Market Talk Investment Strategy Research Division Wednesday, March 6, 2019 Investment Strategy Post-election situation is still an important factor and will determine if fund flow would SET Index 1,639.00 return or not. According to recent polls, the Pheu Thai Party still got the biggest supports, Change (pts) 3.70 far ahead of rivals. 2019 market earnings may be slashed to reflect actual cost due to Market Cap (Million B) 41,234 the new Labor Protection Law, but there could be some compensation from non-recurring items (stock gain). In the short term, SET Index would still be swinging around 1,630- 1,645 pts. Top picks are laggard plays with strong fundamentals like BJC(FV@B61) and BBL(FV@B227) and a defensive play BCH(FV@B21) which has 34% upside. Net Buy and Sell by Investor Type (Million B) SET Index supported by energy plays Foreign -1,737.88 SET Index was in a negative territory for most of the day but rebounded near the closing hour Proprietary 1,014.02 and finally closed at 1,639.00 pts, 3.70 pts (+0.23%) with trading value of only B41.1bn. Institutional 911.49 The market still lacked new positive sentiment aside from softening trade war tension, while Retail -187.62 political issues are still one of the most significant factor. The market was supported by big- cap stocks AMATA (+3.4%), PTTEP (+1.24%), BBL (+0.97%), AOT (+0.75%), SCC (+0.4%), and INTUCH (+0.45%) as well as medium- and small-cap stocks MCOT (+15.3%), BEC (+6.2%), JMART (+4.23%), ESSO (+3.64%); in contrast, some stocks went down, e.g. KBANK (-0.51%) and BDMS (-0.42%). SET Index is still expected around 1,630-1,645 pts, still lacking offshore driver. Main focus still revolves around political situation after the election; according to the latest survey, Pheu Thai was still expected to win the most seats by a wide margin. 2019 market earnings forecast is likely to be revised down to reflect higher personnel expense under the new labor protection law, but this would be partly compensated by extraordinary items (lower stock loss). We recommend defensive stocks with solid fundamentals that are still laggard. Top pick is BCH(FV@B21). China stimulates economy to offset trade war impact China’s 2019 GDP growth was already revised down from 6.5% to 6.0-6.5%, slowing down from 6.6% in 2018. At the meeting of China's National People's Congress (NPC) yesterday, Porranee Thongyen China implemented additional financial stimulus policies to offset trade war impact: License No: 004146 Therdsak Thaveeteeratham Value-added tax (VAT) was lowered, from 16% to 13% for manufacturing segments and License No: 004132 from 10% to 9% for transportation segments. Paradorn Tiaranapramote 2019 budget deficit target was 2.8% of GDP, higher than 2.6% in 2018. License No: 075365 Reserve requirement ratio (RRR) may be raised further. RRR was already lowered two Takit Chardcherdsak License No: 087636 times in January by 1% to 13.5%. Yothin Pukongnin All these factors have positive sentiment on Chinese stock markets. After plunging the most Quantitative Analyst Assistant in the region 24.3% in 2018, China's stock index already rallied 22%ytd, probably Jerdjaras Kaewkua Analyst Assistant outperforming regional markets. Wanapruk Komonwitayatorn Economist Assistant English research reports are a rough translation of our Thai-language research products. It is produced The Thai language research reports and information contained therein are compiled from primarily with time efficiency in mind, so that English-English research reports are a rough translation of public data sources and our analysts' interviews with executives of listed companies. our Thai-language research products. It is produced primarily with time efficiency in mind, so that They are presented for informational purposes only and not to be deemed as English-reading clients can see what the main recommendations are from our Thai-language research solicitations to buy or sell any securities. Best attempts have been made to verify team. Given that this is a rough-and-ready translation, Asia Plus Securities Company cannot be held information from these vast sources, but we cannot guarantee their accuracy, adequacy, responsible for translation inaccuracies. completeness and timeliness. The analyses and comments presented herein are opinions of our analysts and do not necessarily reflect the views of Asia Plus Securities. ASIA PLUS SECURITIES CO.,LTD. Broker#8. Research Protection @Copyright 2015 SECURITIES CO.,LTD. Broker#8. Research Protection @Copyright 2015" Market Talk Investment Strategy | Research Division US to end GSP for India, Turkey While US-China trade war tension has subsided, the US is proceeding on additional protectionism policies on other countries. It intends to terminate Generalized System of Preferences (GSP) tariff exemption for India and Turkey - the No.1 and the No.5 largest suppliers to the US (in other words, making up the largest and the fifth largest shares of U.S. imports), respectively - for failing to provide the US with equitable and reasonable export market access; GSP termination will be effective in May 2019. Automobile and part is the top import goods of the US, amounting US$295bn and making up 12% of U.S. import. The US is proceeding with safeguard tariff hike on imported automobiles, in addition to imports of washing machine, solar panel, steel, aluminum, and biodiesel that were valued US$52bn and accounted for 2.1% of total U.S. import (effective in March 2018). In mid-May 2019, the US will hike safeguard tariff hike on automobile imports from 2.4% at present to 25%. This would adversely affect Mexico the most as it accounts for 28.6% of U.S. auto-part import, followed by Canada (19.1%), Eurozone (19%), and Japan (17.6%); Thailand exports US$1.04bn worth of auto-part goods to the US, only 0.44% of Thailand's total export or 4% of total auto export). Nevertheless, Mexico and Canada would be limitedly affected by this. In 2018, the US, Mexico, and Canada already entered the new United States-Mexico-Canada Agreement (USMCA), replacing the NAFTA. Under the USMCA, the US will grant Mexico and Canada an exemption on 25% auto-part import tariff, provided that the two countries open their markets to the US: Canada must give U.S. milk producers access to 3.5% of its dairy market, while Mexico must slash import tariff on U.S. agricultural goods (e.g. pork) to 0%. Automobile produced in North America must have 75% (originally 62.5%) of components manufactured in these three countries; plus, automobile manufacturer must source at least 70% of steel and aluminum from the three North American countries. Thus, this issue would mainly affect other auto exporters, especially Europe and Japan. Thailand will be indirectly affected. Export to North America makes up only 8% of Thailand's total auto product export, mainly to Mexico (under the USMCA), so auto safeguard import tariff hike would increase cost of export. Thus, Thai auto manufacturers would have to expand to other export markets, especially Asia, Oceania (31% of auto export), and the Middle East (10% of auto export). This issue would only have short-term negative sentiment on the auto sector. We recommend staying away from AH but buying SAT(FV@B29) that still have additional purchase order from a US- based auto firm. MCOT's 2600 MHz band auctioned as 5G band. Mobile players still not ready The amended National Broadcasting and Telecommunications Commission (NBTC) Act allows the NBTC to recall spectrums that are unused or inefficiently used to reallocate them by auction. Yesterday, the NBTC recalled 190 MHz bandwidth of 2600 MHz spectrum, 154 MHz from MCOT, 12 MHz from the Royal Thai Army and the Royal Thai Armed Forces Headquarters, and 24 MHz from the Public Relations Department; if MCOT does not oppose the recall, the NBTC is anticipate to auction the spectrum for 5G service in 3Q19. Meanwhile, Market Talk Investment Strategy | Research Division the NBTC reserved all rights to recall of the 700 MHz spectrum from digital TV operators on the day of digital TV channel bidding. MCOT will receive cash compensation from this issue, which will help securing its TV business that is facing loss, thus having positive sentiment. 2600 MHz frequency has six years left until the end of 2025. Compared with prices of similar frequencies, 1) 2100 MHz band at the price of B31m/year per 1 MHz auctioned in 2012 and 2) 60 MHz bandwidth of 2300 MHz band (DTAC leased from TOT) at the price of B75m/year per 1 MHz. Currently, 2600 MHz band is mainly used for 4G and 5G services in China, while the US, Europe, and South Korea are providing 5G services on either 3400-3600 MHz or 26000-28000 MHz spectrum. Bidding 5G frequencies too soon would have negative sentiment on mobile operators due to the following factors: 1) All mobile operators still have to bear massive 4G license cost. ADVANCE and TRUE still have two installments left for 900 MHz licenses, B4bn due in 2019 for ADVANC and B60bn due in 2020 for TRUE. DTAC still has three installments left, B2bn in 2019, B2bn in 2021, and B3bn in 2022. Moreover, the NBTC will auction many other frequencies in the near future, e.g. 700 MHz, 3400 MHz, and 28000 MHz; 5G frequencies would be much cheaper than 4G frequencies, 1) 15 MHz of 1800 MHz band at B40bn and 2) 10 MHz of 900 MHz band at B75bn. 2) Worldwide 5G network is currently at its first step, although more experiments have already been conducted.