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Regional Equity Strategy Q4 2007
Country Assessment
Thailand
Improved political outlook
SET Current : 803
SET 3/12 mths Target : 850 / 1,040
Expected Return : 6% / 30%
• Thailand's equity market performed relatively better than regional peers in 3Q07
as sentiment turned positive with an improved political scene. The draft 2007 constitution
was passed during the 19 August nationwide referendum with 57% voting for the
new constitution vs 41% against. This should pave the way for the general election
to be held on 23 Dec 2007.
• We expect the market to continue its upward momentum in 4Q07. The political
parties should start campaigning soon after the election date is announced, and we
expect a lot of rosy policies to be announced over the next few months. The December
general election should be a strong market re-rating catalyst as political tensions
subside. A new elected government is also perceived to have better economic and
business sense than the current one, domestic demand should pick up, and the positive
impact of a series of interest rate cuts should kick in next year. The direct negative
impact of the US sub-prime meltdown on Thailand should be limited given that
Bank Thai (BT TB) is the only bank in the country with exposure to sub-prime Collateralized
Debt Obligations (only US$50m).
• The Thai market still offers the most attractive valuations in the region, trading
at only 11.4x 2008 P/E (vs. 15x for regional peers) and offers generous 4.2% dividend
yield. The market also offers 11.1% EPS growth and 17.7% ROE for 2008. We recommend
investors overweight Banking, Property, Energy and Entertainment counters. The
interest rate-sensitive Banking and Property counters should be prime beneficiaries
of the interest rate cuts and improving economy next year. For this quarter, we are
upgrading the Energy sector to Overweight from Neutral, given the persistent high
oil price, continued strong demand and capacity expansion by major companies in
the sector. The Entertainment sector still deserves an Overweight rating as we expect
it to benefit from higher advertising spending especially during the election.
• Our top picks for this quarter are Advanced Info Service (ADVANC TB), Charoen
Pokphand Foods (CPF TB), and KASIKORNBANK (KBANK TB) for large caps. For small
caps, we like Amata Corporation (AMATA TB), Asian Property Development, Italian-
Thai Development (ITD TB) and Workpoint Entertainment (WORK TB).
Index Close Net chg -1 m -3 m -6 m -12 m 52 week
17-Sep-07 1 m (%) (%) (%) (%) High Low
SET 803 (10.6) (1.3) 3.3 8.8 17.0 896 588
SET 50 578 (7.9) (1.3) 5.2 10.5 20.4 649 406
SET 100 1,250 (17.6) (1.4) 4.5 10.2 na 1,403 886
SET Banks 279 (14.4) (4.9) (2.7) 4.1 7.9 329 217
SET Construction Materials 6,516 (134.1) (2.0) (3.1) 6.1 11.7 7,385 5,340
SET Communication 82 (3.4) (4.0) (4.3) (5.3) (4.8) 100 62
SET Energy 18,715 189.7 1.0 13.1 19.5 31.1 20,427 11,530
SET Electronics 825 (15.4) (1.8) (6.7) 11.2 20.4 922 626
SET Property 123 (3.4) (2.7) (0.5) 4.8 13.3 206 82
Transactions:
YTD
Volume (bn shares) 465
Value (Btbn) 2,825
Chanpen Sirithanarattanakul · 66 (0) 2657 7824 · chanpens@th.dbsvickers.com
Refer to important disclosures at the end of this report
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