Regional Daily Ideas Troika Top Stories
Transcription
Regional Daily Ideas Troika Top Stories
Regional Daily, 7 October 2014 5 Regional Daily Ideas Troika Top Stories China Railway & Construction Sector OVERWEIGHT Pg3 We initiate China Railway & Construction Sector a new Overweight as we like the strong railway and affordable housing FAI outlook in China, potential overseas opportunities, and the undemanding valuation level. We rate CRG, CRCC, CSCI, CNR a new BUY, and CSR, CCCC a new NEUTRAL. Analyst: Winston Cao ([email protected]) Thailand Consumer NEUTRAL (Maintained) Pg4 While falling tuna prices add to the negative pressure on TUF, this could be offset by the recent depreciation of the THB. Meanwhile, CPF is gaining from rising chicken prices in Thailand and overseas. Maintain TRADING BUY on TUF (TP: THB77.00) and BUY on CPF (TP: THB34.00). Analyst: Chalie Kueyen ([email protected]) Pg5 Lacklustre Growth Other Key Stories Hong Kong China Communications Cons. (1800 HK) Construction & Engineering NEUTRAL HKD5.60 TP: HKD5.82 Analyst: Winston Cao ([email protected]) China CNR (6199 HK) Transport – Transportation BUY HKD6.60 TP: HKD8.47 Pg6 China Railway Construction (1186 HK) Construction & Engineering BUY HKD7.06 TP: HKD10.97 Pg7 China Railway Group (390 HK) Construction & Engineering BUY HKD4.10 TP: HKD6.55 Pg8 China State Construction (3311 HK) Construction & Engineering BUY HKD11.66 TP: HKD14.63 Pg9 CSR Corp (1766 HK) Transport – Transportation NEUTRAL HKD6.86 TP: HKD7.47 Pg10 Indonesia Arwana Citra Mulia (ARNA IJ) Industrial - Misc. Manufacturer BUY IDR94 TP: IDR1,135 See important disclosures at the end of this report Riding On China’s High-Speed Rail Network Analyst: Winston Cao ([email protected]) A Solid Value Play Analyst: Winston Cao ([email protected]) Improving Fundamentals Set To Drive Re-Rating Analyst: Winston Cao ([email protected]) Undisputed Leader In HK/China’s Construction Sector Analyst: Winston Cao ([email protected]) Lacking Catalysts Analyst: Winston Cao ([email protected]) Pg11 Headwinds From Rising Inventory Levels Analyst: Andrey Wijaya ([email protected]) Powered by EFATM Platform 1 Regional Daily, 7 October 2014 Thailand AP (Thailand) (AP TB) Property - Real Estate NEUTRAL THB6.95 TP: THB8.00 Pg12 Analyst: Wanida Geisler ([email protected]) Bangkok Bank (BBL TB) Financial Services – Banks BUY THB198 TP: THB220 Pg13 Berli Jucker (BJC TB) Consumer Cyclical – Retail NEUTRAL THB45.80 TP: THB46.00 Pg14 LPN Dev (LPN TB) Property - Real Estate BUY THB21.60 TP: THB27.00 Pg15 Pruksa Real Estate (PS TB) Property - Real Estate BUY THB33.80 TP: THB43.00 Pg16 Thai Oil (TOP TB) Energy & Petrochemicals - Oil & Gas Services BUY THB51.30 TP: THB63.22 Pg17 PTT (PTT TB) Energy & Petrochemicals - Integrated Oil & Gas BUY THB364 TP: THB396 Pg18 See important disclosures at the end of this report Record High 3Q14 Presales From JV Condo Projects Making Quiet Improvements Analyst: Fiona Leong ([email protected]) Good Looking But Expensive Analyst: Chalie Kueyen ([email protected]) 3Q14 Numbers May Rebound Q-o-q Analyst: Wanida Geisler ([email protected]) Record High Total Presales In 3Q14 Analyst: Wanida Geisler ([email protected]) Stock Loss Takes a Toll On Earnings Analyst: Kannika Siamwalla, CFA ([email protected]) Energy Minister Lays Out Goals Analyst: Kannika Siamwalla, CFA ([email protected]) Powered by EFATM Platform 2 Sector Initiation, 7 October 2014 China Railway & Construction Sector Overweight Macro Risks Rise Of The Phoenix Growth Value We initiate coverage on China’s railway and construction sector with an OVERWEIGHT rating. We are positive on this sector mainly on: i) China's growing railway FAI, ii) strong demand for affordable housing, and iii) the sector's generally undemanding valuations. Our Top Picks are China Railway Group, China State Construction and China CNR. China Railway Group (390 HK) Price Close 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 Sep-09 Dec-10 Mar-12 Jul-13 Source: Bloomberg China State Construction Int’l (3311 HK) Price Close 17.0 15.0 13.0 11.0 9.0 7.0 Domestic railway market emerging from the shadows. We project China's railway fixed asset investment (FAI) to achieve a CAGR of 15% from 2013-2016F and to reach a historical new high of CNY950bn in 2015F. We are also positive on the country’s long-term development of th high-speed railway (HSR) network during its 13 5-year plan (20152020) and believe that it should continue to provide sufficient railway infrastructure and equipment demand after 2015. We expect this development to mainly benefit domestic railway construction contractors and rolling stock manufacturers. Affordable housing riding on urbanisation. We expect affordable housing construction FAI to be maintained at high levels amid the backdrop of China’s massive urbanisation plan. We forecast for 20142016F construction volume to be maintained at 7m units per year, driven by Premier Li Keqiang’s "shanty town" redevelopment plan. 5.0 3.0 1.0 Sep-09 Dec-10 Mar-12 Jun-13 Source: Bloomberg China CNR (6199 HK) Price Close 7.40 6.90 6.40 5.90 5.40 4.90 May-14 Jun-14 Aug-14 Sep-14 Source: Bloomberg Winston Cao +852 2103 9414 Huge potential in overseas market. We expect China to export its experience and products in HSR construction and equipment, underpinned by the country’s marketing and financial support. We also expect China’s “Go Out” policy to increase infrastructure construction demand of overseas developing region and benefit China’s major construction state-owned enterprises (SOEs) with matured overseas platforms and large overseas revenue exposure. Less positive on rolling stock manufacturing sector. We expect demand growth for China’s multiple units (MUs), or HSR carriages, to remain flattish in 2015-2016F. Although the recent MU tender provided enough orders to rolling stock manufacturers, we believe most of these positives have already been priced in. Top Picks. Our Top Picks are China Railway Group (CRG) (390 HK, BUY, TP: HKD6.55), China State Construction International (CSCI) (3311 HK, BUY, TP: HKD14.60) and China CNR (CNR) (6199 HK, BUY, TP: HKD8.47). In our view, these companies are direct beneficiaries of China’s expanding railway FAI and strong demand for affordable housing over the next three years while still trading at attractive valuations. Although we prefer CRG, we also rate China Railway Construction (CRC) (1186 HK, TP: HKD10.97) as a BUY. Company Name Ticker Price (HKD) Target P/E (x) (HKD) Dec-14F P/E (x) Dec-15F Rating China Railway Group 390 HK 4.10 6.55 6.2 5.0 BUY China Railway Construction 1186 HK 7.06 10.97 5.8 4.8 BUY China Starte Construction Int'l 3311 HK 11.66 14.63 12.4 8.7 BUY China CNR 6199 HK 6.60 8.47 10.0 9.4 BUY CSR Corp 1766 HK 6.86 7.47 12.6 11.0 NEUTRAL China Communication Construction 1800 HK 5.60 5.82 5.6 5.3 NEUTRAL [email protected] Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 3 3 1 3 3 Sector Update, 7 October 2014 Consumer – Food & Agro Neutral (maintain) Macro Mixed Effects From THB Depreciation Risks Growth Value Fluctuations in the THB/USD rate While falling tuna prices add to the negative pressure on Thai Union Frozen’s margins and inventory loss, this could be offset by the recent depreciation of the THB. Meanwhile, Charoen Pokphand may benefit from rising chicken prices in Thailand and continuously high product prices overseas. Maintain TRADING BUY on Thai Union Frozen (TP: THB77.00) and BUY on Charoen Pokphand (TP: THB34.00). 33.5 33.0 32.5 32.0 31.5 31.0 30.5 Sep-14 Jul-14 Aug-14 Jun-14 Apr-14 May-14 Mar-14 Jan-14 Feb-14 Dec-13 Oct-13 Nov-13 Sep-13 Aug-13 30.0 Source: Bloomberg Charoen Pokphand’s chicken prices and cost of animal feed Chicken price (THB/kg) 60 13 12 11 10 9 8 7 6 5 corn price 40 30 Chicken price Sep-14 May-14 Jan-14 Sep-13 May-13 Jan-13 Sep-12 May-12 Jan-12 Sep-11 May-11 20 Jan-11 Corn price (THB/kg) 50 Source: Company data, RHB For Thai Union Frozen, tuna prices became volatile again 2,500 2,000 1,500 1,000 500 0 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Tuna price (USD/ton) Source: Company data, RHB Charoen Pokphand has solid key product prices in Thailand and overseas. Chicken prices in Thailand rose for three straight months to average at THB43.60/kg (+6.3% q-o-q, -2.2% y-o-y). Although pork prices declined slightly, we believe it was a seasonal effect of the vegetarian festival. For its overseas business, chicken prices in key countries (Russia, Turkey, India and Vietnam) were sustained at high levels. Meanwhile, its shrimp prices were stable for three consecutive months, which implied that operations were stable. Falling corn prices benefit production costs. Commodity prices have been declining for two months, which spell positive implications for Charoen Pokphand as animal feed costs would decline. This is positive for its margins going forward. Mixed implications for Thai Union Frozen. While the company tends to benefit from a depreciating THB, tuna prices – which became volatile again in September – may partly offset the positives. In Sep 2014, tuna prices plunged 20% m-o-m to USD1,280/tonne, which was lower than the historical 3-month moving average by 33%. The sharp fall in tuna prices could imply a potential inventory loss in 3Q14. Note that the THBUSD has depreciated by 1.2% m-o-m. Every 5% drop in the value of the THB would boost Thai Union Frozen’s net profit by 4%, and lift its bottomline growth by 12% (assuming other factors remain unchanged). Higher product prices and lower cost of production to drive Charoen Pokphand’s growth. Business recovery is expected to continue in 2H14 and 2015, which could mainly come from its poultry business in Thailand and overseas. This is because Japan and the European Union (EU) have shifted their poultry product imports from China, looking instead for exporters from Thailand due to concerns over food quality in China. At the same time, its operation in Russia has benefitted from business sanctions imposed by the EU and the US on their trading partner. This has resulted in local product prices rising to RUB106/kg currently from RUB70/kg as at end-2013. We prefer Charoen Pokphand to Thai Union Frozen. Although falling tuna prices have added to the negative pressure on Thai Union Frozen’s margins and inventory loss, the depreciation of the THB would help to mitigate the impact – since around 85% of its revenue is denominated in the USD. Its costs in the USD are at around 60% of total costs. We prefer Charoen Pokphand on the strength of the recovery of its poultry business domestically and overseas. An upside surprise to earnings may come from the recovery of its shrimp business, which has booked recurring losses of around THB1.0bn for the past three consecutive quarters. Chalie Kueyen 66 2862 9745 [email protected] See important disclosures at the end of this report Powered by EFATM Platform 4 1 1 1 1 Initiating Coverage, 7 October 2014 China Communications Construction (1800 HK) Construction & Engineering - Engineering & Construction Market Cap: USD12,274m Neutral Target Price: Price: HKD5.82 HKD5.60 Macro Risks Lacklustre Growth Growth Value China Communications Construction (1800 HK) Price Close Relative to Hang Seng Index (RHS) 6.80 105 6.60 103 6.40 100 6.20 98 6.00 95 5.80 93 5.60 90 5.40 88 5.20 85 5.00 83 4.80 70 80 0 0 . 2 0 0 We initiate coverage on CCCC with NEUTRAL and HKD5.82 TP, a 3.9% . 0 upside. It is a leading infrastructure construction contractor for a broad 0 range of industries, mainly roads, bridges and maritime construction 0 works. We expect CCCC's earnings growth to remain unexciting, as we expect China’s FAI spending to be mainly directed at the railway and affordable housing sectors, to which the company has little exposure. 60 50 40 20 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 10 Oct-13 Vol m 30 Source: Bloomberg Avg Turnover (HKD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (HKD) Free float (%) Share outstanding (m) Shareholders (%) 97.5m/12.6m 12.5 3.9 4.97 - 6.57 36 17,005 China Communications Construction Group 63.7 Share Performance (%) Unexciting growth outlook. Unlike China Railway Group (CRG) (390 HK, BUY, TP: HKD6.55) and China Railway Construction Corp (CRCC) (1186 HK, BUY, TP: HKD10.97), China Communications Construction Corp (CCCC) has significantly less exposure to sectors where the nation’s fixed asset investment (FAI) is increasing rapidly, eg railways and affordable housing construction. Hence, we expect CCCC’s y-o-y revenue growth at 8% (2014) and 15% (2015F), with y-o-y recurring earnings of 2% (2014) and 6% (2015F). In 1H14, its revenue and recurring earnings grew by 12% and 1% y-o-y respectively. Competitive overseas. In FY13, overseas revenue accounted for ~17% of CCCC’s total revenue, much higher than its domestic construction peers over the same period. Its expertise in roads, bridges and maritime construction matches the majority of the world’s developing regions’ infrastructure demand. CCCC has also been supported by China’s Government and policy banks. As the nation is pushing its “Go Out” policy and deepening its cooperation with other developing/underdeveloped regions, we expect CCCC to benefit from increasing overseas infrastructure demand. Initiate coverage with NEUTRAL, HKD5.82 TP (3.9% upside). We view CCCC's earnings outlook as unexciting vis-à-vis Hong Kong-listed peers like CRG, CRCC, and China State Construction International (CSCI) (3311 HK, BUY, TP: HKD14.63), given sluggish growth in its core businesses and increasing finance costs. Although we like CCCC’s overseas business, we believe it will be a long time before it makes a meaningful contribution. We derive our TP from a 5.5x FY15F P/E (1SD below its past 5-year forward P/E average, 8% below its listed peers’ average). We believe its core business will not directly benefit from China’s increasing railway and affordable housing FAI, while its overseas business still needs time to contribute material earnings growth in the long term. YTD 1m 3m 6m 12m Forecasts and Valuations Absolute (10.4) (4.3) 5.9 (0.5) (9.1) Total turnover (CNYm) Relative (8.8) 5.1 8.5 (2.1) (7.9) Shariah compliant Winston Cao +852 2103 9414 [email protected] Dec-12 Dec-13 295,321 331,798 357,816 410,060 455,358 Reported net profit (CNYm) 12,248 12,568 12,766 13,581 14,983 Recurring net profit (CNYm) 12,248 12,568 12,766 13,581 14,983 4.1 2.6 1.6 6.4 10.3 Recurring EPS (CNY) 0.79 0.78 0.79 0.84 0.93 DPS (CNY) 0.18 0.19 0.19 0.20 0.22 Recurring P/E (x) 5.61 5.70 5.61 5.28 4.78 P/B (x) 0.83 0.76 0.69 0.63 0.57 P/CF (x) 5.2 10.3 16.6 10.2 7.6 Dividend Yield (%) 4.2 4.2 4.3 4.6 5.0 EV/EBITDA (x) 5.72 6.70 7.25 6.69 6.13 Return on average equity (%) 15.6 13.8 12.8 12.4 12.5 Net debt to equity (%) 79.8 100.9 107.4 109.5 109.0 (5.4) (7.0) (5.4) Recurring net profit growth (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 2 . 1 0 . 2 Source: Company data, RHB Dec-14F Dec-15F Dec-16F Powered by EFATM Platform 5 Initiating Coverage, 7 October 2014 China CNR (6199 HK) Buy Transport - Transportation Market Cap: USD10,508m Target Price: Price: HKD8.47 HKD6.60 Macro Risks Riding On China’s High-Speed Rail Network Growth Value China CNR (6199 HK) Price Close Relative to Hang Seng Index (RHS) 7.30 137 6.80 128 6.30 119 5.80 110 5.30 101 4.80 350 92 0 0 . 3 0 0 We initiate coverage on CNR with BUY and HKD8.47 TP (12x FY15F . 0 P/E), implying a 28% upside. While CNR and CSR dominate China's 0 rolling stock industry, CNR’s competitive advantage consists in its 0 350km/h high-speed train carriages, for which we see rising demand over the next six years on China’s expanding high-speed rail network. We prefer CNR, as its earnings, margins and lower valuations, are catching up to CSR’s. To ride on rising demand for 350km/h multiple units (MUs). We forecast that China CNR Corp’s (CNR) revenue from MU sales could surge by 108% y-o-y in FY14. This would be mainly due to concentrated MU deliveries over the same period and an increasing proportion of 350km/h MUs, of which ASPs are higher vis-à-vis 250km/h variants. We see CNR shipping 143 sets of 350km/h MUs in 2014, ie 70% of its total targeted MU shipments. 300 250 200 150 Sep-14 Aug-14 Jul-14 Jul-14 Jun-14 50 May-14 Vol m 100 Source: Bloomberg Avg Turnover (HKD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (HKD) Free float (%) Share outstanding (m) Shareholders (%) 155m/20.0m 18.2 28.3 5.02 - 7.09 48 12,352 CNRG 52.0 Share Performance (%) YTD Absolute Relative 1H14 results show solid MU deliveries are on track. 1H14 revenue rose 5% y-o-y, mainly on an 18% y-o-y growth of its rolling stock business. As the delivery of MUs rose, CNR’s GPM improved by 2.6ppts to 19.9% (1H13: 17.3%). As a result, recurring net profit surged 51% y-o-y to CNY2.26bn in 1H14. Catching up with CSR Corp (CSR). In FY13, CNR's CNY4.13bn recurring net profit was almost identical to CSR’s (1766 HK, NEUTRAL, TP: HKD7.47) net profit of CNY4.14bn. By contrast, its FY12 earnings of CNY3.43bn were below CSR's CNY4.0bn. In FY14F, we expect CNR's recurring net profit of CNY6.0bn (+46% y-o-y) to slightly surpass CSR’s CNY5.9bn (+43.5% y-o-y), mainly driven by deliveries of 350km/h MUs. Moreover, we expect CNR's GPM gap with CSR to continue to narrow on an improved product mix (ie higher sales mix of higher-margin 350km/h MUs) and an enhanced in-house production ratio. Initiate coverage with a BUY and HKD8.47 TP. Our HKD8.47 TP is set at 12.0x FY15F P/E vs its current 9.4x. This is the same target P/E we ascribed to CSR, and reflects the narrowing gap in financial performance between the two and is in line with the global peers’ average. We also expect more investors to shift their portfolios to CNR, as it was just listed on the Hong Kong Stock Exchange in May. 1m 3m (3.1) 24.8 Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 27.4 Total turnover (CNYm) 91,798 96,756 123,459 136,553 150,537 Reported net profit (CNYm) 3,431 4,129 6,027 6,764 7,376 Recurring net profit (CNYm) 3,431 4,129 6,027 6,764 7,376 Recurring net profit growth (%) 13.4 20.3 46.0 12.2 9.0 Recurring EPS (CNY) 0.33 0.40 0.52 0.56 0.61 DPS (CNY) 0.05 0.06 0.08 0.08 0.09 Recurring P/E (x) 15.7 13.1 10.0 9.4 8.6 P/B (x) 1.55 1.43 1.15 1.08 0.97 6.3 6m 12m Shariah compliant Winston Cao +852 2103 9414 [email protected] P/CF (x) 259 17 5 4 6 Dividend Yield (%) 1.0 1.2 1.5 1.6 1.7 EV/EBITDA (x) 10.5 8.5 5.3 4.2 3.5 Return on average equity (%) 11.5 11.4 13.4 12.2 11.9 Net debt to equity (%) 32.4 37.7 Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 2 0 . 2 Source: Company data, RHB net cash net cash net cash 13.4 5.7 Powered by EFATM Platform 4.0 6 Initiating Coverage, 7 October 2014 China Railway Construction (1186 HK) Construction & Engineering - Engineering & Construction Market Cap: USD10,631m Buy Target Price: Price: HKD10.97 HKD7.06 Macro Risks A Solid Value Play Growth Value China Railway Construction (1186 HK) Relative to Hang Seng Index (RHS) 8.20 102 7.70 97 7.20 92 6.70 87 6.20 82 5.70 77 5.20 90 80 70 60 50 40 30 20 10 72 Source: Bloomberg Avg Turnover (HKD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (HKD) Free float (%) Share outstanding (m) Shareholders (%) 89.5m/11.6m 3.7 55.4 5.63 - 8.94 39 11,683 CRCCG 61.3 Share Performance (%) Direct beneficiary of domestic and overseas railway construction demand. We forecast for China Railway Construction Corp’s (CRCC) revenue to grow 17% y-o-y each in 2014 and 2015F on increasing railway fixed asset investments (FAI) and a faster backlog-to-sales conversion rate. This is because China is accelerating the pace of railway construction in order to support its GDP growth. It is also attempting to have the world’s first “big high-speed railway transportation network”. We also remain positive on the potential of its overseas market, and believe CRCC could be one of the direct beneficiaries of the growing demand for infrastructure construction. This is due to its experience in all kinds of railway infrastructure construction. Municipal and subway construction business may benefit from accelerating urbanisation. China’s plans for migrating 100m rural residents to the urban areas have sparked substantial demand for infrastructure construction in its cities. We forecast for CRCC’s revenue from urbanisation-related infrastructure works to make up 32% of its total infrastructure business by end-2016F (2013: 28%). As a major part of urban municipal and subway works falls under high-margin build-transfer (BT) or build-operate-transfer (BOT) models, a change in product mix could positively impact CRCC’s profitability over the next two to three years. A solid value play, initiate coverage with a BUY. We forecast for a 3year EPS CAGR of 16% for CRCC in 2013-2016. The stock is trading at a mere 4.8x 2015F P/E, based on our 2015F EPS of CNY1.17. We believe CRCC could see a long-term re-rating on the back of a continuous global railway construction story. Our HKD10.97 TP is based on our 2015F EPS and 7.5x target P/E, a 6.3% discount to our 8x target P/E for China Railway Group (CRG) (390 HK, BUY, TP: HKD6.55). YTD 1m 3m 6m 12m Absolute (8.6) (5.1) 2.0 (5.0) (12.5) Forecasts and Valuations Relative (7.0) 4.3 4.6 (6.6) (11.3) Total turnover (CNYm) Shariah compliant Dec-12 Dec-13 484,313 586,790 688,697 806,036 869,978 Reported net profit (CNYm) 8,629 10,345 11,861 14,377 16,244 Recurring net profit (CNYm) 8,629 10,345 11,861 14,377 16,244 9.9 19.9 14.7 21.2 13.0 Recurring EPS (CNY) 0.70 0.84 0.96 1.17 1.32 DPS (CNY) 0.11 0.13 0.14 0.17 0.20 Recurring P/E (x) 7.99 6.66 5.81 4.79 4.24 P/B (x) 0.96 0.85 0.76 0.67 0.59 P/CF (x) 12.9 Recurring net profit growth (%) Winston Cao +852 2103 9414 [email protected] Dividend Yield (%) na Dec-14F Dec-15F Dec-16F na na na 2.0 2.3 2.6 3.1 3.5 EV/EBITDA (x) 3.39 5.06 5.78 5.67 5.89 Return on average equity (%) 12.6 13.5 13.8 14.8 14.7 Net debt to equity (%) 15.1 72.5 106.6 119.1 125.5 3.5 14.9 18.3 Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 1 0 . 3 0 0 . 3 0 0 We initiate coverage on CRCC with a BUY and HKD10.97 TP, based on . 0 our 2015F EPS and 7.5x target P/E, representing a 55% upside. CRCC, 0 along with CRG, holds 90% share of China’s railway construction 0 market. We consider the company attractively-valued vs its domestic peers, as we believe it could benefit from the rising demand for railway construction locally and overseas. Aug-14 Jun-14 Feb-14 Apr-14 107 Dec-13 112 8.70 Oct-13 Vol m Price Close 9.20 Source: Company data, RHB Powered by EFATM Platform 7 Initiating Coverage, 7 October 2014 China Railway Group (390 HK) Buy Construction & Engineering - Engineering & Construction Market Cap: USD10,946m Target Price: Price: HKD6.55 HKD4.10 Macro Risks Improving Fundamentals Set To Drive Re-Rating Growth Value China Railway Group (390 HK) Relative to Hang Seng Index (RHS) 115 4.60 111 4.40 107 4.20 103 4.00 99 3.80 95 3.60 91 3.40 87 3.20 83 3.00 79 2.80 90 80 70 60 50 40 30 20 10 75 Aug-14 Jun-14 Apr-14 Dec-13 Feb-14 Source: Bloomberg Avg Turnover (HKD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (HKD) Free float (%) Share outstanding (m) Shareholders (%) 69.8m/9.00m 9.8 59.8 3.02 - 4.63 40 20,714 CRECG 56.1 Share Performance (%) Direct beneficiary of domestic and overseas railway demand. We forecast a 13% revenue CAGR and 19% earnings CAGR for 20142016F. This is due to our forecast for China Railway Group’s (CRG) overall new contract value to stay at high levels over 2014-2016F, while we envision the construction pace should accelerate during the last th stage of the 12 Five-Year Plan. Hence, we expect fast topline and bottomline expansion over the same period. Improving margins and balance sheet. We also expect improving margins, driven by GPM for China’s infrastructure construction business bottoming out, as well as better cost control due to CRG’s internal restructuring. We also expect its balance sheet pressure to ease, as we anticipate an acceleration of collecting receivables and earnings improvements in CRG’s toll roads, bridges and other operating projects. Consensus earnings too low. We believe the current Bloomberg consensus forecast for 2014 earnings growth of 11% is way too conservative, given that CRG has already delivered 12% y-o-y revenue growth and 16% y-o-y net profit growth for 1H14. We expect Bloomberg consensus earnings forecasts to be raised further in 2H14, as we foresee railway-related fixed asset investment (FAI) to be back-end loaded in 2H14. Initiate coverage with BUY and TP of HKD6.55. Our TP is based on a FY15F P/E of 8.0x, 0.5SD below the counter's past 5-year forward average P/E. It also represents a premium to the Hong Kong sector average FY15F P/E of 5.9x, which we feel is justified by the company’s faster earnings growth, improving balance sheet, and our expectation of a further sector re-rating for China’s railway industry, likely to be driven by a historical new high of railway FAI probably in 2015F. YTD 1m 3m 6m 12m Absolute 2.5 (4.0) 7.0 4.6 (2.4) Forecasts and Valuations Relative 4.1 5.4 9.6 3.0 (1.2) Total turnover (CNYm) Shariah compliant Winston Cao +852 2103 9414 [email protected] Dec-12 Dec-13 483,992 560,444 660,389 782,958 805,190 Reported net profit (CNYm) 7,390 9,375 11,125 13,776 15,865 Recurring net profit (CNYm) 7,390 9,375 11,125 13,776 15,865 Recurring net profit growth (%) 10.5 26.9 18.7 23.8 15.2 Recurring EPS (CNY) 0.35 0.44 0.52 0.65 0.74 DPS (CNY) 0.05 0.07 0.08 0.10 0.11 Recurring P/E (x) 9.35 7.37 6.21 5.02 4.36 P/B (x) 0.89 0.80 0.72 0.64 0.57 8.64 9.96 3.97 3.30 1.6 2.0 2.4 3.0 3.4 8.18 7.93 6.82 5.72 5.04 P/CF (x) Dividend Yield (%) EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 2 0 . 3 0 0 . 3 0 0 We initiate coverage on CRG with BUY and HKD6.55 TP (8.0x FY15F . 0 P/E), representing a 59.8% upside. We believe CRG is a key beneficiary 0 of accelerating railway FAI. While CRG and China Railway Construction 0 Corporation (CRCC) enjoy a combined 90% share of China's railway construction market, we prefer CRG, as we expect a bigger improvement in its balance sheet and forecast faster EPS growth. Oct-13 Vol m Price Close 4.80 Source: Company data, RHB na Dec-14F Dec-15F Dec-16F 9.9 11.4 12.2 13.5 13.9 102.1 106.5 103.3 90.4 77.4 6.6 21.3 30.7 Powered by EFATM Platform 8 Initiating Coverage, 7 October 2014 China State Construction (3311 HK) Buy Construction & Engineering - Engineering & Construction Market Cap: USD5,850m Target Price: Price: HKD14.63 HKD11.66 Macro Risks Undisputed Leader In HK/China’s Construction Sector Growth Value China State Construction (3311 HK) Price Close Relative to Hang Seng Index (RHS) 15.0 123 14.5 119 14.0 114 13.5 110 13.0 106 12.5 101 12.0 97 11.5 92 11.0 25 88 15 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 5 Oct-13 Vol m 10 Source: Bloomberg Avg Turnover (HKD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (HKD) Free float (%) Share outstanding (m) Shareholders (%) 64.2m/8.28m 32.5 25.5 11.4 - 14.7 43 3,892 China Overseas Holdings 57.1 Share Performance (%) Key beneficiary of affordable housing demand. We forecast for CSCI’s affordable housing new contract value in China to increase by 47% y-o-y in 2014 and 36% in 2015F, driven by continued market share gains in mainland China. We estimate overall new contract value for 2014 at HKD62bn, surpassing the company’s revised (Aug 2014) fullyear target of HKD60bn (from HKD55bn). Potential further asset injections from parent. CSCI’s A-share listed parent, China State Construction Engineering Corporation (CSCEC) (601668 CH, NR), has been injecting quality assets into CSCI over the past few years including toll roads, bridge projects and constructionrelated companies. We expect this trend to accelerate in 2014-2015F amid the backdrop of the restructuring of state-owned enterprises (SOEs). Potential assets to be injected include domestic infrastructure operating projects and/or overseas construction-related business. Solid earnings growth prospects. We forecast a 35% EPS CAGR for 2013-2016F, driven by topline expansion and margin improvements. We expect increasing revenue contribution from its high-margin affordable housing build-transfer (BT) business to further boost the company’s blended gross profit margin to 16.2% in 2016F, up from 13.7% in 2013. Initiate coverage with BUY call and TP of HKD14.63. Our TP is based on a FY15F P/E of 11x, which is about 0.5SD below its past five years’ forward P/E average. Our target P/E is also substantially higher than its HK-listed railway and infrastructure construction peers of 5.9x, which we believe is wholly justified by its much higher 3-year recurring EPS CAGR of 35%, higher margins, stronger balance sheet and dominant status in China’s construction market, helped by the fast-growing affordable housing sector and potential asset injections from its parent. YTD 1m 3m 6m 12m Forecasts and Valuations Dec-12 Dec-13 Absolute (16.1) (8.5) (12.9) (14.4) (5.7) Total turnover (HKDm) 21,911 27,192 34,234 47,600 57,962 Relative (14.5) 0.9 (10.3) (16.0) (4.5) Reported net profit (HKDm) 2,131 2,772 3,642 5,188 6,784 Recurring net profit (HKDm) 2,131 2,772 3,642 5,188 6,784 Recurring net profit growth (%) 41.4 30.1 31.4 42.5 30.8 Recurring EPS (HKD) 0.58 0.71 0.94 1.33 1.75 DPS (HKD) 0.16 0.21 0.27 0.39 0.51 Recurring P/E (x) 20.0 16.3 12.4 8.7 6.7 P/B (x) 3.35 2.80 2.42 2.03 1.67 Shariah compliant Winston Cao +852 2103 9414 [email protected] P/CF (x) 25.1 17.2 15.1 1.8 2.3 3.3 4.3 EV/EBITDA (x) 20.3 16.1 11.9 8.4 6.4 Return on average equity (%) 18.5 18.7 20.9 25.3 27.4 Net debt to equity (%) 22.9 27.5 23.2 17.3 13.0 4.2 17.5 25.5 Our vs consensus EPS (adjusted) (%) na na Dec-14F Dec-15F Dec-16F 1.4 Dividend Yield (%) Source: Company data, RHB See important disclosures at the end of this report 3 . 1 0 . 3 0 0 . 3 0 0 We initiate coverage on China State Construction International (CSCI) . 0 with BUY and TP of HKD14.63 set at an 11x FY15F P/E, a 25.5% upside. 0 A leading affordable housing construction company in HK and China, 0 we expect CSCI to deliver 35% recurring EPS CAGR from FY13-16F, the fastest among its peers, mainly driven by China’s massive spending on affordable housing. Potential injections of quality assets into CSCI amid the backdrop of SOE restructuring are an added bonus. 20 Powered by EFATM Platform 9 Initiating Coverage, 7 October 2014 CSR Corp (1766 HK) Neutral Transport - Transportation Market Cap: USD11,891m Target Price: Price: HKD7.47 HKD6.86 Macro Risks Lacking Catalysts Growth Value CSR Corp (1766 HK) Price Close Relative to Hang Seng Index (RHS) 7.60 135 7.10 127 6.60 119 6.10 111 5.60 103 5.10 120 95 100 80 60 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Vol m 20 Source: Bloomberg Avg Turnover (HKD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (HKD) Free float (%) Share outstanding (m) Shareholders (%) 105m/13.5m 33.7 8.9 5.36 - 7.30 44 13,449 CSR Group 56.5 Share Performance (%) Lacks near-term catalysts. In Aug 2014, China Railway Corporation (CRC) announced the first round of tender for this year’s multiple units (MUs) of high-speed railway train at total volume of 232 sets. We forecast full-year multiple unit tender volume to reach 400 sets, which we believe is within market expectations and has been reflected in consensus forecasts. Therefore, we see limited new catalysts for 2H14 even if the second round of MU tender takes place in 2H14, which is well expected. CSR has a relatively bigger share in the 250km/h MU market compared to China CNR Corp (CNR) (6199 HK, BUY, TP: HKD8.47). Mild outlook for 2015. In 2014, China has planned CNY143bn in fixed asset investment (FAI) for railway equipment, representing a 37.5% y-o-y increase and a new high. We expect 2015F railway equipment FAI to remain at high levels but the growth to ease. This is because going th into 2015 – ie the last year of China’s 12 Five-Year Plan (2011-2015) – we believe the Government will likely accelerate railway construction in order to achieve the opening target of its new railway lines, and this should channel the majority of railway FAI to construction rather than equipment procurement. As a result, we have a mild forecast for CSR’s 2015 revenue and earnings at single-digit growth. Initiate coverage with NEUTRAL call and HKD7.47 TP. Our TP is based on a FY15F P/E of 12x, which is about 1SD below its past five years’ forward P/E average of 17.0x. Although we are bullish on China's railway sector in the long term, we are less bullish on the rolling stock segment in the near term, as we see cyclical flat demand for rolling stocks over FY15-16F. Moreover, we deem CSR fairly valued at an 11.0x FY15 P/E, after its share price rallied by around 27% in the last 12 months. We prefer CNR over CSR, given the former’s relatively cheap valuation (9x FY15F P/E) and the narrowing financial gap between the company and the industry leader CSR for 2014-2016. YTD 1m 3m 6m 12m Absolute 7.9 (3.9) 10.8 2.8 26.8 Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Relative 9.5 5.5 13.4 1.2 28.0 Total turnover (CNYm) 90,456 97,886 131,051 148,279 155,020 Reported net profit (CNYm) 4,009 4,140 5,940 6,802 7,402 Recurring net profit (CNYm) 4,009 4,140 5,940 6,802 7,402 3.8 3.3 43.5 14.5 8.8 Shariah compliant Recurring net profit growth (%) Winston Cao +852 2103 9414 Recurring EPS (CNY) 0.31 0.30 0.43 0.49 0.54 [email protected] DPS (CNY) 0.09 0.09 0.13 0.15 0.16 Recurring P/E (x) 17.4 18.1 12.6 11.0 10.1 P/B (x) 2.29 2.05 1.84 1.65 1.48 P/CF (x) 29.1 13.8 25.4 9.5 6.8 1.7 1.7 2.4 2.7 3.0 EV/EBITDA (x) 12.6 13.3 10.0 8.9 8.1 Return on average equity (%) 14.5 11.9 15.4 15.8 15.4 Net debt to equity (%) 20.5 20.0 31.1 31.5 26.8 11.5 10.0 8.1 Dividend Yield (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 1 0 . 2 0 0 . 2 0 0 We initiate coverage on CSR Corp (CSR) with NEUTRAL and TP of . 0 HKD7.47 set at a 12x FY15F P/E, representing a limited upside of 8.9%. 0 CSR together with CNR dominate China's rolling stock industry. 0 However, we believe CSR has limited upside potential as it is fairly valued. We are more conservative than street on its FY15-16F sales and earnings. We prefer CNR over CSR, given the former’s relatively cheap valuation and improving financial performance. 40 Source: Company data, RHB Powered by EFATM Platform 10 Company Update, 7 October 2014 Arwana Citra Mulia (ARNA IJ) Buy (Maintained) Industrial - Misc. Manufacturer Market Cap: USD567m Target Price: Price: IDR1,135 IDR940 Macro Risks Headwinds From Rising Inventory Levels Growth Value Arwana Citra Mulia (ARNA IJ) Price Close Relative to Jakarta Composite Index (RHS) 1,060 114 1,010 110 960 105 910 101 860 97 810 93 760 88 710 35 84 25 10 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 5 Oct-13 Vol m 15 Source: Bloomberg Avg Turnover (IDR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (IDR) Free float (%) Share outstanding (m) Shareholders (%) 4,172m/0.36m 22.7 20.7 745 - 1,020 39 7,341 Credit Suisse AG Trust UBS AG Singapore Suprakreasi Eradinamika 24.9 11.4 13.9 Share Performance (%) YTD 1m 3m 6m 12m Absolute 14.6 (7.4) (5.1) (3.1) 10.6 Relative (2.4) (3.1) (7.4) (5.3) (2.6) Oversupply of ceramic tiles. Our channel checks suggest that Indonesia’s ceramic tiles capacity utilization declined to 60% in Sep 2014 from 70% in 2013, driven by additional capacity from Mulia Ceramics, a subsidiary of Mulia Industrindo (MLIA IJ, NR) and Platinum Ceramics. Given the rising capacity, Arwana Citra (Arwana)’s closest competitor Mulia Ceramic increased its sales discount. As a result, its average selling price – which was previously higher than Arwana’s – is now almost on par with the latter’s. Still better off than its peers. Arwana is the only ceramic tile maker which has plants that are still running at maximum capacity, thanks to its strong sales which are supported by wider distribution channels and strong ties with its distributors. Although its inventory days increased to five days in Sep 2014 from just two days in 2013, we believe the company is still better off than its competitors, which hold inventory volumes that are equal to 2.5 months of Arwana’s sales volume. Rising costs. Although Arwana’s new Mojokerto plant – scheduled to begin operating in mid-2015 – may improve its cost efficiency, we still expect costs to rise from higher subsidised fuel prices and the weaker IDR. Higher fuel prices would increase trucking costs, which include the transportation of raw materials like clay as well as finished products like ceramic tiles. Arwana estimates costs to increase by IDR700/sqm (or ~20% of 1H14 operational expenses) if subsidised fuel prices rise by IDR3,000/litre. The weaker IDR also pushes production costs up, as c.60% of production costs are related to IDR/USD fluctuations. We cut our earnings estimates by 9.3%/9/0% to IDR301bn/IDR370bn for FY14F/FY15F, and trim our TP to IDR1,135 (from IDR1,250) – based on a 22.5x FY15F P/E and implying a 20.7% upside. Maintain BUY. Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 923 1,114 1,418 1,704 2,007 Reported net profit (IDRbn) 95 156 235 301 370 Recurring net profit (IDRbn) 93 155 234 300 369 3.4 66.6 50.3 28.3 23.3 12.7 21.2 31.8 40.8 50.3 3.8 5.0 10.0 16.0 20.5 18.7 Total turnover (IDRbn) Recurring net profit growth (%) Shariah compliant Recurring EPS (IDR) DPS (IDR) Andrey Wijaya (6221) 2598 6888 Recurring P/E (x) 74.0 44.4 29.5 23.0 [email protected] P/B (x) 14.5 11.6 9.1 7.3 5.9 P/CF (x) 48.0 29.6 25.4 25.8 17.6 Dividend Yield (%) 0.4 0.5 1.1 1.7 2.2 EV/EBITDA (x) 36.0 25.1 17.4 14.6 11.9 Return on average equity (%) 21.4 29.2 34.7 35.4 Net debt to equity (%) 34.4 9.8 3.5 1.3 Our vs consensus EPS (adjusted) (%) 1.3 35.3 net cash 1.9 Source: Company data, RHB See important disclosures at the end of this report 2 . 1 0 . 3 0 0 . 2 0 0 Although Arwana’s plants are running at maximum capacity, . 0 Indonesia’s utilization of ceramic tiles capacity fell to 60% in Sep 2014 0 (2013: 70%) as other companies increased their capacity. This may 0 trigger higher sales discounts in the industry, which would temporarily dampen Arwana’s sales. As we expect its costs to increase, we cut our FY14F/FY15F earnings estimates by 9.3%/9/0% to IDR301bn/IDR370bn. Our TP dips to IDR1,135 from IDR1,250 (22.5x FY15F P/E). BUY. 30 20 Powered by EFATM Platform 11 Company Update, 6 October 2014 AP (Thailand) Public Company Limited (AP TB) Property - Real Estate Market Cap: USD613m Neutral (Maintained) Target Price: Price: THB8.00 THB6.95 Macro Risks Record High 3Q14 Presales From JV Condo Projects Growth Value Asian Property Dev (AP TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 8.70 128 8.20 123 7.70 118 7.20 113 6.70 108 6.20 103 5.70 98 5.20 93 4.70 88 4.20 83 3.70 70 78 50 40 30 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Vol m 20 Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) 148m/4.61m 8.6 15.1 4.18 - 8.00 61 2,860 Anuphong Assavabhokhin Thai NVDR Pichet Vipavasuphakorn 23.2 15.3 7.9 Share Performance (%) 3Q14 presales jump to THB8.2bn (+127% y-o-y, 15% q-o-q). Asian Property’s landed property (single detached houses and townhouses) sales hit a record high of THB3.5bn (+69% y-o-y, 21% q-o-q). Condominium (condo) sales skyrocketed to TH4.67bn (+208% y-o-y, +12% q-o-q), thanks to the successful launch of the THB3.3bn Aspire Sathorn Thapra (90% sold within two days), which was a joint venture (JV) project between Asian Property and Mitsubishi Estate (8802 JP, NR). Asian Property launched four condo projects in 2Q14-3Q14, all under its JV with Mitsubishi Estate worth a combined THB10.55bn. To date, the average take-up rate of these four projects is around 80%. 9M14 presales reach THB17.5bn. 9M14 presales accounted for 80% of the company’s full-year forecast of THB22bn (+45% y-o-y). Landed property presales have been very healthy over the past three quarters, growing 17% q-o-q in 1Q14 and 21% q-o-q each in 2Q14 and 3Q14. 9M14 landed property presales and condo sales grew 38% and 53%, respectively. Presales momentum may slow in 4Q14. Given no new launches of major condos in 4Q14, we expect presales to slow in the last quarter. Asian Property plans to launch only two projects – TH870m District Sriwara and THB1.25bn Baan Klang Muang Sukumvit 77 – in 4Q14 so that it will be able focus more on the completion of ongoing projects. Expects double-digit earnings growth again in 2016. We have a NEUTRAL rating on Asian Property as we expect its 2014-2015 earnings to grow at a subpar single-digit rate compared to its peers. This is due to slow sales and delays in construction of projects launched in 2012-2013. We believe good presales in 2014-2015F should help drive earnings in 2016-2017F. YTD 1m 3m 6m 12m Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F Absolute 58.0 (12.0) 8.6 27.5 17.8 Total turnover (THBm) 13,638 17,309 19,988 21,770 23,962 Relative 35.8 (13.2) 2.2 13.8 5.1 Reported net profit (THBm) 1,551 2,186 2,013 2,170 2,326 Recurring net profit (THBm) 1,548 2,097 2,010 2,170 2,326 Recurring net profit growth (%) (28.1) 35.4 (4.2) 8.0 7.2 Recurring EPS (THB) 0.60 0.74 0.70 0.76 0.81 Wanida Geisler +66 2862 9748 DPS (THB) 0.15 0.18 0.25 0.27 0.29 [email protected] Recurring P/E (x) 11.6 9.4 9.9 9.2 8.5 P/B (x) 1.83 1.56 1.42 1.28 1.15 Shariah compliant P/CF (x) 6.63 7.26 2.2 2.6 3.6 3.9 4.2 EV/EBITDA (x) 11.3 10.2 11.7 10.0 8.9 Return on average equity (%) 15.4 18.7 15.1 14.7 14.2 129.3 91.0 103.8 Dividend Yield (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) na 6.37 na 80.6 63.0 (0.2) (4.3) Source: Company data, RHB See important disclosures at the end of this report 3 . 2 0 . 1 0 0 . 2 0 0 Asian Property’s presales hit a record high in 3Q14, thanks to . 0 successful launches of four new condominium projects worth a 0 combined THB10bn under its JV with Mitsubishi Estate, as well as the 0 strong momentum of landed property sales YTD. We maintain NEUTRAL since we expect subpar earnings growth for 2014-2015F compared to its peers. Our THB8.00 is pegged to a 10x 2015F PE. 60 10 Powered by EFATM Platform 12 Company Update, 7 October 2014 Bangkok Bank (BBL TB) Buy (Maintained) Financial Services - Banks Market Cap: USD11,593m Target Price: Price: THB220.00 THB198.00 Macro Risks Making Quiet Improvements Growth Value Bangkok Bank (BBL TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 220 107 210 104 200 101 190 98 180 95 170 92 160 30 89 20 15 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 Oct-13 Vol m 5 Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) Thai NVDR State Street Bank and Trust Company 1,063m/32.7m 13.1 11.4 166 - 215 66 1,909 30.8 3.3 Share Performance (%) Expects rebound in private investments from 2Q15. Bangkok Bank believes that the approved USD75bn 8-year transport plan would not have a significant direct impact on system loan growth, given the long gestation and plans to partly finance the projects via bond issuances. Still, management is hopeful the transport plan would re-ignite private investments and boost the value of properties along the rail routes – which should lead to a pick-up in loan demand from 2Q15. Loans are expected to be flattish in 3Q14 due to weak demand from corporations, while growth for the full year would be at c.3%. Modest improvements in operations. For 3Q14, management guided for slight improvements in: i) net interest margin (NIM) helped by lower funding costs and better loan yields, ii) non-interest income supported by income from bancassurance and mutual funds, and iii) a lower cost-toincome ratio (CIR) following the bump-up to 45.2% in 2Q14. NPLs remain benign. The bank is expected to post higher nonperforming loans (NPLs) in 3Q14. Management is not worried as the increase is manageable and not systemic in nature. Loan loss coverage is also high at 216% in June 2014. Maintain BUY and a THB220.00 TP. Bangkok Bank’s share price has been a laggard, being the only large bank stock to underperform the SET Index. Its 1.1x FY15F P/BV and 9.5x P/E are undemanding vs the sector’s 1.6x P/BV and 9.5x P/E respectively. We reiterate our BUY call with a TP of THB220.00. Re-rating catalysts, in our view, would come from the expected recovery in private investments and a further rebound in property sales. The bank, which has the smallest retail loan book among large banks, would also be a preferred pick for investors who are concerned about rising household leverage. 12m Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F (0.8) Net interest income (THBm) 54,952 55,879 59,500 62,500 67,500 (10.7) Reported net profit (THBm) 31,847 35,906 36,837 40,607 45,708 16.5 12.7 2.6 10.2 12.6 31,847 35,906 36,837 40,607 45,708 Recurring EPS (THB) 16.7 18.8 19.3 21.3 23.9 Fiona Leong +603 9207 7638 DPS (THB) 6.50 7.52 7.80 8.49 9.49 [email protected] Recurring P/E (x) 11.8 10.5 10.2 9.3 8.3 P/B (x) 1.39 1.27 1.18 1.09 1.01 YTD Absolute Relative 11.0 (9.9) 1m (6.8) (5.9) 3m (0.3) (5.2) 6m 5.9 (6.9) Net profit growth (%) Shariah compliant Recurring net profit (THBm) Dividend Yield (%) 3.3 3.8 3.9 4.3 4.8 Return on average equity (%) 12.3 12.6 12.0 12.2 12.7 Return on average assets (%) 1.4 1.4 Our vs consensus EPS (adjusted) (%) 1.4 1.5 1.5 (2.1) (3.7) (2.8) Source: Company data, RHB See important disclosures at the end of this report 2 . 2 0 . 1 0 0 . 3 0 0 Bangkok Bank expects to report modest improvements in 3Q14 NIM, . 0 non-interest income and CIR. NPLs are expected to rise but remain 0 manageable. Maintain BUY and a THB220.00 TP (11.4% upside), as its 0 corporate lending and home mortgage businesses ought to benefit from the expected pickup in private investments from 2Q15. Valuations (FY15F: 1.1x P/BV, 9.5x P/E) are undemanding vs the sector’s 1.6x P/BV and 9.5x P/E. 25 10 Powered by EFATM Platform 13 Company Update, 2 October 2014 Berli Jucker (BJC TB) Neutral (from Sell) Consumer Cyclical - Retail Market Cap: USD2,244m Target Price: Price: THB46.00 THB45.80 Macro Risks Good Looking But Expensive Growth Value Berli Jucker (BJC TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 60.0 120 58.0 116 56.0 112 54.0 108 52.0 104 50.0 100 48.0 96 46.0 92 44.0 88 42.0 84 40.0 14 80 10 8 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 2 Oct-13 Vol m 4 Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) TCC Holding Co Ltd DBS Vickers (Singapore) Thai NVDR 134m/4.17m 8.1 0.5 42.3 - 58.5 25 1,592 70.1 4.9 2.5 Share Performance (%) YTD 1m 3m 6m 12m Absolute (5.2) (3.7) (2.7) (8.1) (1.1) Relative (27.3) (5.0) (9.4) (22.4) (13.7) Shariah compliant Chalie Kueyen 66 2862 9745 [email protected] To anchor its footprint in Vietnam’s consumer business. We are positive on Berli Jucker’s move to acquire Metro AG’s (MEO GR, NR) cash-and-carry business in Vietnam (Metro Vietnam) because of several factors. Firstly, Metro Vietnam has a good platform with a fully-integrated retail supply chain, and sizeable market presence (19 stores nationwide) and 22.2% market share, second only to Saigon Union of Trading Cooperatives’ (Saigon Co-op) 34.3%. Secondly, there is plenty of room to grow modern trade in Vietnam, given the low 4% penetration rate vs Thailand’s 44%. Lastly, Metro Vietnam’s retail supply chain can create substantial synergies with its existing consumer businesses there. Cost reduction to boost growth in 2H15. Metro Vietnam has operated at losses of THB340m (2011), THB660m (2012) and THB394m (2013), mainly on high sales, general and administrative expenses (SG&A) – this includes high fixed costs for new store expansions, advertising costs and loyalty fees – and huge THB7.2bn debt due to steep finance costs (4.74.9%), Post acquisition, we expect Berli Jucker’s finance costs to drop by 1%, and lower opex on less loyalty fees and the replacement of the German management by an all-Thai team. All-in, we assume Metro Vietnam’s margins to improve by 100bps (2H15) and 70bps (2016). In terms of sensitivity, its 100bps margins would boost absolute EBIT by ~THB240m, ie ~6-7% of group EBIT. Key risks. Regulations not yet enacted in Vietnam could interrupt future store expansions while high inflation may add pressure to costs. Downside/upside will also depend on how quickly Berli Jucker turns Metro Vietnam profitable. Raise to NEUTRAL (from Sell). Assuming Berli Jucker is to take fullyear consolidation next year, we see Metro Vietnam contributing losses of ~THB150m in 2015 before turning to a THB170m profit in 2016. Beyond that, we expect earnings to grow 7% (2015) and 29% (2016). Taking a bullish sector P/E of 35x of 2-year forward earnings, we reach a fair price of THB46.00 (vs THB31.00) and a NEUTRAL call (from Sell). Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total turnover (THBm) 37,429 42,226 42,459 69,157 74,681 Reported net profit (THBm) 2,415 2,426 1,823 1,946 2,505 Recurring net profit (THBm) 2,415 2,426 1,823 1,946 2,505 Recurring net profit growth (%) 10.9 0.5 (24.8) 6.7 28.7 Recurring EPS (THB) 1.52 1.53 1.15 1.23 1.58 Recurring P/E (x) 30.1 30.0 39.9 37.3 29.0 P/B (x) 5.29 4.93 4.92 4.54 4.17 P/CF (x) 17.3 14.7 12.3 24.7 23.0 EV/EBITDA (x) 20.9 19.6 21.9 29.1 26.3 Return on average equity (%) 18.4 17.0 12.4 12.7 15.0 Net debt to equity (%) 68.5 84.2 72.2 121.6 109.3 0.0 0.0 0.0 Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 3 0 . 1 0 0 . 1 0 0 Post visits to many Vietnam retailers last week, we see Metro as well- . 0 managed and -positioned to capture a different retail segment. Given 0 modern trade’s low 4% penetration rate there, from top-down and 0 bottom-up approaches, Metro looks interesting and a possible longterm growth driver. Yet, assuming cost synergies in FY16, demanding valuations limit upside despite a bullish 35x P/E. Upgrade to NEUTRAL. 12 6 Source: Company data, RHB Powered by EFATM Platform 14 Company Update, 7 October 2014 LPN Dev (LPN TB) Buy (Maintained) Property - Real Estate Market Cap: USD980m Target Price: Price: THB27.00 THB21.60 Macro Risks 3Q14 Numbers May Rebound Q-o-q Growth Value L.P.N Dev (LPN TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 25.0 108 23.0 101 21.0 95 19.0 88 17.0 81 15.0 75 13.0 35 68 25 20 15 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 5 Oct-13 Vol m 10 Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) 126m/3.91m 8.8 25.0 14.3 - 23.5 77 1,476 Thai NVDR Chase Nominees Mr. Sumeth Thechakraisri 22.2 6.1 4.6 Share Performance (%) YTD 1m 3m 6m 12m Absolute 39.4 (1.4) 2.9 27.1 (1.4) Relative 18.5 (0.5) (2.2) 14.3 (11.2) Shariah compliant Wanida Geisler 66 2862 9748 [email protected] 3Q14 presales at THB2.9bn (flat y-o-y, -58% q-o-q). As LPN Dev (LPN) did not launch any new condominium project in 3Q14, its 9M14 presales were at THB13bn (-30% y-o-y), or 65% of its full-year target of THB20bn. The company’s backlog at end-3Q14 stood at THB21.35bn, of which THB3.46bn would be realised this year and approximately THB16bn in 2015F. 3Q14 forecast. We estimate LPN to book revenue of THB3.2bn, mainly from the ownership transfer of three newly-completed condominiums – the THB1bn Lumpini Ville On Nut Ladkrabang, THB1.98bn Lumpini Ville Prachachuen Pongpetch 2 and THB1.4bn Lumpini Ville On Nut 46. Assuming a net margin of 17%, we expect 3Q14 earnings to come in at THB544m (+48% q-o-q, -11% y-o-y). Thus, its 9M14 earnings should be at THB1.26bn (c.-30% y-o-y), which is 63% of our full-year forecast of THB2bn (-14% y-o-y). Numbers may peak in 4Q14. LPN is looking to launch up to seven condominium projects, which are valued in total at c.THB9bn. Also, three condominium projects (ie the THB1.28bn Lumpini Seaview Jomtien, THB2bn Lumpini Place Udon-Posri and THB1.8bn Lumpini Ville Onnut-Pattanakarn) are due to be completed then – which would help to drive 4Q14 earnings. We note that the result of the long-awaited environment impact assessment (EIA) license application for its THB6bn Rangsit development could be known by end-October. 2015 set to be a record year. We estimate LPN’s 2015 condominium revenue at almost THB19bn, of which 84% is already in hand as backlog. Key growth drivers next year would come from the THB3bn Lumpini Place Srinakarin-Huamark, THB4bn Lumpini Park Ratanathibeth-Ngamwongwan, THB2.6bn Lumpini Park Rama 9 and THB3bn The Lumpini 24, which are almost sold out. We estimate LPN’s 2015F earnings growth of 58% y-o-y to be the best in the sector. Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F Total turnover (THBm) 12,335 13,325 14,346 12,682 19,876 Reported net profit (THBm) 1,917 2,229 2,328 2,006 3,172 Recurring net profit (THBm) 1,911 2,192 2,328 2,006 3,172 Recurring net profit growth (%) 19.5 14.7 6.2 (13.8) 58.1 Recurring EPS (THB) 1.30 1.49 1.58 1.36 2.15 DPS (THB) 0.65 0.76 0.84 0.69 1.09 Recurring P/E (x) 16.7 14.5 13.7 15.9 10.0 P/B (x) 4.47 3.76 3.31 3.06 2.54 3.0 3.5 3.9 3.2 5.0 Return on average equity (%) 29.0 28.6 25.7 20.0 27.6 Return on average assets (%) 19.2 18.9 14.8 10.8 15.1 4.3 19.6 42.4 60.1 48.3 (10.5) 0.0 Dividend Yield (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 3 0 . 2 0 0 . 2 0 0 LPN’s 3Q14 presales were unexciting given the lack of new launches. . 0 Its upcoming 3Q14 results, on the other hand, are likely to rebound 0 sharply q-o-q. We believe 9M14 presales and earnings may represent 0 around 63-65% of our full-year forecasts before numbers peak in 4Q14. LPN is one of our Top Picks as its 2015 earnings growth may be the strongest in the sector. Maintain BUY, with our THB27.00 pegged to a 12.5x P/E (0.5SD above its long-term mean), implying a 25% upside. 30 Source: Company data, RHB Powered by EFATM Platform 15 Company Update, 6 October 2014 Pruksa Real Estate (PS TB) Buy (Maintained) Property - Real Estate Market Cap: USD2,318m Target Price: Price: THB43.00 THB33.80 Macro Risks Record High Total Presales In 3Q14 Growth Value Pruksa Real Estate (PS TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 39.0 185 34.0 165 29.0 145 24.0 125 19.0 105 14.0 25 85 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 5 Oct-13 Vol m 10 Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) 141m/4.38m 7.1 27.4 16.6 - 37.0 26 2,227 Vijitpongpun family UBS AG Singapore 66.0 4.5 Share Performance (%) YTD 1m 3m 6m 12m Absolute 85.4 (3.6) 13.4 67.9 66.3 Relative 63.2 (4.8) 7.0 54.2 53.6 Shariah compliant Wanida Geisler 66 2862 9748 [email protected] 3Q14 presales surged to THB13.3bn (+21% y-o-y, +37% q-o-q). Pruksa Real Estate (Pruksa)’s quarterly landed property (single detached homes and townhouses) sales were THB7.97bn (+29% y-o-y, 2% q-o-q) while condominium (condo) sales were THB5.32bn (+10% yo-y, 242% q-o-q). However, we noted that its landed property sales slipped slightly q-o-q from 2Q14’s record high of THB8.1bn, although presales momentum over the past three quarters has been impressive, with q-o-q growth of 9% (1Q14), 19% (2Q14) and 37% (3Q14). 9M14 presales stood at THB31bn (-7% y-o-y). Despite a strong pick up in 3Q14 presales, YTD it remained weak when compared to the same period last year. This was attributed to the political and economic problems seen during the first five months of 2014. However, we note that landed property presales for 9M14 have been resilient, with 8% growth y-o-y, while condo sales collapsed 30% to THB9bn vs THB13bn in 9M13. Also, 9M14’s presales of THB31bn accounted for 70-75% of Pruksa’s full-year target of THB41bn-45bn. Strong momentum to continue in 4Q14. Pruksa plans to launch another 34 new projects with a combined value of THB30bn in 4Q14. This should help drive its presales to meet its full-year target mentioned earlier. After seeing a strong pickup in 2Q14 presales, Pruksa said it would increase its number of new launches to more than 50 with a combined worth of around THB50bn-55bn. The company had earlier planned to launch between 40-50 projects only. Pruksa is also targeting for its 2014 presales numbers to grow up to 10% y-o-y. Our 2014 earnings forecast remains on the low side. Pruksa’s 1H14 earnings of THB2.93bn (+34% y-o-y) accounted for 52% of our full-year forecast. Given its strong presales, there is a high possibility of another round of earnings adjustments going forward. Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F Total turnover (THBm) 23,263 27,024 38,848 37,532 49,010 Reported net profit (THBm) 2,835 3,898 5,801 5,682 7,379 Recurring net profit (THBm) 2,835 3,898 5,801 5,682 7,379 Recurring net profit growth (%) (18.7) 37.5 48.8 (2.0) 29.9 Recurring EPS (THB) 1.28 1.76 2.62 2.56 3.32 DPS (THB) 0.40 0.50 0.85 0.77 1.00 Recurring P/E (x) 26.3 19.1 12.9 13.2 10.2 P/B (x) 4.39 3.72 3.01 2.61 2.18 1.2 1.5 2.5 2.3 3.0 17.6 21.0 25.8 21.2 23.4 7.5 9.1 11.6 9.7 11.6 107.4 79.4 76.7 70.8 56.1 (8.1) 3.1 Dividend Yield (%) Return on average equity (%) Return on average assets (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 2 0 . 2 0 0 . 3 0 0 We continue to like Pruksa, the market leader in terms of presales, new . 0 launches and revenue, and maintain BUY as we estimate a 27% upside. 0 This stock is one of our Top Picks with a THB43.00 TP, pegged to 13x 0 2015F P/E, ie +0.5SD to its long-term mean P/E. Pruksa’s presales momentum has been strong over the past three quarters and we expect it to continue into 4Q14. We estimate 2015 earnings growth at 30% y-o-y, one of the sector’s Top 3. 20 15 Source: Company data, RHB Powered by EFATM Platform 16 Company Update, 3 October 2014 Thai Oil (TOP TB) Buy (Maintained) Energy & Petrochemicals - Oil & Gas Services Market Cap: USD3,225m Target Price: Price: THB63.22 THB51.30 Macro Risks Stock Loss Takes a Toll On Earnings Growth Value Thai Oil (TOP TB) Relative to Stock Exchange of Thailand Index (RHS) 64.0 110 62.0 105 60.0 100 58.0 95 56.0 90 54.0 85 52.0 80 50.0 75 48.0 20 18 16 14 12 10 8 6 4 2 70 0 0 . 2 0 0 We expect Thai Oil to report a net loss of THB1.8bn for 3Q14F, resulting . 0 from stock loss (c. THB3bn), lower utilisation rate from major 0 maintenance and higher cost due to major maintenance. We maintain 0 BUY, with our revised TP of THB63.22/share (based on 1.3x 2015 P/BV), providing a ~23% upside. We have slashed 2014F net profit by 49.7% as a result of the abysmal 3Q14F results. We expect a better 4Q14. Aug-14 Jun-14 Feb-14 Apr-14 115 Dec-13 66.0 Oct-13 Vol m Price Close Source: Bloomberg Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) PTT Pcl. Thai NVDR State Street Bank Europe Limited 123m/3.82m 55.2 23.4 49.8 - 65.0 50 2,040 49.1 7.1 3.7 3Q14F net loss of THB1.8bn. We expect Thai Oil to report a net loss of THB1.8bn for 3Q14. The abysmal earnings, which were within expectations, were a result of stock loss estimated at THB3bn, lower utilisation rate arising from major maintenance and higher cost as a result of major maintenance. Spreads relatively stable but hit by stock loss. In terms of margin and spread, aromatics spreads improved from 2Q14, with paraxylene (PX) spread rebounding to USD372/ton (+68% q-o-q), and benzene (BZ) at USD328.37/ton (+29% q-o-q). Refined products mostly softened as 3Q14 is seasonally low in demand. Lube base spreads were relatively stable. The Dubai crude oil price that ended 3Q14 was USD95.51/barrel (bbl), compared with USD109.00/bbl in 2Q14. Thai Oil usually holds inventory of around 8m bbl at the end of each quarter. This translates into a stock loss of around THB3bn for 3Q14F. 2014F earnings slashed by 49.7%. We cut our 2014F earnings estimate by 49.7% to THB5.1bn, much lower than Bloomberg’s earnings consensus of THB7bn to THB10bn. We have adjusted our earnings to reflect the expected 3Q14F earnings impact from stock loss of THB3bn, while that from the lower spreads and higher maintenance costs totals around THB1bn. We have lowered 2015F earnings to reflect the softer product spreads. BUY maintained. Thai Oil’s share price is trading at distressed levels of -1SD forward P/BV. We believe that 4Q14 will improve, with the refinery and aromatics running at full utilisation rate. Product spreads should improve in 4Q14 as we enter the peak demand period with the festive season and winter season. We maintain our BUY call, with lower TP of THB63.22/share (from THB65.60). Forecasts and Valuations Share Performance (%) 2 . 2 0 . 2 Total turnover (THBm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 446,241 447,432 414,599 394,008 412,003 YTD 1m 3m 6m 12m Reported net profit (THBm) 14,853 12,320 10,394 5,117 10,198 Absolute (8.9) (1.9) (1.5) (2.9) (13.1) Recurring net profit (THBm) 14,853 12,320 10,394 5,117 10,198 Relative (31.1) (3.1) (7.9) (16.6) (25.8) Recurring net profit growth (%) 65.8 (17.1) (15.6) (50.8) 99.3 Recurring EPS (THB) 7.28 6.04 5.09 2.51 5.00 DPS (THB) 3.30 2.70 2.30 1.13 2.26 7.0 8.5 10.1 20.4 10.3 1.32 1.21 1.15 1.12 1.05 P/CF (x) 6.7 4.8 33.6 8.4 6.5 Dividend Yield (%) 6.4 5.3 4.5 2.2 4.4 EV/EBITDA (x) 4.97 6.55 6.13 7.35 6.49 Return on average equity (%) 19.9 14.8 11.7 5.5 10.6 Net debt to equity (%) 31.0 20.3 32.7 44.5 39.4 0.0 0.0 Shariah compliant Recurring P/E (x) Kannika Siamwalla, CFA 66 2862 9744 [email protected] P/B (x) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 17 Company Update, 6 October 2014 PTT (PTT TB) Buy (Maintained) Energy & Petrochemicals - Integrated Oil & Gas Market Cap: USD31,971m Target Price: Price: THB396.00 THB364.00 Macro Risks Energy Minister Lays Out Goals Growth Value PTT (PTT TB) Price Close Relative to Stock Exchange of Thailand Index (RHS) 390 106 370 103 350 100 330 97 310 95 290 92 270 89 250 14 86 10 8 6 Aug-14 Jun-14 Apr-14 Feb-14 Dec-13 2 Oct-13 Vol m 4 Avg Turnover (THB/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (THB) Free float (%) Share outstanding (m) Shareholders (%) 1,284m/39.9m 8.8 8.8 264 - 369 49 2,856 Ministry of Finance Vayupak Fund Thai NVDR 51.1 15.3 4.3 Higher TP, maintain BUY. We expect that the current Government may likely raise the compressed natural gas (CNG) price by a total of THB3.00/kg over the next 12 months, ie by THB1.00/kg in each of Oct 2014, Mar 2015 and Aug 2015 time periods. We remain cautious on petroleum/CNG/liquefied petroleum gas (LPG) price adjustments as newly-elected governments historically tended to win elections based on populist policies. We adjust our TP and earnings forecasts for 2015 onwards to capture this potential upside. Our 2014F net profit forecast remains unchanged as we expect poor 3Q14 earnings from PTT’s refineries (associated companies), with stock losses set to drag down their earnings and thus, those of PTT. Maintain BUY, with a revised TP of THB396.00/share (from THB374.00). Energy minister lays out goals. At the Energy Ministry’s 12-year anniversary, the energy minister Narongchai Akrasanee vowed to clean up the mess left by prolonged energy subsidies by past governments. The top priorities are to solve LPG and CNG price distortion as well as find new sources for the power sector. Since 22 May 2014’s coup, the military regime has pledged to reform energy prices and put all fuel users on a more equal footing. By 1Q15, the Energy Minister hopes to conclude regulations for third-party access in the natural gas pipeline business. By 3Q15, the ministry also plans to take decisions on production concessions held by petroleum explorers as some concessions will expire in 2022. Memoranda of understanding with Myanmar and Cambodia to prepare for the development of future energy resources are also on the agenda. In this report, we discuss the details and impact of each issue. Share Performance (%) YTD 1m 3m 6m 12m Absolute 27.3 11.3 14.1 18.2 13.8 Relative 6.4 12.2 9.0 5.4 4.0 Shariah compliant Forecasts and Valuations Dec-11 Dec-12 Dec-13F Dec-14F Dec-15F 2,428 2,794 2,843 2,771 2,938 Reported net profit (THBbn) 106 105 95 102 118 Recurring net profit (THBbn) 106 105 95 102 118 Recurring net profit growth (%) 23.7 (1.6) (9.5) 8.2 15.6 Recurring EPS (THB) 37.2 36.6 33.1 35.9 41.4 DPS (THB) 13.0 13.0 13.0 12.5 14.5 9.8 9.9 11.0 10.2 8.8 Total turnover (THBbn) Kannika Siamwalla, CFA 66 2862 9744 Recurring P/E (x) [email protected] P/B (x) 1.87 1.72 1.52 1.39 1.26 P/CF (x) 8.10 6.09 6.63 5.40 5.51 3.6 3.6 3.6 3.4 4.0 EV/EBITDA (x) 5.38 5.53 5.37 4.93 4.05 Return on average equity (%) 20.5 18.0 14.7 14.3 15.0 Net debt to equity (%) 46.9 42.7 39.2 25.1 10.8 0.0 0.0 0.0 Dividend Yield (%) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report 2 . 2 0 . 2 0 0 . 3 0 0 We lift PTT’s SOP-based TP to THB396.00/share, an 8.8% upside. We . 0 adjust our earnings and TP to factor in a THB3.00/kg CNG price 0 adjustment over the next 12 months. However, we remain cautious on 0 petroleum/CNG/LPG price adjustments as newly-elected governments tended to win elections on populist policies. Valuation upside may also come from PTT’s asset divestments over the next 12 months therefore we maintain our BUY. 12 Source: Bloomberg Powered by EFATM Platform 18 RHB 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. 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