Investment Research Daily 30 July 2012€¦ · 30/07/2012 · Despite a seasonally weaker 2Q12 compa red with the tourism peak in 1Q, we expect Central Plaza Hotel Plc (CENTEL) to

OSK Research | See important disclosures at the end of this report �

THAILAND EQUITYInvestment Research

Daily 30 July 2012

On The Platter

Central Plaza Hotel Pcl (CENTEL TB; FV THB17-BUY) 1HFY12 Results Review: A Decent Showing Despite a seasonally weaker 2Q12 compared with the tourism peak in 1Q, we expect Central Plaza Hotel Plc (CENTEL) to post decent y-o-y growth for 2Q12 and 1H12, supported by healthy growth in its hotel and food segments. We maintain our forecasts and Buy call on CENTEL, albeit at a higher FV of THB17.00, vs THB14.60 previously, after rolling over our EPS from FY12 to FY13 at a 20.6x PER. This incorporates the company’s food business and the historical valuation of its hotel business, as well as the valuation of the regional hotel sector.

Dynasty Ceramic Pcl (DCC TB; FV THB61 – BUY) 2Q12 Results Review: A

Disappointing quarter • Sales rose 1.4% y-o-y but fell 10% q-o-q due to competition from a subsidiary of

the Siam Cement Group • Bottom-line declined as GPM slipped to 39.2% • Announces a quarterly dividend of THB0.79 per share for 2Q12 • Maintain Buy, with a lower revised TP of THB61 (+17% upside)

IRPC Pcl (IRPC TB; FV THB3.89-NEUTRAL) Company Update: 2Q12 Numbers Hit

by Stock Loss • The share price has declined from THB4.34/share to THB3.54/share since our

SELL recommendation in April 2012. We upgrade this stock from SELL to NEUTRAL, with our TP maintained at THB3.89/share (based on a 1x 2012PBV).

• We believe that the share price may have hit bottom, in view of what we expect to be its worst quarterly earnings for the year with a whopping net loss of THB4bn. We expect the company's 2H12 performance to improve as the volatility in crude oil price subsides.

Precious Shipping (PSL TB; FV THB11.85- SELL) 2Q12 Results Review: Results

Below Expectations • Results below expectations. 2Q12 vessel operating revenue rose +26%, q-o-q,

+22% y-o-y to THB991m, lifting 1H12 revenue to THB1.78bn (+15% y-o-y). • Pressure on freight rates from excess supply. • Valuation: Cut TP from THB14.30 to THB11.85. Downgrade to SELL.

MEDIA HIGHLIGHTS

• Local media firms tie up with global giants • Centara (CENTEL) wants Europe hotels • THAI to put off new plane purchases • Heineken extends deadline to buy Asia Pacific Breweries • NBTC wants post-concession guidelines to be ready by mid-September


Key Market Indices (27 July 12) Key Statistics Value Change % Change % YTD SET Value by investor Type: Daily SET 1178.01 5.09 0.4% 14.9% Buy (THBm) Sell (THBm) Net (THBm) SET50 812.36 3.57 0.4% 13.1% Institution 2,300 2,689 -389 SET100 1769.79 7.95 0.5% 13.5% Proprietary 3,328 4,495 -1167 Foreign 8,888 8,129 759 Dow Jones 13075.66 187.73 1.5% 7.0% Retail 12,145 11,348 797 S&P500 1385.97 25.95 1.9% 10.2% Nasdaq 2958.09 64.84 2.2% 13.5% SET Value by investor Type FTSE 5627.21 54.05 1.0% 1.0% MTD (THBm) YTD (THBm) FSSTI 2998.49 -6.08 -0.2% 13.3% Institution -3,862 -42,186 Hang Seng 19274.96 382.17 2.0% 4.6% Proprietary -1,673 -442 Nikkei 8566.64 123.54 1.5% 1.3% Foreign -2,483 61,058 KLCI 1624.94 1.03 0.1% 6.2% Retail 8,018 -18,431 SHANGHAI SE

2128.77 2.76 0.1% -3.2% JCI 4084.21 79.44 2.0% 6.9% SET50 Index Future Long Short Net MTD YTD SET 5-yr avg 2011 2012F Institution 7,745 6,010 1,735 1,223 4,623 PE (x) 15.6 15.2 12.5 Foreign 1,340 3,971 -2,631 -4,861 -4,177 P/BV(x) 1.8 2.1 2.0 Local 13,882 12,986 896 3,638 -445 Yield(%) 4.2 3.7 3.7

SET Intraday Chart

Market Review

The Thai market last Friday rebounded strongly in the morning session on the back of elevated confidence as Mister Mario Draghi claimed he is “ready to do whatever it takes to preserve to Euro”. The market interprets this as a signal that the Eurozone central bank might intervene in the bond markets; as a result, yields on Italian and Spanish bonds have decreased, and most Asian stocks climbed during the early market. However, the Thai market was underperforming its regional peers as it barely closed in the positive territory after going up by as high as 17 points in the morning. The selling pressure was on the energy sector, especially BANPU which has been heavily sold for two days in a row. The retail sector which consists of the 7-11 operator CPALL has started experiencing selling pressure as well. Today, we expect the market to rebound in tandem with foreign markets as Germany and France said they stand strong behind the Eurozone. Nevertheless, selling pressure on the blue-chip shares might continue, limiting any substantial upward movement. US GDP growth was 1.5 percent for the second quarter which is slightly higher than what the market had expected, so it is unlikely that the Fed would signal any easing measures during the meeting this week. This means the shares of energy and petrochemical industries are still short of strong catalysts.


MEDIA HIGHLIGHTS

Local media firms tie up with global giants

GMM Grammy plans to partner with two leading global digital music streaming services - Sweden's Spotify and France's Deezer. GMM has already developed its supporting technology, equipment and human resources for this coming service. The company expects to see 500,000 downloads via the new iTunes Store in Thailand this year, generating at least THB15m in sales. RSiam, the country music business of RS, is also seeking strategic partners in Laos and Cambodia as the music and entertainment group bids to expand its operations regionally. It expects to strike the first deal in Laos. The company plans to introduce music downloads via mobile phones in the two countries. (The Nation)

Centara (CENTEL) wants Europe hotels

Central Plaza Hotel Plc (CENTEL) is looking for opportunities to introduce its brand in European gateway cities, paving the way for future business expansion. The weak euro makes this an ideal time for Centel to expand its hotel business to Europe. Centara wants to introduce its brand in Europe, starting with four- or five-star labels. Potential European locations are London and Paris. In 2014, their hotels will increase to 55 from 31 now, for a total of 10,691 rooms. In Asia, CENTEL covered all the important gateway cities except Singapore and Hong Kong. Apart from Asean, The company also kept an eye on China and India. Centel believes the mid-tier and budget hotels segment has high potential in Southeast Asia, India, China and other Asian countries. Apart from the existing three-star Centara Hotels, another budget brand will be introduced in the third quarter, with a prototype hotel under construction in central Bangkok. Demand is growing for low- and middle-class hotels as low-cost airlines expand. Budget hotels also are also more flexible to competition, offer quicker return on investment and cost less to build. (Bangkok Post)

THAI to put off new plane purchases

Thai Airways International will delay the purchase of 47 new aircraft due to its poor financial performance this year. The purchase plan itself will still be submitted to the Cabinet for approval this month. Of the total, 38 aircraft will be bought for THAI and nine for low-cost subsidiary carrier THAI Smile. This year the firm would miss its sales-growth projection of 3% to THB200bn. The firm would be even less likely to meet its net-profit target of THB6bn this year. THAI would suffer a loss of THB2bn during the off-season period, which covers 2Q12 and 3Q12. Management has refused to drop the plan to launch a new low-cost airline. The firm is still studying the feasibility of a launch in 2013 by forming a joint venture with Nok Air, a low-cost airline in which THAI holds a 49% stake. THAI Smile, which marked its first flight on July 7, had received a good response from the market so far and claimed it had a cabin factor (percentage of seats sold) of 80-90% (The Nation)

Heineken extends deadline to buy Asia Pacific Brewer ies

Heineken gave Singaporean food and beverage group Fraser and Neave (F&N) one more week to consider its USD4.1bn takeover offer for Asia Pacific Breweries. Heineken last week set a July 27 deadline for APB's parent to accept a buy-out but agreed to a one-week extension amid rumours of a potential takeover battle for F&N's assets involving Thai Beverage and Japan's Kirin Holdings. Heineken was keen to agree a consensual deal with F&N but if it were denied the ability to extend its offer to all APB shareholders, it will review all options available to protect its commercial interests. Heineken's offer came after companies linked to Charoen Sirivadhanabhakdi secured separate deals to buy a 22% stake in F&N and an 8.6% stake in APB. Charoen's Thai Beverage has since moved to raise its stake in F&N to 23.9%. (The Nation)

NBTC wants post-concession guidelines to be ready b y mid-September

The more than 18 million subscribers of TrueMove and Digital Phone Co (DPC) are expected to learn before the middle of September this year how they will be taken care of when the concessions of these two cellular operators end on September 15, 2013. The plan has to be complete one year in advance of the expiry of the concessions. The NBTC source said the telecom committee had also drawn up the terms of reference to hire an adviser to study the economic value of the 1,800-megahertz spectrum to back up the legitimacy of its claim to retrieve the spectrum from CAT for reallocation once the TrueMove and DPC concessions end. The adviser will focus on the scenarios of whether the spectrum is reallocated by the NBTC or is used by CAT to provide its own service. The NBTC will auction the 2.1GHz spectrum in October. Another option is that the NBTC extends TrueMove's and DPC's concession terms by two years to give them time to transfer their subscribers to other networks. But that might breach the Telecom Business Act, which allows private concession holders to operate only until the concession ends. (The Nation)


Outperform

Current Target Upside/

Recc. Price Price Downside PE (x)

Yield (%) Remarks

(Bt) (Bt) (%) 2012f 2012f

OISHI Buy 157.50 190.00 20.6 23.1 2.2

BAY Buy 31.75 36.00 13.4 13.4 3.0

KBANK Buy 166.50 188.90 13.5 12.6 2.4

BJC Buy 39.00 50.00 28.2 23.8 1.3 Heineken extends deadline to buy Asia Pacific Breweries

HMPRO Buy 11.40 15.80 38.6 24.9 1.6 ADVANC Buy 200.00 205.00 2.5 17.8 5.5

KH Buy 9.00 12.00 33.3 20.5 4.9 AP Buy 7.30 8.50 16.4 9.9 4.1

LPN Buy 17.20 22.00 27.9 10.5 4.8

QH Buy 1.76 2.30 30.7 12.5 3.4

TICON Buy 13.00 15.00 15.4 10.7 6.1 SIRI Buy 2.40 2.86 19.2 10.6 6.7

STEC Buy 15.40 16.50 7.1 17.0 5.9 TTW Buy 7.25 7.20 -0.7 12.9 5.5 TVO Buy 24.70 28.40 15.0 11.0 5.5 DCC Buy 51.00 71.00 39.2 14.2 7.1 A Disappointing quarter (Report dated July 30)

SAT Buy 29.50 33.20 12.5 21.8 1.6 THAI Buy 19.70 35.40 79.7 6.8 5.1 THAI to put off new plane purchases

Underperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2012f 2012f

CPF Sell 32.00 27.00 (15.6) 17.1 2.8 TISCO Sell 39.5 35 (11.4) 9.9 5.0 CPALL Sell 33.25 31.5 (5.3) 29.0 3.1 PTT Neutral 322 353 9.6 8.2 4.4 PTTEP Sell 153 142 (7.2) 9.3 3.6 TOP Sell 58.25 56 (3.9) 12.6 3.1 PTTGC Neutral 57.25 64.03 11.8 7.2 4.9 TTA Sell 15.7 13.3 (15.3) n.a. 2.5 PSL : Pressure on freight rates from excess supply

(Report dated July 30)

27 26 25 24 23 27 26 25 24 23

1 KBANK 540.2 186.9 246.2 49.3 253.2 BBL -119.1 13.9 80.8 -30.9 -131.7 ADVANC 2,726.5 CPF -1,644.5 KBANK 14,195.2 BH -2,284.6

2 BAY 346.4 -2.9 -18.8 -41.2 94.6 JAS -98.4 0.6 -0.9 -0.1 0.3 BBL 1,584.7 KBANK -1,237.0 BBL 13,565.7 AAV -302.3

3 SCB 312.9 37.7 56.3 -56.5 -100.6 MINT -82.8 -41.8 4.3 -5.6 -1.5 BAY 1,370.2 BANPU -1,012.7 ADVANC 9,537.8 SYNTEC -174.7

4 ADVANC 281.4 106.6 190.9 184.0 211.8 IVL -27.7 -4.9 -3.3 -8.3 3.6 AOT 1,272.9 SCC -1,008.1 BAY 8,503.5 STA -143.0

5 DTAC 129.3 197.1 410.8 148.2 54.6 HMPRO -17.3 -11.9 -6.3 -24.0 -3.2 DTAC 1,122.5 BIGC -288.7 PTT 8,341.2 RML -126.4

6 CPF 116.1 28.8 -28.7 3.3 -219.1 CENTEL -12.2 -8.3 -2.4 -0.0 -0.6 CPALL 1,097.0 HMPRO -123.1 SCB 7,440.6 TCC -119.9

7 SCC 106.3 219.5 -299.7 -179.1 -36.7 TVO -9.1 4.8 8.9 4.3 2.5 PTT 855.7 DCC -95.3 CPALL 4,515.8 NOBLE -110.3

8 PTT 103.6 18.2 -346.0 -138.6 -233.2 BJC -8.0 3.8 -0.3 0.6 0.9 KH 718.0 CENTEL -95.3 CPF 4,473.9 DCC -101.5

9 THCOM 80.0 1.1 -24.4 -33.2 2.0 GLOW -6.4 36.2 0.2 -1.6 -0.9 PTTEP 705.6 PTTGC -90.5 INTUCH 4,294.5 CPN -100.4

10 KTB 76.7 35.3 28.1 28.8 -23.9 AOT -5.9 85.4 42.1 48.2 12.4 TRUE 657.1 TTCL -89.3 PTTEP 4,283.3 MCS -98.9

11 SPALI 63.2 28.6 11.4 13.5 33.1 AP -4.6 13.5 3.6 -7.4 6.0 SPALI 604.6 THRE -74.7 SCC 3,947.5 OISHI -77.8

12 MAKRO 50.9 -6.1 -0.2 -1.8 2.2 DCC -4.4 1.9 3.1 -2.2 0.3 BGH 601.9 JAS -65.8 KTB 3,773.9 GL -66.3

13 LPN 43.7 21.8 17.5 20.6 11.0 SAMART -4.2 -11.7 -13.7 0.1 -9.1 SCB 578.5 CFRESH -63.3 PTTGC 3,291.4 TPC -60.1

14 EGCO 43.1 6.5 16.4 3.4 3.8 THRE -4.2 0.3 -0.6 -7.7 -4.6 PS 453.9 RML -60.1 AOT 3,184.7 BJC -54.0

15 CPN 36.4 49.7 -1.6 23.9 5.6 TWZ -4.1 0.6 -1.3 0.6 0.7 TCAP 446.1 LANNA -43.3 SPALI 2,982.9 AJ -52.5

16 BEC 33.9 -20.1 11.4 31.3 25.4 LH -3.8 10.2 -11.4 -21.9 4.1 TUF 441.4 THAI -43.2 TOP 2,875.6 WORK -52.1

17 TISCO 33.7 -19.7 -23.2 -17.6 40.5 DELTA -3.1 -0.0 -0.3 -2.3 0.3 INTUCH 429.2 OISHI -39.7 LPN 2,730.1 CSL -48.0

18 TTW 31.5 10.8 11.0 24.7 1.2 STPI -3.0 -0.8 0.0 -0.0 0.0 KTB 385.8 TOP -38.9 DTAC 2,571.9 LIVE -43.5

19 PS 29.3 34.4 16.4 -41.2 -26.6 THAI -3.0 -8.5 -2.0 -3.3 0.5 ROBINS 348.9 BLAND -33.9 LH 2,078.1 JMART -41.0

20 INTUCH 27.8 10.6 17.0 8.1 42.2 SAT -2.9 -0.3 -0.4 -1.8 -0.1 LPN 324.1 PF -31.6 IVL 1,791.2 ERW -37.9

% % of % of

Turn. paidup paidup

1 JAS 23.18 1 TISCO-P 65.86 63.07

2 HEMRAJ 42.97 2 GOLD-W1 61.21 24.96

3 BAY 40.48 3 GOLD 36.09 24.96

4 BTS 2.64 4 LPN 31.30 17.12

5 TWZ 23.55 5 BBL 29.67 24.73

6 KBANK 56.79 6 E-W1 29.10 9.64

7 MINT 22.96 7 KBANK 28.46 24.78

8 KTB 14.74 8 TWFP 26.24 2.98

9 THCOM 13.58 9 E 25.61 20.65

10 SCB 25.14 10 LH 22.43 24.52

11 LH 27.61 11 SIRI-W1 21.75 3.28

12 TTW 22.05 12 SPALI 19.02 12.15

13 GSTEEL 12.14 13 BLAND-W2 18.66 19.10

14 CPF 5.77 14 BAY 17.75 15.46

15 SPALI 49.50 15 LRH 16.00 0.62

16 SIRI 4.92 16 AP 15.88 11.13

17 EARTH 13.93 17 AIT-W1 14.76 6.28

18 LPN 48.13 18 THRE 14.45 8.77

19 WIN 2.27 19 NOBLE 14.24 17.67

20 IRPC 3.79 20 PRANDA 13.79 17.77

Source : SET.OR.TH

3,103,600

3,395,500

3,604,800

2,695,800 5,031,800

959,500

4,379,200 3,491,600

2,561,500 3,055,000

359,800

4,738,500 340,200

5,616,500 -493,500

5,078,700 4,398,300

2,320,600 3,057,800

2,177,500

2,336,000

3,935,400 443,800

1,218,000

4,112,400 507,600 4,620,000

456,471,175

3,512,494,860

2,841,113,738

46,431 105,755 314,638

451,208,751 260,809,947

55,677,300 71,193,300

2,824,600 279,000

1,983,300 1,013,500 2,996,800 969,800

-1,583,400737,200

403,715,954

3,123,700 44,800 3,168,500 3,078,900

2,545,600 507,395,864 104,186,735

65,019,400 80,659,500

26,663,680

6,883,702,818

6,074,143,747

1,032,308 166,682,701

1,078,152,131 939,165,929

1,284,482,560 1,315,426,156

24,169,436 2,927,921,756 636,969,000

326,466,767 208,589,412 1,716,553,249

694,000,000

10,025,921,523

177,713,837 143,327,137

2,249,008,597 2,458,692,598 3,855,100 1,806,025 5,661,125 2,049,075

2,393,260,193

9,506,055

681,163,461 592,962,857

2,494,234 283,200

100,961,931 29,511,361

170,900

6,093,200 1,309,700

7,082,200 3,833,200

12,333,700 -12,233,700

7,402,900 4,783,500

10,915,400 3,249,000 347,000,000

50,000 12,283,700

5,685,400 5,343,600

1,703,000 6,961,066 8,664,066 -5,258,066

5,514,500

1,475,698,768

10,908,500

1,908,842,894

1,134,147,724

461,944,470

472,119,068 566,306,858

7,137,400 252,688,992 11,160,000 4,022,600 15,182,600

157,293,815 5,624,300

409,366,195 157,293,815

308,513,658 6,411,700 18,447,700

13,642,700 2,734,200 16,376,900

NetBuy Sell Total

504,065,655

29,990,200 59,909,100 22,300 22,300 89,899,300 -29,918,900

12,036,000

33,858

2-Jan-12

Net Buy Net Sell Net Buy Net Sell

4 Jan - 27 July 20122 - 27 July 2012

30-Jul-2012

Total Volume Shares

July-2012 July-2012

27-Jul-12

NVDR Shrs. Paid up CapitalNVDR Shrs.

27-Jul-12

BUY VALUES SELL VALUES

Most Active Volume (shares) NVDR Shares to Total Paid-up Shares(%)

NET BUY NET SELL Month to Date Year to Date

Most Active Values (Btmn)

THAI NVDR : Top Ranking

30 July 2012

OSK Research | See important disclosures at the end of this report 1


Daily 2Q12 Results Review Thailand Research Team +66 (2) 862 9999 ext. 2030

Dynasty Ceramic PCL. A Disappointing quarter

Sales rose 1.4% y-o-y but fell 10% q-o-q due to competition from a subsidiary of the Siam Cement Group

Bottom-line declined as GPM slipped to 39.2% Announces a quarterly dividend of THB0.79 per share for 2Q12 Maintain Buy, with a lower revised TP of THB61 (+17% upside)

BUY Fair Value THB61.00 Previous THB65.00 Price THB52.25

CONSTRUCTION MATERIALS DCC, founded in 1989, is the largest tile manufacturer and distributor of ceramic tiles in Thailand. The company’s main customers are low- to middle-income earners who live mostly upcountry.

Stock Statistics Bloomberg Ticker DCC TB Share Capital (m) 408.00 Market Cap ($USm) 687.7 52 week H│L Price (THB) 67.75 47.50 3mth Avg Vol (‘000) 702.29 YTD Returns (13.64) Beta (x) 0.69 Major Shareholders (%) Saengsastra Family 37.0 Mr. Vibon Wacharasurung 7.3 State Street Bank Europe 4.9 Share Performance (%) Month Absolute Relative 1m 0.0 -0.1 3m -15.8 -14.3 6m -11.9 -21.4 12m 10.8 -0.7

Share Price Performance

Siam Cement’s subsidiary grabs market share DCC recorded a 2Q12 net profit of THB321.8m and EPS of THB0.79, down 5% y-o-y and 14% q-o-q on the back of a higher natural gas cost, diesel price and labor cost. Although natural gas price reached THB412/mmBTU in the first quarter (+10.9% q-o-q), it rose by another 19% on average in the second quarter. DCC was also negatively affected by the minimum wage hike as labor costs have increased 15% since April 2012. These costs shaved DCC’s GPM to 39.2% in 2Q12 from 39.6% in 1Q12. The company had previously told us that it raised its wages three months ahead of schedule in 1 Jan, but it now appears to have been the case for only some of the staff. Revenue fell to THB1.9bn (-10% q-o-q) due to a price cut by its competitor Sosuco from the Siam Cement group. Note that the total market grew 6% in 1H12 - according to management - which suggests that DCC lost market share during this period since its growth was only 2.6% and 1.6% of this was from price increases. DCC has announced a dividend per share of THB0.79, to be paid on 23 Aug, which is still a full payout of profit. Management’s 2012 8% sales target too optimistic. Management has revised down its sales target for 2012 to about 8% from 10% previously in view of its YTD performance (in March they told us the company could achieve 15% sales growth). However, we suspect that its new growth projection is still be too optimistic given its 2.6% sales growth YTD, and it would therefore have to expand by 13.4% in 2H to meet the target. We believe this would only be achievable if DCC reduced its prices aggressively, but given the management’s focus on GPM, we do not believe this would happen. Moreover, DCC’s revenue jumped 10.3% in 4Q11 to THB1.6bn, which partly counters any claim that its 4Q12 growth will come off from a low base y-o-y. As the July-October period is the monsoon season, which is also the low season for tile sales, winning back market share during this time when promotion and sales campaigns generally proliferate may prove difficult. Besides, the company does not appear to have embarked on this strategy yet and we’re already one month into 3Q. Nevertheless, we have reason to believe that sales growth in 2H12 can improve, and pricing is related to sales. Lowering forecasts but still positive on 2H. Our revenue and net profit forecasts have fallen by approximately 7% to THB7.6bn and THB1.4bn, respectively. Although the 15-outlet expansion (+7.2%) aimed at outperforming industry sales growth will take time to materialize, more than half of the stores will open in 2H12 when the provincial economies are more likely to rebound. In fact, our economist expects most of the 2012 GDP growth to come from 2H12, boosted not only by the low base effect but also government spending and the positive impact of the higher minimum wage. We see DCC offering discounts on some product lines as well as spurring sales of larger tiles, which may help prop up GPM. This aside, DCC’s economies of scale are also the best in the domestic industry. Attractive yield We maintain a Buy on DCC, with a TP of THB61.00 p/share based on our DCF forecast. The stock also trades on a 6% yield. DCC’s position as the largest domestic tile producer with a dominant market share and niche in the rural areas should also help to ensure that it competes effectively (DCC claims that its share of rural shoppers is up to 80%).

FYE Dec (THBm) FY10 FY11 FY12f FY13ff FY14f Revenue 6,458.7 7,206.8 7,573.1 8,278.5 9,064.1 Net Profit 1,175.1 1,243.2 1,359.2 1,616.9 1,856.2 % chg y-o-y 18.2 5.8 9.3 19.0 14.8 Consensus 1390.5 1613.8 1792.2 EPS (THB) 2.9 3.0 3.3 4.0 4.5 DPS (THB) 2.9 3.1 3.3 4.0 4.5 Dividend yield (%) 5.5 5.8 6.4 6.4 8.7 ROE (%) 43.8 46.8 51.8 58.8 64.5 ROA (%) 32.0 31.1 31.4 37.4 42.5 PER (x) 18.1 17.1 15.7 13.2 11.5 BV/share (THB) 6.6 6.4 6.4 7.0 7.1 P/BV (x) 7.9 8.1 8.1 7.4 7.4 EV/ EBITDA (x) 13.7 13.1 10.8 1.8 1.6

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

Feb-10 Aug-10 Feb-11 Aug-11 Feb-12

30 July 2012


Results Table (THBm)

FYE Dec 2Q12 1Q12 Q-o-Q 2Q12 2Q11 Y-o-Y Comments chg chg Revenues 1,882.59 2,092.51 -10.0% 1,882.59 1,856.10 1.4% Revenue declined significantly y-o-y as the company

lost market share. Gross Profit 737.83 828.33 -10.9% 737.83 813.94 -9.4% Higher costs (see Figure 1) EBIT 422.47 484.15 -12.7% 422.47 488.90 -13.6% PBT 420.61 482.61 -12.8% 420.61 488.90 -14.0% Tax 98.05 108.94 -10.0% 98.05 150.28 -34.8% 23% tax MI 0.79 1.10 -28.1% 0.79 1.65 -52.0% Net profit 321.77 372.57 -13.6% 321.77 336.98 -4.5% EPS (THB) 0.79 0.91 -13.6% 0.79 0.83 -5.0% Maintain 100% payout policy DPS (THB) 0.79 0.91 -13.6% 0.79 0.83 -5.0% GPM 39% 40% -1.0% 39% 44% -10.6% GPM squeezed due to rising costs

GPM to widen in 2H12 while slightly cheaper prices unlikely to hurt. The company’s 1H12 GPM is the lowest in many years. In 2011, DCC achieved a GPM of 42.5% against the company’s usually target of a minimum 40%. However, we expect gas prices to drop by fall on average 20% q-o-q in 3Q12, which will provide DCC some room to compete on price without further compromising its GPM. Moreover, based on our projection a 5% average selling price (ASP) reduction could increase sales by 6% and have limited additional impact to net profit. However, deeper price reductions would negatively impact shareholders’ returns. Our scenario analysis. Our sensitivity analysis on DCC assumes that DCC lowers the ASP. Note that the ASP increased 1.6% q-o-q to approximately THB131.0 per sq.m in 2Q12. Our model assumes a 5% and 1.5% reduction in ASP in 3Q and 4Q respectively in order for the company to sell more tiles. The gas cost declines as outlined below and other costs increase by 4.5% and 1% in 3Q and 4Q, respectively. The result shows an EPS of THB3.33 per share, which is the same as the base case where the company does not reduce prices or increase volume sales.

Figure 1: Changes in costs

Source: DCC

(BAHT / SQM.) 2Q12 2Q11 CHG(%) 1H12 1H11 CHG(%)

BODY 12.33 12.98 ‐5.00% 12.48 12.92 ‐3.36%

GLAZING & PIGMENTS 16.43 15.04 9.26% 16.40 15.09 8.73%

GAS 26.87 22.60 18.88% 26.14 21.44 21.90%

LABOUR 4.83 4.05 19.10% 4.58 4.00 14.54%

Figure 2: PTT natural gas price

Source : OSK, PTT

4

5

6

7

8

Q12011 Q22011 Q32011 Q42011 Q12012

US$/mmbtu

30 July 2012


Figure 3: DCC’s GPM vs competitors

Source : OSK, SEC

Figure 4: Sales growth

Source : OSK, SEC

Figure 5 : Scenario Analysis

Source : OSK estimates, DCC

13%

21%

23% 20%

22%

21%

20%

23%

24%

25%

24%

29%

13%

33%

37%

36%

40% 35%

4%

-10%

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19% 16%

39%

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44%

43%

42% 40%

-20%

-10%

0%

10%

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30%

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2008 2009 2010 2011 1Q11 1Q12

UMI RCI TGCI TTC DCC

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2009 2010 2011 1Q12

UMI RCI TGCI DCC

2Q12A 3Q12F 4Q12 2012F 2Q12A 3Q12F 4Q12 2012F

Sales Volume (sq.m.) 14.4 15.5 15.0 61.1 14.4 14.0 14.0 58.6 ASP per sq.m.(THB) 131.0 124.4 122.6 126.7 131.0 129.0 128.0 129.2 Gas cost (THBm) 376.9 352.4 317.2 1,462.7 376.9 352.4 317.2 1,462.7 Other costs (THBm) 753.0 786.7 794.5 3,182.2 753.0 722.4 716.8 3,040.3

EPS 0.79 0.86 0.77 3.33 0.79 0.79 0.84 3.33

Price reduction Normal Scenario

30 July 2012


EARNINGS FORECAST

FYE Dec (THBm) FY10 FY11 FY12f FY13f FY14f

Turnover 6,458.7 7,206.8 7,573.1 8,278.5 9,064.1 EBITDA 2,034.8 2,002.0 2,130.5 2,392.2 2,708.3 PBT 1,695.3 1,802.8 1,770.9 2,026.7 2,325.7 Net Profit 1,175.1 1,243.2 1,359.2 1,616.9 1,856.2 EPS (THB) 2.9 3.0 3.3 4.0 4.5 DPS (THB) 2.9 3.1 3.3 3.4 4.5 Margin EBITDA (%) 31.5 27.8 28.1 28.9 29.9 PBT (%) 26.2 25.0 23.4 24.5 25.7 Net Profit (%) 18.2 17.3 17.9 19.5 20.5 ROE (%) 43.8 46.8 51.8 58.8 64.5 ROA (%) 32.0 31.1 31.4 37.4 42.5 Balance Sheet Fixed Assets 2,105.5 2,513.7 2,619.8 2,460.9 2,387.0 Current Assets 1,466.3 1,622.9 1,585.8 1,681.1 1,877.2 Total Assets 3,715.0 4,287.9 4,356.5 4,299.8 4,427.2 Current Liabilities 937.9 1,480.7 1,537.3 1,226.4 1,342.1 Net Current Assets 477.3 (0.8) (97.7) 305.7 383.1 LT Liabilities 51.1 142.9 146.1 149.0 152.0 Shareholders Funds 2,688.6 2,623.1 2,627.5 2,874.4 2,878.8 Net Gearing (%) Net Cash 0.13 0.18 0.03 Net Cash Cash Flow PBT 1,695.3 1,802.8 1,770.9 2,026.7 2,325.7 Other Operating Cash (49.9) 39.3 9.2 (438.7) (168.4)Chg in Working Capital (103.4) (386.2) (93.7) 406.3 80.4 Operating Cashflow 1,542.0 1,455.8 1,686.5 1,994.2 2,237.8 CAPEX (423.3) (606.5) (460.0) (210.0) (310.0)FCF 1,042.3 848.4 1,297.0 1,822.4 1,999.1

30 July 2012


FYE Dec (THBm) FY9 FY10 FY11 FY12f FY13f Revenue 8436.1 9399.9 11473.9 13938.3 16092.7 Net Profit 53.1 -55.8 550.4 954.8 1119.0 % chg y-o-y -84.7 -205.1 NA 73.5 17.2 Consensus 913.3 1153.0 EPS (THB) 0.0 0.0 0.4 0.7 0.8 DPS (THB) 0.1 0.1 0.2 0.3 0.3 Dividend yield (%) 0.3 0.3 1.0 1.8 2.1 ROE (%) 0.8 -1.0 9.1 14.1 14.9 ROA (%) 0.3 -0.3 2.5 4.3 5.0 PER (x) 396.6 -377.4 38.3 22.1 18.8 BV/share (THB) 4.6 4.3 4.5 5.0 5.6 P/BV (x) 3.4 3.6 3.5 3.1 2.8 EV/ EBITDA (x) 23.7 21.3 16.2 12.4 11.6


Daily

1HFY12 Results Preview Thailand Research Team +66 (0) 2862-9999 Ext.2030 Central Plaza Hotel Plc. (CENTEL)

A Decent Showing

Despite a seasonally weaker 2Q12 compared with the tourism peak in 1Q, weexpect Central Plaza Hotel Plc (CENTEL) to post decent y-o-y growth for 2Q12 and1H12, supported by healthy growth in its hotel and food segments. We maintain ourforecasts and Buy call on CENTEL, albeit at a higher FV of THB17.00, vs THB14.60previously, after rolling over our EPS from FY12 to FY13 at a 20.6x PER. Thisincorporates the company’s food business and the historical valuation of its hotelbusiness, as well as the valuation of the regional hotel sector.

BUY Fair Value THB17.00 Previous THB 14.60 Price THB15.60

FOOD & BEVERAGE

CENTEL is the operator and manager of many hotels in Thailand and international countries under brands Centara Hotels & Resorts and Centra brands. The Company is also the pioneer QSR brands in Thailand such as of Mister Donut, KFC and Auntie Anne's.

Stock Statistics Bloomberg Ticker CENTEL TB Share Capital (m) 1,350.0 Market Cap (US$m) 20,790.0 52 week H│L Price (THB) 15.70 7.25 3mth Avg Vol (‘000) 3,096.9 YTD Returns 54.0 Beta (x) 0.86 Major Shareholders (%) Tiang Chirathivat Co.,Ltd 5.00 Mrs. Nattheera Boonsri 3.93 Mr. Suthichai Chirathivat 3.72 Mr. Suthiluk Chirathivat 3.62 Share Performance (%) Month Absolute Relative 1m 16.2 18.4 3m 19.4 27.0 6m 40.2 30.6 12m 56.7 51.2

6-month Share Price Performance

10.00

11.00

12.00

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14.00

15.00

16.00

Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12

Strong occupancy. We gather that the occupancy rates at the company’s hotels improved in 1H12 to 70%, compared to 64.4%in 1H11, fueled by a higher number of local and foreign leisure and business travelers. The 2Q12 occupancy rate of 64.8% was lower q-o-q compared to 74% in 1Q12, since the latter was a peak tourist season, but higher y-o-y vs the 58.1% recorded in 2Q11. Due to stiff competition in 1HFY12, CENTEL’s average room rate (ARR) increased only marginally to THB3,921 from THB3,911 in the same period last year. Despite its strong brand name in the mid-end market, we think the company may still find it rather difficult to raise room rates given the intense competition. Consequently, we expect any boost in revenue per available room (RevPar) to be largely driven by higher occupancy instead of increased ARR. Good appetite in food business. We also gather that CENTEL’s food business recorded a same-store-sales (SSS) growth of 10.9% y-o-y in 2Q12, up from 3.8% y-o-y in 1Q12. The higher growth was attributed to the better numbers in its light food business during the school holidays as well as the rebound in consumption from the cutback in 1Q12 due to last year’s floods. CENTEL recorded a SSS growth of 7.4% y-o-y in 1H12, ahead of its target of 5% for FY12. It opened 17 new outlets in 2Q12, adding to the 617 as at end-1Q12. Its main target market is still Bangkok and its vicinity as the company focuses on expanding the Ootaya chain it bought in Sept 2011. Nevertheless, the company also plans to expand its portfolio to the provinces, along with each new retail and department store developed by within its parent company, Central Group. Revenue from its upcountry stores accounted for 45% of CENTEL’s food revenue in 1Q12.

Maintain BUY. We maintain our forecasts and BUY recommendation on CENTEL, but at a higher FV of THB17.00 against THB14.60 previously after rolling over our EPS from FY12 to FY13 at a 20.6x PER. This incorporates its food business and the historical valuation for its hotel business, as well as the regional hotel sector valuation. The favorable outlook in the tourism sector and the robust Thai consumer spending should provide the catalyst for its hotel and food businesses.

OSK Research 30 June 2012


Rising number of tourists. Thailand recorded about 10.5m international tourist arrivals in 1H12, which is a 7.6% y-o-y increase. Nationals from the East Asia region accounted for about 52.3% of the total arrivals, while Europeans made up 28.3%. Despite the current economic uncertainty in Europe, the number of arrivals from that region has grown by 11.1% y-o-y. We believe this is partly due to Thailand’s position as a value-for-money destination. Provided that the domestic political landscape in Thailand remain stable coupled with the absence of any major crisis, we believe it is very likely for Thailand to be able achieve its target of 21m tourist arrivals this year up from 19m last year.

Figure 1: Monthly tourist arrivals in Thailand for the 1H 2009-2012

0

500,000

1,000,000

1,500,000

2,000,000

Jan Feb Mar Apr May Jun

2009 2010 2011 2012

Source: OSK, Department of Tourism

Figure 2: CENTEL’s key operating statistics

2Q12 2Q11 1H12 1H11 Average Occupancy rate 64.8% 58.1% 70.0% 64.4% Average room rate 3,289 3,228 3,921 3,911 No of food stores 634 519 Food- SSS (Total) – Already Excluded Ootoya (acquired in Sep 11) 10.9% 10.9% 7.4% 14.2% Food-TSS (Total) 36.2% 19.0% 32.2% 21.1% Food-TSS (Ex-Ootoya) 24.7% 19.0% 20.0% 21.1%

Source: OSK, Company

OSK Research 30 June 2012


EARNINGS FORECAST

FYE Dec (THBm) FY9 FY10 FY11 FY12f FY13f

Turnover 8436.1 9399.9 11473.9 13938.3 16092.7EBITDA 1444.9 1654.3 2238.1 2877.2 3033.7PBT 251.7 117.5 819.0 1161.7 1323.4Net Profit 53.1 -55.8 550.4 954.8 1119.0EPS (THB) 0.0 0.0 0.4 0.7 0.8DPS (THB) 0.1 0.1 0.2 0.3 0.3 Margin EBITDA (%) 17.1 17.6 19.5 20.6 18.9PBT (%) 3.0 1.3 7.1 8.3 8.2Net Profit (%) 0.6 -0.6 4.8 6.9 7.0 ROE (%) 0.8 -1.0 9.1 14.1 14.9ROA (%) 0.3 -0.3 2.5 4.3 5.0 Balance Sheet Fixed Assets 18392.0 18812.9 19923.9 19948.3 19862.3Current Assets 1425.0 1625.0 1759.7 2360.3 2666.7Total Assets 19817.0 20437.9 21683.6 22308.7 22528.9Current Liabilities 4216.7 5222.0 6511.9 6975.0 5992.1Net Current Assets -2791.7 -3597.0 -4752.2 -4614.7 -3325.5LT Liabilities 9323.8 9436.8 9123.0 8546.1 9025.4Shareholders Funds 5965.4 5494.8 5796.0 6548.3 7285.4Net Gearing (%) 2.3 2.6 2.6 2.3 2.0 Cash Flow PBT 251.7 117.5 819.0 1161.7 1323.4Other Operating Cash -1959.6 2287.9 2489.8 1378.9 -755.9Chg in Working Capital 3016.7 -805.3 -1155.3 137.6 1289.2Operating Cashflow 1308.8 1600.1 2153.5 2678.2 1856.7CAPEX -2815.5 -2316.0 -1524.8 -1050.0 -950.0FCF -4537.7 -76.7 1613.4 1422.5 529.8

July 30, 2012


Daily

Company Update Kannika Siamwalla, CFA +66 (0) 2200 2086 [email protected]

IRPC Pcl. 2Q12 Numbers Hit by Stock Loss

The share price has declined from THB4.34/share to THB3.54/share since our SELL recommendation in April 2012. We upgrade this stock from SELL to NEUTRAL, with our TP maintained at THB3.89/share (based on a 1x 2012 PBV).

We believe that the share price may have hit bottom, in view of what we expect to beits worst quarterly earnings for the year with a whopping net loss of THB4bn. Weexpect the company's 2H12 performance to improve as the volatility in crude oil pricesubsides.

NEUTRAL Fair Value THB3.89 Price THB3.54

ENERGY IRPC is an integrated refinery and petrochemicals company with a total refining capacity of 215kbpd. Its products are refined oil, lube base oil, asphalt, plastics and other petrochemical products.

Stock Statistics Bloomberg Ticker IRPC TB Share Capital (m) 20,434.42 Market Cap (RMm) 72,337.84 52 week H│L Price (RM) 5.90 3.10 3mth Avg Vol (‘000) 38,176.50 YTD Returns (13.24) Beta (x) 1.51 Major Shareholders (%) PTT Pcl. 38.51 Government Savings Bank

9.54

Government Pension Fund

5.79

Share Performance (%) Month Absolute Relative 1m -1.1 -1.6 3m -18.8 -15.3 6m -20.3 -29.2 12m -37.9 -40.8

6-month Share Price Performance

Stock loss blows off earnings. IRPC posted a 2Q12 net loss of THB4bn, which was notunexpected as the plunge in crude oil price led to a stock loss of THB3.4bn in that quarter. Sales jumped 10% y-o-y to THB75bn on a higher sales volume (+13% y-o-y) but

lower product prices (2% y-o-y). Total crude intake stood at 171k bpd against 172k bpd in 2Q11 on stable utilisation y-

o-y at 80%. The utilisation rates for petrochemicals were 63%, 88% and 89% foraromatics, olefins and styrenics respectively, up from last year’s 79%, 96% and 79%respectively.

Market gross integrated margins (GIM) stood at USD7.24/bbl, with that for petroleumat USD2.6/bbl, petrochemical (USD2.88/bbl) and power and utilities (USD1.76/bbl).This was lower than 2Q11’s USD8.8/bbl due to thinner gross refining margin (GRM).However, the petrochemicals and power segments did better y-o-y due to higherproduct to feed market and higher power and utilities contributions as its power plantstarted operation in June 2011. Accounting GIM shrank to USD0.22/bbl fromUSD12.83/bbl in 2Q11 on stock losses and lower of cost or market (LCM) totalingUSD7.02/bbl (THB3.4bn) in 2Q12, vs a stock gain of THB1.8bn (USD3.95/bbl) in2Q11.

A loss from revaluation of its investment in TOP came to THB262m, while IRPC alsosaw rising depreciation (+THB207m), financing cost (+THB128m) and forex loss(THB208m) y-o-y.

Other growth areas. IRPC’s upcoming propylene booster project will propel its propyleneproduction from 312k tonnes per annum (tpa) currently to 412k tpa while its TDAE capacity(part of its lube base business) should go up from 25k tpa to 45k tpa. Both projects areexpected to start by 3Q12. IRPC expects to see benefits arising from the internalupgrades/improvements from its Phoenix projects. These should come in at aroundTHB510m, THB1.4bn and THB3.4bn from 2012-2014, which are included in our forecasts. Improving spreads. Spreads should improve in 2H12 on seasonally stronger demandfrom China while the refinery side may post GRM of about USD4-5/bbl. Overall grossrefining margins should improve slightly over 2011 as there are no major planned plantshutdowns for the year, and in view of the expansion in propylene and TDAE production. FYE Dec (THBm) FY10 FY11 FY12f FY13f FY14f Revenue 221,611 246,888 273,460 273,460 273,460 Net Profit 6,108 4,129 5,843 6,843 8,662 % chg y-o-y 13 (32) 41 17 27 Consensus 5,007 7,785 9,682 EPS (Bt) 0.3 0.2 0.3 0.3 0.4 DPS (Bt) 0.2 0.1 0.1 0.1 0.2 Dividend yield (%) 5.1 3.4 3.3 3.8 4.9 ROE (%) 8.2 5.4 7.3 8.2 9.8 ROA (%) 5.1 3.1 4.3 4.6 6.2 PER (x) 11.9 17.5 12.4 10.6 8.4 BV/share (Bt) 3.7 3.7 3.9 4.1 4.3 P/BV (x) 1.0 1.0 0.9 0.9 0.8 EV/ EBITDA (x) 11.5 9.2 8.5 8.3 8.0

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Feb-10 Aug-10 Feb-11 Aug-11 Feb-12

Results (THBm)

FYE DEC 2Q12F 2Q11Y-o-Y

chgYTD

FY12YTD

FY11Y-o-Y

chg Revenue 74,696 67,636 10% 150,175 128,050 17% EBIT (3,255) 2,799 -216% (2,111) 6,926 -130% Net interest expense (784) (458) 71% (945) (794) 19% PBT (4,039) 2,342 -272% (3,056) 6,133 -150% Net profit (4,060) 2,339 -274% (3,116) 6,111 -151% EPS (Bt) (0.20) 0.11 -274% (0.15) 0.30 -151% EBIT margin -6% 5% -212% -1% 7% -115%

Operating variables

2Q12 2Q11 Crude intake (kbd) 171 172

Utilisation (%)

Refinery 80% 80% Aromatics 63% 79% Olefins and polyfins 88% 96% Styrenics 89% 79%

Market gross integrated margins (USD/bbl) Petroleum (GRM) 2.60 6.02 Petrochemicals (PTF) 2.88 2.85 Power and utilities 1.76 0.01 Total market GIM 7.24 8.88

Accounting GIM (USD/bbl)

Petroleum (GRM) (2.53) 8.25 Petrochemicals (PTF) 0.99 4.57 Power and utilities 1.76 0.01 Total Accounting GIM 0.22 12.83

Source:IRPC

EARNINGS FORECAST

FYE Dec (THBm) FY10 FY11 FY12f FY13f FY14f

Turnover 221,611 246,888 273,460 273,460 273,460 EBITDA 8,264 10,328 10,981 11,064 11,052 PBT 6,205 4,152 7,078 8,219 10,401 Net Profit 6,108 4,129 5,843 6,843 8,662 EPS (Bt) 0.30 0.20 0.29 0.33 0.42 DPS (Bt) 0.18 0.12 0.12 0.14 0.17 Margin EBITDA (%) 3.7 4.2 4.0 4.0 4.0 PBT (%) 2.8 1.7 2.6 3.0 3.8 Net Profit (%) 2.8 1.7 2.1 2.5 3.2 ROE (%) 8.2 5.4 7.3 8.2 9.8 ROA (%) 5.1 3.1 4.3 4.6 6.2 Balance Sheet Fixed Assets 67,629 73,110 72,769 72,678 71,848 Current Assets 49,307 55,447 58,026 70,824 63,435 Total Assets 120,458 132,176 135,274 147,980 139,761 Current Liabilities 18,104 27,642 27,102 37,713 33,308 Net Current Assets 31,203 27,805 30,924 33,110 30,127 LT Liabilities 27,639 28,603 28,623 26,623 17,623 Shareholders Funds 74,715 75,931 79,549 83,644 88,830 Net Gearing (%) 34 34 30 27 21 Cash Flow PBT 6,205 4,152 7,078 8,219 10,401 Other Operating Cash (9,933) 91 (8,617) (11,213) (12,401) Chg in Working Capital (3,728) 4,243 (1,538) (2,993) (2,000) Operating Cashflow 5,731 11,904 7,421 7,050 9,850 CAPEX (5,936) (9,009) (3,286) (3,520) (3,097) FCF (205) 2,894 4,136 3,530 6,753

DMG & Partners Securities Pte Ltd may have received compensation from the company(s) covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication. of this publication

1 See important disclosures at the end of this publication

DMG Research

DMG Research

OSK Research

OSK Research DMG Research

30 Jul 2012

SINGAPORE EQUITY Investment Research

DMG & Partners Research 2Q12 Results Review Private Circulation Only

SHIPPING

PRECIOUS SHIPPING SELL Price THB14.30 Previous THB14.95 Target THB11.85

Shipping

Precious Shipping is a shipping company with exposure to the handymax and super handymax bulk carriers.

Stock Profile/Statistics Bloomberg Ticker PSL TB SET 1,178 Issued Share Capital (m) 1,040 Market Capitalisation (THBm) 14,865 52 week H | L Price (THB) 19.70 13.00 Average Volume (‘000) 337 YTD Returns (%) -12% Net gearing (%) 38 Altman Z-Score 2.3 ROCE/WACC 0.4 Beta (x) 0.85 Book Value/share (THB) 14.52 Major Shareholders (%) Nishita Shah 43.0% Munir Hashim 9.1% Khalid Hashim 8.4%

Share Performance (%) Month Absolute Relative 1m -1% -8% 3m -12% -12% 6m -12% -15% 12m -17% -11% 6-month Share Price Performance

Results below expectations

Downgrade to SELL. Precious Shipping (PSL)’s 2Q12 net profit of THB13.1m (-97% YoY) was below our below-consensus estimate of THB164m and street estimate of THB265m due to the continued weakness in bulk freight rates. The BDI averaged 1,019 points in 2Q12, up from 880 in 1Q12, but remains under pressure from excess capacity in the market. In our view: (1) falling scrap prices and still-high order book could delay the recovery of the dry bulk sector; (2) ship prices could fall further before a sustainable recovery takes place. We lower our FY12 average earnings per ship by 6% and cut our FY12F net profit by 44% Downgrade PSL to a SELL with a TP of THB11.85. Results below expectations. 2Q12 vessel operating revenue rose +26, QoQ, +22% YoY to THB991m, lifting 1H12 revenue to THB1.78b (+15% YoY). The sequential improvement in 2Q12 revenue was largely driven by higher average earnings per ship, which came in at US$9,130/day (+10% QoQ, -29% YoY), while fleet size has expanded from 21 ships in 2Q11 to 30 ships in 2Q12. Based on its vessel delivery schedule, PSL is expected to add 12 new ships (4x34k DWT, 2x54k DWT, 4x57k DWT and 2x20k DWT cement carriers) in 2012 (some vessels are likely to be delayed/cancelled as they are running behind schedule). Pressure on freight rates from excess supply. The supply situation in the dry bulk freight market is worrying. The sector added 6% new capacity YTD June, and fleet growth could reach 10% by year end, far outpacing the demand growth. Valuation: Cut TP from THB14.30 to THB11.85. We lower FY12 net profit by 44% to THB255m as we cut average earnings per ship to US$9,491/day (old: US$10,073). We expect average earnings per ship to average US$10,100 in 2H12. We value PSL based on: (1) fleet value at market price; (2) adjust for net debt, investments, and advances for vessel purchase; (3) and a 10% discount on the total equity value to reflect the risk of further decline in ship prices and depressed earnings.

FYE 31 Dec FY09 FY10 FY11 FY12F FY13F Turnover (THBm) 5,524 2,928 3,079 4,130 6,073 Reported net profit (THBm) 3,047 1,134 719 255 1,225 % Chg YoY -38 -63 -37 -65 381 Consensus (THBm) nm nm nm 755 1,130 EPS (THB cents) 293 109 69 24 118 DPS (THB cents) 180 87 55 30 55 Div Yield (%) 12.6 6.1 3.8 2.1 3.8 ROE (%) 18.3 7.2 4.8 1.7 7.9 ROA (%) 15.2 5.4 3.4 1.0 4.1 P/E (x) 4.9 13.1 20.7 58.4 12.1 P/B (x) 0.87 1.02 0.97 0.98 0.93

Source: Company data and DMG Estimates

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26-Jan 26-Feb 26-Mar 26-Apr 26-May 26-Jun 26-Jul

Share price (THB)

ratree.lu

Typewritten Text

Thailand Research Team +66(0) 2862 999 Ext.2030 (TH)

See important disclosures at the end of this publication 2

See important disclosures at the end of this publication

DMG Research

OSK Research


Figure 1: Quarterly financial summary

FYE 31 Dec (THBm) 11Q2 12Q1 12Q2 QoQ

(%) YoY (%) 1H11 1H12

YoY (%) Remarks

REVENUE 812 788 991 26 22 1,544 1,778 15 Average earnings per ship of US$9,130 in 2Q12 (US$12,782 in 2Q11) and US$8,747 in 1H12 (US$12,454 in 1H11).

Hire income 534 446 594 33 11 1,111 1,040 -6

Freight income 278 342 397 16 43 433 738 71 More voyage charter vs. time charter

COST OF GOODS SOLD -463 -660 -795 20 72 -905 -1,455 61

Vessel operating costs -304 -467 -563 -586 -1,030

Vessel running expenses -202 -265 -317 57 -419 -582 39 Primarily due to higher operating days (~40% YoY). Avg. opex of US$4,575/day in 2Q12 vs.US$4,545/day in 2Q11.

Voyage disbursements -34 -47 -61 78 -53 -108 103 Due to higher voyage charters

Bunker consumption -68 -155 -185 173 -114 -340 198 Due to higher voyage charters

Depreciation -156 -192 -230 -315 -422

Cost of services -3 -1 -2 -4 -3

GROSS PROFIT 349 127 196 54 -44 640 323 -50

SG&A EXPENSES -71 -63 -64 2 -10 -146 -127 -13

Admin expenses -46 -43 -43 -95 -86

Management expenses -25 -20 -21 -51 -41

NET OTHER INCOME 5 -20 3 nm nm -3 -17 Nm

Service income 1 1 1 3 3

Exchange gains 3 0 2 3 2

Other income 0 0 0 0 0

Dividend received 1 0 0 1 0

Bad debts 0 -19 0 0 -19

Other losses 0 0 0 0 0

Exchange losses 0 -2 0 -9 -2

OPERATING PROFIT 282 44 134 204 -52 491 179 -64

Interest income 5 7 5 12 12

Interest expense -73 -87 -117 -176 -204

Share of results of associates/JVs -1 -4 -7 -1 -11

Exceptional items 188 0 0 190 0

Gains on sales of vessels and equipment 0 0 0 1 0

Gains on sales of newbuild under Novation 188 0 0 188 0 No exceptional gain this year.

PROFIT BEFORE TAX 402 -40 16 -139 -96 515 -24 -105

Income tax 0 -1 -2 -3 -2

Minority interest 0 -1 -1 -1 -2

NET PROFIT 401 -41 13 -132 -97 510 -28 -105

NET PROFIT (EX EXCEPTIONAL ITEMS) 213 -41 13 -132 -94 320 -28 -109

EBITDA (DMG) 439 236 365 806 601

Margins

EBITDA margins % 54% 30% 37% 52% 34%

Operating profit margins % 35% 6% 14% 32% 10%

Balance sheet (THBm)

Cash 4,601 3,137 2,197

Short term borrowing 655 652 412

Long-term borrowing 4,009 7,398 7,449

Net debt 63 4,912 5,664

Total equity 15,024 14,754 15,091

Shareholders' equity 14,993 14,721 15,091

Net gearing 0 33 38

Source: Company data and DMG estimates



DMG Research

OSK Research


Figure 2: Average earnings per ship and opex

Source: Company data

Figure 3: Average earnings per ship compared to the BDI

Quarter Avg. earnings per ship (US$) Baltic Handysize Index Baltic Dry Index

11Q1 12,118 727 1,371

11Q2 12,782 773 1,373

11Q3 10,455 680 1,534

11Q4 9,922 689 1,913

12Q1 8,314 466 880

12Q2 9,130 614 1,019

Source: Bloomberg

Figure 4: Lower scrap value may discourage removal of old tonnage

Source: Clarkson

12,11812,782

10,4559,922

8,3149,130

4,896 4,545 4,563 4,474 4,390 4,575

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

11Q1 11Q2 11Q3 11Q4 12Q1 12Q2

US$/dayAvg earnings per ship (US$) Opex (US$)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Scrap value per Handysize bulker (US$m)



DMG Research

OSK Research


Figure 5: Global dry bulk capacity could grow by 10% in 2012 Remarks

Jan'12 Capacity mDWT 615.2

From Clarkson as of 1-Jul-2012

End June 2012 Capacity mDWT 654.8 From Clarkson as of 1-Jul-2012

Scheduled delivery in 2H12 mDWT 80.6

From Clarkson as of 1-Jul-2012

Slippage 50% DMG estimate

Projected delivery mDWT

40.3

Estimated demolition in 2H12 mDWT -16.2 DMG estimate. Similar pace to 1H12

End FY12 tonnage mDWT

678.9 10% fleet growth

Source: Clarkson, DMG estimates

We note that PSL’s share price has low correlation with the Baltic Dry Index and Baltic Handysize Index since Jan 2011. See Figure 6 and 7. Figure 6: Baltic Dry Index and share price movement since Jan 2011

Source: Bloomberg

Figure 7: Baltic Handysize Index and share price movement since Jan 2011

Source: Bloomberg

12.00

13.00

14.00

15.00

16.00

17.00

18.00

19.00

20.00

500

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12

Share price (THB)Baltic Dry Index (pts)BDI (LHS) Share price (RHS)

12.00

13.00

14.00

15.00

16.00

17.00

18.00

19.00

20.00

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12

Share price (THB)Baltic Handysize Index (pts)

Baltic Handysize Index (LHS) Share price (RHS)



DMG Research

OSK Research


We value PSL based on: (1) fleet value at market price; (2) adjust for net debt, investments, and advances for vessel purchase; (3) and a 10% discount on the total equity value to reflect the risk of further decline in ship prices and depressed earnings.

Figure 8: Target price derivation Description Value Remarks

Fleet value US$m 350.5 Estimated based on current market value

Fleet value THBm 11,041

Cash THBm 2,197

Total debt THBm -7,861

Advances for vessel purchase and construction THBm 7,940

Net other investments THBm 370

Net asset value THBm 13,686

Shares m 1,040

Equity value per share THB 13.17

Discount 10%

Target Price THB 11.85 17% downside from current level




DMG Research

OSK Research


FINANCIAL TABLES

FYE 31 Dec (THBm) FY09 FY10 FY11 FY12F FY13F

Income statement

Operating revenue 5,524 2,928 3,079 4,130 6,073

Expenses (except D&A) -2,038 -1,207 -1,622 -2,484 -2,981

EBITDA 3,486 1,721 1,457 1,646 3,091

Depreciation and amortisation -935 -678 -647 -972 -1,287

EBIT 2,551 1,043 811 674 1,805

Interest income 38 26 26 35 31

Interest expense -266 -299 -441 -451 -609

Share of results of associates/JVs 22 19 8 10 10

Exceptional items 760 438 321 0 0

Profit before tax 3,106 1,226 724 267 1,237

Income tax -46 -83 -4 -10 -9

Minority interest -14 -10 -2 -2 -2

Net profit (reported) 3,047 1,134 719 255 1,225

Net profit (pre-exceptional/core) 2,287 695 398 255 1,225

Balance Sheet

Total Assets 22,140 19,962 22,893 28,720 30,528

Fixed assets 7,781 6,400 9,446 17,020 17,591

Other long-term assets 8,315 9,213 7,426 7,436 7,446

Inventory 0 6 69 91 133

Receivables 42 34 125 170 250

Other short-term assets 125 85 1,453 1,453 1,453

Cash and short term investment 5,876 4,223 4,375 2,552 3,655

Total Liabilities 5,004 5,350 7,537 13,549 14,570

ST debt 15 147 719 2,605 2,805

Payables 45 11 33 45 67

Other short-term liabilities 444 282 296 296 296

LT debt 4,277 4,766 6,308 10,421 11,221

Other long-term liabilities 223 144 182 182 182

Total Equity 17,136 14,612 15,356 15,172 15,958

Shareholders' funds 17,112 14,583 15,323 15,136 15,920

Minorities 25 29 33 35 38

Cash Flow Statement

Operating cashflow 2,688 1,180 1,051 1,581 2,981

Capex & acquisitions 1,352 -139 -2,386 -8,546 -1,859

Free cashflow 4,040 1,040 -1,335 -6,965 1,122

Other inv cashflow -3,029 -1,645 88 0 0

New borrowings 3,742 1,024 1,998 6,000 1,000

Share issuance 0 0 0 0 0

Dividends paid -2,079 -1,299 -644 -442 -442

Other fin cashflow -34 -219 -179 -417 -578

Net cashflow 2,640 -1,098 -73 -1,823 1,103

YoY Growth

Revenue (%) -35 -47 5 34 47

Operating profit (%) -49 -59 -22 -17 168

Profit before tax (%) -37 -61 -41 -63 363

Net profit (%) -38 -63 -37 -65 381

Margins

EBITDA (%) 63 59 47 40 51

EBIT (%) 46 36 26 16 30

PBT (%) 56 42 24 6 20

Per Share Data

Outstanding shares (m) 1,040 1,040 1,040 1,040 1,040

EPS (THB cents) 293 109 69 24 118

DPS (THB cents) 180 87 55 30 55

BVPS (S cents) 16.46 14.03 14.74 14.56 15.31

ROE (%) 18.3 7.2 4.8 1.7 7.9

ROA (%) 15.2 5.4 3.4 1.0 4.1

Net debt-to-total equity (%) Net cash 5 17 69 65

P/E (DMG) 4.9 13.1 20.7 58.4 12.1

P/B (x) 0.87 1.02 0.97 0.98 0.93

Dividend yield (%) 12.6 6.1 3.8 2.1 3.8


OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months (scenario analysis in the text may indicate different target prices)

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months

Not Rated (NR): Stock is not within regular research coverage

All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report is produced by OSK Securities (Thailand) PCL and is distributed in Singapore only to “Institutional Investors”, “Expert Investors” or “Accredited Investors” as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an “Institutional Investor”, “Expert Investor” or “Accredited Investor”, this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd (“DMG”). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Securities (Thailand) PCL. Published by OSK Securities (Thailand) PCL, 10th Floor, Sathorn Square Office Tower, 98, North Sathorn Road, Bangrak, Bangkok. OSK Securities (Thailand) PCL. (A subsidiary of OSK Investment Bank Berhad)

Kuala Lumpur Hong Kong Singapore

Jakarta Shanghai Phnom Penh

Bangkok

OSK (China) Investment Advisory Co. Ltd.

Room 6506, Plaza 66 No.1266, West Nan Jing Road

200040 Shanghai China

Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633

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Tel : +(852) 2525 1118 Fax : +(852) 2810 0908

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Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211

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