Thailand -Asian Year Ahead 2013 · Asia Pacific Equity Research 19 November 2012 Thailand -Asian...

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Asia Pacific Equity Research19 November 2012

Thailand - Asian Year Ahead 2013Stock Ideas for the Year of the Snake

ASEAN Equity Research

Sriyan Pietersz AC

(662) 684 2670

[email protected]

JPMorgan Securities (Thailand) Limited

Chief Asian and Emerging Market Equity Strategist

Adrian Mowat

(852) 2800-8599

[email protected]

J.P. Morgan Securities (Asia Pacific) Limited

Director of Asia Pacific Equity Research

Sunil Garg

(852) 2800-8518

[email protected]

J.P. Morgan Securities (Asia Pacific) Limited

See page 22 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

For a full list of authors please refer to the sector and country heads list on the back page

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Sriyan Pietersz(662) 684 [email protected]

Thailand

Thailand micro investment case

We remain positive on Thailand for 2013. Key drivers of this view are a robust domestic macro backdrop, a sustained low-interest-rate environment, undemanding relative valuation, and potential to beat consensus expectations. Risks are: 1) significant acceleration in inflation; 2) rise in political noise; 3) cash calls. We stay OW on Financials (Banks/Property), and are N on Consumer as robust SSSG will be balanced against wage-driven operating margin pressure. We are UW on Energy and Telecom. We are N on Materials as a hedge against a strong global recovery.

Implications of anemic global growth

Despite being a relatively open economy with exports/GDP of 70%, Thailand has several domestic drivers that can drive growth in a climate of flat global demand growth: 1) rising income from farm output, government subsidies, and higher minimum wages; 2) continued HH savings draw down to fund leveraged spending; 3) accelerating public infrastructure spending on flood protection and transportation; 4) SME capex spending and FDI expansion underpinned by Japanese investment. System liquidity should expand in 2013 as softer imports push the CA back into 1.2% of GDP surplus. This will foster domestic credit growth momentum, against a benign rate backdrop. A second successive corporate tax cut (from 23% to 20%), and possibility of expanded fiscal stimulus provide a unique buffer against weak global growth.

What are we tracking?

Farm income growth, consumer confidence and ramp-up of public infrastructure spending are key domestic data points, while acceleration of core inflation to 3% would signal tighter monetary policy.

Stock recommendations

SCB and PS benefit from positive forecast momentum, while CPF is set to o/p as operating pressures abate in 2013. 20% volume growth would propel PTTEP after the completion of capital-raising. EGCO should see consensus earnings upgrades in 2013/14 from underappreciated solar capacity, and new rounds of IPP biddings scheduled for late 2013 where we expect EGCO to win at least two new IPPs. Among our avoids, TISCO may de-rate on slower auto h-p growth after animpressive 2012, while we are cautious on TOP given abearish outlook on refining margins supported by rising supply relative to demand over the next three years.

Sriyan PieterszAC

(662) 684 2670,[email protected]

Bloomberg JPMA PIETERSZ<GO>


Robust domestic demand

Source: National Economic & Social Development Board, J.P. Morgan Economics.

Consumer lending accelerating

Source: CEIC, J.P. Morgan Economics.

Rising HH income driving credit card and personal loans

Source: CEIC, J.P. Morgan economics.

Farm income recovery on the cards

Source: Office of Agricultural Economics

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Top picks and stocks to avoid

Mkt cap P/E (x) EPS (Bt) Div. yield ROEPrice (Bt) Code Rating (US$MM) 12E 13E 12E 13E 13E (%) 13E (%)

Top picksSiam Commercial Bank 159.00 SCB.BK OW 17,582 13.3 11.2 11.9 14.2 3.0 21.1PTT Exploration & Prod 164.50 PTTE.BK OW 17,795 10.5 10.3 15.7 15.9 3.3 19.4Electricity Generating 130.50 EGCO.BK OW 2,239 11.1 10.1 11.7 12.9 4.0 10.0Pruksa Real Estate 19.30 PS.BK OW 1,391 12.8 9.9 1.5 1.9 3.7 20.8Charoen Pokphand Foods 36.50 CPF.BK OW 9,209 23.0 13.5 1.6 2.7 3.7 18.2Stocks to avoidThai Oil 65.50 TOP.BK UW 4,354 10.4 14.1 6.3 4.6 5.2 10.8Tisco Financial Group 47.00 TISCO.BK N 1,115 9.1 8.2 5.2 5.8 5.3 21.5

Source: Bloomberg, J.P. Morgan estimates. Note: Share prices and valuations are as of 8 November 2012.

Rising liquidity, improving LDR

Source: Bank of Thailand.

SET – WEEKLY CHART + MSCI Thailand Relative (lower Panel)

Source: Bloomberg.

Absolute view (SET): In sync with ASEAN markets, SET isdisplaying a bearish RSI divergence on monthly charts and in addition also on weekly charts. Stochastics has turned negative and the risk of a downside break from the Oct’11 up channel has increased.

Relative view (MSCI Thailand vs. MXAPJ): Relative performance for MSCI Thailand is capped by declining Jul’12 trendline and potentially testing outperformance uptrend in force since 2010. Negative MACD cross-over for relative index on monthly charts.

The Thai story, much like ASEAN peers, is looking tired on absolute and relative charts. We recommend selling.

Absolute valuation is at historical average...

Source: J.P. Morgan estimate and calculations.

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Charoen Pokphand Foods

www.cpfworldwide.com

OverweightPrice: Bt35.00

Price Target: Bt43.00

Company overview

CPF is one of the world leading agro-industrial entities, with a fully-integrated operation in both aquaculture and livestock (mainly poultry and swine). CPF has growing investments overseas, mainly in various emerging Asian markets. The long-term goal is to duplicate the integrated formula in Thailand. The move is to partly overcome non-tariff trade barriers that tend to erupt in the food industry.

Investment case

We like CPF’s growing exposure to Asian countries’ rising food consumption, whereas more stringent food safety standards should provide a tailwind for CPF’s integrated and technology-led business model. We believe supply-side issues may abate in 1H13, providing room for farm margins to bottom out, hence operational turnaround.

Key attractions in an anemic growth environment

The acquisition of 74% of CPP has opened up exposure to fast-growing food demand in China/Vietnam. The shift away from the volatile farm business to a more stable feed/food business should underpin higher margin stability.

Earnings risks in 2013

The prolonged farm price weakness and the rise in grain prices could deter our thesis of operational turnaround.

Price target, and risks to our investment view

Our SOTP price target of Bt43 incorporates Bt 26 for its core agro business (13x P/E) and Bt17 for its holding in CPALL. Key risks: prolonged farm price weakness and a rise in grain prices, execution of overseas expansion, a stretched balance sheet, and regulatory issues.

Thailand

Food

Kae Pornpunnarath, CFAAC

(66-2) 684 2679

[email protected]

Bloomberg JPMA PORNPUNNARATH<GO>


YTD 1m 3m 12mAbs 9.1% 7.5% 9.9% 20.0%Rel -15.5% 7.6% 3.9% -13.4%

Source: Bloomberg.

Charoen Pokphand Foods (Reuters: CPF.BK, Bloomberg: CPF TB)

Bt in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Bt mn) 189,049 206,099 336,743 414,636 471,288Net Profit (Bt mn) 13,562.6 15,836.8 20,549.5 19,027.9 23,500.1EPS (Bt) 2.04 2.38 2.84 2.59 3.20DPS (Bt) 1.05 1.20 1.02 1.29 1.60Revenue growth (%) 14.8% 8.3% 63.9% 22.9% 13.6%EPS growth (%) 34.4% 16.8% 19.4% -8.9% 23.5%ROCE 14.5% 13.5% 7.2% 11.2% 12.6%ROE 24.7% 26.0% 25.0% 17.9% 19.9%P/E (x) 17.7 15.1 12.7 13.9 11.3P/BV (x) 4.1 3.8 2.6 2.4 2.1EV/EBITDA (x) 2.1 1.8 6.1 3.8 3.2Dividend Yield 2.9% 3.3% 2.8% 3.6% 4.4%Core EPS (Bt) 1.89 2.18 1.17 2.59 3.20Core Profit (Bt mn) 12,601 14,479 8,442 19,028 23,500Source: Company data, Bloomberg, J.P. Morgan estimates.

Company DataShares O/S (mn) 7,743Market cap (Bt mn) 278,746Market cap ($ mn) 9,097Price (Bt) 36.00Date Of Price 09 Nov 12Free float (%) 46.6%3mth Avg daily volume 26.453M - Avg daily Value (Bt mn) 901.343M - Avg daily Value (USD) ($ mn) 29.42SET 1,291Exchange Rate 30.64Fiscal Year End Dec

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CPF.BK share price (Bt)

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Charoen Pokphand Foods: Summary of FinancialsIncome Statement Cash flow statement

Bt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Bt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 189,049 206,099 336,743 414,636 471,288 EBIT 14,484 16,009 13,297 27,401 33,117

% change Y/Y 5.2% 4.6% 63.9% 22.9% 13.6% Depr. & amortization 5,618 6,087 6,619 7,393 8,284EBITDA 19,207 20,667 19,916 34,794 41,401 Change in working capital -8,002 -91 -12,680 -14,240 -7,819

% change Y/Y 7.9% 7.3% -3.6% 74.7% 19.0% Taxes -2388 -2885 -3338 -5738 -6996

EBIT 14,484 16,009 13,297 27,401 33,117 Cash flow from operations 6,698 11,248 8,876 15,480 27,925% change Y/Y 6.8% 6.5% NM 106.1% 20.9%

EBIT Margin 3.8% 3.9% 3.9% 6.6% 7.0% Capex -6,284 -4,245 -15,000 -16,500 -18,150

Net Interest -2,334 -2,282 -4,353 -5,024 -5,358 Disposal/(purchase) - - - - -Earnings before tax 15,285 17,484 13,744 28,066 34,456 Net Interest -2,334 -2,282 -4,353 -5,024 -5,358

% change Y/Y 22.5% 14.4% -21.4% 104.2% 22.8% Other -146 2,638 -20,273 0 0Tax -2,388 -2,885 -3,338 -5,738 -6,996 Free cash flow 3,722 10,201 -6,124 -1,020 9,775

as % of EBT 18.8% 18.8% 24.3% 20.4% 20.3%

Net income (reported) 13,562.6 15,836.8 20,549.5 19,027.9 23,500.1 Equity raised/(repaid) 0 0 24,290 0 0% change Y/Y 33.1% 16.8% 29.8% -7.4% 23.5% Debt raised/(repaid) 3,852 22,800 65,507 6,733 4,444

Shares outstanding 6,656 6,656 7,351 7,351 7,351 Other 3,742 - - - -

EPS (reported) 2.04 2.38 2.84 2.59 3.20 Dividends paid -6,656 -11,027 -7,751 -8,244 -10,408% change Y/Y 11.2% 11.0% 19.4% (8.9%) 23.5% Beginning cash 10,523 7,761 24,341 13,684 11,153

Ending cash 7,761 23,532 13,684 11,153 14,964

DPS 1.05 1.20 1.02 1.29 1.60

Balance sheet Ratio Analysis


Cash and cash equivalents 7,761 24,341 13,684 11,153 14,964 EBITDA margin 10.0% 10.0% 5.9% 8.3% 8.7%

Accounts receivable 15,385 15,692 25,639 31,570 35,883 Operating margin 2.5% 2.5% 3.9% 6.6% 7.0%Inventories 33,863 35,673 63,690 75,808 82,411 Net margin 7.1% 7.6% 6.0% 4.6% 5.0%Others 1,962 2,721 4,166 4,166 4,166

Current assets 58,971 78,427 107,178 122,696 137,424Sales per share growth 5.2% 4.6% 50.8% 21.0% 13.6%

LT investments 16,408 25,699 33,002 33,002 33,002 Sales growth 5.2% 4.6% 63.9% 22.9% 13.6%Net fixed assets 47,142 52,025 74,141 83,249 93,115 Net profit growth 33.1% 16.8% 29.8% -7.4% 23.5%Total Assets 126,320 159,904 287,146 311,771 336,365 EPS growth 11.2% 11.0% 19.4% (8.9%) 23.5%

Liabilities Interest coverage (x) 5.20 5.70 4.57 6.93 7.73Short-term loans 18,139 28,584 51,679 47,285 52,271Payables 9,707 11,733 20,016 23,825 26,922 Net debt to equity 76.7% 70.4% 120.4% 117.1% 105.3%

Others 4,981 5,755 6,926 6,926 6,926 Sales/assets 1.58 1.63 1.52 1.40 1.46Total current liabilities 32,827 46,071 78,621 78,036 86,119 Assets/equity 2.12 2.06 2.85 2.80 2.70

Long-term debt 28,511 40,866 83,278 94,405 93,863 ROE 24.7% 26.0% 25.0% 17.9% 19.9%Other liabilities 3,880 6,448 7,676 7,676 7,676 ROCE 14.5% 13.5% 7.2% 11.2% 12.6%Total Liabilities 65,217 93,385 169,575 180,116 187,658

Shareholders' equity 58,015 63,597 100,685 111,469 124,560BVPS 8.72 9.55 13.70 15.16 16.94

Source: Company reports and J.P. Morgan estimates.

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Electricity Generating Company (EGCO)

www.egco.com



Company overview

EGCO, the first independent power producer in EGCO, is a holding company with interests in IPPs within Thailand and neighboring countries and also interests in renewable energy in Thailand. EGCO’s major shareholders include EGAT (25.41%) and TEPDIA Generating B.V (22.42%).

Investment case

We expect the Street to continue with its earnings upgrades for EGCO as we suspect that the Street has yet to fully credit EGCO’s expansion into solar power. Our earnings are currently 5% and 13% above consensus estimates for FY13-14. In addition we believe that the new rounds of IPP biddings scheduled for late 2013 will act as a firm catalyst for EGCO, limiting any possible downside in share price.


EGCO is protected from global growth concerns as its revenues are protected by long-term power purchase agreements with the state-owned Electricity Generating Authority of Thailand (EGAT). This also confirms a steady dividend which makes it an attractive investment in this anemic growth environment.


Key earnings risks in 2013 include delays in the start-up of its solar power plants. Any delays would result in a drop in earnings on a Y/Y basis as earnings contribution from its core plants REGCO and KEGCO approach the end of its PPA contracts.


Our Dec-13 PT of Bt155 is based on DCF valuation. The valuation comprises estimated DCF values for all projects currently operated by EGCO, as well as projects under development by EGCO (with construction risks applied as appropriate). It does not include possible upside from Quezon expansion as well as new IPPs (3 new IPPs with total capacity of 2700MW) which we expect EGCO to secure over the next 12 months. Key risks: EGCO’s failure to win an additional bid to build a new IPP, government’s refusal to pay the adders as per contracts.

Thailand

Independent Power Producers

Avin SonyAC

(66-2) 684-2683

[email protected]

Bloomberg JPMA SONY<GO>

JP Morgan Securities (Thailand) Limited

YTD 1m 3m 12mAbs 32.1% -1.1% 18.8% 54.2%Rel 6.8% -1.0% 10.7% 18.5%

Source: Bloomberg.

Electricity Generating Company (Reuters: EGCO.BK, Bloomberg: EGCO TB)

Bt in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Bt mn) 8,609 7,661 9,878 11,484 11,994Net Profit (Bt mn) 6,792.0 4,988.6 10,351.0 6,787.4 7,548.0EPS (Bt) 12.90 9.48 19.66 12.89 14.34DPS (Bt) 5.25 5.25 5.25 5.25 5.25Revenue growth (%) -5.9% -11.0% 28.9% 16.3% 4.4%EPS growth (%) -14.4% -26.6% 107.5% -34.4% 11.2%ROCE 11.1% 8.6% 9.2% 8.7% 9.0%ROE 13.0% 8.9% 16.8% 10.0% 10.5%P/E (x) 10.0 13.7 6.6 10.0 9.0P/BV (x) 1.3 1.2 1.0 1.0 0.9EV/EBITDA (x) 7.2 8.7 7.8 6.9 6.1Dividend Yield 4.1% 4.1% 4.1% 4.1% 4.1%Core Profit (Bt mn) 6,254 5,124 6,165 6,787 7,548Core EPS (Bt) 11.88 9.73 11.71 12.89 14.34Source: Company data, Bloomberg, J.P. Morgan estimates.

Company DataShares O/S (mn) 526Market cap (Bt mn) 68,177Market cap ($ mn) 2,219Price (Bt) 129.50Date Of Price 01 Nov 12Free float (%) 30.0%3mth Avg daily volume 0.643M - Avg daily Value (Bt mn) 78.823M - Avg daily Value (USD) ($ mn) 2.53SET 1,298Exchange Rate 30.72Fiscal Year End Dec

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Electricity Generating Company: Summary of FinancialsIncome Statement Cash flow statement


Revenues 8,609 7,661 9,878 11,484 11,994 EBIT 6,974 5,759 7,306 8,026 8,745

% change Y/Y (5.9%) (11.0%) 28.9% 16.3% 4.4% Depr. & amortization 2,234 1,973 2,298 2,467 2,568Gross Margin (%) 59.4% 52.8% 51.5% 46.9% 52.0% Change in working capital 481 -94 -1,068 -593 -750

EBITDA 9,208 7,732 9,605 10,493 11,314 Taxes -421 -264 -351 -423 -514

% change Y/Y -13.9% -16.0% 24.2% 9.3% 7.8% Cash flow from operations 8,494 6,601 6,666 8,085 8,803EBITDA Margin (%) 107.0% 100.9% 97.2% 91.4% 94.3%EBIT 6,974 5,759 7,306 8,026 8,745 Capex -573 -1,911 -455 -1,515 -1,680

% change Y/Y NM NM 26.9% 9.8% 9.0% Disposal/(purchase) 0 0 0 0 0EBIT Margin (%) 81.0% 75.2% 74.0% 69.9% 72.9% Net Interest -184 -245 -665 -712 -568

Net Interest -184 -245 -665 -712 -568 Free cash flow 7,921 4,690 6,211 6,570 7,123Earnings before tax 6,790 5,514 6,642 7,314 8,177

% change Y/Y -17.6% -18.8% 20.5% 10.1% 11.8% Equity raised/(repaid) 0 0 0 0 0

Tax -421 -264 -351 -423 -514 Debt raised/(repaid) -1,155 2,496 11,254 2,034 -464as % of EBT 135.6% 140.2% 144.6% 143.5% 138.4% Other 278 1,302 4,420 0 0

Core net income (reported) 6,254 5,124 6,165 6,787 7,548 Dividends paid -2,764 -2,764 -2,764 -2,764 -2,764

% change Y/Y -16.7% -18.1% 20.3% 10.1% 11.2% Beginning cash 7,460 11,403 12,623 16,487 21,203Shares outstanding 527 527 527 527 527 Ending cash 11,403 12,623 16,487 21,203 24,374Core EPS (reported) - (Bt) 11.88 9.73 11.71 12.89 14.34 DPS - (Bt) 5.25 5.25 5.25 5.25 5.25

% change Y/Y -16.7% -18.1% 20.3% 10.1% 11.2%




Accounts receivable 791 794 1,087 1,263 1,319 Operating margin 81.0% 75.2% 74.0% 69.9% 72.9%Inventories 2,127 2,044 3,114 3,661 4,321 Net profit margin 78.9% 65.1% 104.8% 59.1% 62.9%Others 6,332 6,595 6,600 6,600 6,600

Current assets 20,653 22,056 27,288 32,728 36,615LT investments 30,962 36,739 52,616 54,394 55,768 Sales growth (5.9%) (11.0%) 28.9% 16.3% 4.4%

Net fixed assets 13,407 13,345 11,502 10,549 9,661 Net profit growth -14.4% -26.6% 107.5% -34.4% 11.2%Total Assets 65,654 72,955 92,205 98,471 102,843 EPS growth (14.4%) (26.6%) 107.5% (34.4%) 11.2%Liabilities

ST loans 721 536 4,662 5,069 4,976 Interest coverage (x) 50.04 31.56 14.45 14.74 19.92Payables 326 317 479 610 576 Net debt to equity -3.4% -1.0% 10.4% 6.0% 0.7%Others 765 863 1,000 1,000 1,000 Sales/assets (x) 0.13 0.11 0.12 0.12 0.12

Total current liabilities 1,812 1,716 6,141 6,679 6,553 Assets/equity (x) 1.09 1.26 1.41 1.42 1.38Long-term debt 8,840 11,521 18,649 20,276 19,906 ROE 13.0% 8.9% 16.8% 10.0% 10.5%

Other liabilities 186 1,185 1,200 1,200 1,200 ROCE 11.1% 8.6% 9.2% 8.7% 9.0%Total Liabilities 10,838 14,422 25,990 28,156 27,658Shareholders' equity 54,307 57,979 65,566 69,589 74,373

BVPS - (Bt) 103.15 110.12 124.53 132.17 141.26


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Pruksa Real Estate Pcl

www.pruksa.com



Company overview

PS is one of the leading property developers in Thailand. The company focuses on developing residential units for low/mid income people in greater Bangkok. Having its own pre-cast factories, PS should be able to control cost and speed of construction. PS’s overall market share is 50% for TH, 15% for SDH, and 2-3% for condo.

Investment case

Monetary conditions are easy in Thailand with a good level of liquidity. Banks’ lending appetite is strong and expanding into low-end segment, favoring PS well. Land prices have started to rise supported by mass transit expansion, benefiting landed property such as that of PS.


We expect improving sales and expected decline in B/S leverage to drive a share price and multiple re-rating. We forecast operating cashflow to turn positive this year from being negative in the past 2 years.


Tight labor conditions are a key risk to the property sector as it could delay construction work and product deliveries which would impact revenue. However, for PS we see this risk mitigated by the fact that the company uses pre-casts and owns pre-cast factories.


Our Dec13 PT of Bt22 is based on 11x P/E, which is PS’s long-term average P/E. Risks to PT are an inability to sustain employees and contractors which could risk quality and timing of product deliveries, higher-than-expected land acquisition which could require higher working capital, and accessibility of PS’s customers to bank mortgages.

Thailand

Property

Anne JirajariyavechAC

(66-2) 684 2684

[email protected]

Bloomberg JPMA JIRAJARIYAVECH <GO>


YTD 1m 3m 12mAbs 70.7% 3.1% 11.9% 70.7%Rel 43.3% 3.0% 2.8% 35.4%

Source: Bloomberg.

Pruksa Real Estate Pcl (Reuters: PS.BK, Bloomberg: PS TB)

Bt in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Bt mn) 23,307 23,263 25,462 32,037 32,282Net Profit (Bt mn) 3,488.1 2,834.8 3,480.1 4,462.0 4,250.3EPS (Bt) 1.58 1.28 1.58 2.02 1.92DPS (Bt) 0.50 0.50 0.55 0.71 0.67Revenue growth (%) 22.9% -0.2% 9.5% 25.8% 0.8%EPS growth (%) -4.0% -18.8% 22.7% 28.2% -4.7%ROCE 21.2% 12.3% 12.1% 13.3% 11.8%ROE 24.7% 17.6% 19.2% 21.5% 18.1%P/E (x) 12.5 15.4 12.6 9.8 10.3P/BV (x) 2.9 2.6 2.3 2.0 1.8EV/EBITDA (x) 10.7 13.3 11.8 10.2 10.3Dividend Yield 2.5% 2.5% 2.8% 3.6% 3.4%Source: Company data, Bloomberg, J.P. Morgan estimates.


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Pruksa Real Estate Pcl: Summary of FinancialsProfit and Loss Statement Cash flow statement


Revenues 23,307 23,263 25,462 32,037 32,282 EBIT 4,603 4,044 4,698 5,767 5,512

% change Y/Y 22.9% (0.2%) 9.5% 25.8% 0.8% Depr. & amortization 246 339 339 339 339EBIT 4,603 4,044 4,698 5,767 5,512 Change in working capital -14,598 -8,790 -3,548 -6,211 -1,069

% change Y/Y NM NM 16.2% 22.8% NM Others 6,002 5,713 4,801 5,848 5,587

EBIT margin (%) 19.8% 17.4% 18.4% 18.0% 17.1% Cash flow from operations -9,648 -4,151 271 -1,410 3,520Net Interest -67 -137 -236 -259 -264Earnings before tax 4,536 3,906 4,462 5,509 5,247 Capex 2,114 -1,002 0 0 0

% change Y/Y -5.5% -13.9% 14.2% 23.5% -4.7% Disposal/(purchase) - - - - -Tax -1,048 -1,071 -982 -1,047 -997 Net Interest - - - - -

as % of EBT 23.1% 27.4% 22.0% 19.0% 19.0% Free cash flow -7,534 -5,152 271 -1,410 3,520Net income (reported) 3,488.1 2,834.8 3,480.1 4,462.0 4,250.3

% change Y/Y -3.7% -18.7% 22.8% 28.2% -4.7% Equity raised/(repaid) 0 38 0 0 0

Core net profit 3,388 2,675 3,340 4,301 4,065 Debt raised/(repaid) 10,732 6,322 1,000 3,000 -2,000% change Y/Y -4.7% -21.0% 24.8% 28.8% -5.5% Other - - - - -

Shares outstanding 2,207 2,209 2,209 2,209 2,209 Dividends paid -1,214 -1,104 -1,218 -1,562 -1,488

EPS (reported) 1.58 1.28 1.58 2.02 1.92 Beginning cash 846 1,439 837 890 919% change Y/Y (4.0%) (18.8%) 22.7% 28.2% (4.7%) Ending cash 1,439 837 890 919 952

DPS 0.50 0.50 0.55 0.71 0.67 DPS 0.50 0.50 0.55 0.71 0.67

% change Y/Y -9.4% 0.1% 10.2% 28.2% -4.7%



Cash and cash equivalents 1,439 837 890 919 952 EBIT Margin 19.8% 17.4% 18.4% 18.0% 17.1%

Accounts receivable 120 0 0 0 0 Operating margin 19.3% 16.7% 17.9% 17.5% 16.5%Inventories 27,801 36,160 39,708 45,919 46,988 Net margin 15.0% 12.2% 13.7% 13.9% 13.2%Others 1,805 726 726 726 726 SG&A/Sales - - - - -

Current assets 31,356 38,916 42,517 48,757 49,859Sales per share growth 22.5% (0.2%) 9.4% 25.8% 0.8%

LT investments 0 0 0 0 0 Sales growth 22.9% (0.2%) 9.5% 25.8% 0.8%Net fixed assets 2,855 3,066 2,727 2,388 2,048 Net profit growth -3.7% -18.7% 22.8% 28.2% -4.7%Total Assets 34,211 41,982 45,244 51,145 51,907 EPS growth (4.0%) (18.8%) 22.7% 28.2% (4.7%)

Liabilities Interest coverage (x) 72.29 31.89 21.34 23.60 22.13ST Loans 4,004 9,333 9,333 9,333 9,333 Net debt to total capital 52.8% 55.6% 49.4% 51.0% 43.0%Payables 2,997 1,479 1,479 1,479 1,479 Net debt to equity 75.2% 107.5% 99.8% 100.1% 80.9%

Others 2,790 3,014 3,014 3,014 3,014 Sales/assets 0.88 0.61 0.58 0.66 0.63Total current liabilities 9,791 13,827 13,827 13,827 13,827 Assets/equity 2.24 2.47 2.35 2.31 2.08

Long-term debt 9,100 10,962 11,962 14,962 12,962 ROE 24.7% 17.6% 19.2% 21.5% 18.1%Other liabilities 57 198 198 198 198 ROCE 21.2% 12.3% 12.1% 13.3% 11.8%Total Liabilities 18,948 24,986 25,986 28,986 26,986

Shareholders' equity 15,263 16,996 19,258 22,158 24,921BVPS 6.92 7.69 8.72 10.03 11.28


12



PTT Exploration and Production (PTTEP)

www.pttep.com



Company overview

PTTEP is Thailand’s sole exploration and production (E&P) company. The company is 67% owned by state owned company PTT Plc. PTTEP operates more than 40 projects around the world. As of year-end 2011, PTTEP had 969mBOE of net proved reserves, equivalent to a reserve life of nine years. 72% of its reserves are gas based while the remaining is liquid based.

Investment case

With the completion of capital-raising we expect the key driver for PTTEP’s share price to be its rising sales volumes. We forecast sales volumes to rise 20% in 2013 following the start up of Montara and full year contribution from Bongkot south and second phase of Vietnam 16-1. Unlike the past, we believe PTTEP will not miss volume guidance in 2013 hence should help in restoring investor confidence.


PTTEP in our view is defensive and the most attractive name within the PTT group due to its volume growth, making it less dependent on price rise for earnings growth. While PTTEP’s earnings are susceptible to oil price movements considering every US$1/bbl move in oil prices would result in 0.9% move in EPS, we believe its 20% volume growth in 2013 along with its 75% of sales volume being gas means it is more defensive than other oil and gas companies in this environment.


Further delays to the start up of Montara remains the key risk to our 2013 earnings estimates. On top of this a weaker than expected oil price along with any production problems could result in 2013 earnings being lower than our estimates.


Our Dec-13 PT of Bt180 is based on a fully diluted DCF/NAV reserve estimate. We already factor the capital-raising into our estimates. Downside risks would be lower oil and gas prices, and missing on production targets.

Thailand

Oil & Gas

Avin SonyAC

(66-2) 684-2683

[email protected]

Bloomberg JPMA SONY<GO>


YTD 1m 3m 12mAbs 0.0% 6.3% 13.9% 8.4%Rel -27.4% 6.2% 4.8% -26.9%

Source: Bloomberg.

PTT Exploration & Production (Reuters: PTTE.BK, Bloomberg: PTTEP TB)

Bt in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Bt mn) 138,474 165,865 180,811 213,359 211,875Net Profit (Bt mn) 41,739.0 44,747.0 52,054.7 63,295.0 59,528.2EPS (Bt) 12.58 13.48 15.68 15.94 14.99DPS (Bt) 5.03 5.40 5.34 5.42 5.10Revenue growth (%) 19.0% 19.5% 9.0% 17.8% -0.5%EPS growth (%) 88.1% 7.1% 16.3% 1.7% -6.0%ROCE 27.9% 28.7% 24.5% 23.5% 18.4%ROE 26.5% 24.0% 24.0% 20.8% 15.1%P/E (x) 13.4 12.5 10.7 10.6 11.2P/BV (x) 3.2 2.8 2.4 1.8 1.6EV/EBITDA (x) 5.7 5.5 5.7 4.9 5.0Dividend Yield 3.0% 3.2% 3.2% 3.2% 3.0%Core Profit (Bt mn) 39,804 46,104 52,163 63,295 59,528Core EPS (Bt) 12.00 13.89 15.71 15.94 14.99Source: Company data, Bloomberg, J.P. Morgan estimates.


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PTT Exploration & Production: Summary of FinancialsIncome Statement Cash flow statement


Revenues 138,474 165,865 180,811 213,359 211,875 EBIT 64,836 82,277 90,010 111,920 105,959

% change Y/Y 19.0% 19.5% 9.0% 17.8% (0.5%) Depr. & amortization 36,825 34,054 37,876 44,862 49,197Gross Margin (%) 76.0% 73.3% 73.6% 75.8% 75.5% Change in working capital 10,458 -948 5,816 9,860 -918

EBITDA 101,661 116,331 127,886 156,782 155,157 Taxes -23,381 -35,626 -34,775 -44,902 -42,229

% change Y/Y 26.0% 14.4% 9.9% 22.6% -1.0% Cash flow from operations 86,258 79,791 95,901 118,017 107,808EBITDA Margin (%) 71.6% 68.6% 69.1% 71.9% 71.5%EBIT 64,836 82,277 90,010 111,920 105,959 Capex -56,392 -102,364 -169,633 -133,374 -89,773

% change Y/Y 27.5% 26.9% 9.4% 24.3% NM Disposal/(purchase) 0 0 0 0 0EBIT Margin (%) 45.7% 48.5% 48.7% 51.4% 48.9% Net Interest 292 -43 -3,073 -3,724 -4,202

Net Interest 292 -43 -3,073 -3,724 -4,202 Free cash flow 29,866 -22,573 -73,732 -15,357 18,035Earnings before tax 63,185 81,730 86,938 108,197 101,758

% change Y/Y 54.4% 29.4% 6.4% 24.5% -6.0% Equity raised/(repaid) -410 -347 0 97,500 0

Tax -23,381 -35,626 -34,775 -44,902 -42,229 Debt raised/(repaid) 6,067 44,907 55,000 -10,000 30,000as % of EBT 160.9% 142.3% 147.1% 144.9% 152.5% Other 2,593 13,591 -14 11,095 -1,389

Core net income (reported) 39,804 46,104 52,163 63,295 59,528 Dividends paid -12,439 -16,899 -18,130 -21,364 -20,880

% change Y/Y 76.8% 15.8% 13.1% 21.3% -6.0% Beginning cash 48,678 59,515 42,800 7,439 69,963Shares outstanding 3,317 3,320 3,320 3,970 3,970 Ending cash 59,515 42,800 7,439 69,963 95,730Core EPS (reported) - (Bt) 12.00 13.89 15.71 15.94 14.99 DPS - (Bt) 5.03 5.40 5.34 5.42 5.10

% change Y/Y 76.6% 15.7% 13.1% 1.5% -6.0%




Accounts receivable 13,263 27,372 27,845 32,857 32,629 Operating margin 45.7% 48.5% 48.7% 51.4% 48.9%Inventories 8,548 9,142 9,834 11,600 12,167 Net profit margin 29.4% 26.4% 28.1% 29.0% 27.4%Others 3,749 8,320 3,800 3,800 3,800

Current assets 85,075 87,634 48,918 118,220 144,326LT investments 4,816 11,301 10,000 10,000 10,000 Sales growth 19.0% 19.5% 9.0% 17.8% (0.5%)

Net fixed assets 227,251 295,561 427,318 515,829 556,405 Net profit growth 88.4% 7.2% 16.3% 21.6% -6.0%Total Assets 342,217 448,712 540,235 698,049 764,731 EPS growth 88.1% 7.1% 16.3% 1.7% (6.0%)Liabilities

ST loans 7,945 31,796 40,000 0 0 Interest coverage (x) - 2,705.37 41.62 42.10 36.93Payables 1,958 2,313 2,458 2,900 3,042 Net debt to equity 10.6% 40.0% 72.8% 26.1% 24.7%Others 48,293 66,264 68,579 84,775 84,055 Sales/assets (x) 0.44 0.43 0.37 0.35 0.30

Total current liabilities 58,196 100,373 111,037 87,675 87,097 Assets/equity (x) 1.89 1.79 2.31 1.87 1.85Long-term debt 69,893 90,949 137,745 167,745 197,745 ROE 26.5% 24.0% 24.0% 20.8% 15.1%

Other liabilities 41,836 57,365 57,505 68,600 67,211 ROCE 27.9% 28.7% 24.5% 23.5% 18.4%Total Liabilities 169,925 248,687 306,287 324,021 352,053Shareholders' equity 172,293 200,024 233,948 374,029 412,677

BVPS - (Bt) 51.94 60.25 70.47 94.21 103.95


PTT E&P DCF

Source: J.P. Morgan estimates

14



Siam Commercial Bank

www.scb.co.th



Company overview

Siam Commercial Bank (SCB) is the third-largest bank in Thailand. The bank has the leading position in retail banking (No.1) and corporate banking (2nd to BBL). SCB has improved its position in SME market from No.6 to No.3. It has the largest branch and ATM network and this has brought the bank a significant retail client and income base.

Investment case

We like the quality of SCB’s management team. This has brought good strategies and effective executions and implementation. The market share gain story for SCB is likely to continue as other banks have weaker balance sheet and/or weaker business platform esp. in retail banking which is the growing area. The government’s tax rebate on first-time car purchase has come to an end hence auto loan growth is expected to slowdown. However, this is only 10% of SCB's book. The majority (27%) of the book consists of housing loans and is expected to show growth acceleration given strong condo completion pipeline in FY13. Income story esp. at low-end segment remains solid and favors retail banking outlook and SCB.


Low interest rate with better liquidity and less deposit competition from Specialized Financial Institutions bode well for banks esp. those with higher retail exposure. SCB still has good level of capital and hence will likely gain more market share.


To prevent risk of excessive lending, the Bank of Thailand may consider issuing some measures. Also, due to vulnerable global economy, higher credit costs cannot be ruled out.


Our Jun13 PT is Bt200 based on DDM with 21.0% ROE, 12.1% COE, and 8% growthrate. Risks are higher opex, competition in retail, and change in asset quality condition esp. given that SCB has been aggressive in growing assets in the past few years.

Thailand

Banks


(66-2) 684 2684

[email protected]



YTD 1m 3m 12mAbs 39.1% -4.4% 3.2% 38.5%Rel 11.7% -4.5% -5.9% 3.2%

Source: Bloomberg.

Siam Commercial Bank (Reuters: SCB.BK, Bloomberg: SCB TB)

FY10A FY11A FY12E FY13E FY14EOperating Profit (Bt mn) 36,935 48,822 60,213 69,798 83,107Net Profit (Bt mn) 24,205 36,273 40,608 48,219 57,544Cash EPS (Bt) 7.12 10.67 11.95 14.19 16.93Fully Diluted EPS (Bt) 7.12 10.67 11.95 14.19 16.93DPS (Bt) 3.00 3.50 4.00 4.75 5.50EPS growth (%) 16.6% 49.9% 12.0% 18.7% 19.3%ROE 16.4% 21.3% 20.4% 21.1% 21.8%P/E (x) 22.7 15.2 13.6 11.4 9.6BVPS (Bt) 45.40 54.68 62.63 72.06 83.49P/BV (x) 3.6 3.0 2.6 2.2 1.9Dividend Yield 1.9% 2.2% 2.5% 2.9% 3.4%Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data52-week Range (Bt) 172.00-102.00Market Cap (Bt mn) 550,669Market Cap ($ mn) 17,925Shares O/S (mn) 3,399Fiscal Year End DecPrice (Bt) 162.00Date Of Price 02 Nov 123M - Avg daily value (Bt mn) 778.933m Avg. Daily Value ($ mn) 25.43mth Avg daily volume (mn) 4.86SET 1306.60Exchange Rate 30.72

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Siam Commercial Bank: Summary of FinancialsIncome Statement Growth Rates

Bt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E FY10 FY11 FY12E FY13E FY14E

NIM (as % of avg. assets) 3.0% 3.2% 3.1% 3.0% 3.0% Loans 12.6% 22.2% 17.0% 17.3% 17.6%

Earning assets/assets 95.2% 94.8% 95.6% 96.6% 97.3% Deposits 14.2% 8.4% 27.2% 25.0% 17.0%Margins (as % of Avg. Assets) 2.9% 3.0% 3.0% 2.9% 3.0% Assets 14.1% 27.2% 13.3% 19.2% 14.2%

Equity 10.1% 20.4% 14.5% 15.1% 15.9%

Net Interest Income 39,753 50,526 59,820 68,373 80,437 RWA 13.8% 19.4% 13.3% 19.2% 14.2%

Total Non-Interest Income 27,717 35,180 40,256 45,086 50,497 Net Interest Income 5.9% 27.1% 18.4% 14.3% 17.6%

Fee Income 20,563 26,064 29,974 33,571 37,599 Non-Interest Income 20.0% 26.9% 14.4% 12.0% 12.0%Dealing Income 5,002 6,689 7,564 8,471 9,488 of which Fee Grth 20.4% 26.8% 15.0% 12.0% 12.0%

Revenues 11.3% 27.0% 16.8% 13.4% 15.4%

Total operating revenues 67,470 85,706 100,076 113,460 130,934 Costs 9.2% 20.8% 8.1% 9.5% 9.5%Pre-Provision Profits 13.1% 32.2% 23.3% 15.9% 19.1%

Operating costs (30,535) (36,883) (39,862) (43,662) (47,826) Loan Loss Provisions (11.1%) 41.1% 16.6% 17.1% 17.5%

Pre-Prov. Profits 36,935 48,822 60,213 69,798 83,107 Pre-Tax 21.4% 40.2% 11.1% 15.0% 19.3%Provisions (4,699) (6,630) (7,731) (9,056) (10,640) Attributable Income 16.6% 49.9% 12.0% 18.7% 19.3%Other Inc 1,655 5,330 334 0 0 EPS 16.6% 49.9% 12.0% 18.7% 19.3%

Other Exp. - - - - - DPS 20.0% 16.7% 14.3% 18.8% 15.8%Exceptionals - - - - -

Associate - - - - - Balance Sheet Gearing FY10 FY11 FY12E FY13E FY14EPre-tax 33,891 47,521 52,817 60,741 72,467 Loan/deposit 93.3% 105.5% 97.3% 91.5% 92.1%Tax (9,563) (11,213) (11,884) (12,148) (14,493) Investment/assets 11.5% 14.4% 16.5% 14.2% 12.2%

Minorities (123) (36) (325) (374) (430) Loan/Assets 72.3% 70.2% 70.2% 70.6% 71.2%Attributable Income 24,205 36,273 40,608 48,219 57,544 Customer deposits/liab. 82.6% 70.1% 78.8% 82.2% 84.4%

LT debt/liabilities 8.7% 13.9% 14.1% 9.5% 8.1%

Per Share Data THB FY10 FY11 FY12E FY13E FY14E Asset Quality/Capital FY10 FY11 FY12E FY13E FY14E

EPS 7.12 10.67 11.95 14.19 16.93 Loan loss reserves/loans (3.9%) (3.5%) (3.3%) (3.1%) (3.0%)DPS 3.00 3.50 4.00 4.75 5.50 NPLs/loans 4.2% 3.2% 2.7% 2.6% 2.4%Payout 42.1% 32.8% 33.5% 33.5% 32.5% Loan loss reserves/NPLs 101.1% 116.7% 126.3% 125.4% 124.5%

Book value 45.40 54.68 62.63 72.06 83.49 Growth in NPLs (13.5%) (6.4%) 10.7% 11.3% 11.9%Fully Diluted Shares 3,399 3,399 3,399 3,399 3,399 Tier 1 Ratio 11.6% 11.1% 11.7% 11.7% 12.2%PPOP per share 10.87 14.36 17.71 20.53 24.45 Total CAR 15.5% 14.5% 14.6% 14.2% 14.4%

Key Balance sheet Bt in millions FY10 FY11 FY12E FY13E FY14E Du-Pont Analysis FY10 FY11 FY12E FY13E FY14ENet Loans 1,018,803 1,249,688 1,465,015 1,721,805 2,029,163 NIM (as % of avg. assets) 3.0% 3.2% 3.1% 3.0% 3.0%

LLR (41,595) (45,995) (50,544) (55,867) (62,115) Earning assets/assets 95.2% 94.8% 95.6% 96.6% 97.3%Gross Loans 1,060,398 1,295,683 1,515,559 1,777,671 2,091,278 Margins (as % of Avg. Assets) 2.9% 3.0% 3.0% 2.9% 3.0%NPLs 38,752 36,281 40,168 44,715 50,048 Non-Int. Rev./ Revenues 41.1% 41.0% 40.2% 39.7% 38.6%

Investments 153,746 330,774 330,774 330,774 330,774 Non IR/Avg. Assets 2.0% 2.1% 2.0% 1.9% 1.9%Other earning assets 80,675 92,134 86,606 86,606 86,606 Revenue/Assets 4.9% 5.1% 5.0% 4.9% 4.8%Avg. IEA 1,318,348 1,590,799 1,915,134 2,252,572 2,643,109 Cost/Income 45.3% 43.0% 39.8% 38.5% 36.5%

Goodwill 0 0 0 0 0 Cost/Assets 2.2% 2.2% 2.0% 1.9% 1.8%Assets 1,476,735 1,877,836 2,126,882 2,535,723 2,894,907 Pre-Provision ROA 2.7% 2.9% 3.0% 3.0% 3.1%

LLP/Loans (0.5%) (0.6%) (0.5%) (0.5%) (0.5%)Deposits 1,092,109 1,184,388 1,506,168 1,882,710 2,202,771 Loan/Assets 72.3% 70.2% 70.2% 70.6% 71.2%Long-term bond funding 110,649 309,274 199,488 199,488 199,488 Other Prov, Income/ Assets 0.1% 0.3% 0.0% 0.0% 0.0%

Other Borrowings 0 0 0 0 0 Operating ROA 2.3% 2.5% 2.6% 2.6% 2.7%Avg. IBL 1,132,199 1,348,210 1,599,659 1,893,927 2,242,228 Pre-Tax ROA 2.4% 2.8% 2.6% 2.6% 2.7%Avg. Assets 1,385,362 1,677,286 2,002,359 2,331,302 2,715,315 Tax rate 28.2% 23.6% 22.5% 20.0% 20.0%

Common Equity 154,316 185,871 212,882 244,955 283,804 Minorities & Outside Distbn. 0.1% 0.1% 0.1% 0.1% 0.1%RWA 1,057,431 1,262,694 1,430,157 1,705,070 1,946,591 ROA 1.7% 2.2% 2.0% 2.1% 2.1%

Avg. RWA 993,155 1,160,062 1,346,425 1,567,613 1,825,830 RORWA 2.4% 3.1% 3.0% 3.1% 3.2%Equity/Assets 10.6% 10.1% 10.0% 9.8% 9.7%ROE 16.4% 21.3% 20.4% 21.1% 21.8%


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Thai Oil Public Company

www.thaioilgroup.com

UnderweightPrice: Bt67.50

Price Target: Bt53

Company overview

TOP, owned 49% by PTT, is one of the most complex refinery in the region, with a nameplate capacity of 275,000bpd. TOP is vertically integrated into aromatics, lube base production, power generation and marine & pipeline transportation for petroleum products and petrochemicals. TOP currently produces 0.9m tons of aromatics per year and is Thailand's second-largest aromatics producer after its sister company, PTTGC.

Investment case

Weakness in refining margins, PX margins, oil prices amidst no capacity growth means TOP will see earnings decline in 2013-2014, in our view. Any upside remains at the mercy of global demand which we construe to expect to remain lackluster. In addition, TOP also trades at valuations which we see as expensive at an FY13E P/BV of 1.6x.

Key issues in an anemic growth environment

With TOP having no material capacity expansion it remains at the mercy of movements in global crude prices and refining margins. In addition, upside risks also depend on major stimuli rather than demand supply, as supply growth for reining will exceed demand for the next three years with supply growing by nearly 6mbps vs demand growth of slightly less than 3mbpd.


Upside risks to our earnings estimates come from higher oil prices and refining margins which could happen in an environment of strong economic recovery. In addition any unplanned shutdown at refineries would also result in refining margins being stronger than expected which would result in our earnings being too conservative.


Our Dec13 PT of Bt53 is based on FY13E P/BV of 1.3x based on estimated LT ROE/COE ratio (we estimate TOP's ROE to average 11% in FY12-FY16E). Upside risks include a stronger-than-expected rise in refinery and PX margins that would significantly boost TOP’s earnings and higher-than-expected dividend payment.

Thailand

Integrated refiners

Avin SonyAC

(66-2) 684-2683

[email protected]

Bloomberg JPMA SONY <GO>


YTD 1m 3m 12mAbs 15.4% 7.6% 13.9% 22.7%Rel -12.0% 8.0% 4.8% -14.0%

Source: Bloomberg.

Thai Oil Public Company (Reuters: TOP.BK, Bloomberg: TOP TB)

Bt in mn, year-end Dec FY10A FY11A FY12E FY13E FY14ERevenue (Bt mn) 318,390 446,241 447,326 412,446 400,225Net Profit (Bt bn) 9.0 14.9 9.5 9.4 8.6EPS (Bt) 4.41 7.28 4.66 4.60 4.20DPS (Bt) 2.00 3.30 3.35 3.40 3.45Revenue Growth (%) 12.1% 40.2% 0.2% -7.8% -3.0%EPS growth (%) -25.4% 65.1% -36.0% -1.3% -8.7%ROCE 7.2% 17.1% 9.9% 9.6% 8.8%ROE 13.0% 19.7% 11.8% 11.2% 10.0%P/E 15.3 9.3 14.5 14.7 16.1P/BV 1.9 1.7 1.7 1.6 1.6EV/EBITDA 11.4 6.1 8.7 8.4 8.6Dividend Yield 3.0% 4.9% 5.0% 5.0% 5.1%Core EPS (Bt) 3.45 7.31 4.53 4.60 4.20Adjusted P/E 19.6 9.2 14.9 14.7 16.1Source: Company data, Bloomberg, J.P. Morgan estimates.

Company DataShares O/S (mn) 2,040Market Cap (Bt mn) 137,702Market Cap ($ mn) 4,490Price (Bt) 67.50Date Of Price 05 Nov 12Free float (%) 50.0%3-mth trading value (Bt bn) 1.03-mth trading value ($ mn) 32.23-mth trading volume (mn) 6.9SET 1,307Exchange Rate 30.67Fiscal Year End Dec

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TOP.BK share price (Bt)

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Thai Oil Public Company: Summary of FinancialsIncome Statement Cash flow statementBt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Bt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Revenues 318,390 446,241 447,326 412,446 400,225 EBIT 8,087 20,511 12,242 11,661 10,438

% change Y/Y 12.1% 40.2% 0.2% (7.8%) (3.0%) Depr. & amortization 6,662 6,604 7,176 7,515 7,958Gross Margin (%) 5.2% 6.6% 4.9% 5.3% 5.3% Change in working capital -1,896 -7,396 -6,772 4,003 1,383

EBITDA 14,749 27,115 19,418 19,175 18,395 Taxes -2,202 -5,299 -2,825 -2,401 -2,193% change Y/Y -27.1% 83.8% -28.4% -1.3% -4.1% Cash flow from operations 11,326 14,462 9,744 21,123 18,111

EBITDA Margin (%) 4.6% 6.1% 4.3% 4.6% 4.6%

EBIT 8,087 20,511 12,242 11,661 10,438 Capex -5,801 -4,797 -7,350 -6,860 -8,964% change Y/Y NM 153.6% NM NM NM Disposal/(purchase) 0 0 0 0 0

EBIT Margin (%) 2.5% 4.6% 2.7% 2.8% 2.6% Net Interest 838 406 39 347 525

Net Interest 838 406 39 347 525 Free cash flow 5,525 9,665 2,394 14,263 9,147Earnings before tax 9,453 20,565 12,281 12,007 10,963

% change Y/Y -26.6% 117.5% -40.3% -2.2% -8.7% Equity raised/(repaid) 0 0 0 0 0Tax -2,202 -5,299 -2,825 -2,401 -2,193 Debt raised/(repaid) 588 1,664 -5,500 -4,500 -4,500

as % of EBT 156.0% 131.9% 158.1% 159.7% 167.8% Other 2,286 1,766 496 35 36

Core net income (reported) 7,040 14,911 9,239 9,385 8,568 Dividends paid -4,284 -5,508 -6,732 -6,834 -6,936% change Y/Y -35.3% 111.8% -38.0% 1.6% -8.7% Beginning cash 9,238 14,035 19,292 9,286 12,186

Shares outstanding 2,040 2,040 2,040 2,040 2,040 Ending cash 14,035 19,292 9,286 12,186 9,847

Core EPS (reported) - (Bt) 3.45 7.31 4.53 4.60 4.20 DPS - (Bt) 2.00 3.30 3.35 3.40 3.45% change Y/Y -35.3% 111.8% -38.0% 1.6% -8.7%

Balance sheet Ratio AnalysisBt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E Bt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E

Cash and cash equivalents 14,035 19,292 9,286 12,186 9,847 EBITDA margin 4.6% 6.1% 4.3% 4.6% 4.6%Accounts receivable 19,130 26,102 29,076 26,809 26,015 Operating margin 2.5% 4.6% 2.7% 2.8% 2.6%Inventories 32,995 34,039 42,537 39,066 37,915 Net profit margin 2.8% 3.3% 2.1% 2.3% 2.1%

Others 8,564 4,714 5,100 5,100 5,100Current assets 74,724 84,147 86,000 83,161 78,877LT investments 1,131 2,331 2,500 2,500 2,500 Sales growth 12.1% 40.2% 0.2% (7.8%) (3.0%)

Net fixed assets 66,939 65,132 65,306 64,651 65,658 Net profit growth -25.4% 65.1% -36.0% -1.3% -8.7%Total Assets 146,607 155,085 157,668 154,128 150,835 EPS growth (25.4%) 65.1% (36.0%) (1.3%) (8.7%)

LiabilitiesST loans 2,962 5,717 6,028 5,353 4,678 Interest coverage (x) - - - - -Payables 18,984 17,271 21,269 19,533 18,958 Net debt to equity 42.0% 33.2% 37.6% 27.7% 24.7%

Others 5,428 3,911 5,000 5,000 5,013 Sales/assets (x) 2.24 2.96 2.86 2.65 2.62Total current liabilities 27,374 26,899 32,297 29,886 28,649 Assets/equity (x) 1.87 1.71 1.92 1.82 1.75Long-term debt 41,061 39,970 34,159 30,334 26,509 ROE 13.0% 19.7% 11.8% 11.2% 10.0%

Other liabilities 1,334 3,183 3,291 3,325 3,362 ROCE 7.2% 17.1% 9.9% 9.6% 8.8%Total Liabilities 69,769 70,052 69,747 63,546 58,519

Shareholders' equity 71,417 79,469 82,248 84,799 86,431BVPS - (Bt) 35.01 38.96 40.32 41.57 42.37


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Tisco Financial Group Pcl.

www.tisco.co.th

NeutralPrice: Bt45.50


Company overview

TISCO is a small bank but has been in Thailand for a long time and has a very strong auto hire purchase business (c.70% of the bank’s loans). Although it is small in both assets and ATM/branch network, the bank’s ROE is one of the highest in the sector, inour view due to Tisco’s management, quality, and strong expertise in business.

Investment case

We like TISCO’s quality & profitability but expect growth to moderate after strong share gains in the past 8 years (loan share doubled from 1.4% in FY04 to 2.7% at 3Q12). We also see risk of lower dividend payout. Tier 1 capital ratio is 9% (we think optimal). We see TISCO at an inflection point, where growth will either slow (balanced with high ROE) or continue to be strong (risk of capital increase). We think growth will moderate. We estimate TISCO’s ROE can adequately fund 10-15% loan growth.

Key issues in an anemic growth environment

With tax rebate on first-time car purchase now to an end, growth in auto loans (c.70% of TISCO’s business) is likely to slow. TISCO will, however, expand into new areas e.g. used car lending and corporate/SME lending.


Low interest rate with better liquidity and less deposit competition from Specialized Financial Institutions bode well for banks including TISCO. Hence, the risk is that NIM could surprise on the upside. However, we also foresee risk of more stringent lending and provisioning requirement from the Bank of Thailand as part of macro prudential measures to prevent risk of excessive lending.


Our Dec-13 PT is Bt49 based on DDM with 13.2% ROE, 11.6% COE, 7.5% growth. Key downside risks are credit quality deterioration and fiercer than expected market competition. Upside risks are continuing strong loan growth, but this could further threaten the bank's capital position.

Thailand

Banks


(66-2) 684 2684

[email protected]



YTD 1m 3m 12mAbs 19.7% -1.1% 15.2% 37.9%Rel -7.7% -1.2% 6.1% 2.6%

Source: Bloomberg.

Tisco Financial Group Pcl. (Reuters: TISCO.BK, Bloomberg: TISCO TB)

FY10A FY11A FY12E FY13E FY14EOperating Profit (Bt mn) 5,905 5,864 6,668 7,554 8,679Net Profit (Bt mn) 2,888 3,267 3,771 4,192 4,707Cash EPS (Bt) 3.97 4.49 5.18 5.76 6.47Fully Diluted EPS (Bt) 3.97 4.49 5.18 5.76 6.47DPS (Bt) 2.25 2.35 2.25 2.50 3.00EPS growth (%) 48.5% 13.0% 15.4% 11.2% 12.3%ROE 21.2% 21.1% 21.8% 21.5% 21.4%P/E (x) 11.5 10.1 8.8 7.9 7.0BVPS (Bt) 20.30 22.25 25.18 28.44 31.91P/BV (x) 2.2 2.0 1.8 1.6 1.4Dividend Yield 4.9% 5.2% 4.9% 5.5% 6.6%Source: Company data, Bloomberg, J.P. Morgan estimates.

Company Data52-week Range (Bt) 49.25-32.25Market Cap (Bt mn) 33,120Market Cap ($ mn) 1,078Shares O/S (mn) 728Fiscal Year End DecPrice (Bt) 45.50Date Of Price 02 Nov 123M - Avg daily value (Bt mn) 112.653m Avg. Daily Value ($ mn) 3.73mth Avg daily volume (mn) 2.55SET 1306.60Exchange Rate 30.72

30

35

40

45

50

Bt


Price Performance

TISCO.BK share price (Bt)

SET (rebased)

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Tisco Financial Group Pcl.: Summary of FinancialsIncome Statement Growth Rates

Bt in millions, year end Dec FY10 FY11 FY12E FY13E FY14E FY10 FY11 FY12E FY13E FY14E

NIM (as % of avg. assets) 4.5% 3.5% 3.2% 3.1% 3.2% Loans 31.1% 23.6% 20.6% 15.0% 15.0%

Earning assets/assets 98.5% 99.1% 99.9% 100.4% 101.1% Deposits (14.6%) (21.7%) 10.0% 10.0% 10.0%Margins (as % of Avg. Assets) 4.4% 3.5% 3.2% 3.2% 3.2% Assets 23.5% 28.8% 16.7% 12.3% 12.5%

Equity 18.9% 9.6% 13.2% 12.9% 12.2%

Net Interest Income 6,861 6,916 7,707 8,643 9,817 RWA 37.5% 21.5% 14.1% 13.0% 13.2%

Total Non-Interest Income 3,561 3,883 4,729 5,255 5,841 Net Interest Income 20.9% 0.8% 11.4% 12.1% 13.6%

Fee Income 2,708 2,854 3,597 4,011 4,472 Non-Interest Income 39.3% 9.0% 21.8% 11.1% 11.1%Dealing Income 853 1,029 1,131 1,245 1,369 of which Fee Grth 44.4% 5.4% 26.0% 11.5% 11.5%

Revenues 26.7% 3.6% 15.2% 11.8% 12.7%

Total operating revenues 10,423 10,799 12,436 13,899 15,658 Costs 27.7% 9.2% 16.9% 10.0% 10.0%Pre-Provision Profits 25.9% (0.7%) 13.7% 13.3% 14.9%

Operating costs (4,518) (4,935) (5,768) (6,345) (6,980) Loan Loss Provisions 25.4% (33.7%) 34.5% 31.4% 21.1%

Pre-Prov. Profits 5,905 5,864 6,668 7,554 8,679 Pre-Tax 48.7% 16.8% 1.6% 6.9% 12.2%Provisions (1,947) (1,291) (1,737) (2,281) (2,762) Attributable Income 48.9% 13.1% 15.4% 11.2% 12.3%Other Inc 201 282 0 0 0 EPS 48.5% 13.0% 15.4% 11.2% 12.3%

Other Exp. - - - - - DPS 29.3% 4.4% (4.3%) 11.1% 20.0%Exceptionals - - - - -

Associate - - - - - Balance Sheet Gearing FY10 FY11 FY12E FY13E FY14EPre-tax 4,159 4,856 4,931 5,272 5,917 Loan/deposit 299.9% 475.5% 519.2% 539.8% 561.4%Tax (1,256) (1,563) (1,134) (1,054) (1,183) Investment/assets 5.1% 2.6% 1.5% 1.4% 1.2%

Minorities (14) (26) (26) (26) (26) Loan/Assets 85.1% 85.4% 85.3% 87.7% 89.7%Attributable Income 2,888 3,267 3,771 4,192 4,707 Customer deposits/liab. 31.0% 18.6% 17.5% 17.1% 16.7%

LT debt/liabilities 59.1% 72.4% 78.9% 79.8% 80.3%

Per Share Data THB FY10 FY11 FY12E FY13E FY14E Asset Quality/Capital FY10 FY11 FY12E FY13E FY14E

EPS 3.97 4.49 5.18 5.76 6.47 Loan loss reserves/loans (2.8%) (2.4%) (2.8%) (3.3%) (3.8%)DPS 2.25 2.35 2.25 2.50 3.00 NPLs/loans 1.8% 1.4% 1.3% 1.5% 1.7%Payout 56.7% 52.4% 43.4% 43.4% 46.4% Loan loss reserves/NPLs 136.7% 187.8% 202.8% 207.9% 211.7%

Book value 20.30 22.25 25.18 28.44 31.91 Growth in NPLs (4.1%) (6.1%) 35.9% 33.6% 31.0%Fully Diluted Shares 727 728 728 728 728 Tier 1 Ratio 9.2% 9.0% 8.9% 9.1% 9.3%PPOP per share 8.12 8.06 9.16 10.38 11.92 Total CAR 14.5% 13.6% 13.2% 12.9% 12.6%

Key Balance sheet Bt in millions FY10 FY11 FY12E FY13E FY14E Du-Pont Analysis FY10 FY11 FY12E FY13E FY14ENet Loans 145,570 180,585 216,902 248,081 283,798 NIM (as % of avg. assets) 4.5% 3.5% 3.2% 3.1% 3.2%

LLR (4,162) (4,428) (6,165) (8,447) (11,208) Earning assets/assets 98.5% 99.1% 99.9% 100.4% 101.1%Gross Loans 149,732 185,014 223,068 256,528 295,007 Margins (as % of Avg. Assets) 4.4% 3.5% 3.2% 3.2% 3.2%NPLs 2,359 2,214 3,009 4,019 5,264 Non-Int. Rev./ Revenues 34.2% 36.0% 38.0% 37.8% 37.3%

Investments 6,481 3,706 3,706 3,706 3,706 Non IR/Avg. Assets 2.3% 2.0% 2.0% 1.9% 1.9%Other earning assets 4,384 3,075 3,402 3,715 4,063 Revenue/Assets 6.7% 5.5% 5.2% 5.1% 5.1%Avg. IEA 152,702 194,300 238,764 274,575 310,597 Cost/Income 43.3% 45.7% 46.4% 45.7% 44.6%

Goodwill 0 0 0 0 0 Cost/Assets 2.9% 2.5% 2.4% 2.3% 2.3%Assets 171,408 220,709 257,528 289,194 325,450 Pre-Provision ROA 3.8% 3.0% 2.8% 2.8% 2.8%

LLP/Loans (1.5%) (0.8%) (0.9%) (1.0%) (1.0%)Deposits 48,533 37,979 41,777 45,955 50,550 Loan/Assets 85.1% 85.4% 85.3% 87.7% 89.7%Long-term bond funding 101,619 159,875 190,238 214,787 243,312 Other Prov, Income/ Assets 0.1% 0.1% 0.0% 0.0% 0.0%

Other Borrowings 0 0 0 0 0 Operating ROA 2.6% 2.3% 2.1% 1.9% 1.9%Avg. IBL 136,235 174,003 214,934 246,378 277,302 Pre-Tax ROA 2.7% 2.5% 2.1% 1.9% 1.9%Avg. Assets 155,106 196,058 239,118 273,361 307,322 Tax rate 30.2% 32.2% 23.0% 20.0% 20.0%

Common Equity 14,777 16,199 18,332 20,704 23,227 Minorities & Outside Distbn. 0.1% 0.0% 0.0% 0.0% 0.0%RWA 111,550 135,557 154,692 174,798 197,919 ROA 1.9% 1.7% 1.6% 1.5% 1.5%

Avg. RWA 96,329 123,553 145,125 164,745 186,358 RORWA 3.0% 2.6% 2.6% 2.5% 2.5%Equity/Assets 8.8% 7.9% 7.2% 7.1% 7.1%ROE 21.2% 21.1% 21.8% 21.5% 21.4%


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