 3Q13 4Q13 3Q17 4Q17 1Q18 2Q18 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q18 4Q18 1Q19 1Q10 Source: Company data, Krungsri securities

Krungsri Securities Research 42

Company Update | CPALL July 1, 2019

Forecast 10% p.a. sales growth over next 3 years led by solid SSSG and store expansion

7-Eleven is the leading convenience store network in Thailand with 67% share of the market (Fig. 12). At end 2018, CPALL had a network of 10,988 stores. They are targeting 13,000 stores by 2021, which implies 700 new stores over the next three year. They opened 311 stores in the first quarter of this year, which takes the network to 11,299 stores. Hence, CPALL would be a prime beneficiary of policies to boost consumption in Thailand. We assumed 3.2%, 6.5% and 4.0% SSSG for 2019- 2021, respectively, and CPALL would open 700 new stores per year. This would drive 10% p.a. revenue growth over the next three years. CPALL booked 3.1% SSSG in 1Q19.

Figure 12: CVS market share Figure 13: CPALL store expansion plan Percent stores

700 Others 700 700 18.4 720 726 710

Lotus Express 9.8 12,388 10,988 11,688 10,268 9,542 8,832

7.2 64.7 Family mart 7-Eleven

2016 2017 2018 2019F 2020F 2021F # of old store # of new store

SSource: Krungsri research, Krungsri Securities SSource: Company Data, Krungsri Securities

Figure 14: Forecast SSSG Figure 15: 10% p.a. revenue growth over next 3 years Percent Revenue, Btmn (LHS): Growth YoY, percent (RHS)

13.0 800,000 12.0

700,000 10.0 9.7 9.9 600,000 7.8 8.0 6.5 500,000 5.8 5.7 4.8 4.0 400,000 6.0 3.2 3.2 2.4 1.8 300,000 1.6 4.0 0.9 200,000 2.0 (2.6) 100,000

0 0.0

2015 2016 2017 2018 2019F 2020F 2021F

2006 2007 2010 2011 2012 2015 2016 2017 2008 2009 2013 2014 2018

2020F 2021F 2019F Revenue Revenue growth

SSource: Krungsri research, Krungsri Securities SSource: Company Data, Krungsri Securities

Krungsri Securities Research 43

Company Update | CPALL July 1, 2019

Gross margin slightly improves from product mix

We expect product mix for convenience stores to remain at 70:30 for food and non- food, respectively However, we forecast gross margins will inch up given that margins for food had risen to 26.8% (from 26.5% in 4Q18) and non-food to 25.8% (from 25.3%). Gross margin for food improved mainly due to more beverage sales during the hot weather, while non-food margin was driven by the sale of disposable face masks.

El Nino conditions to last until end of this year: The Oceanic Nino Index (ONI) is a measure of the departure from normal sea surface temperature in the east-central Pacific Ocean. This is the standard means by which each El Nino episode is determined, gauged, and forecast. National Oceanic and Atmospheric Administration (NOAA) forecasts El Nino conditions in 3Q19 and 4Q19 with 60% and 50% probability. As such, we expect CPALL to continue to see strong beverage sales. We assumed gross margin for food at 26.8% - 27.2% over 2019-2021.

Meanwhile, gross margin of non-food has been rebased since the imposition of excise tax in September 2017. We assumed minimal improvement in gross margin for non-food to 25.6% - 25.8% over next three years.

Figure 16: Convenience store product mix - Yearly Figure 17: Convenience store product mix - Quarterly Percent Percent

29.4 29.4 29.9 30.0 30.0 30.0 30.2 30.2 30.2 29.4 30.2 29.6 29.9 29.9 29.6

70.6 70.6 70.1 70.0 70.0 70.0 69.8 69.8 69.8 70.6 69.8 70.4 70.1 70.1 70.4

01 01 018 2019F 2020F 2021F 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Food Non-food Food Non-food

SSource: Company data, Krungsri Securities SSource: Company Data, Krungsri Securities

Figure 18: Gross margins will improve slightly Figure 19: Gross margin (by quarter) Percent Percent

27.5 27.0

27.0 26.5 26.5

26.0 26.0 25.5

25.0 25.5 24.5

24.0 25.0 23.5

23.0 24.5 01 01 01 018 2019F 2020F 2021F 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Food Non-food Blend GPM Food Non-food Blend GPM

SSource: Company data, Krungsri Securities SSource: Company Data, Krungsri Securities

Krungsri Securities Research 44

Company Update | CPALL July 1, 2019

Figure 20: El Nino is expected to last until the end of this year ONI Index El Nino and La Nina Period 2010-2019 3.0

2.5

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

SSource: NOAA, Company data, Krungsri Securities

Solid SSSG to offset negative impact of wage hike

Given that salaries account for 25.6% of total SG&A expenses or 6.9% of total sales, CPALL will be hurt by the anticipated wage hike, especially in 2020. We estimate the wage hike would increase CPALL’s labor cost by 18. %, .1%, and 16.4% over 2019-2020, respectively. Our sensitivity analysis suggests a 10% wage hike would swing earnings by about 8%.

Figure 21: Labor expense Figure 22: Comparing labor costs (wage hike in 2012) Percent Percent 25.0 23.3 21.5 22.1 29.0 27.6 20.0 18.2 26.3 25.8 26.1 25.6 16.4 24.1 15.1 14.7 23.1 13.9 15.0 13.0 13.1 11.9 11.2 11.0 10.3 8.9 10.0 6.7 6.5 5.7 4.8 5.0 4.0 5.0 3.2 3.2 7.8 6.9 7.4 5.8 6.0 6.3 6.3 6.5 0.0 (2.6)

(5.0) 2011 2012 2013 2014 2018 2019F 2020F 2021F 2011 2012 2013 2014 2018 2019F 2020F 2021F %to total revenue % to SG&A Revenue growth SSSG Labor growth

SSource: Company data, Krungsri Securities SSource: Company Data, Krungsri Securities

Krungsri Securities Research 45

Company Update | CPALL July 1, 2019

Figure 23: Sensitivity between SSSG and wage hike to earnings SSSG (%) 2019 EPS 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 0.0 2.7 2.8 2.9 2.9 3.0 3.1 3.2 3.3 3.3 3.4 2.5 2.7 2.7 2.8 2.9 3.0 3.0 3.1 3.2 3.3 3.4 5.0 2.6 2.7 2.8 2.8 2.9 3.0 3.1 3.1 3.2 3.3 7.5 2.6 2.6 2.7 2.8 2.9 2.9 3.0 3.1 3.2 3.2 10.0 2.5 2.6 2.6 2.7 2.8 2.9 3.0 3.0 3.1 3.2 12.5 2.4 2.5 2.6 2.7 2.7 2.8 2.9 3.0 3.1 3.1 15.0 2.4 2.5 2.5 2.6 2.7 2.8 2.8 2.9 3.0 3.1

Wage(%) hike 17.5 2.3 2.4 2.5 2.6 2.6 2.7 2.8 2.9 2.9 3.0 20.0 2.3 2.3 2.4 2.5 2.6 2.7 2.7 2.8 2.9 3.0 22.5 2.2 2.3 2.4 2.4 2.5 2.6 2.7 2.8 2.8 2.9 25.0 2.2 2.2 2.3 2.4 2.5 2.5 2.6 2.7 2.8 2.8

SSSG (%) 2019 TP 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 0.0 102 103 105 107 108 110 112 113 115 116 2.5 100 102 103 105 107 108 110 111 113 115 5.0 98 100 102 103 105 106 108 110 111 113 7.5 97 98 100 101 103 105 106 108 109 111 10.0 95 96 98 100 101 103 104 106 108 109 12.5 93 95 96 98 99 101 103 104 106 108 15.0 91 93 94 96 98 99 101 103 104 106

Wage(%) hike 17.5 89 91 93 94 96 98 99 101 102 104 20.0 88 89 91 92 94 96 97 99 101 102 22.5 86 87 89 91 92 94 96 97 99 100 25.0 84 86 87 89 91 92 94 95 97 99

SSource: Krungsri Securities

BUY, TP Bt100/sh; a key beneficiary of policies to boost consumption

We expect CPALL to post solid earnings growth of 17% p.a. (3-year CAGR). Our TP is based on DCF valuation (7.8% WACC, 2% LT growth, and Rf 3.5%) and implies 16.3% upside from the last closing price.

Figure 24: 17% p.a. earnings growth over FY19-21F Figure 25: PE Net profit, Btmn (LHS); Growth, percent (RHS) times 40,000 25.0 (X) 50 CPALL 35,000 20.0 45 +3 S.D. = PE 42.8x 30,000 40 +2 S.D. = PE 38.1x 25,000 15.0 35 +1 S.D. = PE 33.4x 20,000 L-T Average at 28.7x 30 10.0 15,000 25 -1 S.D. = PE 24.0x 10,000 -2 S.D. = PE 19.3x 5.0 20 5,000 15 0 0.0

2017 2018 2019F 2020F 2021F

Jan-13 Jan-14 Jan-16 Jan-18 Jan-19 Jan-12 Jan-15 Jan-17

Sep-13 Sep-15 Sep-16 Sep-18 Sep-12 Sep-14 Sep-17

May-12 May-13 May-15 May-16 May-17 May-18 May-14 May-19 Net profit % Growth

SSource: Company data, Krungsri Securities SSource: Company Data, Krungsri Securities

Figure 27: Key assumptions assumptionsAssumption unit 2014 2015 2016 2017 2018 2019F 2020F 2021F New Store stores 698 705 710 726 720 700 700 700 Total store, Year end stores 8,127 8,832 9,542 10,268 10,988 11,688 12,388 13,088 SSSG % (2.6) 0.9 2.4 1.6 3.2 3.2 6.5 4.0 Gross margin % 21.3 21.8 21.9 22.3 22.3 22.4 22.5 22.7 SG&A to sales % 19.2 18.9 19.2 19.5 19.7 19.9 20.2 20.3

Product mix: Food % 72.3 71.5 70.6 70.6 70.1 70.0 70.0 70.0 Non-Food % 27.7 28.5 29.4 29.4 29.9 30.0 30.0 30.0 Gross margin Food % 26.1 26.0 26.2 26.3 26.5 26.8 27.0 27.2 Non-food % 25.0 25.8 26.0 26.1 25.3 25.6 25.7 25.8

SSource: Company data, Krungsri Securities

Krungsri Securities Research 46

Company Update | CPALL July 1, 2019

Quarterly performance Unit 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Revenue Btmn 104,969 109,998 108,642 111,103 113,329 116,134 118,242 123,365 123,652 124,915 125,482 134,503 134,318 COGS Btmn 82,253 86,035 84,600 86,800 88,434 90,333 91,742 95,493 96,112 97,509 97,474 104,222 104,244 Gross profit Btmn 22,716 23,962 24,042 24,303 24,894 25,801 26,500 27,872 27,540 27,406 28,008 30,281 30,074 SG&A Btmn 19,420 21,451 21,283 21,513 21,279 22,744 23,624 24,254 23,404 24,604 24,998 27,189 25,820 EBIT Btmn 7,055 7,135 7,117 7,202 7,795 7,618 7,844 8,242 8,427 7,593 8,022 8,264 8,832 Finance cost Btmn (2,054) (2,097) (2,160) (2,131) (2,040) (2,014) (2,000) (1,939) (1,789) (1,833) (1,835) (1,740) (1,749) Net profit Btmn 4,065 4,196 4,115 4,301 4,765 4,691 4,970 5,481 5,417 4,779 5,182 5,552 5,769 Core profit Btmn 4,006 4,188 4,087 4,318 4,760 4,710 4,966 5,473 5,424 4,783 5,124 5,559 5,771 EPS Bt/sh 0.45 0.47 0.46 0.48 0.53 0.52 0.55 0.61 0.60 0.53 0.58 0.62 0.64

Gross margin % 21.6 21.8 22.1 21.9 22.0 22.2 22.4 22.6 22.3 21.9 22.3 22.5 22.4 SG&A to sales % 18.5 19.5 19.6 19.4 18.8 19.6 20.0 19.7 18.9 19.7 19.9 20.2 19.2 EBIT margin % 6.7 6.5 6.6 6.5 6.9 6.6 6.6 6.7 6.8 6.1 6.4 6.1 6.6 Net margin % 3.9 3.8 3.8 3.9 4.2 4.0 4.2 4.4 4.4 3.8 4.1 4.1 4.3

Growth (YoY) Unit 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Revenue % 9.9 13.1 12.7 8.3 8.0 5.6 8.8 11.0 9.1 7.6 6.1 9.0 8.6 EBIT % 7.4 17.2 17.4 6.6 10.5 6.8 10.2 14.5 8.1 (0.3) 2.3 0.3 4.8 Net profit % 19.3 33.6 26.3 10.9 17.2 11.8 20.8 27.4 13.7 1.9 4.3 1.3 6.5

Source: Krungsri Securities

Krungsri Securities Research 47

Company Update | CPALL July 1, 2019

Financial statement

Profit and Loss Statement FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total revenue (Btm) 357,766 391,817 434,712 471,069 508,552 559,238 622,838 682,739 Cost of goods sold (Btm) 281,443 306,519 339,688 366,002 395,317 434,153 482,459 527,958 Gross profit (Btm) 76,323 85,299 95,024 105,067 113,235 125,086 140,379 154,782 SG&A (Btm) 68,750 73,901 83,666 91,902 100,195 111,175 125,328 138,214 Other income (Btm) 12,920 13,871 16,920 18,095 18,988 21,410 24,371 27,093 Interest expense (Btm) (8,518) (8,586) (8,442) (7,993) (7,196) (6,179) (5,618) (4,508) Pre-tax profit (Btm) 12,212 16,888 20,065 23,507 25,112 29,450 34,147 39,529 Corporate tax (Btm) 9,942 13,822 16,742 20,020 21,143 24,834 29,066 33,773 Equity a/c profits (Btm) 0 0 0 0 0 0 0 0 Minority interests (Btm) (119) (135) (143) (111) (253) (297) (348) (404) Core profit (Btm) 9,823 13,687 16,599 19,908 20,890 24,537 28,718 33,369 Extra-ordinary items (Btm) 377 (4) 77 (1) 40 0 0 0 Net Profit (Btm) 10,200 13,682 16,677 19,908 20,930 24,537 28,718 33,369 EBITDA (Btm) 26,449 32,167 36,039 40,244 41,815 46,846 51,470 56,189 Core EPS (Bt) 1.1 1.5 1.8 2.2 2.3 2.7 3.2 3.7 Net EPS (Bt) 1.1 1.5 1.9 2.2 2.3 2.7 3.2 3.7 DPS (Bt) 0.8 0.9 1.0 1.1 1.2 1.4 1.6 1.9

Balance Sheet FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total current assets (Btm) 64,684 56,973 69,899 66,573 74,994 70,594 82,822 97,150 Total long-term assets (Btm) 261,726 272,110 282,369 293,725 298,748 305,523 312,087 318,256 Total assets (Btm) 326,410 329,083 352,268 360,299 373,742 376,118 394,910 415,405 Total current liabilities (Btm) 92,015 101,131 113,818 112,107 123,752 122,505 134,407 150,618 Total long-term liabilities (Btm) 199,337 186,276 178,847 167,963 150,171 140,036 130,477 115,753 Total liabilities (Btm) 291,352 287,407 292,665 280,070 273,923 262,542 264,884 266,370 Paid-up capital (Btm) 8,983 8,983 8,983 8,983 8,983 8,983 8,983 8,983 Total equity (Btm) 30,782 37,349 55,196 75,333 84,831 98,588 115,038 134,047 Minority interest (Btm) 4,276 4,326 4,407 4,896 14,988 14,988 14,988 14,988 BVPS (Bt) 3.4 4.2 6.1 8.4 9.4 11.0 12.8 14.9

Cash Flow Statement FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Core Profit (Btm) 9,823 13,687 16,599 19,908 20,890 24,537 28,718 33,369 Depreciation and amortization (Btm) 5,718 6,694 7,532 8,744 9,507 11,217 11,706 12,152 Operating cash flow (Btm) 19,781 22,928 28,905 37,332 34,367 42,812 50,399 54,959 Investing cash flow (Btm) (17,240) (17,556) (17,850) (20,546) (15,108) (18,299) (18,492) (18,573) Financing cash flow (Btm) 5,031 (16,058) 871 (21,350) (14,115) (33,975) (24,665) (26,755) Net change in cash (Btm) 7,572 (10,686) 11,925 (4,564) 5,144 (9,462) 7,242 9,631

Key Financial Ratios FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Gross margin (%) 21.3 21.8 21.9 22.3 22.3 22.4 22.5 22.7 EBITDA margin (%) 7.4 8.2 8.3 8.5 8.2 8.4 8.3 8.2 EBIT margin (%) 5.8 6.5 6.6 6.7 6.4 6.4 6.4 6.5 Net profit margin (%) 2.9 3.5 3.8 4.2 4.1 4.4 4.6 4.9 ROE (%) 34.3 40.2 36.0 30.5 26.1 26.8 26.9 26.8 ROA (%) 3.2 4.2 4.9 5.6 5.7 6.5 7.4 8.2 Net D/E (x) 5.2 4.1 2.3 1.6 1.1 0.9 0.6 0.3 Interest coverage (x) 2.4 3.0 3.4 3.9 4.5 5.8 7.1 9.8 Payout Ratio (%) 70.5 59.1 53.9 49.6 51.5 50.0 50.0 50.0

Main Assumptions FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F New Store Stores 698 705 710 726 720 700 700 700 Total store, Year end Stores 8,127 8,832 9,542 10,268 10,988 11,688 12,388 13,088 SSSG % (2.6) 0.9 2.4 1.6 3.2 3.2 6.5 4.0 Portion of Food % 72.3 71.5 70.6 70.6 70.1 70.0 70.0 70.0 Portion of Non-Food % 27.7 28.5 29.4 29.4 29.9 30.0 30.0 30.0 GPM of Food % 26.1 26.0 26.2 26.3 26.5 26.8 27.0 27.2

Krungsri Securities Research 48

Company Research July 1, 2019

SIAM GLOBAL HOUSE BUY (GLOBAL TB/ GLOBAL.BK) Target price Bt19.5 (10.2%) Price Bt17.7

Attractive earnings growth

GLOBAL offers attractive earnings growth of 19% p.a. (3-year CAGR). SSSG would accelerate to 5%, 8% and 4% over 2019-21 driven by anticipated policies to support agriculture prices. Gross margin would expand (21.1% - 21.6% in 2019-2021) due to larger share of contribution

from house brands (~14% of total revenue) and minimal downside risk to Chananthorn PICHAYAPANUPAT, CFA steel prices. We have a BUY rating for GLOBAL with a TP of Bt19.5 based Fundamental investment analyst on securities on DCF (7.2% WACC, 2.0% LT growth, and Rf 3.5%) +662 659 7000 ext 5009 [email protected]

Strong revenue growth (20% p.a. 3-year CAGR) led by solid SSSG and store expansion One of the government’s key policies is to support agriculture prices. GLOBAL will be a major beneficiary because its SSSG has strong correlation with the Agriculture Price Index (higher farm income). There is 80.1% correlation with Key data Unit

Paddy Index (Fig. 6), and policies would target paddy. Hence, we expect SSSG to 12M high/ low (Bt) 20.4/ 15.3 accelerate from 5% this year to 8% next year. Moreover, GLOBAL will continue to Market cap (Btm/ US$m) 74,367/ 2,424 expand its store network, targeting 100 stores by 2024; we assumed 7 new stores 3M avg. daily turnover (Btm/ US$m) 129.9/ 4.1 in 2019 and 5 each in 2020-2021. This would help to lift sales growth to 20% (3- Free float (%) 44.9 year CAGR). SSSG reached 6.0% in 1Q19. Issued shares (m shares) 4,202 Major shareholders: % Gross margin inches up led by house brands 1) Scg Distribution Co 28.6 We expect GLOBAL to raise contribution from house brands to lift gross margins. 2) Suriyawanakun Kunate 11.2 We estimate revenue contribution from house brands would increase from ~14% 3) Suriyawanakun Krieng 11.1 in 2018 to 15.5% in 2021. Meanwhile, there is minimal risk of volatile steel prices Stock price performance (Fig. 11) as prices have normalized, possibly supported by infrastructure (Bt) GLOBAL (pt) investment. We forecast 21.1% - 21.6% gross margins for 2019-2021. 25.0 1,850 SET (RHS) 1,800 BUY, TP Bt19.50/sh; attractive earnings growth at 19% p.a. (3-year CAGR) 20.0 1,750 Strong earnings growth over the next three years would be driven by solid SSSG 15.0 and margin expansion. Our TP is based on DCF valuation (7.2% WACC, 2% LT- 1,700 growth, and Rf 3.5%) and offers 10.2% upside from last close price. Our TP 10.0 1,650 implies 33X PER (-0.75SD of its historical 7-year average multiple) and 1.8x PEG. 1,600 5.0 1,550 0.0 1,500 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Unit YTD 1M 3M 12M Total return (%) (3.6) 9.9 1.1 14.6 Total return vs SET (%) (16.4) 3.9 (5.7) 3.1

Financial Summary Krungsri vs Bloomberg consensus Year to 31 Dec Unit 2017 2018 2019F 2020F 2021F Unit (+) (=) (-) Revenue (Btm) 20,831 25,402 31,334 38,241 44,174 Bloomberg consensus (Cnt.) 9 2 2 Revenue growth (%) 10.5 21.9 23.4 22.0 15.5 Unit KSS BB %diff EBITDA (Btm) 2,899 3,524 4,354 5,296 6,297 Target price (Bt) 19.5 19.8 (1.4) EBITDA growth (%) 2.2 21.6 23.6 21.6 18.9 Profit, core (Btm) 1,609 2,003 2,474 3,199 3,975 2019F net profit (Btm) 2,474 2,384 3.8 Profit growth, core (%) (4.0) 24.5 23.5 29.3 24.3 2020F net profit (Btm) 3,199 2,760 15.9 Profit, reported (Btm) 1,609 2,003 2,474 3,199 3,975 Profit growth, reported (%) (4.0) 24.5 23.5 29.3 24.3 Krungsri's earnings revision EPS, core (Bt) 0.4 0.5 0.6 0.7 0.8 Unit 2019F 2020F EPS growth, core (%) (8.6) 19.5 17.6 22.8 16.7 Earnings revision (%) 0 0 DPS (Bt) 0.2 0.3 0.3 0.4 0.4 P/E, core (x) 37.0 37.2 30.1 24.5 21.0 P/BV, core (x) 4.5 5.0 4.5 4.2 3.9 ROE (%) 12.5 14.2 15.7 18.1 19.8 Dividend yield (%) 1.5 1.4 1.7 2.0 2.4 FCF yield (%) (5.2) (0.7) (1.4) (0.4) 1.1 Source: Bloomberg, Krungsri Securities

Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to 49 invest in any securities.

Company Update | GLOBAL July 1, 2019

Targeting 100 stores by 2024

Siam Global House Pcl (GLOBAL) is the result of the merger between Siam Global House Company Limited and Siam Global House Khon Kaen Company Limited. GLOBAL operates a retail business that sells construction material and light decorative products under the trade name Global House. They carry more than 240,000 SKU in each store which has an average space of 18,000 – 32,000 sq.m. At end 2018, they had 61 stores in Thailand in four regions (19 in Central, 25 in Northeastern, 14 in Northern, and 3 in Southern) and one store in Cambodia. The company targets to open 6-7 stores per year in order to take its network to 100 stores by 2024. We assumed GLOBAL would open 7 new stores this year, in line with guidance, but conservatively assumed 5 new stores in each of 2020 and 2021.

Figure 1: Expanding store network Figure 2: Number of stores (by quarter) Stores Stores

5 5 7 6 9

73 68 61 55 46

2017 2018 2019F 2020F 2021F Existing store New store

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Figure 3: Store location Figure 4: Revenue breakdown by product Stores Stores

North

Central and East 14 19 Building Material 38.5

61.5 3 Decorative South 25

Northeast

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Figure 5: Products by group

Building Material Group Decorative items Cements and construction materials Doors, Windows and woods Steels, Nails and wires Hardware Roofs and installation tools Electrical Accessories Tanks, Pipes, Water Systems and Gardening Sanitary wares and Kitchen Ceramic Tiles and Decorative items Paints and Chemical Furniture and Appliances Source: Company data, Krungsri Securities

Krungsri Securities Research 50

Company Update | GLOBAL July 1, 2019

Solid SSSG over next three years

GLOBAL’s SSSG has high correlation with the Agriculture Price Index, especially paddy (Fig. 6). Although there have been no announcements yet, there are strong expectations the government would implement policies to boost agriculture prices by 10-30%, and paddy is a key focus. As such, we expect SSSG to gain momentum and assumed it would reach 5%, 8% and 4% over 2019-2021, respectively. GLOBAL registered 6.0% SSSG in 1Q19.

Figure 6: GLOBAL’s SSSG has strong correlation with Agriculture Price index, especially paddy Non- Agriculture Hommali Glutinous Paddy Glutinous Sugarcane Cassava Maize Mung bean price index paddy paddy Correlation paddy CPALL -7.4% 45.3% 44.6% 32.8% -6.0% -2.8% 6.1% 30.8% -32.5% GLOBAL 14.6% 80.1% 66.6% 50.6% 13.6% -32.5% 33.2% 57.1% -38.9% HMPRO 1.0% 12.6% 1.1% 12.7% 17.7% -11.3% -2.7% -5.3% 23.1% MAKRO 19.0% -2.1% 15.3% -13.6% 13.3% 15.9% -35.7% -23.1% 6.2% ROBINS 36.9% 46.1% 42.5% 13.3% 43.7% -10.0% 0.6% 8.0% -30.6%

Source: Company data, Krungsri Securities

Figure 7: Agriculture price index is recovering Figure 8: Price of rice remains high %YoY Bt/ton

40.0 18,000.0

16,000.0 30.0 14,000.0

20.0 12,000.0

10,000.0 10.0 8,000.0 0.0 6,000.0 4,000.0

(10.0) 2,000.0

0.0

(20.0)

Jan-97 Jan-98 Jan-00 Jan-02 Jan-03 Jan-05 Jan-08 Jan-10 Jan-11 Jan-13 Jan-16 Jan-18 Jan-99 Jan-01 Jan-04 Jan-06 Jan-07 Jan-09 Jan-12 Jan-14 Jan-15 Jan-17

Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18

Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18

Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-10

SSource: OAE, Krungsri Securities Source: OAE, Krungsri Securities

Figure 9: SSSG (Yearly) Figure 10: SSSG (Quarterly) Percent Percent

18.0 17.5 12.0 15.0 11.6 13.6 10.0 12.7 6.8 10.0 10.0 6.0 8.0 4.4 2.5 2.0 1.3 5.0 0.4 0.6 4.0 (1.2) 1.9 (2.4) (3.5) (4.5) (0.8) (0.1) (5.0) (7.1) (7.0) (7.0) (5.0) (9.8)

(6.4) (11.0)

1Q14 3Q14 4Q14 2Q15 3Q15 2Q16 1Q17 2Q17 4Q17 1Q18 4Q18 2Q14 1Q15 4Q15 1Q16 3Q16 4Q16 3Q17 2Q18 3Q18 1Q19

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2020F 2021F 2019F

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Krungsri Securities Research 51

Company Update | GLOBAL July 1, 2019

Raising contribution from house brands to lift gross margins

GLOBAL’s gross margins increase from ~15% in 2014 to more than 20% in the next two years led by larger contribution from house brands. We expect this to be its main strategy to grow earnings. We estimate contribution from house brands would continue to increase from ~14% of revenue in 2018 to 15.5% in 2021. Meanwhile, steel prices would also affect GLOBAL’s gross margins because they keep inventories. Steel price index leads GLOBAL’s gross margin by about 2 quarters (Fig. 11), and the index was flat in May. There is minimal downside risk to steel prices given potential demand from infrastructure projects in Thailand. Hence, we assumed GLOBAL’s gross margin would inch up to 21.1% - 21.6% over 2019-2021.

Figure 11: Steel price index is normalizing Figure 12: Gross margins should inch up Steel price index, index (LHS): Gross margin, percent (RHS) Percent 110.0 24.0 24.0

100.0 22.0 22.0 20.0 90.0 18.0 20.0 80.0 16.0 18.0 70.0 14.0 16.0 60.0 12.0

50.0 10.0 14.0

4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 1Q15 2Q15 3Q15 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2QTD 12.0 Steel GPM 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F

SSource: OAE, Krungsri Securities SSource: Company data, Krungsri Securities

BUY, TP Bt19.5; attractive earnings growth of 19% p.a. (3-year CAGR)

Revenue is expected to grow by 20% p.a. (3-year CAGR) over the next three years driven by store expansion and solid SSSG (government policy to support agriculture prices). Meanwhile, improving gross margins would drive 19% p.a. earnings growth (3-year CAGR). The strong earnings growth would be driven by solid SSSG and margin expansion. Our TP is based on DCF valuation (7.2% WACC, 2% LT-growth, and Rf 3.5%) and offers 10.2% upside from last close price. Our TP implies 33X PER (-0.75SD of its historical 7-year average multiple) and 1.8x PEG.

Figure 13: Revenue to grow by 20% p.a. (3-year CAGR) Figure 14: Earnings to grow by 19% p.a. (3-yr CAGR) Revenue, Btmn (LHS): YoY growth, percent (RHS) Earnings, Btmn (LHS): YoY growth, percent (RHS) 50,000 25.0 4,500 35.0 45,000 4,000 30.0 40,000 20.0 3,500 25.0 35,000 3,000 20.0 30,000 15.0 2,500 15.0 25,000 2,000 10.0 20,000 10.0 1,500 5.0 15,000 1,000 0.0 10,000 5.0 500 (5.0) 5,000 0 (10.0) 0 0.0 2016 2017 2018 2019F 2020F 2017 2018 2019F 2020F 2021F

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Krungsri Securities Research 52

Company Update | GLOBAL July 1, 2019

Figure 15: PE Figure 16: PBV times times (X) (X) 120 GLOBAL 8.0 +3 S.D. = 7.2x 7.0 100 +3 S.D. = PE 88.4x +2 S.D. = 6.1x 6.0 80 +2 S.D. = PE 71.1x +1 S.D. = 4.9x 5.0 +1 S.D. = PE 53.9x L-T Average at 3.8x 60 4.0 L-T Average at 36.7x -1 S.D. = 2.7x 40 3.0

-1 S.D. = PE 19.5x 2.0 -2 S.D. = 1.6x 20 -2 S.D. = PE 2.2x 1.0 0

0.0

Jan-12 Jan-13 Jan-15 Jan-17 Jan-18 Jan-14 Jan-16 Jan-19

Sep-12 Sep-14 Sep-17 Sep-13 Sep-15 Sep-16 Sep-18

May-12 May-14 May-17 May-19 May-13 May-15 May-16 May-18

Jan-12 Jan-13 Jan-19 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Sep-12 Sep-18 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

May-15 May-16 May-17 May-18 May-19 May-13 May-14 May-12

SSource: Company data, Krungsri Securities SSource: Company data, Krungsri Securities

Quarterly performance Unit 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Revenue Btmn 5,155 4,787 4,362 4,554 5,377 5,174 4,906 5,374 6,455 6,376 6,088 6,484 7,461 COGS Btmn 4,147 3,794 3,461 3,579 4,245 4,077 3,916 4,305 5,120 5,003 4,836 5,137 6,039 Gross profit Btmn 1,008 993 901 975 1,132 1,096 989 1,069 1,335 1,372 1,252 1,347 1,422 SG&A Btmn 525 549 573 599 657 704 717 788 835 843 859 930 936 EBIT Btmn 659 612 455 529 651 578 448 470 754 772 609 578 734 Finance cost Btmn (37) (39) (44) (49) (48) (39) (45) (52) (60) (65) (70) (66) (62) Net profit Btmn 498 462 330 386 484 432 343 349 566 574 443 419 542 Core profit Btmn 498 462 330 386 484 432 343 349 566 574 443 419 542 EPS Bt/sh 0.14 0.13 0.09 0.11 0.13 0.11 0.09 0.09 0.15 0.14 0.11 0.10 0.14

Gross margin % 19.5 20.7 20.7 21.4 21.0 21.2 20.2 19.9 20.7 21.5 20.6 20.8 19.1 SG&A to sales % 10.2 11.5 13.1 13.1 12.2 13.6 14.6 14.7 12.9 13.2 14.1 14.3 12.5 EBIT margin % 12.8 12.8 10.4 11.6 12.1 11.2 9.1 8.8 11.7 12.1 10.0 8.9 9.8 Net margin % 9.7 9.6 7.6 8.5 9.0 8.4 7.0 6.5 8.8 9.0 7.3 6.5 7.3

Growth (YoY) Unit 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Revenue % 14.2 7.9 14.9 10.6 4.3 8.1 12.5 18.0 20.0 23.2 24.1 20.6 15.6 EBIT % 115.9 69.1 50.5 92.5 (1.2) (5.6) (1.5) (11.1) 15.9 33.5 35.9 23.0 (2.7) Net profit % 129.9 75.4 55.9 104.3 (2.9) (6.4) 4.2 (9.7) 17.0 32.9 29.1 20.1 (4.3)

Source: Krungsri Securities

Krungsri Securities Research 53

Company Update | GLOBAL July 1, 2019

Financial statement

Profit and Loss Statement FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total revenue (Btm) 15,561 16,864 18,857 20,831 25,402 31,334 38,241 44,174 Cost of goods sold (Btm) 13,205 14,045 14,980 16,544 20,096 24,730 30,083 34,635 Gross profit (Btm) 2,356 2,819 3,877 4,287 5,306 6,604 8,159 9,539 SG&A (Btm) 1,842 2,125 2,245 2,865 3,467 4,168 5,010 5,586 Other income (Btm) 494 547 617 722 860 940 1,147 1,325 Interest expense (Btm) (133) (144) (169) (184) (261) (321) (345) (368) Pre-tax profit (Btm) 877 1,099 2,085 1,963 2,452 3,070 3,970 4,933 Corporate tax (Btm) (176) (219) (409) (361) (462) (611) (790) (982) Equity a/c profits (Btm) 0 3 6 4 14 16 19 22 Minority interests (Btm) 0 0 0 6 12 15 20 25 Core profit (Btm) 699 881 1,676 1,609 2,003 2,474 3,199 3,975 Extra-ordinary items (Btm) 0 0 0 0 0 0 0 0 Net Profit (Btm) 702 881 1,676 1,609 2,003 2,474 3,199 3,975 EBITDA (Btm) 1,694 1,965 2,837 2,899 3,524 4,354 5,296 6,297 Core EPS (Bt) 0.2 0.3 0.5 0.4 0.5 0.6 0.7 0.8 Net EPS (Bt) 0.2 0.3 0.5 0.4 0.5 0.6 0.7 0.8 DPS (Bt) 0.2 0.1 0.2 0.2 0.3 0.3 0.4 0.4

Balance Sheet FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total current assets (Btm) 7,918 8,799 11,564 14,326 15,387 19,390 23,322 27,522 Total long-term assets (Btm) 13,256 14,238 11,503 13,903 15,630 16,504 16,876 17,216 Total assets (Btm) 21,174 23,037 23,067 28,230 31,017 35,894 40,198 44,738 Total current liabilities (Btm) 2,974 4,037 10,649 13,637 14,435 15,669 17,108 17,475 Total long-term liabilities (Btm) 7,091 8,119 10,722 14,849 16,131 19,354 21,473 23,349 Total liabilities (Btm) 7,091 8,119 10,722 14,849 16,131 19,354 21,473 23,349 Paid-up capital (Btm) 3,049 3,484 3,658 3,841 4,001 4,001 4,001 4,001 Total equity (Btm) 14,083 14,918 12,346 13,380 14,886 16,540 18,725 21,389 Minority interest (Btm) 0 0 0 30 214 214 214 214 BVPS (Bt) 4.6 4.3 3.4 3.5 3.7 3.9 4.2 4.5

Cash Flow Statement FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Core Profit (Btm) 699 881 1,676 1,609 2,003 2,474 3,199 3,975 Depreciation and amortization (Btm) 683 721 582 752 811 963 981 997 Operating cash flow (Btm) 1,523 1,372 (1,421) 42 1,951 727 930 2,173 Investing cash flow (Btm) (5,236) (1,825) 2,445 (3,120) (2,466) (1,750) (1,250) (1,250) Financing cash flow (Btm) 3,833 468 (1,152) 3,256 830 802 77 (310) Net change in cash (Btm) 120 15 (128) 178 315 (221) (243) 614

Key Financial Ratios FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Gross margin (%) 15.1 16.7 20.6 20.6 20.9 21.1 21.3 21.6 EBITDA margin (%) 10.9 11.6 15.0 13.9 13.9 13.9 13.8 14.3 EBIT margin (%) 6.5 7.4 12.0 10.3 10.7 10.8 11.3 12.0 Net profit margin (%) 4.5 5.2 8.9 7.7 7.9 7.9 8.4 9.0 ROE (%) 5.8 6.1 12.3 12.5 14.2 15.7 18.1 19.8 ROA (%) 3.8 4.0 7.3 6.3 6.8 7.4 8.4 9.4 Net D/E (x) 0.3 0.3 0.4 0.7 0.7 0.8 0.8 0.7 Interest coverage (x) 7.6 8.6 13.3 11.7 10.4 10.5 12.5 14.4 Payout Ratio (%) 69.0 37.8 45.8 54.9 50.9 50.0 50.0 50.0

Main Assumptions FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F New Store store 5.0 6.0 8.0 9.0 6.0 7.0 5.0 5.0 Total store, year end store 32.0 38.0 46.0 55.0 61.0 68.0 73.0 78.0 SSSG (%) (6.4) (0.8) (0.1) (5.0) 10.0 5.0 8.0 4.0 Gross Margin (%) 15.1 16.7 20.6 20.6 20.9 21.1 21.3 21.6

Krungsri Securities Research 54

Company Research July 1, 2019

VGI GLOBAL MEDIA BUY (VGI TB/ VGI.BK) Target price Bt11.0 (22.2%) Price Bt9.0

Chance the tumble

The recent share price correction following a share sale by its parent BTS, presents a buying opportunity. We still see VGI as a growth stock, expecting earnings to double from Bt1bn in FY2018/19 to Bt2.2bn in FY2020/21 led by OOH and KETH. Valuation is not demanding at 1x PEG.

Phatipak NAVAWATANA Strong growth of OOH fueled by organic growth and synergies Fundamental investment analyst on securities VGI operates in six OOH segments: transit, digital and static outdoor, in malls and in +662 659 7000 ext 5003 airports. A key strength is its ability to secure prime land/space and concessions from [email protected] BTS. In addition, its strategy to acquire Rabbit group, to partner with KETH (23%), and recently, buy 18.6% stake in PLANB, allows VGI to offer a larger, diversified product portfolio to clients. Following huge capacity expansion over the past two years, there is room for VGI to improve utilization, which is low at 65% in FY2018/19. We expect utilization rate to reach 75% in FY2020/21 (same as 2014), implying revenue would by Key data Unit

23% CAGR vs 6% over the past five years. 12M high/ low (Bt) 9.9/ 6.9

Market cap (Btm/ US$m) 77,050/ 2,511 In a multi-year earnings growth cycle 3M avg. daily turnover (Btm/ US$m) 211.8/ 6.7 VGI resumed earnings growth in FY2017/18 after a down-cycle in the last few years. Free float (%) 32.1 This is the start of a new multi-year earnings growth cycle. We expect 2018/19 Issued shares (m shares) 8,561 earnings to grow 30% to Bt1.1bn and earnings to double to Bt2.2bn by FY2020/21 Major shareholders: % 1) Bangkok Mass Transit 45.0 underpinned by capacity expansion at both VGI and MACO, rising utilization rates 2) Bts Group Holdings P 21.2 driven by a diversified and attractive product portfolio, and larger earnings contribution 3) Bangkok Bank Pcl 8.4 from KETH. VGI acquired 23% stake in KETH in April 2018 from the existing shareholder. KETH is involved in logistics and directly linked to Thailand’s booming e- Stock price performance commerce industry. Its revenue jumped 500% to Bt3.6bn in 2017 from Bt536m in (Bt) VGI (pt) 2015, and earnings surged to Bt307.9m in 2017 from Bt19.4mn in 2015 (up 14.8x). 11.0 SET (RHS) 1,850 VGI recognized Bt50m contribution from KETH in 2QFY18/19 and we estimate 10.0 1,800 Bt150m in FY2018/19, Bt300m in FY2019/20 and Bt400m in FY2020/21 (18% of 1,750 9.0 group earnings in FY2020/21). 1,700 8.0 BUY, SOTP-based TP of Bt11 1,650 7.0 Our TP comprises Bt9.3 from VGI based on DCF valuation (9.4% WACC). The share 1,600 price has tumbled following share divestment by its parent BTS. This might create an 6.0 1,550 overhang in the short-term but we see this as a buying opportunity. The group’s 5.0 1,500 fundamentals are intact. Valuation is not demanding at 1x PEG. Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Unit YTD 1M 3M 12M Total return (%) 16.0 2.9 2.3 18.4 Total return vs SET (%) 3.2 (3.2) (4.6) 6.8

Financial Summary Krungsri vs Bloomberg consensus Year to 31 Mar Unit 2017 2018 2019F 2020F 2021F Unit (+) (=) (-) Revenue (Btm) 3,936 5,158 6,602 7,922 8,952 Bloomberg consensus (Cnt.) 10 3 4 Revenue growth (%) 29.0 31.0 28.0 20.0 13.0 Unit KSS BB %diff EBITDA (Btm) 1,278 1,877 2,471 3,227 3,742 Target price (Bt) 11.0 9.3 17.9 EBITDA growth (%) 15.0 46.9 31.6 30.6 15.9 Profit, core (Btm) 814 1,101 1,693 2,337 2,781 2020F net profit (Btm) 1,693 1,496 13.2 Profit growth, core (%) 24.3 35.2 53.7 38.0 19.0 2021F net profit (Btm) 2,337 1,817 28.6 Profit, reported (Btm) 846 1,101 1,693 2,337 2,781 Profit growth, reported (%) 24.3 8.5 53.7 38.0 19.0 Krungsri's earnings revision EPS, core (Bt) 0.12 0.13 0.20 0.27 0.33 Unit 2019F 2020F EPS growth, core (%) 24.3 8.5 53.7 38.0 19.0 Earnings revision (%) 0 0 DPS (Bt) 0.06 0.06 0.14 0.19 0.23 P/E, core (x) 75.8 69.9 45.5 33.0 27.7 P/BV, core (x) 10.4 4.6 4.5 4.4 4.3 ROE (%) 13.8 6.6 9.9 13.3 15.6 Dividend yield (%) 0.7 0.7 1.1 1.5 1.8 FCF yield (%) 1.7 -0.6 1.8 2.1 2.8 Source: Bloomberg, Krungsri Securities

Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to 55 invest in any securities.

Company Update | VGI July 1, 2019

Figure 1: High inventory to facilitate future growth Figure 2: Expect high inventory to translate into high Btm revenueBtm 7,800 8,000 8,000

6,800 7,000 7,000 6,528 6,000 6,000 6,000 5,735 6,000 5,641 5,214 5,100 4,800 4,740 4,875 5,000 4,345 5,000 3,940 3,936 4,012 4,000 3,600 4,000 3,051 3,025 2,963 2,980 3,000 3,000 2,341 2,422 2,154 2,000 2,000

1,000 1,000

- - 2019F 2020F 2019F 2020F

VGI PLANB VGI PLANB

Source: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Figure 3: More room to utilize inventories than PLANB Figure 4: Earnings are trending up

0.90 2,500 (Bt mn) 0.80

0.70 2,000 CAGR 44% 0.60

0.50 1,500 0.40

0.30 1,000 0.20

0.10 500 - 2019F 2020F - VGI PLANB 2018/19F 2019/20F 2020/21F

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Figure 5: Trading at cheaper PEG valuation than PLANB Figure 6: Diversified portfolio (x)

1.3

1

0 1 VGI PLANB

SSource: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Krungsri Securities Research 56

Company Update | VGI July 1, 2019

Financial statement

Profit and Loss Statement FY March 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total revenue (Btm) 2,963 2,341 3,051 3,936 5,158 6,602 7,922 8,952 Cost of goods sold (Btm) -1,325 -881 -1,269 -1,535 -2,283 -2,839 -3,327 -3,670 Gross profit (Btm) 1,638 1,461 1,783 2,401 2,875 3,763 4,595 5,282 SG&A (Btm) -417 -527 -1,018 -1,180 -1,434 -1,815 -1,981 -2,193 Other income (Btm) 47 77 99 80 205 90 90 90 Interest expense (Btm) -10 -22 -32 -88 -67 -135 -130 -125 Pre-tax profit (Btm) 1,258 989 833 1,328 1,579 1,903 2,575 3,054 Corporate tax (Btm) -218 -199 -210 -241 -352 -454 -610 -722 Equity a/c profits (Btm) 15 39 -16 -70 -20 200 300 360 Minority interests (Btm) Core profit (Btm) 1,055 828 655 814 1,101 1,693 2,337 2,781 Extra-ordinary items (Btm) -214 112 -171 32 0 0 0 0 Net Profit (Btm) 842 941 826 846 1,101 1,693 2,337 2,781 EBITDA (Btm) 1,381 1,171 1,112 1,278 1,877 2,471 3,227 3,742 Core EPS (Bt) 0.31 0.12 0.10 0.12 0.13 0.20 0.27 0.33 Net EPS (Bt) 0.12 0.14 0.12 0.12 0.13 0.20 0.27 0.33 DPS (Bt) - 0.06 0.03 0.06 0.06 0.10 0.14 0.16

Balance Sheet FY March 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total current assets (Btm) 1,068 837 2,613 3,705 5,705 5,605 5,605 5,886 Total long-term assets (Btm) 1,879 1,211 5,372 6,733 15,270 16,034 16,134 16,234 Total assets (Btm) 2,948 3,099 7,985 10,439 20,975 21,639 21,739 22,119 Total current liabilities (Btm) 970 822 2,808 2,047 1,847 1,647 1,447 1,547 Total long-term liabilities (Btm) 2,741 35 2,072 1,651 2,518 2,883 2,669 2,769 Total liabilities (Btm) 995 857 4,880 4,520 4,365 4,530 4,116 4,320 Paid-up capital (Btm) 686 686 686 686 856 856 856 856 Total equity (Btm) 1,905 2,177 3,025 5,823 16,516 17,014 17,528 17,689 Minority interest (Btm) 50 65 80 95 95 95 95 110 BVPS (Bt) 0.28 0.26 0.45 0.86 1.94 2.00 2.06 2.08

Cash Flow Statement FY March 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Core Profit (Btm) 1,055 828 655 814 1,101 1,693 2,337 2,781 Depreciation and amortization (Btm) 184 171 350 434 380 325 613 653 Operating cash flow (Btm) 1,245 970 1,210 1,272 1,564 1,768 3,280 3,598 Investing cash flow (Btm) -1,224 -240 -146 -1,657 -158 -154 -1,116 -786 Financing cash flow (Btm) -546 -851 750 345 -1,400 -1,552 -1,713 -2,175 Net change in cash (Btm) -525 -121 1,814 -40 5 62 452 637

Key Financial Ratios FY March 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Gross margin (%) 55.3 62.4 58.4 61.0 55.7 57.0 58.0 59.0 EBITDA margin (%) 46.6 50.0 36.4 32.5 36.4 37.4 40.7 41.8 EBIT margin (%) 41.2 39.9 25.1 31.0 27.9 29.5 33.0 34.5 Net profit margin (%) 35.6 35.4 21.5 20.7 21.4 25.6 29.5 31.1 ROE (%) 54.0 36.9 21.1 13.8 6.6 9.9 13.3 15.6 ROA (%) 35.8 26.7 8.2 7.8 5.3 7.8 10.7 12.6 Net D/E (x) -0.1 -0.2 -0.3 0.0 0.0 0.0 0.0 0.0 Interest coverage (x) 0.0 10.0 9.0 14.0 7.0 6.0 14.0 15.0 Payout Ratio (%) 85.0 85.0 85.0 85.0 85.0 85.0 85.0 85.0

Main Assumptions FY March 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F BTS-related media 1,805 1,813 1,865 2,262 2,354 2,825 3,390 4,068 Office 189 243 274 338 414 476 548 630 OOH 622 694 735 958 1,079 1,241 1,427 1,641 Digital service 402 377 1,311 1,508 1,734 1,994 Modern trade 969 285 Utilization rate 75 78 50.9 65.6 63.2 72.0 75.0 78.0

Krungsri Securities Research 57

Company Research July 1, 2019

WORKPOINT ENTERTAINMENT BUY (WORK TB/ WORK.BK) Target price Bt35.0 (41.7%) Price Bt24.7

Real turnaround

WORK is an attractive turnaround play. The company will be cash-rich because they no longer need to pay the license fee and EBITDA is sufficient to fund expansion. Cash on hand (and equivalent) amounting to Bt2.19bn (Bt4.96/share) is sufficient to repay debt and raise dividend payout. Earnings

will surge 44% yoy in FY19F and 28% in FY20F driven by cost-savings with Phatipak NAVAWATANA help from the NBTC and recovering revenues. Current valuation is attractive Fundamental investment analyst on securities at 22x FY19F PE, while EV/EBITDA is at its lowest at 7x, implying a 7-year +662 659 7000 ext 5003 [email protected] payback period (while license expires in 10 years).

Strong CF = debt repayment, higher dividends or new investment They have Bt2.2bn in cash & equivalent (Bt5/sh). After the NBTC waived the last two license payments, WORK can now utilize cash flow to grow profits. First, they can repay Bt596m debt and save Bt32m p.a. in interest cost (7% of FY19F profit). Key data Unit

We assumed they would repay half the debt this year (lift profit by 3.5%). Or, they 12M high/ low (Bt) 49.0/ 18.6 can raise dividend payout to 100% (or more), from 50% now, and lift dividend yield Market cap (Btm/ US$m) 10,907/ 355 to 4.6% this year. WORK generated Bt1.2bn EBITDA last year (3-year average) 3M avg. daily turnover (Btm/ US$m) 141.7/ 4.5 with Bt480m capex, which means internal funds are sufficient to fund capex. Free float (%) 53.0 EV/EBITDA valuation is attractive at 7x, implying 7-year payback period. Issued shares (m shares) 442 Major shareholders: % Operations have started to turn around 1) Nirunkul Phanya 24.0 Earnings had bottomed out in 4Q18 and turned around in 1Q19, and should 2) Cholsaranon Prapas 22.9 accelerate from 2Q19. We expect earnings to surge 44% YoY in FY19F and 29% 3) Stock Exchange Of Th 8.2 in FY20F, driven by the following: (i) lower content cost especially sports content, Stock price performance and related licensing costs. WORK won rights to broadcast the soccer World Cup (Bt) WORK (pt) last year but lost Bt50m in that venture, which hurt 4Q18 results. Meanwhile, the 60.0 SET (RHS) 1,850 NBTC’s offer means Bt113m savings a year, with 57% being amortization charge 50.0 1,800 and the balance mux fees (gradual recognition from 2Q19); (ii) revenue should 1,750 pick up from 2Q19 as popular program 10 Fight 10 will boost utilization rate (45% 40.0 1,700 in 1Q19). We expect Bt300m from its new TV shopping unit in 2019 (nil in 2018). 30.0 1,650 20.0 BUY, DCF-based TP of Bt35 1,600 Our TP assumes 9.2% WACC. The share price rally over the past month has 10.0 1,550 priced in the cost-savings offered by the NBTC (Bt3.1/share, 64% from waiver of 0.0 1,500 5th & 6th license payment and 36% in mux payment). Valuation is attractive at 22x Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 FY19F PE. Premised on strong recovery in earnings growth and the large cash Unit YTD 1M 3M 12M pile, there is room for WORK to re-rate further. Total return (%) 8.0 22.3 9.8 (31.1) Total return vs SET (%) (4.8) 16.2 2.9 (42.7)

Financial Summary Krungsri vs Bloomberg consensus Year to 31 Dec Unit 2017 2018 2019F 2020F 2021F Unit (+) (=) (-) Revenue (Btm) 3,853 3,594 3,575 3,754 3,941 Bloomberg consensus (Cnt.) 3 9 5 Revenue growth (%) 46.3 -6.7 -0.5 5.0 5.0 Unit KSS BB %diff EBITDA (Btm) 1,779 1,188 1,239 1,410 1,552 Target price (Bt) 35.0 24.8 41.3 EBITDA growth (%) 98.2 -33.2 4.3 13.8 10.0 Profit, core (Btm) 904 345 498 636 725 2019F net profit (Btm) 498 432 15.4 Profit growth, core (%) 355.2 -61.8 44.3 27.7 14.0 2020F net profit (Btm) 636 509 25.0 Profit, reported (Btm) 904 345 498 636 725 Profit growth, reported (%) 355.2 -61.8 44.3 27.7 14.0 Krungsri's earnings revision EPS, core (Bt) 2.05 0.78 1.13 1.44 1.65 Unit 2019F 2020F EPS growth, core (%) 355.2 -61.8 44.3 27.7 14.0 Earnings revision (%) 0 0 DPS (Bt) 1.39 0.45 0.57 0.73 0.82 P/E, core (x) 12.0 31.5 21.8 17.1 15.0 P/BV, core (x) 2.5 2.4 2.5 2.4 2.4 ROE (%) 17.5 7.6 11.2 14.1 15.9 Dividend yield (%) 5.6 1.8 2.3 3.0 3.3 FCF yield (%) 7.7 2.0 5.5 6.8 7.7 Source: Bloomberg, Krungsri Securities

Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to 58 invest in any securities.

Company Update | WORK July 1, 2019

Figure 1: Before the NBTC’s offer, FCF was only sufficient Figure 2: … but cash flow will improve significantly from

to service debt … now on 2,000 (Bt mn) 2,000 (Bt mn) 1,800 1,800 1,600 1,600 1,400 1,400 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 - - 2019E 2020E 2021E 2019E 2020E 2021E EBITDA CAPEX FCF License payment in old schme FCF available for dividend payment EBITDA CAPEX FCF License payment in new schme FCF available for dividend payment

Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Figure 3: If WORK keeps dividend payout at 50%, its cash Figure 4: We estimate 100% dividend payout is reasonable

pile will grow substantially without having to pay for the current license

1,500 (Bt mn)

1,000

500

-

-500

-1,000 2019E 2020E 2021E FCF available for dividend payment dividend @ 50% payout FCF on hand

SSource: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Figure 5: Dividend yield would rise to 4.6-5.8% at 100% Figure 6: Trading at very low EV/EBITDA

payout7 (%) (X) 25.00 6 5.8

5 4.6 20.00

4 15.00 2.9 3 2.3 10.00 2 5.00 1 - 0 2019E 2020E 2019E 2020E 2021E at 100% payout at 50% payout

SSource: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 59

Company Update | WORK July 1, 2019

Financial statement

Profit and Loss Statement

FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total revenue (Btm) 2,053 2,434 2,634 3,853 3,594 3,575 3,754 3,941 Cost of goods sold (Btm) (1,434) (1,376) (1,496) (1,741) (2,231) (2,100) (2,111) (2,151) Gross profit (Btm) 619 1,058 1,137 2,111 1,363 1,475 1,643 1,791 SG&A (Btm) (661) (764) (822) (860) (859) (859) (868) (885) Other income (Btm) 57 20 51 24 46 41 42 43 Interest expense (Btm) (101) (132) (113) (98) (60) (17) (17) (17) Pre-tax profit (Btm) (86) 182 253 1,178 490 640 800 932 Corporate tax (Btm) 19 (45) (52) (258) (98) (137) (160) (202) Equity a/c profits (Btm) 52 14 2 (13) (41) - - - Minority interests (Btm) (1) (1) (4) (4) (5) (4) (4) (4) Core profit (Btm) (16) 150 199 904 345 498 636 725 Extra-ordinary items (Btm) Net Profit (Btm) (16) 150 199 904 345 498 636 725 EBITDA (Btm) 419 821 897 1,779 1,188 1,239 1,410 1,552 Core EPS (Bt) (0.06) 0.39 0.45 2.05 0.78 1.13 1.44 1.65 Net EPS (Bt) (0.06) 0.39 0.45 2.05 0.78 1.13 1.44 1.65 DPS (Bt) 0.04 0.21 0.27 1.39 0.45 0.57 0.73 0.82

Balance Sheet

FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Total current assets (Btm) 1,311 1,761 1,726 2,647 2,543 2,594 2,646 2,698 Total long-term assets (Btm) 3,717 3,828 3,697 3,801 3,674 2,823 2,879 2,937 Total assets (Btm) 5,028 5,588 5,422 6,448 6,216 5,416 5,525 5,635 Total current liabilities (Btm) 1,007 1,101 957 1,236 1,156 398 406 415 Total long-term liabilities (Btm) 2,404 1,700 1,700 768 512 562 612 662 Total liabilities (Btm) 3,314 2,802 2,436 2,004 1,668 961 1,019 1,077 Paid-up capital (Btm) 266 417 417 439 442 452 452 452 Total equity (Btm) 1,710 2,782 2,980 4,428 4,526 4,434 4,484 4,536 Minority interest (Btm) 4 5 6 16 22 22 22 22 BVPS (Bt) 6.49 7.13 6.77 10.06 10.28 10.07 10.18 10.30

Cash Flow Statement

FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Core Profit (Btm) (16) 150 199 904 345 498 636 725 Depreciation and amortization (Btm) 404 506 532 503 638 583 593 603 Operating cash flow (Btm) 859 321 709 1,519 1,209 1,081 1,229 1,328 Investing cash flow (Btm) (917) (1,326) (827) (1,075) (992) (486) (486) (486) Financing cash flow (Btm) 627 1,319 974 55 (133) (253) (322) (364) Net change in cash (Btm) 568 314 856 500 84 343 421 478

Key Financial Ratios

FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Gross margin (%) 30.15 43.47 43.19 54.80 37.92 41.25 43.77 45.44 EBITDA margin (%) 20.41 33.73 34.07 46.18 33.06 34.67 37.57 39.37 EBIT margin (%) 0.73 12.92 13.89 33.11 15.31 18.37 21.78 24.08 Net profit margin (%) nm 6.18 7.54 11.85 9.61 13.94 16.95 18.41 ROE (%) nm 5.40 6.65 17.46 7.59 11.19 14.12 15.92 ROA (%) nm 2.69 3.66 11.17 5.55 9.20 11.52 12.87 Net D/E (x) net cash net cash net cash net cash net cash net cash net cash net cash Interest coverage (x) Payout Ratio (%) 50.2 50.5 5.0 67.9 58.1 50.6 50.6 50.6

Main Assumptions

FY December 31 Unit 2014 2015 2016 2017 2018 2019F 2020F 2021F Ad rate (Bt/min) 12,421 32,561 46,771 75,750 79,250 65,000 66,300 67,626 Loading factor (%) 51 80 62 69.0 56.0 50.0 53.0 56.0 Concert revenue (Btm) 0 100 150 250 300 330 360 380 Sale (Btm) 52 170 600 630 662

Krungsri Securities Research 60

Sec tor Update July 1, 2019

Property sector – 3Q19

Into the new dawn Krungsri Securities Research Team

Analysts We expect developers to scale down launch plans after the release of 2Q19 results. However, more balanced demand and supply should help take-up Ratasak PIRIYANONT Fundamental investment analyst on securities rates to recover back to normal, which would in turn, be a positive catalyst +662 659 7000 ext. 5009 for the property sector. We like developers with large exposure to [email protected] condominium projects because they would be more sensitive to the housing market cycle. And with the tide turning, these stocks should outperform peers. Our top pick is AP.

New supply expected to fall while demand should stabilize Given the slowing economy and a discouraging housing market following tighter Loan-To-Value (LTV) measures implemented by Bank of Thailand (BOT), we see fewer new launches in 2019 than in 2018. We project new supply will drop by 5- 10% and presales growth would be flat at between -5 and 0%, as historical data suggests housing demand is sustainable if GDP growth is above 3%.

Expect developers to scale down launch plans after 2Q19 results It has not been a good year for property developers, given the slowing global economy as well as tighter lending criteria in Thailand. Earlier this year, the developers had defied market forces and announced aggressive launch plans, with aggregate new supply from eight major developers estimated to increase by 18% yoy to Bt311bn. However, the unfavorable environment has dampened sentiment and might prompt developers to scale down their plans in 2H19.

Pronounced D&S adjustment to bring balance back to the force The anticipated cuts in new launches in mid-2019 will take the property market to an inflexion point. Take-up rates would rise as new supply drop, which could be a catalyst for the property sector. Hence, the property sector should continue to outperform the market in 2H19. Especially, historical data suggests that the sweetest spot after share price touching its net current asset value is around 3 quarters this means bullish should continue running into 3Q19.

AP remains the leader of the pack We like AP, PSH, SIRI, ANAN and LPN because of their large exposure high-rise projects, which makes them more sensitive to the housing market cycle. They usually outperform in a cyclical upturn but also underperform in a cyclical downturn. However, since we expect the tide is turning, these stocks should outperform those developers focusing on low-rise housing.

M Cap Price TP U/D Rec EPS G% ROE (%) PE (x) P/BV (x) Div Yld (%) BB Ticker (US$) 1-(Bt)Jul (Bt) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F AP 777 7.9 9.3 18.5 BUY (5.5) 15.1 13.7 14.3 6.8 5.9 0.9 0.8 5.2 6.0 ANAN 403 3.8 4.5 17.2 BUY (12.4) 5.0 11.0 10.8 6.0 5.8 0.7 0.6 6.6 6.8 LH 4,172 11.1 11.5 3.6 HOLD (1.2) 13.0 19.9 21.7 12.8 11.3 2.5 2.5 6.8 7.5 LPN 336 7.4 9.3 26.5 BUY 0.8 6.7 10.3 10.6 7.9 7.4 0.8 0.8 8.3 8.8 PSH 1,466 21.3 24.3 14.1 BUY (2.2) 5.4 13.2 13.1 7.9 7.5 1.0 1.0 7.0 7.3 QH 1,045 3.1 3.3 6.5 HOLD (5.9) 7.9 13.0 13.2 9.3 8.6 1.2 1.1 6.8 6.7 SIRI 658 1.5 1.8 18.9 BUY 16.3 10.8 7.6 8.3 9.2 8.3 0.7 0.7 8.1 9.0 SPALI 1,584 23.5 23.0 (2.1) HOLD 6.9 6.9 16.0 15.5 8.2 7.6 1.3 1.2 4.8 5.1 Source: SET, Krungsri Securities

Disclaimer: This publication constitutes information disclosed to the public and believed to be reliable but its accuracy and completeness are not guaranteed. All opinions, suggestions, or projections are for informational purposes only and shall not be construed as an inducement for the sale or purchase of securities. Amendments to this publication may be made without prior notice. Investors are urged to exercise caution in making a decision to 61 invest in any securities.

Sector Update | PROPERTY July 1, 2019

D&S rebalancing leading to more reasonable residential prices The Agency for Real Estate (AREA) reported about 120k units were launched in 2018, up 9% YoY, while total development value skyrocketed 29% YoY. The larger growth in value was due to higher launch prices for residential units as average selling price of a new residential unit rose from Bt3.8m in 2017 to Bt4.5m in 2018. Given the slowing economy and discouraging housing market after Bank of Thailand (BOT) implemented tighter lending rules, we expect fewer new launches in 2019 than in 2018. We project new supply will drop by 5-10% and presales growth would be flat (between -5 and 0%) as historical data suggests housing demand is sustainable if GDP growth is above 3%. Also, fewer launches imply less competition for land and less aggressive increases in land prices, which should translate into lower (more reasonable) house prices this year. Therefore, we expect take-up rates to return to c.40% as new supply drops and demand stabilizes.

Figure 1: Tighter LTV rules will discourage new launches Figure 2: GDP over 3% should keep demand afloat % YoY % YoY % YoY % YoY 150 10 150 10

8 8 100 100

6 6 50 50 4 4 0 0 2 2

-50 -50 0 0

-100 -2 -100 -2 2019F 2019F New launch GDP (RHS) Presales GDP (RHS) Source: AREA, Krungsri Securities Source: AREA, Krungsri Securities

Figure 4: We expect new launches to drop 5-10% Figure 5: … and demand should be flat Units % yoy Units % yoy 300,000 150 250,000 120 100 250,000 100 200,000 80 60 200,000 50 150,000 40 150,000 - 20 100,000 - 100,000 (50) (20) 50,000 (40) 50,000 (100) (60)

0 (150) 0 (80)

2019F 2019F New launch New launch growth (RHS) Residential sales Residential sales growth (RHS) Source: AREA, Krungsri Securities Source: AREA, Krungsri Securities

Krungsri Securities Research 62

Sector Update | PROPERTY July 1, 2019

Figure 6: Unsold inventory surpassed Asian Financial Crisis level, but it would take under two years to absorb Units Year % 250,000 8 100 2 4 6 7 10 11 12 11 9 9 8 8 8 9 11 10 10 18 13 13 16 13 7 90 22 24 32 200,000 80 6 34 27 26 31 27 29 32 32 36 38 70 44 52 39 38 39 5 40 46 62 41 150,000 36 50 60 50 4 38 50 20 22 25 32 100,000 3 64 42 27 31 30 30 40 31 14 31 29 30 32 31 2 30 36 32 26 50,000 21 33 21 15 5 16 1 20 40 41 30 35 32 32 30 3 29 29 26 24 0 0 10 21 18 17 21 23 21 19 18 14 11 17 13 14 17

0

2019F Unsold outstanding (SDH) Unsold outstanding (TH) Unsold inventory outstanding Year to drain off (RHS) Unsold outstanding (CD) Other Source: AREA, Krungsri Securities Source: AREA, Krungsri Securities

Expect developers to scale down new launches after 2Q19 results Our estimates for housing demand and supply appears to contradict the aggressive launch plans (Bt311bn, +18.4% yoy) announced by eight major developers earlier this year. The latest data from AREA also indicate new supply had risen only 6.6% YTD-May and development value by 5.2%. Besides, all the developers seem to have more active launch plans for 2H19. However, we believe they will be less aggressive than in 2H18 or we expect to see means new supply will drop yoy during the period. This is especially when we foresee that developers will gradually announce new launch plan cut later after 2Q19 earnings result.

Figure 7: Eight major developers plan to launch 18% more this year Bt bn % yoy 23 350 18 30 20 300 2 3 10 250 (8) 0 Thousands (12) 170 200 110 128 (10) (20) 123 117 150 106 (30) 100 (40) 144 135 141 (50) 50 107 96 100 (60) 0 (70) 2019F

Condo Low-rise Aggregated new launch % yoy (RHS) Source: Company data, Krungsri Securities

Krungsri Securities Research 63

Sector Update | PROPERTY July 1, 2019

Figure 8: However, the cautious tone is hidden in new launch plans as they are geared toward low-rise Bt bn % yoy Bt bn % yoy 200 60 200 45 60 33 28 40 40 12 150 16 150 4 20

4 20 (7) (6) Thousands (5) Thousands 0 (9) 0 100 100 (37) (20) 170 (20) (40) 144 135 141 123 117 128 (40) 50 106 110 50 96 107 100 (60) (60) (80) 0 (80) 0 (100) 2019F 2019F Low-rise Low-rise % yoy (RHS) Condo Condo % yoy (RHS) Source: Company data, Krungsri Securities Source: Company data, Krungsri Securities

Figure 9: New launch plans by developers 2018 ANAN AP LH LPN PSH QH SIRI SPALI All Low-rise (Bt mn) 4,902 28,090 13,050 4,050 31,615 10,774 19,565 15,910 127,956 Condo (Bt mn) 21,854 17,100 10,060 8,300 21,887 - 45,635 10,070 134,906 Total (Bt mn) 26,756 45,190 23,110 12,350 53,502 10,774 65,200 25,980 262,862

2019T ANAN AP LH LPN PSH QH SIRI SPALI All Low-rise (Bt mn) 2,740 34,400 29,960 8,000 38,600 11,799 24,139 20,800 170,438 Condo (Bt mn) 35,260 22,400 - 12,000 29,502 - 22,394 19,200 140,756 Total (Bt mn) 38,000 56,800 29,960 20,000 68,102 11,799 46,533 40,000 311,194

% Chg ANAN AP LH LPN PSH QH SIRI SPALI All Low-rise (% yoy) (44.1) 22.5 129.6 97.5 22.1 9.5 23.4 30.7 33.2 Condo (% yoy) 61.3 31.0 (100.0) 44.6 34.8 - (50.9) 90.7 4.3 Total (% yoy) 42.0 25.7 29.6 61.9 27.3 9.5 (28.6) 54.0 18.4 Source: Company data, Krungsri Securities

Figure 10: We expect more new launches in 2H19 … Figure 11: … but they would be less than in 2H18 Unit Units 20,000 25,000 18,000 16,000 20,000 14,000 Avg 13,000 Expected 12,000 15,000 10,000 Avg 11,500 8,000 10,000 Avg 7,800 Avg 7,500 6,000 4,000 5,000 2,000 0 0

Jul-19 Jul-18

Apr-18 Oct-18 Apr-19 Oct-19

Jan-18 Jan-19 Jun-19 Jun-18

Feb-18 Mar-18 Feb-19 Mar-19

Nov-18 Dec-18 Dec-19 Nov-19

Aug-18 Sep-18 Aug-19 Sep-19 May-19 BOT introduced LTV in Jan 2013 May-18 Property stimulus expired in April 2016 New launch by unit BOT implemented stricter LTV in April 2019 Source: AREA, Krungsri Securities Source: AREA, Krungsri Securities

Krungsri Securities Research 64

Sector Update | PROPERTY July 1, 2019

Figure 12: Cyclical D&S adjustment in housing market Evolving supply cuts support our view '000 units '000 units Demand and supply mismatch had prompted us to 12.0 predict a cyclical downturn in the housing market which 11.0 5.5 started in October 2018. However, we turned bullish in 10.0 February this year after excessive share price

4.5 Thousands 9.0 corrections in the property sector.

8.0 3.5 In a market upturn, developers usually wait for clear 7.0 signs of a recovery. But it also takes some time for them 2.5 6.0 to produce new supply to meet rising demand. 5.0 1.5 Consequently, the gap between presales and new 4.0 launches will shrink. This would push up take-up rates, 3.0 0.5 a sign of recovery and start of the upcycle.

New launch 12MA Presales 12MA (RHS) In contrast, when demand is weakening, developers are '000 units % usually complacent and slow to adjust launch plans. 8.0 50.0 This could be because they had bought land and do not

45.0 want to leave them idle. This would create a divergence 7.0 between demand and supply, and lead to weaker take- 40.0 up rates, a sign of a downturn in the property market. 6.0 35.0 5.0 30.0 The latest housing market data from AREA continues to suggest a cyclical downturn as new supply slowly 25.0 4.0 decelerates while housing demand remains weak. 20.0 However, our analysis of the housing market cycle 3.0 15.0 reveals it usually takes 6-12 months for demand and 2.0 10.0 supply to rebalance. Since the current down-cycle started in October 2018, we should see pronounced New launch 12MA - Presales 12MA Take-up rate 12MA (RHS) adjustments in the housing market between April and Index % October this year or roughly mid-2019.

450 55.0 However, historical data also reveal share prices in the 400 50.0 property sector usually bottom-out before the structural 350 45.0 adjustment. The share prices often find the trough within 300 40.0 4-9 months; hence, we turned positive on the sector in 250 35.0 February as we expected share prices would start to 200 30.0 recover in 1H19. Indeed, the property sector has gained 150 25.0 20% YTD. The question is whether there is room to rise 100 20.0 further and under what conditions.

50 15.0 Looking at 2H19, we maintain our positive view on the 0 10.0 property sector. The first condition necessary for a rally to extend is more pronounced D&S adjustment in 2H19. Property index Take-up rate 12MA (RHS) As we expect developers to scale down launch plans Index % after the release of 2Q19 results. The smaller new 450 55.0 supply coupled with stabilizing demand would create a 400 50.0 more balanced market, and drive up take-up rates to 350 45.0 normal levels. The rebalancing would release valuations 300 40.0 from the discount rack. Hence, we should see another 250 35.0 bullish leg for the property sector in 2H19. 200 30.0 150 25.0 100 20.0 50 15.0 0 10.0

Downturn Upturn Property index Take-up rate 12MA (RHS) Source: Bloomberg, AREA, Krungsri Securities

Krungsri Securities Research 65

Sector Update | PROPERTY July 1, 2019

Ongoing D&S rebalancing shares similar timeline as 2015/16 The experiences in prior cycles is also useful to determine when to start accumulating property stocks. In October 2015, the Thai economy grew by around 3% as key growth engines like exports only inched up 1.6% (export of goods fell 2% but services improved 16%). And at that time, the market feared demand would not be able to absorb rising new condominium supply along the MRT Purple Line. This prompted the government to intervene with property stimulus measures by reducing mortgage and transfer fees starting October 2015 and expired in April 2016.

We also warned against regulatory risk in 2H18 after seeing irrational exuberant expectations in the market. The glut of foreign money was a major culprit in pushing up property prices relentlessly, and that resulted in irrational behavior in investors who were expecting property prices to rise endlessly.

This encouraged investors to take risk by leveraging on mortgage loans fueled by teaser rates, when banks charge artificially low interest rates for the first few years and increase them after. Mortgage payments or carrying cost is considerably low, and sometimes even produce a positive yield if investors can rent out the property.

Some investors started to take multiple mortgages or even buy an entire floor of condominium units. This later turned into a macro risk as non-performing loan (NPL) rose when investors found they could not redistribute assets when interest rates rose after the promotional rates ended. This prompted the BOT to announce tighter LTV measures in October 2018 to prevent excessive leveraging risk in the housing market. The measures were effective April 2019.

Figure 13: Experience from prior cycles enhances our investment timing Index Property stimulus expired on April 2016 120.0 while new LTV takes effect on April 2019 115.0 110.0 105.0 100.0 95.0 90.0 85.0 80.0 75.0

70.0

Jul

Oct Apr Oct

Jan Jun

Mar

Feb

Nov Dec Aug Sep Nov Dec May Property index (Oct/2018 - present) Property index (Oct/2015 - Dec/2016)

Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 66

Sector Update | PROPERTY July 1, 2019

Property sector will reach climax soon Looking back at the 2015/16 cycle, we turned bullish on the property sector on June 2016 after robust housing data confirmed the turning tide. But this time, we stayed ahead of the curve by pushing our bullish call in early 2019 despite anticipating data to start showing pronounced D&S adjustment in mid- 2019. This was partly because we thought the sell-off in the property sector had been excessive based on Benjamin Graham’s Net-Net method to assess whether prices had bottomed out; 2 out of 3 stocks we recommended based on this methodology have produced handsome returns.

Looking at 2H19, we still believe the property sector will continue to outperform the market. Historical data suggests the sweetest spot is about 3 quarters after share prices touch net current asset value, which means we should see another bullish run in 3Q19. Looking at individual stocks, we like AP, PSH, SIRI, ANAN and LPN for their high exposure to the housing market cycle. Developers with more high-rise projects are more sensitive to the housing market cycle. They usually outperform in a cyclical upturn but also underperform in a cyclical downturn. And with the turning tide, developers with larger exposure to the high-rise segment should outperform those which focus on low-rise housing.

Figure 14: Benjamin Graham’s Net-Net methodology suggests share prices have bottomed-out Bt Bt 10.0 40.0

9.0 35.0 8.0 30.0 7.0 6.0 25.0 5.0 20.0

4.0 15.0 3.0 10.0 2.0 1.0 5.0 0.0 0.0

AP Valuation from Graham's Net-Net PSH Valuation from Graham's Net-Net Source: Bloomberg, Krungsri Securities Source: Bloomberg, Krungsri Securities

Figure 15: LPN remains a laggard due to weak confidence Bt 30.0

25.0

20.0

15.0

10.0

5.0

0.0

-5.0

LPN Valuation from Graham's Net-Net Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 67

Sector Update | PROPERTY July 1, 2019

Figure 16: Experience from prior cycles enhances our investment timing % Change in share price after trading below Graham's method Company +1Q +2Q +3Q +4Q +2Y AP (4Q08) (3.3) 100.6 173.3 142.2 143.9 AP (4Q13) 18.3 42.0 63.8 48.8 33.8 PSH (1Q09) 110.0 192.5 345.0 337.5 360.0 SPALI (4Q08) 5.8 69.6 193.2 216.8 439.3 SIRI (2Q05) (8.5) (10.2) 25.4 (3.4) 16.9 SIRI (4Q07) 11.6 (18.8) (40.6) (52.2) 18.8 Median 8.7 55.8 118.5 95.5 88.8

AP (4Q18) 17.5 30.0 ?? ?? ?? LPN (4Q18) 8.7 15.9 ?? ?? ?? PSH (4Q18) 4.0 22.0 ?? ?? ?? Median 8.7 22.0

Source: Bloomberg, Krungsri Securities

Krungsri Securities Research 68

CG Rating 2018 Companies with CG Rating

ADVANC AKP AMATA AMATAV ANAN AOT AP BAFS BANPU BAY BCP BCPG BRR BTS BWG CFRESH CHO CK CKP CM CNT COL CPF CPI CPN CSS DELTA DEMCO DRT DTAC DTC EA EASTW EGCO GC GEL GFPT GGC GOLD GPSC GRAMMY GUNKUL

HANA HMPRO ICC ICHI INTUCH IRPC IVL JSP KBANK KCE KKP KSL KTB KTC LHFG LIT LPN MAKRO MBK MCOT MINT MONO MTC NCL NKI NVD NYT OISHI OTO PCSGH PDJ PG PHOL PLANB PLANET PPS PRG PSH PSL PTG PTT PTTEP PTTGC PYLON Q-CON QH QTC RATCH ROBINS S & J SABINA SAMART SAMTEL SAT SC SCB SCC SCCC SDC SE-ED SIS SITHAI SNC SPALI SPRC SSSC STEC SVI SYNTEC TASCO TCAP THAI THANA THANI THCOM THIP THREL TIP TISCO TKT TMB TNDT TOP TRC TRU TRUE TSC TSTH TTCL TU TVD UAC UV VGI VIH WACOAL WAVE WHA WINNER

2S AAV ACAP AGE AH AHC AIRA AIT AKR ALLA ALT AMA AMANAH APCO AQUA ARIP ARROW ASIA ASIMAR ASK ASN ASP ATP30 AU AUCT AYUD BA BBL BDMS BEC BEM BFIT BGRIM BIZ BJC BJCHI BLA BOL BPP BROOK BTW CBG

CEN CENTEL CGH CHEWA CHG CHOW CI CIMBT CNS COM7 COMAN CPALL CSC CSP DCC DCORP DDD EASON ECF ECL EE EPG ERW ETE FN FNS FORTH FPI FSMART FVC GBX GCAP GLOBAL GLOW GULF HARN HPT HTC HYDRO ICN ILINK INET IRC ITD JAS JCKH JKN JWD K KBS KCAR KGI KKC KOOL KTIS L&E LANNA LDC LH LHK LOXLEY LRH LST M MACO MAJOR MALEE MBKET MC MEGA

METCO MFC MFEC MK MOONG MSC MTI NCH NEP NINE NOBLE NOK NSI NTV NWR OCC OGC ORI PAP PATO PB PDI PJW PLAT PM PORT PPP PREB PRECHA PRINC PRM PT QLT RICHY RML RS RWI S S11 SALEE SANKO SAWAD SCG SCI SCN SE SEAFCO SEAOIL SELIC SENA SFP SIAM SINGER SIRI SKE SMK SMPC SMT SNP SORKON SPC SPI SPPT SPVI SR SSF SST STA SUC SUSCO

SUTHA SWC SYMC SYNEX TACC TAE TAKUNI TBSP TCC TEAM TFG TFMAMA THRE TICON TIPCO TK TKN TKS TM TMC TMI TMILL TMT TNITY TNL TNP TNR TOA TOG TPA TPAC TPBI TPCORP TRITN TRT TSE TSR TSTE TTA TTW TVI TVO TWP TWPC U UMI UOBKH UP UPF UPOIC UT UWC VNT WHAUP WICE WIIK XO YUASA ZMICO

7UP ABICO ABM AEC AEONTS AF AJ ALUCON AMARIN AMC AS ASAP ASEFA ASIAN BCH BEAUTY BGT BH BIG BLAND BM BR BROCK BSBM BTNC CCET CCP CGD CHARAN CHAYO CITY CMO CMR COLOR CPL CPT CRD CSR CTW CWT D DCON DIGI DIMET EKH EMC EPCO ESSO ESTAR FE FLOYD FOCUS FSS FTE GENCO GIFT

GJS GLAND GPI GREEN GTB GYT HTECH IFS IHL III INOX INSURE IRCP IT

ITEL J JCK JMART JMT JTS JUBILE KASET KCM KIAT KWC KWG KYE LALIN LEE LPH MATCH MATI MBAX M-CHAI MDX META MILL MJD MM MODERN MPG NC NDR NETBAY NNCL NPK OCEAN PAF PDG PF PICO PIMO PK PL PLE PMTA PPPM PRIN PSTC PTL RCI RCL RJH ROJNA RPC RPH SAMCO SAPPE SCP SF SGF SGP SKN SKR SKY SLP SMIT SOLAR SPA SPCG SPG SQ SRICHA SSC

SSP STANLY STPI SUN SUPER SVOA T TCCC TCMC THE THG THMUI TIC TITLE

TIW TMD TOPP TPCH TPIPP TPOLY TTI TVT TYCN UEC UMS UNIQ VCOM VIBHA VPO WIN WORK WP WPH ZIGA

Disclaimer The disclosure of the survey result of the Thai Institute of Directors Association ("IOD") regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an assessment of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date or when there is any change to the relevant information. Nevertheless, Krungsri Securities Public Company Limited does not confirm, verify, or certify the accuracy and completeness of such survey result.

Anti-corruption Progress Indicator 2018

Companies that have declared their intention to join CAC A ABICO AIE AJ AMATA AMATAV ANAN AOT APCO ARROW ASIAN B BJC BLAND

BLISS BM BPP BR BUI CEN CGH CHG CHO CHOTI CI CIMBT CITY COL CPR DDD EFORL EKH ESTAR ETE FLOYD FN FPI FTE GPI GYT ICHI ILINK INSURE IRC ITEL JAS JTS KWG LDC LEE LIT LRH MATCH MATI META MFEC MILL MTC NCL NEP NWR ORI PAP PK PLANB POST PRM PRO PSL PYLON QTC ROJNA RWI SAPPE SCI SHANG SPALI SST STANLY SUPER SWC SYMC SYNEX TAKUNI THE THIP TKN TMC TNR TOPP TPP TRITN TTI TVO UEC UKEM UPA UREKA UV UWC VIH XO YUASA Companies certified by CAC

ADVANC AKP AMANAH AP APCS ASK ASP AYUD BAFS BANPU BAY BBL BCH BCP BCPG BGRIM BJCHI BKI BLA BROOK BRR BSBM BTS BWG CENTEL CFRESH CHEWA CIG CM CNS COM7 CPALL CPF CPI CPN CSC DCC DEMCO DIMET DRT DTAC DTC EASTW ECL EGCO EPCO FE FNS FPT FSS GBX GC GCAP GEL GFPT GGC GJS GLOW GOLD GPSC GSTEL GUNKUL HANA HARN HMPRO HTC ICC IFEC IFS INET INTUCH IRPC IVL K KASET KBANK KBS KCAR KCE KGI KKP KSL KTB KTC KWC L&E LANNA LHFG LHK LPN M MAKRO MALEE MBAX MBK MBKET MC MCOT MFC MINT MONO MOONG MSC MTI NBC NINE NKI NMG NNCL NSI OCC OCEAN OGC PATO PB PCSGH PDG PDI PDJ PE PG PHOL PL PLANET PLAT PM PPP PPPM PPS PREB PRG PRINC PSH PSTC PT PTG PTT PTTEP PTTGC Q-CON QH QLT RATCH RML ROBINS S & J SABINA SAT SC SCB SCC SCCC SCG SCN SE-ED SELIC SENA SGP SINGER SIRI SIS SITHAI SMIT SMK SMPC SNC SNP SORKON SPACK SPC SPI SPRC SRICHA SSF SSI SSSC STA SUSCO SVI SYNTEC TAE TASCO TCAP TCMC TFG TFI TFMAMA THANI THCOM THRE THREL TIP TIPCO TISCO TKT TMB TMD TMILL TMT TNITY TNL TNP TOG TOP TPA TPCORP TRU TRUE TSC TSTH TTCL TU TVD TVI TWPC U UBIS UOBKH VGI VNT WACOAL WHA WICE WIIK N/A

2S 7UP A5 AAV ABM ACAP ACC ACG ADB AEC AEONTS AF AFC AGE AH AHC AI AIRA AIT AJA AKR ALL ALLA ALT ALUCON AMA AMARIN AMC APEX APURE AQ AQUA ARIP AS ASAP ASEFA ASIA ASIMAR ASN ATP30 AU AUCT B52 BA BAT-3K BCT BDMS BEAUTY BEC BEM BFIT BGC BGT BH BIG BIZ BKD BOL BROCK BSM BTNC BTW CAZ CBG CCET CCP CGD CHARAN CHAYO CHOW CHUO CK CKP CMAN CMC CMO CMR CNT COLOR COMAN COTTO CPH CPL CPT CRANE CRD CSP CSR CSS CTW CWT D DCON DCORP DELTA DOD DTCI EA EARTH EASON ECF EE EIC EMC EPG ERW ESSO EVER F&D FANCY FC FMT FORTH FSMART FVC GENCO GIFT GL GLAND GLOBALGRAMMY GRAND GREEN GSC GTB GULF HFT HPT HTECH HUMAN HYDRO ICN IHL III INGRS INOX IRCP IT ITD J JCK JCKH JCT JKN JMART JMT JSP JUBILE JUTHA JWD KAMART KC KCM KDH KIAT KKC KOOL KTECH KTIS KWM KYE LALIN LH LOXLEY LPH LST LTX MACO MAJOR MANRIN MAX M-CHAI MCS MDX MEGA METCO MGT MIDA MITSIB MJD MK ML MM MODERN MORE MPG MPIC MVP NC NCH NDR NER NETBAY NEW NEWS NEX NFC NOBLE NOK NPK NPPG NTV NUSA NVD NYT OHTL OISHI OSP OTO PACE PAE PAF PERM PF PICO PIMO PJW PLE PMTA POLAR POMPUI PORT PPM PR9 PRAKIT PRECHA PRIN PROUD PTL RAM RCI RCL RICH RICHY RJH ROCK ROH RP RPC RPH RS RSP S S11 SAAM SAFARI SALEE SAM SAMART SAMCO SAMTEL SANKO SAUCE SAWAD SAWANG SCP SDC SE SEAFCO SEAOIL SF SFP SGF SIAM SIMAT SISB SKE SKN SKR SKY SLP SMART SMM SMT SOLAR SONIC SPA SPCG SPG SPORT SPVI SQ SR SSC SSP STAR STEC STHAI STI STPI SUC SUN SUTHA SVH SVOA T TACC TAPAC TBSP TC TCC TCCC TCJ TCOAT TEAM TEAMG TGPRO TH THAI THANA THG THL THMUI TIC TIGER TITLE TIW TK TKS TM TMI TMW TNDT TNH TNPC TOA TPAC TPBI TPCH TPIPL TPIPP TPLAS TPOLY TQM TR TRC TRT TRUBB TSE TSF TSI TSR TSTE TTA TTTM TTW TVT TWP TWZ TYCN UAC UMI UMS UNIQ UP UPF UPOIC UT UTP UVAN VARO VCOM VI VIBHA VL VNG VPO VRANDA WAVE WG WHAUP WIN WINNER WORK WORLD WP WPH WR YCI ZEN ZIGA ZMICO Disclaimer The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companies of th e Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti-corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company . The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, Krungsri Securities Public Company Limited does not confirm, v erify, or certify the accuracy and completeness of the assessment result." Reference Disclosure: Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of July 31, 2017) are categorised into: • Companies that have declared their intention to join CAC • Companies certified by CAC.

Research Group

Investment Strategy Head of Research Group, Macrostrategy Isara Ordeedolchest [email protected], +662 659 7000 ext. 5001

Investment Strategy & Wealth Research Varorith Chirachon [email protected], +662 659 7000 ext. 5012

Strategy - Retail investors Artit Jansawang [email protected], +662 6597000 ext. 5005

Retail Strategy and Technical Chaiyot Jiwagkul [email protected], +662 659 7000 ext. 5006

Strategy Kaushal Ladha [email protected], +662 6597000 ext. 5013

Assistant Strategist Nalinee Praman [email protected], +662 659 7000 ext. 5011

Assistant Analyst, Quantitative Research Amornrat Kakanankul [email protected], +662 659 7000 ext. 5019

Fundamental Research Energy (Energy and Power), Petrochemical Naphat Chantaraserekul [email protected], +662 659 7000 ext. 5000

ICT, Media, Transportation Phatipak Navawatana [email protected], +662 659 7000 ext. 5003

Property, Banking, Economist Ratasak Piriyanont [email protected], +662 659 7000 ext. 5016

Commerce, Electronics, Healthcare Chananthorn Pichayapanupat, CFA [email protected], +662 659 7000 ext. 5016

Assistant analyst - Property, Industrail Estates Peerawat Kupatilertpong [email protected], +662 659 7000 ext.5008

Research Support Database Yuphawanee Laotrakunchai [email protected] , +662 659 7000 ext.5002

Database Natthakan Phosri [email protected], +662 659 7000 ext. 5015

Krungsri Securities Public Company Limited

Krungsri Securities

Headquarters 898 Ploenchit Tower, 3rd Floor, Ploenchit Road, Lumpini Pathumwan, Bangkok 10330 Tel: +662 659 7000 Fax: +662 6585699 Branches Emporium 662 Emporium Tower, Fl. 10, Sukhumvit 24 Road 01 Klongton, Klongtoey, Bangkok 10110 Tel: +662 695 4500 Fax: +662 695 4599 Central Bangna 589/151 Central City Tower, Fl. 27 02 Debaratana Road, Bangna Nua,Bangna, Bangkok 10260 Tel: +662 763 2000 Fax: +662 399 1448 Rama II 111/917-919 Fl. 4 Rama II Road, Smaedum, 03 Bangkhuntien, Bangkok 10150 Tel: +662 013 7145 Fax: +662 895 9557 Vibhavadi-rangsit Bank of Ayudhya Public Company Limited 04 123 Vibhavadirangsit Road,Jompol, Jatujak, Bangkok 10900 Tel: +662 273 8388 Fax: +662 2738399 Chonburi 64/17 Sukhumvit Road, Tambol Bang Plasoi, 05 Amphur Muang, Chonburi 20000 Tel: +663 312 6580 Fax: +663 312 6588 Nakhon Pathom 67/1 Ratchadamnoen Road, Tambol Phra Pathom 06 Jaedee, Amphur Muang, Nakhon Pathom 73000 Tel: +663 427 5500-7 Fax: +663 4218989 Suphanburi 249/171-172 Moo 5 Tambol Ta Rahad, 07 Amphur Muang Suphanburi, Suphanburi, 72000 Tel: +663 596 7981 Fax: +663 5522449 Nakhon Ratchasima 168 Chomphon Road, Tambol Nai Muang, 08 Amphur Muang Nakhon Ratchasima, Nakhon Ratchasima 30000 Tel: +664 425 1211-4 Fax: +664 425 1215 Khon Kaen Bank of Ayudhya Public Company Limited 09 114 Sri Chan Road, Tambol Nai Muang, Amphur Muang, Khon Kaen 40000 Tel: +664 322 6120 Fax: +664 322 6180 Chiang Mai Bank of Ayudhya Public Company Limited 10 70 Chang Phuak Road, Tambol Sri Phum Amphur Muang , Chiang Mai 50200 Tel: +665 321 9234 Fax: +665 321 9247 Chiang Rai Bank of Ayudhya Public Company Limited 11 231-232 Thamalai Road, Tambol Wiang, Amphur Muang, Chiang Rai 57000 Tel: +665 371 6489 Fax: +665 371 6490 Phitsanulok Bank of Ayudhya Public Company Limited 12 275/1 Phichaisongkram Road, Tambol Nai Muang, Amphur Muang, Phitsanulok 65000 Tel: +665 530 3360 Fax: +665 530 2580 Hat Yai Branch Bank of Ayudhya Public Company Limited 13 90-92-94 Nipat U Tit Nueng Road,Tambol Hat Yai, Amphur Hat Yai, Songkhla 90110 Definition of Ratings Tel: +667 422 1229 Fax: +667 422 1411 BUY - Stocks with an expected capital gain above 10% in the next 12 months for small-caps, above 5% for big-caps HOLD - Stocks with an expected capital gain between -10% and +10% in the next 12 months for small-caps, -5% to +5% for big-caps SELL - Stocks with an expected capital gain below 10% in the next 12 months for small-caps, below 5% for big-caps

Krungsri Securities Public Company Limited