Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...

Country Assessment
Regional Equity Strategy Q4 2007
Leading growth in 2008 will be the Banking sector, which is expected to register
49.8% y-o-y EPS growth, followed by Vehicles & Parts (+27.2% y-o-y), Transportation
Sector (+26.1% y-o-y), Property (+16.5%), and Commerce (+11.5%).
In terms of valuation, the Thai market is now trading at attractive 2008 PE of 11.4x,
vs about 15x for regional peers. Our 1-year index target is 1,040 (implying 14.7x
2008 PE), suggesting 30% upside from current levels.
Sector EPS Growth and PE Valuation
Sector EPS Growth (%) PE (x)
2006A 2007F 2008F 2006A 2007F 2008F
Banking (17.2) (18.4) 49.8 13.4 15.9 10.6
Construction Materials (8.6) 2.2 (18.7) 10.0 9.8 12.1
Chemicals & Plastics 0.1 74.7 (16.5) 12.6 7.2 8.7
Commerce 14.1 14.6 11.5 17.7 15.4 13.8
Communication (30.6) 46.8 11.0 23.9 16.5 14.9
Electronics Components 3.8 (2.8) 2.3 10.5 10.3 10.0
Energy (3.7) (0.2) 3.0 10.6 10.6 10.3
Entertainment & Recreation 45.2 18.9 2.7 19.8 16.7 16.2
Finance & Securities (35.8) 41.0 (7.0) 14.9 10.6 11.3
Property Development (61.3) 71.8 16.5 30.8 17.7 15.5
Transportation 33.4 (46.3) 26.1 8.3 15.4 12.2
Vehicles & Parts (38.8) (23.4) 27.2 9.5 12.4 9.7
Others (42.2) (8.1) 29.9 15.3 16.6 12.8
DBSV Universe (11.8) (3.1) 11.1 12.7 12.7 11.4
Source: DBS Vickers
INVESTMENT STRATEGY
We expect the market to maintain its upward momentum in 4Q07 as we approach the
general election on 23 Dec 2007. We believe Thailand's domestic conditions are improving,
which should boost consumer confidence and business activities in 4Q07 and 2008. The
anticipated general election on 23 Dec 2007 should be a strong market re-rating catalyst
as political tensions should subside when the military-appointed government steps down
and a new elected government assumes power. Domestic demand should pick up when
political concerns ease and the positive impact of the series of interest rate cuts kick in
during 2H07 and 2008. Investment should also pick up after the elected government is in
place early next year. Over the longer term, investors should focus more on the election
outcome, the faces of coalition parties, and the new cabinet line-up.
Our current investment theme is domestic interest rate downcycle, which should
be a positive factor for banks and property companies. The Energy sector should
continue to benefit from continued strong demand and persistent high oil prices.
Meanwhile, the Media sector should benefit from higher advertising spending especially
during the election campaign.
Prospects for the Banking sector remain positive, based on our assumed 10.8% loan growth
for 2008 (vs 7.6% in 2007), potentially stronger balance sheets due to IAS39, and improving
asset quality. We believe Thailand’s Banking sector will report solid earnings growth of
52% for 2008, supported by higher loan growth, expanding fee-based income, and lower
loan loss provision. Our top picks for the sector are KASIKORNBANK (KBANK TB), Bangkok
Bank (BBL TB), and Krung Thai Bank (KTB TB).
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