THAILAND EQUITY Investment Research Daily 14 January 2013...SET index has dropped to a low of 1,392 points, better than earlier anticipated at 1,389 before rebounding back to a positive

OSK Research | See important disclosures at the end of this report 1111

THAILAND EQUITYInvestment Research

Daily

14 January 2013 On The Platter

Construction (Neutral) Sector Update: Are We There Yet? Recommendation. We value STEC based on 7.1x P/BV, based on its peak P/BV valuation in 2003 and arrived at a FV of THB36.60 from THB27.30 (25x PE on FY13). As our recommendation on the sector is currently more skewed towards tactical calls, we downgrade our recommendation on STEC to a TRADING BUY from a BUY, albeit at the higher FV. Nevertheless STEC remains our Top Pick due to its strong track record and solid balance sheet. CK is also still a TRADING BUY, although we have raised our FV to THB19.60 from THB10.80 after raising our P/BV multiple from 1 standard deviation (SD) above its five-year average to 2 SD above its 10-year average P/BV to reflect the current market sentiment. We have a NOT RATED recommendation on ITD, at 1 SD above its10-year average P/BV, with a FV of THB5.57.

Aviation (Overweight) Sector Update: Dec 2012 Operating Stats Better Than Expected AOT saw strong operating statistics for 1QFY13 as passenger and aircraft traffic reporting surged 29% and 17% y-o-y, largely driven by fleet expansion, route connectivity and increased frequencies, notably by the LCCs (low cost carriers) and Middle Eastern airlines. Domestic travel also shot up due to the opening of DMK (Don Muang). This pace should continue and surpass our original passenger traffic forecast of 5.8% for FY13. We raise our passenger traffic growth forecast from 5.8%/ 5.6%/ 5% for FY13/FY14/FY15 respectively to 12.8%/ 8.3%/ 6.8%. Maintain OVERWEIGHT on Thai aviation sector, with AOT as our top pick, at a higher FV of THB120. We also like Asia Aviation as it achieves economies of scale by operating a larger fleet.

Airport of Thailand (AOT TB; FV THB120 – Buy) Company Update: Solid Numbers All Round AOT’s strong passenger traffic in 1QFY13, which grew 29%, prompts us to raise our passenger traffic projections by 7%-11% for FY13-FY15. Although the likely delay in raising PSC (passenger service charges) - which have been postponed by another year to FY15 - we are still bullish on its earnings, which we are raising by 21%/ 7%/31% respectively for FY13/ FY14/ FY15. AOT’s ability to accumulate massive free cash flow (to equity) of THB26bn over the next five years despite onerous capex amounting to THB58bn justifies that its valuation premium. We lift AOT’s FV higher to THB120, premised on an unchanged 10.5x EV/EBITDA, in line with its peer average. Our higher FV is well supported by its DCF value of THB117 per share.

Asia Aviation (AAV TB; FV THB6.63 – Buy) Company Update: Flying High Although the final numbers are not out, we gather that TAA (Thai AirAsia) has seen sharp growth in its passenger numbers, especially after the delivery of three aircraft in 4QFY12. AOT said passenger traffic from LCCs soared 33% y-o-y, which we believe was boosted by AirAsia Group’s growing fleet, as well as those of competing carriers. We maintain our BUY on AAV, at a FV of THB6.63, premised on 13.5x EV/EBITDAR (from 11.7x earlier). AAV’s 13.5x EV/EBITDAR is justified by its sturdy growth prospects due to an aggressive fleet rollout in the upcoming years.

Shin Corporation (INTUCH TB; FV THB76.20-Trading Buy) Company Update: Business as Usual Despite recent changes in INTOUCH’s major shareholding and Mfone’s filing for bankruptcy, we still find the company’s business fundamentals intact and the financial impact immaterial. We maintain our forecast and TRADING BUY recommendation on the stock, with our FV unchanged at THB76.20, based on a 20% discount to its NAV. We continue to like INTOUCH as an alternative exposure to the Thai telco sector, as well as its solid dividend.

TMB Bank (TMB TB; FV THB2.15 – Buy) 2012 & 4Q12 Earnings Review: A Burden From High LLP TMB’s 4Q12 and FY12 earnings suggest that the improvement of its core earnings continue to accelerate, as revenues grew faster than opex. Its funding cost that has become more competitive allows room for NIMs to improve going forward. The surprisingly high LLP in 4Q12 may baulk short-term investors, although its FY13 earnings growth momentum will help the bank regain their confidence. As there is a limited upside to TMB’s FV and its share price has rallied by 28% since our BUY call in Aug 2012, we downgrade our recommendation from BUY to HOLD with a FV of THB2.15 (based on PBV of 1.5x).


Key Market Indices (11 January 2013) Key Statistics

Value Change % Change % YTD SET Value by investor Type: Daily SET 1412.06 6.07 0.4% 1.4% Buy (THBm) Sell (THBm) Net (THBm) SET50 950.08 2.98 0.3% 0.5% Institution 6,223.74 5,672.30 551.44 SET100 2101.65 8.24 0.4% 1.1% Proprietary 7,034.16 8,598.51 -1,564.36 Foreign 12,109.07 12,169.28 -60.21 Dow Jones 13488.43 17.21 0.1% 2.9% Retail 29,528.04 28,454.92 1,073.12 S&P500 1472.05 -0.07 0.0% 3.2% Nasdaq 3125.64 3.88 0.1% 3.5% SET Value by investor Type FTSE 6121.58 20.07 0.3% 3.8% MTD (THBm) YTD (THBm) FSSTI 3216.50 -9.75 -0.3% 1.6% Institution -801.51 -801.51 Hang Seng 23264.07 -90.24 -0.4% 2.7% Proprietary -2,750.92 -2,750.92 Nikkei 10801.57 -17.69 -0.2% 3.9% Foreign 5,243.41 5,243.41 KLCI 1682.70 -1.87 -0.1% -0.4% Retail -1,690.97 -1,690.97 SHANGHAI SE

2243.00 -40.66 -1.8% -1.2% JCI 4305.91 -11.45 -0.3% -0.2% SET50 Index Future Long Short Net MTD YTD SET 5-yr avg 2011 2012F

Institution 6,763 4,938 1,825 3,373 3,373

PE (x) 14.5 17.6 13.0 Foreign 3,173 3,868 -695 -4,744 -4,744 P/BV(x) 1.9 2.4 2.2 Local 16,387 17,517 -1,130 1,371 1,371 Yield(%) 4.0 2.8 3.5

MEDIA HIGHLIGHTS

• CP 'has funds' for Ping An deal • Property firms defer land purchase plans • Dawei could give Thai economy a lift when it starts: group • PTTEP urged to explore shale gas deal with US • SC pegged this year’s revenue growth at 10%

ECONOMIC HIGHLIGHTS

• China: Exports rebound but 2013 outlook remains murky • Japan: Abe says he’ll seek ‘bold leader’ to head central bank • Euro: Leaders declaring worst is over turn to economy woes • Euro: Greek lawmakers pass tax bill required for EU, IMF bailout funds • US: Increase in imports, exports signal global pickup

SET Intraday Chart Market Review

Thai equity market has swung substantially last Friday. SET index has dropped to a low of 1,392 points, better than earlier anticipated at 1,389 before rebounding back to a positive territory in the afternoon trading session. SET Index is expected to record a slow gain after surging aggressively from a low of 1,263 points to 1,430 points. Thai stocks will be supported by net foreign flow as Yen currency continues to fall. Nonetheless, the Japanese government will spend a large sum of money to drive a recovery from a recession to end deflation and boost growth. A part of this will be for disaster prevention and reconstruction, with a partial of 3.1 trillion yen directed to stimulating private investment and other measures. Extra spending will increase gross domestic product by about 2 percentage points and create about 600,000 jobs. BOJ is urged to push through bold monetary policy at the next policy meeting during Jan.21-22. Elsewhere, US and European counters have moved in a narrow range last Friday as Well Fargo Bank reported a decline in interest income. U.S. trade deficit also grows to 48.7 billion USD in November, pressuring down the temperature in U.S. equity market in the morning session. However, it is able to rebound back in a positive territory in the afternoon session. European market was dragged by a concern that Chinese government will abort a monetary stimulus campaign after CPI rose 2.5 percent in December, up from a 2 percent rise in the preceding month. Today, it is expected that SET index could soar up to 1,418-1,420. Investors are warned to keep an eye for volatility during the week as foreign investors might pull back their investment in Thai market.


MEDIA HIGHLIGHTS

CP 'has funds' for Ping An deal Charoen Pokphand Group said on Friday that it had the resources to complete a planned purchase of a $9.4-

billion stake in China's Ping An Insurance, amid concern that the acquisition will fail. HSBC Holdings Plc agreed on Dec 5 to sell its 15.6% holding in Ping An to four subsidiaries of CP Group in two phases. The first stage, comprising shares valued at about HK$15 billion (US$1.9 billion), was scheduled for Dec 7.The sale of the remaining shares requires approval from the CIRC by Feb 1, or else an extension of the accord. The first payment to HSBC has been made," Suthana Hongthong, CP's assistant vice-president for corporate communication, said on Wednesday, without giving details. (Bangkok Post)

Property firms defer land purchase plans

Property firms are delaying purchasing land for developing residential projects in Bangkok till May 16, 2013 amid concern that the new city plan, which will come into effect at the end of May, will impact their project designs. "We will not buy new land in the first five months of this year in Bangkok because we don't know whether we'll be allowed to build condominiums at the location where we buy the land," LPN Development managing director Opas Sripayak said. However, that delay would did not affect its investment plan for this year when the company bought 13 land plots to develop residential projects since last year. (The Nation)

Dawei could give Thai economy a lift when it starts: group

The Dawei mega industrial project in Myanmar could boost Thailand's economy by 1.9 per cent and upgrade it from labour-intensive to value-added, according to the Economic Research Institute for Asean and East Asia. Italian-Thai Development (ITD) has won the mandate to develop and run this project, which will become the largest industrial estate in Myanmar. However, ITD appears to need help to finance this mega-project, as it will require up to US$8.5 billion just to set up infrastructure and $50 billion to complete. The Myanmar government has proposed eight joint ventures to operate the roads, railways, water systems, power industrial estates, the port and telecommunications systems, and to relocate residents in the initial stage. (The Nation)

PTTEP urged to explore shale gas deal with US

The Mineral Fuels Department has urged PTT Exploration and Production to explore shale gas fields in the US so that in the future it can import liquefied natural gas from there to help ensure Thailand's long-term energy security. The Energy Information Administration in the US forecasts average global oil prices to fall from US$112 a barrel in 2012 to $99 in 2014, thanks to the jump in US oil production. The agency predicts that thanks to the discovery of vast reserves of shale oil, production will rise by a quarter to its highest level in 26 years. Many countries are looking to buy gas from the US to reduce their dependence on supplies from the Middle East. In Thailand, the Mineral Fuels Department has coordinated with the government to support PTTEP's search for petroleum in the US in the future and to import from the US 3 million tonnes of LNG per year, which should be an appropriate level. PTT now has only an LNG import contract with Qatar. (The Nation)

SC pegged this year’s revenue growth at 10%

SC Asset Corporation has ensured its 2012’s revenue should be as planned at a worth of Bt8billion, with sales over Bt11 billion. Besides, revenue and sales in 2013 should grow at least by 10% (y-o-y) from its solid performance. Moreover, management has denied a rumor that the company will set Shinawatra Building to a property fund. Management insists that there are several other ways to raise funds, including a debenture/ B/E issuance, and loans from financial institutions. Besides, company has ample capital to finance the growth at this point. (Kao Hoon)


ECONOMIC HIGHLIGHTS

China: Exports rebound but 2013 outlook remains murky China's export growth rebounded surprisingly sharply to a seven-month high in December, a strong finish to

the year after seven straight quarters of slowdown, but subdued global demand means that the spike may not herald an enduring recovery. Uncertain trade prospects contrast with data that showed resilient local loan demand, further evidence that the world's second-largest economy rebounded towards 8% annual growth in the last quarter of 2012 on firming domestic demand. Trade data released on last week showed the value of China's exports grew 14.1% y-o-y last month. Economists said the pick-up in exports growth from November's 2.9% rise was likely accentuated by lower comparison figures a year ago and exporters clearing year-end orders, factors that do not suggest a sustainable turnaround. (Reuters)

Japan: Abe says he’ll seek ‘bold leader’ to head central bank

Japanese Prime Minister Shinzo Abe seeks a “bold policy leader” as the next Bank of Japan governor as he aims to end deflation and drive a recovery from recession. The choice of a successor to Masaaki Shirakawa, whose term ends in April, will be made after consultations with Yale Professor Emeritus Koichi Hamada and others, Abe said yesterday. The government and central bank need to agree on implementing a 2% inflation target to end deflation, Abe said. The prime minister last week announced a JPY10.3trn (USD115bn) spending package, which includes money to stimulate private investment to boost the economy. (Bloomberg)

Euro: Leaders declaring worst is over turn to economy woes

European leaders declaring they’ve gained the upper hand in the three-year-old debt crisis are sharpening efforts to channel a rebound in financial markets to an economic recovery to chip away at soaring unemployment. Even as euro-area chiefs call for more time to lock in a bailout package for Cyprus and elections loom next month in Italy, German Finance Minister Wolfgang Schaeuble said 11 Jan that the single currency is “over the worst of the crisis.” Draghi’s six-month-old pledge to do whatever it takes to deliver the 17-member currency out of the crisis has been credited for declining yields and an easing in market turmoil. That’s given leaders more room to grapple with issues such as unemployment in Europe, which climbed to a record 11.8% in November, with every other Spanish youth out of work. (Bloomberg)

Euro: Greek lawmakers pass tax bill required for EU, IMF bailout funds

Greek lawmakers passed a tax bill seeking to raise state revenue by EUR2.3bn, part of commitments demanded by international creditors in order to continue to receive further bailout funds. “The tax bill is a fiscal necessity, a prerequisite in order for us to get the next loan tranche,” Finance Minister Yannis Stournaras said. Euro-area finance ministers approved EUR49.1bn of rescue payments to Greece on Dec. 13 to keep the recession- wracked country solvent, with EUR34.3bn paid immediately. Greece must meet certain conditions to get further payments in early 2013, Jean-Claude Juncker, head of the group of 17 euro-area finance chiefs, said at the time. (Bloomberg)

US: Increase in imports, exports signal global pickup

The trade deficit unexpectedly widened in November as US imports jumped almost four times more than exports, gains that signal a rebound in global growth. The gap swelled 15.8% to USD48.7bn, the largest since April, Commerce Department data showed on Saturday. Imports reflected record demand for consumer goods, while U. companies benefitted from more overseas sales of equipment such as telecommunications gear. American retailers stocked up on foreign-made mobile phones and computers heading into the holidays, showing little concern that the budget impasse in Washington would hurt household spending. (Bloomberg)


Outperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield

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

KK Buy 50.00 62.00 24.0 13.0 4.6

BAY Buy 30.50 34.00 11.5 12.9 3.0

TMB Buy 2.06 2.15 4.4 16.7 2.9 A Burden From High LLP (report dated January 14, 2013)

KTB Buy 20.20 22.10 9.4 7.8 4.1

ADVANC Buy 201.00 254.00 26.4 17.3 5.8

PM Buy 8.15 8.80 8.0 13.4 5.6

QH Buy 2.54 2.80 10.2 11.3 3.5

SC Buy 28.75 26.40 -8.2 16.3 2.5

MAKRO Buy 452.00 380.00 -15.9 21.8 5.2

INTUCH Buy 65.75 74.00 12.5 15.1 6.2 Business as Usual (report dated January 14, 2013)

CENTEL Neutral 28.75 23.50 -18.3 35.1 1.1

MCOT Buy 45.50 47.00 3.3 18.1 5.1

SAT Buy 32.00 37.30 16.6 13.4 2.3

STEC Buy 26.75 27.30 2.1 27.9 2.3

PTT Buy 326.00 378.00 16.0 8.3 4.3

AOT Buy 95.50 104.00 8.9 22.2 2.0 Solid Numbers All Round (report dated January 14, 2013)

Underperform

Current Target Upside/

Recc. Price Price Downside PE (x) Yield

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

CPF Sell 33.50 24.00 -28.4 20.7 3.6

GFPT Neutral 9.10 6.90 -24.2 47.9 0.0

TISCO Sell 54.25 42.00 -22.6 12.3 4.1

CPALL Neutral 45.00 36.60 -18.7 36.7 2.2

PSL Neutral 16.00 12.83 -19.8 48.0 1.9

PTTEP Neutral 168.00 154.00 -8.3 10.1 3.3

TTA Sell 17.50 13.60 -22.3 n.a. 5.7

WORK Neutral 45.00 33.50 -25.6 24.5 2.9

SPALI Sell 20.10 15.50 -22.9 11.9 3.4

MAJOR Sell 19.5 16 -17.9 20.0 4.3

11 10 9 8 7 11 10 9 8 7

1 BBL 314.0 545.3 -220.0 27.8 466.5 SCC -384.6 -230.0 -34.8 -233.7 -42.4 INTUCH 16,343.1 SIRI -1,105.6 INTUCH 16,343.1 SIRI -1,105.6

2 PTTEP 169.8 4.0 157.1 436.1 210.0 INTUCH -241.4 15,950.7 86.8 154.0 420.6 BBL 1,546.3 SCC -968.5 BBL 1,546.3 SCC -968.5

3 PTT 116.5 154.2 31.1 209.9 331.7 SIRI -179.0 -215.7 -110.6 -194.0 -85.3 PTT 1,406.5 AAV -188.2 PTT 1,406.5 AAV -188.2

4 PTTGC 109.7 242.8 49.9 63.5 30.3 AAV -68.2 -32.9 -21.5 -36.0 -9.7 KBANK 1,353.8 EARTH -175.9 KBANK 1,353.8 EARTH -175.9

5 KBANK 102.0 116.5 249.2 156.4 77.8 HMPRO -61.6 -33.9 2.9 -46.2 5.4 PTTEP 1,124.8 THRE -167.1 PTTEP 1,124.8 THRE -167.1

6 TOP 97.3 -39.7 -10.0 133.2 10.7 LH -54.4 -23.9 -137.5 -51.8 65.8 PTTGC 970.9 BECL -141.1 PTTGC 970.9 BECL -141.1

7 DTAC 90.4 -56.6 170.1 113.5 177.7 TCAP -45.7 6.2 26.0 66.9 -16.5 ADVANC 746.1 TSF -139.5 ADVANC 746.1 TSF -139.5

8 ADVANC 83.2 117.9 -48.4 36.9 30.0 CNT -43.3 -2.8 -11.7 -0.9 -0.6 SPALI 642.4 HMPRO -130.3 SPALI 642.4 HMPRO -130.3

9 BEC 67.7 -6.9 38.2 21.4 44.6 SCB -43.1 -23.5 -23.2 107.6 54.3 LPN 620.9 MINT -127.4 LPN 620.9 MINT -127.4

10 SPALI 49.9 9.2 19.9 190.0 122.7 EGCO -38.0 1.7 -4.6 -2.1 13.3 BAY 598.7 WHA -112.2 BAY 598.7 WHA -112.2

11 AOT 48.2 42.5 65.2 62.6 85.7 BLAND -35.5 1.3 5.6 -12.5 27.8 TISCO 546.8 MAJOR -106.5 TISCO 546.8 MAJOR -106.5

12 BGH 46.4 44.5 -0.9 35.7 0.5 QH -23.4 -31.2 40.5 -47.9 36.4 AOT 507.9 ROBINS -89.4 AOT 507.9 ROBINS -89.4

13 CPALL 45.6 41.0 105.6 52.9 -28.7 ROBINS -17.7 -6.4 -1.9 -26.2 -51.4 CPF 477.8 KGI -77.8 CPF 477.8 KGI -77.8

14 TTW 43.5 45.0 -7.2 -2.6 1.7 PM -14.7 0.5 2.5 -0.0 0.1 TUF 446.0 CK -72.6 TUF 446.0 CK -72.6

15 TUF 39.7 67.5 101.8 28.0 61.3 TMB -11.2 31.9 46.3 -33.1 -15.6 BANPU 416.4 LH -65.2 BANPU 416.4 LH -65.2

16 CPF 34.5 1.1 5.2 18.8 48.8 UV -10.3 -1.5 0.3 4.4 -0.5 BGH 393.5 EGCO -51.1 BGH 393.5 EGCO -51.1

17 TISCO 31.8 246.6 94.9 68.4 36.5 GLOW -10.1 11.1 1.0 23.6 7.3 AP 350.4 CNT -50.3 AP 350.4 CNT -50.3

18 AMATA 31.3 12.6 24.8 80.1 53.1 GUNKUL -8.8 7.1 4.6 -12.0 4.9 KTB 321.2 TTCL -43.4 KTB 321.2 TTCL -43.4

19 LPN 30.1 34.0 40.5 159.2 192.6 SCCC -6.6 3.4 -4.5 11.3 3.2 RATCH 321.1 DEMCO -38.9 RATCH 321.1 DEMCO -38.9

20 BTS 29.6 -47.2 87.0 14.2 41.0 TVO -5.8 1.0 -0.5 1.4 1.1 HEMRAJ 317.7 DELTA -34.0 HEMRAJ 317.7 DELTA -34.0

% % of % of

Turn. paidup paidup

1 N-PARK 10.05 1 TISCO-P 65.86 63.07

2 SIRI 18.75 2 BBL 30.31 24.73

3 BLAND 1.10 3 KBANK 28.70 24.78

4 LH 39.94 4 LPN 23.25 17.12

5 JAS 15.69 5 TWFP 23.62 2.98

6 LIVE-W1 9.13 6 LH 21.30 24.52

7 IRPC 9.23 7 E-W1 19.80 9.64

8 QH 5.00 8 SPALI 19.09 12.15

9 AAV 6.45 9 BAY 14.14 15.46

10 TMB 3.19 10 GOLD-W1 14.83 24.96

11 INTUCH 19.64 11 LRH 15.58 0.62

12 SPALI 33.12 12 PRANDA 14.61 17.77

13 IEC-W1 0.65 13 THRE 15.60 8.77

14 BTS 2.48 14 AP 13.11 11.13

15 BLAND-W2 0.77 15 BANPU 12.72 21.32

16 GSTEEL 2.90 16 GBX 13.52 14.06

17 THRE 36.76 17 LALIN 13.59 12.79

18 KTB 8.73 18 NOBLE 13.34 17.67

19 EMC-W3 6.16 19 SCC 13.22 11.24

20 AP 20.52 20 SIRI-W1 13.19 3.28

Source : SET.OR.TH

2,516,300

-9,304,900

3,881,100

3,041,200

3,517,800 7,398,900

4,195,140

11,398,9006,957,600

3,462,100 3,906,300

9,854,460

10,004,900

7,024,800 2,829,660

7,709,7004,668,500

700,000 10,704,900

3,677,300 9,145,400 12,822,700 -5,468,100

4,066,200 7,760,008 11,826,208

271,747,855 -1,627,300

-3,693,808

4,441,300

548,002,349 104,186,735 3,512,494,860

2,848,272,038 373,515,535 260,809,947

557,200

105,536,800

34,567,689 57,927,996

147,226,200 363,300

24,169,436 2,036,627,210

7,368,400 -444,200

60,898,900 80,659,500

158,641,033

268,545,368 2,451,800

-4,006,3005,301,900 6,597,500

6,552,800

3,944,600 3,387,400

4,502,300 2,050,500

1,295,600

7,332,000

1,200,000,000

456,471,175

1,089,076,392

112,150,900

134,830,821

153,163,100

825,000,000

1,032,308 166,682,701 25,973,680

59,354,500 71,193,300 406,282,554

6,074,143,747

504,065,655

858,815,328 939,165,929

74,767,898 157,293,815

347,000,000

1,716,553,249

68,692,946 29,511,361

327,774,669 208,589,412

2,135,378,344 2,458,692,598

13,156,500

2,521,859 12,071,600

20,943,200 361,600

26,377,400 2,539,000

14,593,459 -9,549,741

21,304,800 20,581,600 10,025,921,523

14,458,200 11,919,200

13,463,400 -12,849,600

11,896,600 5,159,200 17,055,800 6,737,400

306,900

1,475,698,768

-25,856,900

9,506,055

2,393,260,193

343,145,439

283,200 2,245,634

-5,102,700 252,688,992 14,379,400 19,482,100 33,861,500

472,119,068 -45,574,401

686,776,350 592,962,857

578,618,185 53,106,801 60,639,201

16,410,600 42,267,500 58,678,100

NetBuy Sell Total

1,908,842,894

200,000 100,004,900 22,300 22,300 100,204,900 -99,804,900

7,532,400

33,858

2-11 Jan-13

Net Buy Net Sell Net Buy Net Sell

2-11 Jan-1311 Jan 13

14 Jan 13

Total Volume Shares

11-Jan-13

NVDR Shrs. Paid up CapitalNVDR Shrs.

11-Jan-13

Jan-13 Jan-13

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

January 14, 2013


THAILAND EQUITY Investment Research

Daily

Sector Update Thailand Research Team +66 (0) 2862-9999 Ext.2030 Construction NEUTRAL �� Are We There Yet?

Where to next? The strong rally in the construction sector has raised questions on whether the sector has peaked or further upside is in store for it. Admittedly, there is no clear answer to this and it is a tough call to make as there are sufficient arguments supporting both sides. Nevertheless we believe the answer lies in the risk appetite of investors. For risk adverse investors, it might be a good time to take profit due to the lofty valuations and strong returns while high-risk investors may prefer to anticipate a further upside on the sector. At this juncture we are more skewed towards the latter as favorable news flow might be able to support any upside in the sector. Valuation fundamentals vs news flow. The sector’s valuation appears to be on the high side, where the forward PE for STEC stood at 25x and at about 46x and 91x for CK and ITD respectively. Theoretically, these PE valuations are expensive however we cannot deny that the sector in general is largely driven by the news flow; often enough, share prices move ahead of the valuation fundamentals. We think that once again, favorable news flows such as the massive infrastructure investments by the government coupled with the historical high backlog would continue to boost the share price performance for the sector beyond its valuation fundamentals. NEUTRAL, with tactical trading opportunities. While we are upbeat on Thailand’s future infrastructure spending as a key driver for construction, we are NEUTRAL on the sector on a long-term basis, as political and execution risks still pose as potential downsides to the sector. Nevertheless, for the short term, we believe there is a trading opportunity as the positive news flow will continue to support share prices. With the rather distorted PE valuation due to loss-making positions for several years, we think the P/BV valuation might provide a clearer valuation cycle for the sector. As such, we are switching our valuation parameter on STEC from PE to P/BV. Recommendation. We value STEC based on 7.1x P/BV, based on its peak P/BV valuation in 2003 and arrived at a FV of THB36.60 from THB27.30 (25x PE on FY13). As our recommendation on the sector is currently more skewed towards tactical calls, we downgrade our recommendation on STEC to a TRADING BUY from a BUY, albeit at the higher FV. Nevertheless STEC remains our Top Pick due to its strong track record and solid balance sheet. CK is also still a TRADING BUY, although we have raised our FV to THB19.60 from THB10.80 after raising our P/BV multiple from 1 standard deviation (SD) above its five-year average to 2 SD above its 10-year average P/BV to reflect the current market sentiment. We have a NOT RATED recommendation on ITD, at 1 SD above its10-year average P/BV, with a FV of THB5.57.

Stock

Price THB

Fair Value THB

Mkt Cap THBm

Volume ‘000

PER (x) FY12 ROE %

FY13 DY %

Rel. Performance % P/BV (x)

Rating FY13 FY14 1-mth 3-mth 12mth

STEC 26.75 36.60 31,731 5,694.1 24.7 21.6 18.9 2.3 -1.4 17.3 60.2 5.3 T. Buy CK 15.20 19.60 24,954 25,625.1 46.9 36.8 6.5 1.1 25.8 64.9 43.2 3.1 T. Buy ITD* 4.70 5.57 19,710 81,067.0 93.5 60.0 0.22 0.35 9.4 14.1 -3.3 2.4 Not Rated

*Based on consensus estimates

OSK Research January 14, 2013


WHERE TO NEXT? A strong, recent rally. The share prices of CH Kranchang (CK) and Sino-Thai Engineering (STEC) have jumped by 102% and 120% respectively over the last year, significantly outperforming the SET Index. Out of the three major listed contractors, only ITD (up 32.4%) has marginally unperformed the SET. As shown in Figure 1, the three contractors underperformed against the market in 1H12; it was only in the 3Q12 that STEC began to outperform the index, followed by CK in 4Q12, supported by positive news flow for the sector as well as the respective companies. Despite the strong rally in ITD’s share price in Dec 12, it still underperformed the market and lagged behind its peers. Apart from the boost to prices from positive news, we believe the strong rally may also be attributed to the sector’s performance, which has lagged previously.

Figure 1: Normalized performances of STEC, ITD, CK and SET

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Source: Bloomberg

Are we there yet? The strong rally in the sector has raised questions on whether it has hit its peak or there is more upside to go. Admittedly there is no clear answer to this and it is a tough call to make as there are sufficient arguments to support both positions. Nevertheless, we believe the answer lies in the risk appetite of the investors. We think it may be a good time for risk adverse investors to take profit due to the lofty valuations and strong returns, while high risk investors think there might be further upside for the sector. At this juncture, we are skewed towards the latter as the favorable news flow might be able to support any further upside on the sector, at least for 1H13. Company-specific news, such as the listing of CK’s power unit CK Power PCL, the progress of the Dawei Deep Sea project and the sale of its potash mines for ITD might continue to be positive catalysts to their respective share prices.

VALUATION FUNDAMENTALS vs NEWS FLOW News flow drives the sector, but fundamentals still play a role. One cannot deny that the sector in general is highly driven by news flow; often enough, the share prices move ahead of the valuation fundamentals. We think that once again, favorable news flows such as the massive infrastructure investments by the government coupled with the historical high backlog continue to push up share prices for the sector beyond its valuation fundamentals. While share prices are largely boosted by positive news, company fundamentals do play a supporting role as well. For example, out the three major contractors, STEC was the first to outperform the market as well as post its best performance, which we believe is attributable to its strong business fundamentals and solid balance sheet. In contrast, for ITD, we believe that the uncertainty over the Dawei development, coupled with its highly-geared balance sheet, has been a drag on its performance. Expensive PE but P/BV still below peak. Undoubtedly, the valuation for the sector appears to be on the high side where the forward PE for STEC stand at 25.4x, and CK and ITD’s forward PE are at about 46.7x and 91.5x respectively. Nevertheless, the PE multiple might not be the best indicator, partly due to the cyclical nature of the sector’s earnings. There were also some loss-making years coupled with one-off provisions or gains over the years. Subsequently we believe the P/BV might provide a clearer and smoother valuation



indicator for the sector. With the strong rally in the share price, STEC currently trades at over +2SD above the mean of its last 10-year cycle. At about 5.6x P/BV, STEC currently trades about 1.2x above its 10-year average P/BV but it is about 21% below its peak P/BV valuation of 7.1x recorded in early 2003. CK, despite the recent rally, still trades at around +1SD above its average 10-year mean of 3.1x which is well below its peak P/BV valuation of 7.36x. Meanwhile, it appears that ITD is currently the cheapest large contractor in term of P/BV valuation, currently trading at about 2.5x which is less than +1 SD above its mean and below its peak P/BV valuation of 5.0x 2003 P/BV of 5.0x. From a P/BV perspective, the contractors are trading above their 10-year average P/BV, but below its peak P/BV valuation of early 2003.

Figure 2: P/BV valuation over 10-year cycle

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2003 and now. As we mentioned earlier, the major contractors reached their peak P/BV valuation back in 2003. To recap, the early 2000s was a period in which Thailand recovered from the 1997/1998 Asian Financial Crisis. It was also the best times for the government led by then-Prime Minister Thaksin Shinawatra, with robust economy growth and massive infrastructure development plans in place. Unfortunately, most of the development plans didn’t really take off due to years of internal political strife which kicked off with the coup in 2006. We believe it is fair to compare the current political and economic landscape with the early 2000s, as the government is embarking on the massive infrastructure development projects after years of delay due to political crises. With the similar and currently favorable economic and political landscape, it is possible for the construction sector to regain the glory it had in 2003, further supporting a further rerating for the sector.

THE CATALYSTS Government infrastructure spending a major boost. In order to increase the kingdom’s competitiveness, especially in preparation for the Asean Economic Community (AEC), the Thai government has adopted policies for growth, such as making huge allocations for infrastructure spending to improve connectivity within the country. This year, it approved a massive THB2.27trn spending plan to roll out infrastructure projects over the next five years. The projects, which are expected to kick off between this year and 2016, include new inter-city road links, high-speed train networks, urban mass transit systems, as well as various marine, air transport and telecommunication development works. Following 2011’s devastating floods, the government has allocated about THB350bn for reconstruction and flood-mitigation projects. Overall, an estimated THB1trn worth of projects are up for bids from 2012 to 2014. As such, we believe there are ample opportunities for the construction sector to benefit from the robust infrastructure spending over the next few years. Riding high on the mass transit system. The Thai government embarked on mass transit projects more than a decade ago to improve connectivity within the greater Bangkok area, as well as to ease traffic congestion in the capital. Under the rail master plan, it aims to have 12 mass transit lines covering 509km in all, to be operational by 2029. About 309km is expected to be ready by 2019 in the first phase. Several mass



transit lines are up for bids between 2013 and 2014, which, in our view, is a sizeable upside to the construction backlog. We believe large-scale contractors with experience in mass transit projects such as ITD, CK and STEC are set to be the biggest beneficiaries from ongoing and future mass transit projects. Other than the urban mass transit system, the government is also embarking on double-tracking railway projects aimed at improving the efficiency of Thailand’s railway system. Infrastructure Fund (IFF) spurs construction investments. As part of government’s efforts to ease infrastructure spending as well as fast track development through its private partnership policy (PPP), the Securities and Exchange Commission (SEC) Thailand has introduced a new financial mechanism called the “Infrastructure Fund” (IFF), which enables private or state enterprises to raise funds and investments for infrastructure projects. Apart from easing the financial burden, we believe the establishment of the IFF will provide a positive catalyst in speeding up Thailand’s infrastructure investments, subsequently benefiting the construction sector.

Figure 3: Construction spending in Thailand since 1996

Source: STEC

Figure 4: Projects up for bids from 2012-2014

Projects Value (THBm)

Dark Green Line (Mo Chit – Saphan Mai) 36,513Dark Green Line (Saphan Mai – Lum Luk Ka) 11,000Pink Line (Khae Rai – Min Buri) 50,000Light Green Line (Bearing – Samut Prakarn); Trackwork 2,500Dark Red Line (Taling Chan – Siriraj) 5,000Double Track (Klong 19 – Keang Koy) 11,000Double Track (Prachuap Khiri Khan – Chumphon) 17,000Double Track (Thanon Chira – Khon Kaen) 25,000Motorway 2 Routes : Bang Yai – Ban Pong – Nam Phu Ron, Bangpa In - Korat

40,000

Suvarnabhumi Airport (Phase II) 62,503MEA Office Building, Khlong Toei 3,500High Speed Train (4 Routes) 413,803New Parliament 12,287Flood Protection System 350,000Total 1,040,106

Source: CK



OUR VIEW NEUTRAL, with tactical trading opportunities. While we are upbeat on Thailand’s future infrastructure spending as a key driver of the construction sector, we are NEUTRAL on the sector on a long-term fundamental basis. Political and execution risks still pose as potential key downsides for the sector. Nevertheless, for the short term, we believe there is a trading opportunity as the positive news flow will continue to support share prices. With the PE valuation being rather distorted due to companies making losses for some years, we think the P/BV valuation might provide a clearer valuation cycle for the sector. As such, we are switching our valuation parameter on STEC from PE to P/BV. Recommendation. We value STEC based on 7.1x P/BV, which is based on its peak P/BV valuation in 2003, and arrived at a FV of THB36.60 from THB27.30 (25x PE on FY13). As our recommendation on the sector is currently skewed towards tactical calls, we downgrade our recommendation on STEC to TRADING BUY from Buy albeit at the higher FV. Nevertheless STEC remains our Top Pick due to its strong track record and solid balance sheet. We maintain our TRADING BUY call on CK and raise our FV to THB19.60 from THB10.80, after raising our P/BV multiple from 1SD above its five-year average to 2SD above its 10-year average P/BV to reflect the current sentiment of the market. We have a NOT RATED recommendation on ITD, at 1SD above its10-year average P/BV, with a FV of THB5.57. WHAT COULD GO WRONG Politics, politics and politics. Political risks, still prevalent after years of turmoil, are the greatest risk to the construction sector as the implementation of the infrastructure development projects largely depend on the stability of the government. Any changes in the administration could lead to a further delay in the implementation of those projects. While the situation is now calmer, any political turbulence will remain as a key risk for the sector. Apart from the political risk (as the sector has performed well recently, and it has a high beta against the market), we believe any major market correction could result in a rather significant correction in share prices. While a short-term correction might represent an opportunity to accumulate, the sector is expected to underperform in the long-term, in a bearish market.



APPENDIX

Figure 5: 10-year P/BV band for CK

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Figure 6: 10-year P/BV band for ITD

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Figure 7: 10-year P/BV band for STEC

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OSK Research 14 January 2013



Daily

Company Update The Research Team +66 (0) 2862 9999 ext 2030 Shin Corporation (INTOUCH) Business as Usual TRADING BUY Fair Value THB76.20 Previous THB76.20 Price THB65.75

TELECOMMUNICATION Shin Corp (INTOUCH) is an investment holding company focusing on the telecommunication sector. It holds a 40.45% stake in ADVANC and 41.14% in THAICOM.

Stock Statistics Bloomberg Ticker INTUCH TB Share Capital (m) 3,206.4 Market Cap (Btm) 210,822.1 52 week H│L Price (Bt) 71.00 41.50 3mth Avg Vol (‘000) 15,317.6 YTD Returns -4.7 Beta (x) 0.70 Major Shareholders (%) Temasek Holdings 41.62 Cedar Holdings 13.35 Share Performance (%) Month Absolute Relative 1m -0.8 -5.6 3m 1.9 -4.9 6m 2.5 -13.3 12m 63.1 16.5

6-month Share Price Performance

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Despite recent changes in INTOUCH’s major shareholding and Mfone’s filing for bankruptcy, we still find the company’s business fundamentals intact and the financial impact immaterial. We maintain our forecast and TRADING BUYrecommendation on the stock, with our FV unchanged at THB76.20, based on a 20% discount to its NAV. We continue to like INTOUCH as an alternative exposure to the Thai telco sector, as well as its solid dividend.

Shake-up in major shareholding. Last week, INTOUCH’s second-largest shareholders, Cedar Holdings (a subsidiary of Temasek Holdings), sold 330m INTOUCH shares – representing about 10.3% of the total number of shares – via private placement at an average selling price of THB63.25 apiece, or about 5% discount to the market price. It was reported that 20% of the share placement was sold to local investors, while the remaining 80% went to Thai NVDR Co. The shares sale was no surprise as we had previously gathered that its largest shareholder Temasek was considering the possibility of trimming its INTOUCH stake in order to improve the share’s liquidity as well as to lock in the return on its investment. Prior to this, Temasek had sold its shares in INTOUCH twice - in August 2011 and January 2012 respectively. While there was a negative reaction to the share price discount, we believe there are no changes in the company’s business direction as management and the company’s shareholders are independent entities. In the long run, we believe INTOUCH’s improved liquidity should boost its investability. No impact from Mfone. Earlier, Mfone, a subsidiary of one of THAICOM’s subsidiaries, Shenington Investments (SI), filed for bankruptcy after SI failed to meet the conditions pertaining to Mfone’s debt restructuring, which was to be disposed of to INT Management. The bankruptcy filing was meant to divest Mfone as part of SI’s exit from the highly competitive and over-crowded Cambodian mobile market. We gather that it will take one month from the date of filing before the court reaches a verdict. With THAICOM having made provisions on the sale of Mfone and the former’s minimal earnings contribution to INTOUCH, the overall financial impact on INTOUCH is insignificant. Trading Buy. We maintain our forecast and TRADING BUY recommendation on INTOUCH at an unchanged FV of THB76.20, based on a 20% discount to its NAV valuation. The stock provides an alternative exposure to the Thai telco sector, besides its solid dividend.

FYE Dec (THBm) FY10 FY11 FY12f FY13f FY14f Revenue 17,327.9 26,225.5 23,625.2 26,625.6 28,533.0 Normalized Net Profit 8,015.7 9,296.2 13,367.2 15,352.3 16,375.6 % chg y-o-y 43.8 14.9 6.7 Consensus 13,620.0 15,385.0 16,415.0 EPS (THB) 2.50 2.90 4.17 4.79 5.11 DPS (THB) 6.77 5.55 4.17 4.79 5.11 Dividend yield (%) 10.4 8.5 6.4 7.4 7.9 ROE (%) 36.2 43.9 60.9 67.0 69.5 ROA (%) 17.0 1.5 2.3 3.0 3.5 PER (x) 26.0 22.4 15.6 13.6 12.7 BV/share (THB) 6.91 6.60 6.85 7.14 7.35 P/BV (x) 9.4 9.9 9.5 9.1 8.8 EV/ EBITDA (x) 19.4 16.5 12.3 10.9 10.3

OSK Research 14 January 2013


EARNINGS FORECASTS

FYE Dec (THBm) FY10 FY11 FY12f FY13f FY14f Turnover 17,327.9 26,225.5 23,625.2 26,625.6 28,533.0 EBITDA 10,533.5 12,415.2 16,698.0 18,934.4 19,957.7 PBT 7,415.5 9,293.1 13,573.0 15,814.4 16,837.7 Net Profit 8,015.7 9,296.2 13,367.2 15,352.3 16,375.6 EPS (THB) 2.50 2.90 4.17 4.79 5.11 DPS (THB) 6.77 5.55 4.17 4.79 5.11 Margin EBITDA (%) 60.8 65.5 70.7 71.1 69.9 PBT (%) 42.8 49.0 57.5 59.4 59.0 Net Profit (%) 46.3 49.0 56.6 57.7 57.4 ROE (%) 36.2 43.9 60.9 67.0 69.5 ROA (%) 17.0 1.5 2.3 3.0 3.5 Balance Sheet Fixed Assets 40,650.5 39,261.1 41,821.3 41,956.5 41,545.4 Current Assets 6,522.5 16,266.0 14,604.3 13,425.3 12,422.7 Total Assets 47,173.0 55,527.0 56,425.6 55,381.8 53,968.1 Current Liabilities 8,442.4 19,868.8 19,765.8 17,862.4 15,977.5 Net Current Assets 38,730.6 35,658.2 36,659.9 37,519.3 37,990.6 LT Liabilities 8,011.2 6,332.6 6,461.5 6,381.8 6,317.6 Shareholders Funds 22,142.3 21,158.9 21,965.4 22,902.4 23,561.6 Net Gearing (%) 26.7 30.0 30.8 30.1 29.0

January 14, 2013



Daily

2012 & 4Q12 Earnings Review Chalie Kueyen +662 862 9745 [email protected]

TMB Bank

A Burden From High LLP Fair Value THB 2.15 Price THB2.06

Bank The Bank is engaged in the universal

banking business with 52% of its lendings in wholesale, 30% in SME, and the remainder in retail.

Stock Statistics Bloomberg Ticker TMB TB Share Capital (m) 43,549.9 Market Cap (USDm) 2,894.0 52 week H│L Price (THB) 2.12 1.40 3mth Avg Vol (‘000) 139,419.1 YTD Returns 10.8 Beta (x) 1.11 Major Shareholders (%) Ministry of Finance 26.1% ING 25.2% Thai VNDR 5.9% Share Performance (%) Month Absolute Relative 1m 9.6 6.6 3m 15.1 5.7 6m 33.8 15.4 12m 31.9 -3.5

6-month Share Price Performance

TMB’s 4Q12 and FY12 earnings suggest that the improvement of its core earnings continue to accelerate, as revenues grew faster than opex. Its funding cost that has become more competitive allows room for NIMs to improve going forward. The surprisingly high LLP in 4Q12 may baulk short-term investors, although its FY13 earnings growth momentum will help the bank regain their confidence. As there is a limited upside to TMB’s FV and its share price has rallied by 28% since our BUY call in Aug 2012, we downgrade our recommendation from BUY to HOLD with a FV of THB2.15 (based on PBV of 1.5x).

A loss of THB2.1bn in 4Q12, net profit of THB1.6bn for FY12. Surprisingly, losses were booked mainly from TMB’s substantial loan loss provision (LLP) of THB5.4bn (5x the normal LLP in each quarter), which it intentionally set to improve its asset quality. With huge LLP in 4Q12, its NPL coverage climbed to 113% (vs 83% in 3Q12), in line with industry’s 116%. Without the bulky LLP, 4Q12 core earnings would be relatively solid with growth of 15% q-o-q and 158% y-o-y, which is above our estimates by about 20%. For FY12, net profit was at THB1.6bn (-60% y-o-y), while core earnings were at THB10.9bn (+41% y-o-y). Several positive implications. Despite the unexpected interest rate cut of 25 bps in Oct 2012, TMB’s NIM was relatively maintained as the cost of funding declined faster than loan yields. In addition, loans growth also accelerated for three consecutive quarters by 4% q-o-q and 14% y-o-y. On top that, SME loans (33% of total loans) increased by +32% y-o-y (vs 6% for corporate loans and 9% for retail loans). Furthermore, fee income growth was impressive, at 16% q-o-q and 40% y-o-y in 4Q12, and 21% for FY12. Lastly, despite solid NII and non-NII growth, opex grew slower, at 6% y-o-y in FY12, bringing down the cost-to-income ratio to 57% in 4Q12 or 59% for FY12 (down from 65% in FY11). NPLs also fell sharply. TMB sold part of its NPLs worth THB5.7bn (or around 20% of NPLs) to BAM (National AMC) in 4Q12. In addition to a new and well-managed NPL level, TMB’s absolute NPLs fell significantly by 22% q-o-q and 26% y-o-y with a NPL ratio of 4.9% (vs 7.5% in FY11). Furthermore, setting a huge LLP of THB5.4bn in 4Q12 (or THB8.7bn for FY12) helped to boost its NPL coverage to improve significantly to 113%, closer to industry average of 116%.

FYE Dec (THBm) FY10 FY11 FY12 FY13f FY14f Net Interest Income 10,646 14,235 17,065 17,841 19,055 Total Income 17,612 22,527 26,586 27,340 29,298 Net Profit 3,202 4,009 1,605 5,436 5,869 % chg y-o-y 65% 25% -60% 239% 8% Consensus Estimates 5,116 5,492 n.a. EPS (THB) 0.08 0.10 0.04 0.13 0.14 DPS (THB) 0.015 0.03 0.02 0.07 0.07 Div. Yield (%) 0.6% 1.9% 0.9% 3.2% 3.4% ROE 6.6% 7.9% 10.8% 11.3% 12.2% ROA 0.6% 0.6% 0.8% 0.9% 1.1% PER (x) 33.3 17.7 53.1 15.7 14.5 BV/share (THB) 1.21 1.26 1.30 1.42 1.49 PBV (x) 2.1 1.3 1.58 1.45 1.38

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Figure 1: TMB’s quarterly earnings performance

%chg %chg %chg 2012F 2013FUnit : Bt mn 4Q11 1Q12 2Q12 3Q12 4Q12 QoQ YoY 2011 2012 YoY Interest income 7,475 7,476 7,379 7,774 8,049 4% 8% 26,148 30,678 17.3% 30,265 34,485

Interest expense 3,608 3,538 3,328 3,353 3,393 1% -6% 11,912 13,613 14.3% 14,371 16,644

Interest income - net 3,867 3,938 4,051 4,421 4,655 5% 20% 14,235 17,065 20% 15,894 17,841 Non-interest income 1,982 2,092 2,090 2,285 3,055 34% 54% 8,291 9,521 15% 8,705 9,499 Gain (loss) on investments 1 50 7- 40 3 -94% 207% 106 86 19% 100 115

Fees and service income 1,370 1,432 1,558 1,657 1,923 16% 40% 5,442 6,570 21% 5,986 6,584

Gain on exchanges 411 427 405 444 434 -2% 5% 1,908 1,710 -10% 1,600 1,800

Other income 200 26 134 143 695 386% 248% 836 998 19% 1,019 1,000

Operating expense 4,544 3,697 3,700 3,821 4,403 15% -3% 14,756 15,621 6% 15,150 16,186 Personnel expenses 2,320 1,751 1,702 1,813 1,950 8% -16% 6,825 7,217 6% 7,320 7,906

PP&E exp. 717 600 637 655 559 -15% -22% 2,621 2,451 -6% 2,400 2,640

Taxes and duties 220 219 232 244 266 9% 21% 803 960 20% 800 820

Fees and service exp. 439 480 450 472 491 4% 12% 1,710 1,894 11% 1,900 2,090

Other expenses 848 647 678 637 1,137 78% 34% 2,797 3,099 11% 2,730 2,730

Pre-provision profit 1,306 2,333 2,441 2,884 3,307 15% 153% 7,771 10,965 41% 9,449 11,155 Provision (Reverse) 444 1,242 932 1,195 5,382 350% 1112% 3,104 8,751 182% 4,338 4,360

Impairment charge 92 59 230 157 103 -35% 11% 582 548 -6% - -

Income tax 10 8 9 10 9 -9% -7% 40 36 -11% - 1,359

Minority 6 6 7 8 4 -53% -33% 22 26 14% - -

Net profit 968 1,032 1,263 1,437 2,127- -248% -320% 4,009 1,605 -60% 5,111 5,436 EPS (Bt) 0.023 0.026 0.032 0.037 0.054- -248% -331% 0.10 0.04 -58% 0.124 0.131

No. of common share (mn sh) 41,352 41,352 41,372 41,372 41,372 41,352 41,372

Book value (Bt/sh) 1.26 1.29 1.29 1.32 1.30 1.26 1.30

Total loan (Bt mn) 398,387 401,716 422,343 436,757 453,723 398,387 453,723

- grow th -YoY (%) 9.5% 6.04% 11.38% 12.36% 13.89% 9.5% 13.9%

- grow th -QoQ (%) 2.5% 0.8% 5.1% 3.4% 3.9%

Loan breakdown by value Corp 206,763 203,268 214,973 213,574 219,148 -0.7% 4% 206,763 219,148

SME 113,939 119,711 125,858 139,762 151,090 11.0% 32% 113,939 151,090

Retail 77,685 78,736 82,779 83,421 83,031 0.8% 9% 77,685 83,031

Total 398,387 401,716 423,610 436,757 453,269 3.1% 12% 398,387 453,269

Loan breakdown by % Corp 52% 50.6% 50.9% 49% 48% 52% 48%

SME 29% 29.8% 29.8% 32% 33% 29% 33%

Retail 20% 19.6% 19.6% 19% 18% 20% 18%

Total 100% 100% 100% 100% 100% 100% 100%

Deposit (Bt mn) 554,582 538,467 540,891 523,660 539,406 554,582 539,406

- grow th -YoY (%) 34.2% 1.1% 1.9% 0.1% -2.7% 34.2% -2.7%

- grow th -QoQ (%) 6.0% -2.9% 0.5% -3.2% 3.0%

NPLs-gross (Bt mn) 29,828 30,470 28,169 28,192 22,103 29,828 22,103

NPLs-gross/Loans (%) 7.5% 7.6% 6.7% 6.5% 4.9% 7.5% 4.9%

NPL coverage (%) 73% 74% 79% 83% 113% 72.9% 112.8%

Provision-to-loan ratio 45 124 88 109 474 80 199

Asset yield (%) 5.11% 4.80% 4.73% 5.03% 4.92% 4.6% 4.9%Cost of fund (%) 2.69% 2.48% 2.34% 2.39% 2.26% 2.3% 2.4%Net interest margin (NIM) (%) 2.64% 2.53% 2.60% 2.86% 2.84% 2.5% 2.7%

LDR (%) 83% 84% 83% 87% 86% 83% 86%

Cost to income ratio 78% 61% 60% 57% 57% 66% 59%

ROA (%) 0.6% 0.6% 0.7% 0.9% -1.2% 0.7% 0.3%

ROE (%) 7.6% 8.0% 9.7% 10.9% -16.1% 8.0% 3.1%

Tier I 11.1% 11.2% 11.5% 11.6% 11.1% 11.1% 11.1%

CAR 16.1% 16.2% 18.3% 18.9% 18.2% 16.1% 18.2%

Source: Company data, OSK Research

OSK Research PP10551/09/2013 (032829) 14 Jan 2013

OSK Research | See important disclosures at the end of this report 1 Powered by Enhanced Datasystems’ EFA Platform

THAILAND EQUITY

Investment Research Daily

Sector Update

Aviation

Dec 2012 Operating Stats Better Than Expected

AOT saw strong operating statistics for 1QFY13 as passenger and aircraft traffic reporting surged 29% and 17% y-o-y, largely driven by fleet expansion, route connectivity and increased frequencies, notably by the LCCs (low cost carriers) and Middle Eastern airlines. Domestic travel also shot up due to the opening of DMK (Don Muang). This pace should continue and surpass our original passenger traffic forecast of 5.8% for FY13. We raise our passenger traffic growth forecast from 5.8%/ 5.6%/ 5% for FY13/FY14/FY15 respectively to 12.8%/ 8.3%/ 6.8%. Maintain OVERWEIGHT on Thai aviation sector, with AOT as our top pick, at a higher FV of THB120. We also like Asia Aviation as it achieves economies of scale by operating a larger fleet.

Strong numbers. AOT posted a strong operating statistics for 1QFY13, with its passenger and aircraft traffic surging 29% and 17% y-o-y. The sterling growth was driven by the jump in passenger numbers at all its 6 airports, with Don Muang (DMK), Hatyai (HDY) and Chiang Rai (CEI) recording the biggest gains (see Figure 1 overleaf for the operating statistics.) The robust numbers were largely fuelled by fleet expansion, route connectivity and increased frequencies by airline operators, notably the LCCs as well as Middle Eastern carriers such as Emirates and Qatar. Above expectation. At 29% y-o-y growth in 1Q alone in terms of total passengers handled, we expect AOT’s strong momentum to continue and consequently surpass our original passenger traffic forecast of 5.8% for FY13 initially. We are now revising upwards our passenger traffic growth by double to 12.8% y-o-y for FY13. We also lift our FY14 and FY15 passenger traffic growth from 5.6% and 5% respectively to 8.3% and 6.8% y-o-y. As we deem our 12.8% traffic growth projection for FY13 still conservative, this leaves room for more potential upside. Note that AOT’s passenger traffic in 1Q alone already accounted for 25.4% of the full-year projection, although typically traffic would only have accounted for 23-22% of the total during this period. Growth sustainable, boosted by favorable demographics. We like the Thai aviation sector for its favorable demographics, which is boosting the country’s passenger numbers. Thailand’s urbanization rate of only 34-37% coupled by its lower air trips per capita versus Malaysia’s estimated 78% urbanization rate and higher trips per capita provides plenty of room to propel the Kingdom’s air passengers further. The population is benefiting from rising welfare following the implementation of the higher minimum wage policy, which has yet to fully take effect. The country is also in a strategic spot to tap into the growing number of inbound passengers from India, China and Indo China. Tourists from China saw tremendous growth of 56% up to November 2012, making it the biggest contributor to total tourist numbers, followed by Malaysia and Japan. Maintain OVERWEIGHT on Thailand Aviation. We maintain our OVERWEIGHT call on the Thailand aviation sector, with BUYs across our coverage. Our top pick is AOT, which is benefitting from growing passenger traffic, fed by the expansion in capacity among airlines, which would ultimately improve its earnings and free cash flow.

OVERWEIGHT

Stock Price Target ROE DY P/NTA (x) Rating

Dec-12F Dec-13F Dec-12F Dec-12F 1mth 3mth 12mth Dec-12F

Airport of Thailand PCL THB95.5 THB120 4,507 1.853 19.8 14.8 8.7% 1.9% 4.7% 13.0% 95.9% 1.8 BUY

Asia Aviation PCL THB5.4 THB7 857 104.287 34.5 25.9 50.9% 0.0% 15.8% 9.6% na 7.1 BUY

Thai Airways International PCLTHB22.8 THB35 1,644 6.070 7.9 4.5 9.7% 4.4% 6.5% 2.2% 8.6% 0.7 BUY

Mkt Cap

US$m

Volume

m

P/E (x) Rel. Performance (%)

Source: Company data, OSK Research estimates

ratree.lu

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Thailand Research Team. +66 (0 ) 2 862 9999 Ext.2030



KEY HIGHLIGHTS

Strong numbers. AOT posted strong operating statistics for 1QFY13, during which passenger and aircraft traffic jumped 29% and 17% y-o-y respectively. The sturdy performance was driven by the jump in passenger numbers at all its six airports, with Don Muang (DMK), Hatyai (HDY) and Chiang Rai (CEI) growing the fastest (Plse see Figure 1). The strong numbers were largely fuelled by fleet expansion, route connectivity and increased frequencies by airline operators, notably LCCs as well as Middle Eastern carriers such as Emirates and Qatar. Total passengers handled growth was largely driven by international visitors, which grew by 35% y-o-y in 1QFY13, while the domestic side grew by 19% y-o-y. Above expectations. AOT’s 29% y-o-y growth in 1Q total passengers handled alone reinforces our belief that this rapid pace will continue and beat our original passenger traffic forecast of 5.8% for FY13. Hence we are revising upwards our passenger traffic growth by double to 12.8% y-o-y for FY13 while also nudging up our FY14 and FY15 passenger traffic growth estimates from 5.6% and 5% respectively to 8.3% and 6.8% y-o-y. Yet, we still deem our 12.8% traffic growth projection for FY13 conservative, which leaves room for more upside potential. Note that AOT’s passenger traffic in 1Q alone already accounted for 25.4% of our full-year projection for that quarter, during which traffic typically only made up 23%-22% of the estimates. Boost from airline operators. Of the 29% growth in passengers handled in 1QFY13, 33% y-o-y growth was contributed by the LCCs while full service carriers’ passenger traffic expanded by 27%. We gather that at least 20 aircraft were delivered during the October – December 2012 period to all Thai airline operators, up from 11 aircraft in the corresponding quarter last year. Passengers favour Don Muang. AOT’s management has clearly made the right move to set up a second airport dedicated to LCCs in DMK. Many passengers find it a more convenient airport due to its proximity to the city. This encourages demand for domestic flights due to the travel time saved. The fact that AirAsia is the only airline that has opted to shift operations to Don Muang from the congested Suvarnabhumi airport (BKK) has had a positive impact on AOT due to the possibility of incurring lower than expected incentives forked out in attempt to lure more LCCs to shift to Don Muang. AirAsia expands to India. It is rumored by the Indian media that AirAsia is close to setting up a new hub in India, the second biggest growing aviation market. We do not find this surprising since AirAsia Group CEO Tony Fernandes has hinted of this in his twitter update, and journalists from India were also invited to AirAsia’s recent media briefing in Toulouse in conjunction with the delivery of the LCC’s first sharklet-tipped wing aircraft. We understand that Fernandes has approached Videocon Group chairman, Venugopal Dhoot, with regard ot the setting up of an airline although discussions are still preliminary. Although regulations are currently very restrictive, we see the exit of Kingfisher Airlines due to bankruptcy as presenting an opportunity for AirAsia to set up a hub. This make sense since Thailand is less than a 4-hour flight radius from India, the opening of an Indian hub by AirAsia, if it happens would bode well in feeding passengers into Thailand, benefiting both AOT and Asia Aviation. Favorable demographics mean sustainable growth. We like the Thai aviation sector for the country’s favorable demographics, which is seeing strong growth in passenger numbers. Thailand’s urbanization rate – at only at 34-37% - coupled by its lower air trips per capita versus Malaysia’s estimated 78% urbanization rate and higher trips per capita gives room for the Kingdom’s air passenger to expand further. The population is benefiting from rising welfare following the implementation of the higher minimum wage policy, which has yet to fully take effect. The country is also in a strategic spot to tap into the growing inbound passengers from India, China and Indo China. Tourists from China have soared 56% YTD to November 2012, making it the biggest contributor to total tourist numbers, followed by Malaysia and Japan. Maintain OVERWEIGHT on Thai Aviation. We maintain our OVERWEIGHT call on the Thailand aviation sector, with BUY calls across our coverage. Our top pick is AOT, which benefits from the growing passenger traffic numbers fed by expanding capacity among airline operators, which would improve earnings and free cash flow further despite the onerous capex seen for the expansion of BKK airport. We also like Asia Aviation’s economies of scale to drive down operating costs further given its small fleet base, which is growing aggressively to expand its connectivity with China and Indo China.

Total passengers handled grew strongly by 28.5% y-o-y in 1Q, propelled by fleet expansion, route connectivity and increased frequencies by airline operators, notably LCCs.

We raise our passenger traffic growth forecasts from 5.8%/ 5.6%/ 5% in FY13/FY14/FY15 respectively to 12.8%/8.3%/6.8%.

At least 20 aircraft were delivered from Oct – Dec 2012 compared to 11 in the corresponding period in 2011.

Many passengers find Don Muang more airport due to its proximity to the city. This boosts demand for domestic travel.

India is within a 4- hour flight radius from Thailand. A promising market for narrow-bodies.

Thailand has a lot of room to grow given its favorable demographics and rising per capita income.



FIGURE 1: AIRPORTS’ OPERATING STATISTICS

Quarterly1Q-FY13 International Aircraft Domestic Aircraft Total Aircraft International Pax Domestic Pax Total Pax FreightBKK 54963 14300 69263 10372143 2141636 12513779 329402DMK 8756 23016 31772 1077745 2476358 3554103 4052CNX 1454 8780 10234 151291 1137302 1288593 4707HDY 519 3638 4157 62490 506559 569049 4674HKT 9065 7368 16433 1432040 1143834 2575874 10514CEI 102 1790 1892 2761 284421 287182 1165TOTAL 74859 58892 133751 13098470 7690110 20788580 354514

Q-o-Q International Aircraft Domestic Aircraft Total Aircraft International Pax Domestic Pax Total Pax FreightBKK -5% -31% -11% 2% -27% -4% -1%DMK 631% 55% 98% 1314% 112% 185% 154%CNX 17% 22% 21% 22% 26% 26% 2%HDY 7% 15% 14% 15% 10% 10% 25%HKT 20% 5% 13% 26% 5% 16% 46%CEI 21% 20% 20% 76% 31% 31% -1%TOTAL 10% 8% 9% 14% 13% 14% 1%

Y-o-Y International Aircraft Domestic Aircraft Total Aircraft International Pax Domestic Pax Total Pax FreightBKK -1% -47% -16% 24% -39% 5% -3%DMK 4235% 541% 738% 22108% 773% 1132% 831%CNX 32% 14% 16% 28% 12% 14% -28%HDY 4% 15% 13% -2% 29% 25% 5%HKT 17% 4% 11% 21% 13% 17% 27%CEI 1175% 26% 32% 17156% 25% 26% -11%TOTAL 15% 18% 17% 35% 19% 29% -2%

Monthly numbersDec-12 International Aircraft Domestic Aircraft Total Aircraft International Pax Domestic Pax Total Pax Freight

BKK 19106 5070 24176 3710306 767597 4477903 108979DMK 3085 8319 11404 391864 881008 1272872 1437CNX 541 3246 3787 56434 437265 493699 1557HDY 161 1276 1437 20214 170542 190756 1582HKT 3393 2539 5932 553759 392039 945798 3955CEI 36 646 682 1212 105659 106871 396TOTAL 26322 21096 47418 4733789 2754110 7487899 117906

Y-o-Y International Aircraft Domestic Aircraft Total Aircraft International Pax Domestic Pax Total Pax FreightBKK 0% -52% -18% 22% -45% 1% -10%DMK 308400% 23008% 30722% NA 5873287% 8485713% NACNX 32% 14% 16% 18% 14% 14% -25%HDY -2% 19% 16% 5% 17% 15% 1%HKT 20% 2% 11% 23% 9% 17% 27%CEI 800% 27% 33% 10000% 28% 29% -10%TOTAL 17% 21% 19% 33% 17% 26% -8%

M-o-M International Aircraft Domestic Aircraft Total Aircraft International Pax Domestic Pax Total Pax FreightBKK 5% 10% 6% 7% 9% 7% -1%DMK 8% 13% 12% 10% 11% 11% 7%CNX 10% 16% 15% 12% 18% 18% -5%HDY -19% 9% 5% -16% 5% 2% 1%HKT 14% 6% 10% 19% 5% 13% 9%CEI 6% 15% 14% 64% 16% 16% 6%TOTAL 6% 12% 9% 8% 10% 9% 0%

Source: AOT



FIGURE 2: PASSENGERS HANDLED

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SOURCE: AOT

FIGURE 3: AIRPORT OPERATING STATS FOR LCCS

Dec '11 Nov '12 Dec '12 M-o-M Y-o-Y 1QFY12 4QFY12 1QFY13 Q-o-Q Y-o-Y

INTERNATIONAL

BKK 390979 221781 240630 8% -38% 1054209 1419107 677736 -52% -36%DMK 0 336358 361100 7% NM 0 10551 1005083 9426% NMCNX 21462 21673 22269 3% 4% 55998 58671 64630 10% 15%HDY 19076 18509 20199 9% 6% 52451 47621 56684 19% 8%HKT 129090 108618 130197 20% 1% 344961 281604 342941 22% -1%CEI 0 - - NA NA 0 0 0 NA NATotal 560607 706939 774395 10% 38% 1507619 1817554 2147074 18% 42%

DOMESTIC Dec '11 Nov '12 Dec '12 M-o-M Y-o-Y 1QFY12 4QFY12 1QFY13 Q-o-Q Y-o-YBKK 668514 - - NA NM 1539228 909041 93 -100% -100%DMK 0 776779 864288 11% NA 272579 1124351 2429461 116% 791%CNX 190593 168202 213708 27% 12% 490689 422260 544109 29% 11%HDY 111775 128038 137001 7% 23% 298838 346629 403487 16% 35%HKT 140804 147343 153352 4% 9% 397329 421679 450792 7% 13%CEI 39930 53178 63941 20% 60% 107024 127186 169455 33% 58%Total 1151616 1273540 1432290 12% 24% 3105687 3351146 3997397 19% 29%

TOTAL Dec '11 Nov '12 Dec '12 M-o-M Y-o-Y 1QFY12 4QFY12 1QFY13 Q-o-Q Y-o-YBKK 1059493 221781 240630 8% -77% 2593437 2328148 677829 -71% -74%DMK 0 1113137 1225388 10% NM 272579 1134902 3434544 203% 1160%CNX 212055 189875 235977 24% 11% 546687 480931 608739 27% 11%HDY 130851 146547 157200 7% 20% 351289 394250 460171 17% 31%HKT 269894 255961 283549 11% 5% 742290 703283 793733 13% 7%CEI 39930 53178 63941 20% 60% 107024 127186 169455 33% 58%Total 1712223 1980479 2206685 11% 29% 4613306 5168700 6144471 19% 33%

Source: AOT

Figure 4: TOTAL LCC PAX HANDED

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Source: AOT



THAILAND EQUITY


Company Update

Airport of Thailand

Solid Numbers All Round

AOT’s strong passenger traffic in 1QFY13, which grew 29%, prompts us to raise our passenger traffic projections by 7%-11% for FY13-FY15. Although the likely delay in raising PSC (passenger service charges) - which have been postponed by another year to FY15 - we are still bullish on its earnings, which we are raising by 21%/ 7%/ 31% respectively for FY13/ FY14/ FY15. AOT’s ability to accumulate massive free cash flow (to equity) of THB26bn over the next five years despite onerous capex amounting to THB58bn justifies that its valuation premium. We lift AOT’s FV higher to THB120, premised on an unchanged 10.5x EV/EBITDA, in line with its peer average. Our higher FV is well supported by its DCF value of THB117 per share.

Don Muang airport has relevance. We understand that the implementation of the PSC hike has been deferred yet again due to delay in its endorsement by the Council of State before the Department of Civil Aviation gets the green light to raise airport tax. We reckon that the delay may have been partly due to possibility of amendments to the policy to not only restrict Don Muang from receiving LCCs only but open it to all other carriers as well. We gather that Management supports this move and is pushing to garner support from its board members for a rewrite of the June 2012 cabinet resolution, which had earlier limited the use of Don Muang to only LCCs.

Easing capacity constraints in BKK. The move to lift the restriction on the DMK’s usage will provide more relief to overcapacity at BKK, thus giving AOT the flexibility to allocate capex to expand its other airports. Furthermore, this would allow DMK’s Terminal 2 to be restored to accommodate more carriers. The fact that DMK may potentially serve all carriers may ease concerns over a two-tier PSC fee, whereby LCC passengers would be charged a lower fee compared with full service carrier passengers.

Upgrade earnings. AOT’s strong operating stats prompt us to raise our earnings forecasts by 21%/7%/31% respectively for FY13/ FY14/ FY15. This is even after incorporating a 25% y-o-y hike in operating costs for FY13 for DMK’s operating needs. The upside to the passengers numbers will be reflected in the potentially higher revenue earned from both PSC and airport spending. Our new THB120 FV is premised on an unchanged 10.5x EV/EBITDA.BUY.

Buy THB Target THB120

Previous THB104

Price THB95.5

Airport Develop/Main

Airports of Thailand is the operator of 6 major airports in Thailand Stock Statistics

Bloomberg Ticker AOT TB Market Cap THB136,428m USD4,507m 52 wk H/L price (THB) 97.5 48.5 3m ADT THB326m YTD Returns -1.8% Beta (x) 0.99 Major Shareholders (%)

Finance Ministry 70.0 BBL Asset Management 4.9 State Street 1.9 Share Performance (%)

Month Absolute Relative 1m 4.7 -0.6 3m 13 4 6m 48.1 31.3 12m 95.9 61.6 6-month Share Price Performance

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Source: Bloomberg

Forecasts and Valuations Sep-11 Sep-12 Sep-13F Sep-14F Sep-15F

Total turnover (THBm) 28,641 30,472 35,983 39,551 45,933Recurring net profit (THBm) 3,367 6,756 9,205 10,456 13,388Recurring net profit growth 72.3% 100.7% 36.3% 13.6% 28.0%Core EPS (THB) 2.36 4.73 6.44 7.32 9.37Core EPS growth 72.3% 100.7% 36.3% 13.6% 28.0%DPS (THB) 0.80 1.80 2.58 2.93 3.75Dividend Yield 0.8% 1.9% 2.7% 3.1% 3.9%Core P/E (x) 40.5 20.2 14.8 13.0 10.2Return on average equity 3.1% 8.7% 11.4% 12.1% 14.3%P/B (x) 1.89 1.76 1.64 1.53 1.40EV/EBITDA (x) 11.9 10.2 8.6 7.8 6.4Net debt to equity 50.7% 31.8% 22.6% 16.6% 13.6%OSK vs consensus EPS 13.5% 3.3% 22.7%

ratree.lu

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Thailand Research Team. +66(0) 2 862 9999 Ext.2030

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OSK Research


FINANCIALS

Profit & Loss (THBm) Sep-11 Sep-12 Sep-13F Sep-14F Sep-15F

Total turnover 28,641 30,472 35,983 39,551 45,933 Cost of sales (9,651) (10,409) (12,574) (13,610) (14,771) Gross profit 18,990 20,063 23,409 25,940 31,162

Gen & admin expenses (12,016) (9,283) (10,345) (11,395) (12,649) Selling expenses 2 3 4 5 6 Other operating costs (270) 358 369 380 391 Operating profit 6,706 11,141 13,437 14,930 18,909

Operating EBITDA 14,572 15,810 18,057 19,502 23,540 Depreciation of fixed assets (7,866) (4,537) (4,477) (4,416) (4,461) Amortisation of intangible assets - (131) (143) (156) (170) Operating EBIT 6,706 11,141 13,437 14,930 18,909

Net income from investments 37 35 36 37 37 Interest income 795 1,263 1,508 1,831 2,089 Interest expense (2,224) (2,060) (1,843) (1,873) (1,922) Exceptional income - net (1,792) (389) - - - Pre-tax profit 3,523 9,991 13,138 14,925 19,114

Taxation (1,262) (3,494) (3,940) (4,476) (5,732) Minority interests (44) 6 6 7 7 Profit after tax & minorities 2,217 6,503 9,205 10,456 13,388

Net income to ord equity 2,217 6,503 9,205 10,456 13,388

Recurring net profit 3,367 6,756 9,205 10,456 13,388 Balance Sheet (THBm) Sep-11 Sep-12 Sep-13F Sep-14F Sep-15F

Total cash and equivalents 26,892 32,111 38,983 44,468 47,483 Inventories 313 252 282 310 338 Accounts receivable 3,926 3,809 4,223 4,652 5,070 Total current assets 31,954 37,183 44,549 50,545 54,062

Other current assets 823 1,012 1,062 1,116 1,171 Total investments 14,738 12,217 12,357 12,500 12,647 Tangible fixed assets 90,014 88,662 88,335 88,457 94,473 Intangible assets 692 616 529 429 315 Total other assets 13,201 11,333 11,707 12,094 12,497 Total non-current assets 118,645 112,828 112,928 113,480 119,932 Total assets 150,599 150,012 157,477 164,026 173,994

Short-term debt 5,518 5,445 5,445 5,445 5,445 Accounts payable 1,042 1,259 2,028 2,235 2,435 Other current liabilities 10,007 10,714 10,989 10,574 10,858 Total current liabilities 16,567 17,418 18,462 18,253 18,738

Total long-term debt 58,039 51,407 52,353 53,853 55,353 Other liabilities 3,716 3,392 3,373 2,372 2,345 Total non-current liabilities 61,755 54,798 55,726 56,225 57,698

Total liabilities 78,322 72,217 74,188 74,479 76,437

Share capital 14,286 14,286 14,286 14,286 14,286 Retained earnings reserve 43,685 49,041 54,562 60,832 68,862 Other reserves 14,161 14,316 14,316 14,316 14,316 Shareholders' equity 72,132 77,643 83,164 89,434 97,463

Minority interests 145 152 125 113 94 Other equity 0 (0) 0 - 0 Total equity 72,277 77,795 83,289 89,547 97,557

Total liabilities & shareholders' equity 150,599 150,012 157,477 164,026 173,994

OSK Research


Cashflow (THBm) Sep-11 Sep-12 Sep-13F Sep-14F Sep-15F

Operating profit 6,706 11,141 13,437 14,930 18,909

Depreciation & amortisation 7,866 4,669 4,620 4,572 4,631

Change in working capital 2,448 795 1,402 863 856

Other operating cashflow 2,695 2,374 (2,315) (3,975) (3,381) Operating cashflow 19,715 18,979 17,144 16,390 21,015

Interest received 614 1,164 1,390 1,687 1,924 Interest paid (2,224) (2,060) (1,843) (1,873) (1,922) Dividends received 37 35 36 37 37 Tax paid (1,400) (2,038) (2,298) (2,610) (3,343) Cashflow from operations 16,742 16,080 14,429 13,630 17,712

Capex (3,458) (4,882) (4,000) (4,000) (10,000) Other new investments (3,965) (4,095) (666) (681) (695) Other investing cashflow 3 (670) 40 41 42 Cashflow from investing activities (7,419) (9,648) (4,626) (4,640) (10,654)

Dividends paid to ordinary shareholders (786) (1,143) (2,571) (3,680) (4,180) Increase in debt (4,675) (4,718) 950 1,505 1,506 Other financing cashflow (2,202) (2,098) (1,878) (1,911) (1,961) Cashflow from financing activities (7,662) (7,959) (3,499) (4,086) (4,635)

Cash at beginning of period 3,519 5,179 3,653 9,956 14,860 Total cash generated 1,661 (1,527) 6,303 4,905 2,423

Implied cash at end of period 5,179 3,653 9,956 14,860 17,283 Source : OSK, Bloomberg

OSK Research


THAILAND EQUITY


Company Update

Asia Aviation

Flying High

Although the final numbers are not out, we gather that TAA (Thai AirAsia) has seen

sharp growth in its passenger numbers, especially after the delivery of three aircraft

in 4QFY12. AOT said passenger traffic from LCCs soared 33% y-o-y, which we

believe was boosted by AirAsia Group’s growing fleet, as well as those of

competing carriers. We maintain our BUY on AAV, at a FV of THB6.63, premised on

13.5x EV/EBITDAR (from 11.7x earlier). AAV’s 13.5x EV/EBITDAR is justified by its

sturdy growth prospects due to an aggressive fleet rollout in the upcoming years.

LCCs propel AOT’s passenger traffic. Although the final numbers are not out yet, we gather that TAA is experiencing sharp growth in passenger numbers, especially after the delivery of three aircraft in 4QFY12. According to AOT, LCC passenger traffic from Oct-Dec 2012 grew 33% y-o-y, exceeding the 27% y-o-y growth rate of the full service carriers (FSCs). We believe these encouraging numbers were boosted by both aggressive fleet rollouts for the AirAsia group and Orient Thai in the past few months.

Taking delivery of 7 aircraft in 2013. TAA expects to take delivery of at least seven new aircraft this year, which will bodes well in bringing fuel and maintenance costs down. TAA is embarking on a fleet expansion plan over the next five years to enlarge its fleet of 27 aircraft currently to 48 by 2016. At the current rate, we are forecasting a 23% CAGR in the airline’s capacity and revenue growth from FY11-FY14.

AirAsia may make its way to India. The Indian media have reported rumors of AirAsia being close to setting up a new hub in India, the world’s second biggest aviation market after China. We do not see this as a surprise as AirAsia Group CEO Tony Fernandes has hinted of such a move in his Twitter update. This move, if it materializes, is positive as it will feed more traffic to TAA given its 4-hour reach.

Upgrade FV; maintain BUY. We maintain BUY on AAV with THB6.63 FV, premised on 13.5x EV/EBITDAR (from 11.7x earlier). The stock’s 13.5x EV/EBITDAR is justified given the company’s rapid growth, propelled by aggressive fleet expansion in the coming years. As AirAsia’s EV/EBITDAR peaked at 20x (15x on average) in 2006, there may be some potential upside for TAA.

Buy THB Target THB6.63

Previous THB5.32

Price THB5.35

Airlines

Asia Aviation is the 55% holding company of Thai AirAsia. Stock Statistics

Bloomberg Ticker AAV TB Market Cap THB25,948m USD857m 52 wk H/L price (THB) 5.65 3.04 3m ADT THB290m YTD Returns 10.5% Beta (x) Major Shareholders (%)

Bieliewien Tasaphon 33.0 BBL Asset Management 10.1 Asia Aviation Co Ltd 0.5 Share Performance (%)

Month Absolute Relative 1m 15.8 10.5 3m 9.6 0.6 6m 45.4 28.6 12m 6-month Share Price Performance

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Source: Bloomberg

Forecasts and Valuations Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F

Total turnover (THBm) 12,099 16,158 19,238 24,432 30,156Recurring net profit (THBm) 908 989 753 1,000 1,430Recurring net profit growth 0.0% 9.0% (23.9%) 32.9% 42.9%Core EPS (THB) 0.19 0.20 0.16 0.21 0.29Core EPS growth 0.0% 9.0% (23.9%) 32.9% 42.9%Core P/E (x) 28.6 26.2 34.5 25.9 18.1Return on average equity (67.6%) 50.9% 21.4% 20.3%P/B (x) na na 7.04 4.60 3.07EV/EBITDA (x) 11.6 12.0 12.0 8.6 5.7Net debt to equity 14.6% 159.4% net cash net cash net cashOSK vs consensus EPS (29.5%) (37.4%) (30.9%)

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FINANCIAL

Profit & Loss (THBm) Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F

Total turnover 12,099 16,158 19,238 24,432 30,156 Cost of sales (9,424) (13,035) (16,085) (20,031) (23,945) Gross profit 2,674 3,122 3,153 4,401 6,211

Gen & admin expenses (230) (651) (800) (1,220) (1,761) Selling expenses (358) (445) (673) (855) (1,055) Operating profit 2,086 2,027 1,680 2,326 3,394

Operating EBITDA 2,209 2,099 1,801 2,761 4,255 Depreciation of fixed assets (119) (67) (116) (429) (855) Amortisation of intangible assets (4) (5) (5) (6) (6) Operating EBIT 2,086 2,027 1,680 2,326 3,394

Interest income 50 136 41 106 109 Interest expense (243) (184) (26) (124) (205) Exceptional income - net 118 41 46 - - Pre-tax profit 2,011 2,020 1,741 2,308 3,298

Taxation - - (174) (346) (495) Minority interests (985) (990) (768) (961) (1,374) Profit after tax & minorities 1,026 1,030 799 1,000 1,430

Net income to ord equity 1,026 1,030 799 1,000 1,430

Recurring net profit 908 989 753 1,000 1,430 Balance Sheet (THBm) Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F

Total cash and equivalents 567 1,383 5,474 5,876 8,008 Inventories 6 51 62 79 99 Accounts receivable 111 192 228 290 358 Total current assets 4,058 2,836 6,601 7,186 9,421

Other current assets 3,375 1,210 837 941 956 Tangible fixed assets 275 303 2,098 7,162 11,544 Intangible assets 21 14 11 7 3 Total other assets 513 636 718 752 789 Total non-current assets 808 953 2,827 7,921 12,336 Total assets 4,867 3,790 9,428 15,107 21,757

Short-term debt 201 491 68 239 410 Accounts payable 175 106 131 163 195 Other current liabilities 6,992 3,634 4,435 5,440 6,574 Total current liabilities 7,368 4,231 4,634 5,843 7,179

Total long-term debt 1 22 1,002 3,508 6,014 Other liabilities - 83 108 111 114 Total non-current liabilities 1 105 1,110 3,619 6,128

Total liabilities 7,370 4,336 5,744 9,462 13,308

Share capital 400 400 436 436 436 Retained earnings reserve (2,904) (947) 620 2,581 5,385 Other reserves 1 1 2,629 2,629 2,629 Shareholders' equity (2,503) (546) 3,684 5,646 8,449

Total equity (2,503) (546) 3,684 5,646 8,449

Total liabilities & shareholders' equity 4,867 3,790 9,428 15,107 21,757

OSK Research


Cashflow (THBm) Dec-10 Dec-11 Dec-12F Dec-13F Dec-14F

Operating profit 2,086 2,027 1,680 2,326 3,394

Depreciation & amortisation 123 72 121 435 861

Change in working capital (2,523) (1,621) 1,124 1,043 985

Other operating cashflow (2) 17 174 346 495 Operating cashflow (316) 494 3,100 4,150 5,735

Interest received 3 51 21 74 76 Interest paid (0) (24) (13) (87) (143) Tax paid - - (174) (346) (495) Cashflow from operations (314) 521 2,933 3,791 5,173

Capex (109) (82) (2,300) (5,750) (5,750) Other investing cashflow 75 113 (425) (44) 576 Cashflow from investing activities (33) 31 (2,725) (5,794) (5,174)

Increase in debt 199 293 196 2,227 2,277 Other financing cashflow - (35) (13) (87) (143) Cashflow from financing activities 199 258 183 2,140 2,134

Cash at beginning of period 654 508 1,360 1,797 1,934 Total cash generated (148) 810 391 137 2,133

Forex effects 2 42 46 - - Implied cash at end of period 508 1,360 1,797 1,934 4,067

Source : OSK, Bloomberg

OSK Research


OSK Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months 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: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but OSK does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. 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Documents

THAILAND EQUITY Investment Research Daily 14 January 2013...SET index has dropped to a low of 1,392 points, better than earlier anticipated at 1,389 before rebounding back to a positive