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

Regional Equity Strategy Q4 2007
Country Assessment
The Property sector should be a prime beneficiary of the series of interest rate cuts.
Residential property developers, especially those that focus on the medium to lowerend
markets and those which have large backlogs (unrealized revenue), should continue
to do well in 2H07 and 2008. Our current top pick for the residential property sector
is Asian Property Development (AP TB). Industrial estate developers should also benefit
from rebounding demand for industrial land led by improving foreign direct investment.
Our top industrial property picks are Amata Corporation (AMATA TB) and Rojana
Industrial Park (ROJANA TB). We also like Construction contractors, which should
benefit from rising construction activities in Thailand next year. These companies’
share prices have tumbled after the government delayed tendering out mass transit
projects this year, but are now offering hefty upside to our target prices. Our top
pick in the sector is Italian-Thai Development (ITD TB), Thailand's largest construction
contractor with highest secured backlog.
We are upgrading the Energy sector to Overweight from Neutral, on the back of
persistently high oil prices, continued strong demand and attractive valuation. Our
top picks for the sector are PTT Plc. (PTT TB) and Thai Oil Plc. (TOP TB).
Another sector that we like is Entertainment, which should also benefit from consumption
recovery in Thailand in 2008. Our top pick for the sector is BEC World (BEC TB).
Given (i) strong earnings growth momentum, (ii) easing regulatory concerns, and
(iii) compelling dividend yields of 5.2% for FY07F and 5.7% for FY08F, we reiterate
our BUY rating for BEC. The stock is oversold, and the share price weakness is divergent
to its improving fundamentals. We believe the current share price weakness provides
a great buying opportunity.
Sector recommendation and stock picks for Thailand
SECTOR REMARKS STOCK SELECTION
Banks and Finance
Overweight
We expect the Thai banking sector to register strong 52% earnings growth
for 2008. Growth should be led by (i) higher industry loan growth at 10.8%
vs. an estimated 7.6% for 2007, (ii) wider net interest margin, (ii) expanding
fee-based income, and (iv) lower loan loss provision. The sector is now
trading at 2008 P/BV of only 1.5x vs >2.0x for regional peers. We believe
Thai banks, as the regional laggards, will eventually catch up. Our top
picks for the sector are KASIKORNBANK (KBANK), Bangkok Bank (BBL)
and Krung Thai Bank (KTB).
KBANK,
BBL, KTB
Construction
Materials
Neutral
(upgrade)
We are upgrading Construction Materials to Neutral from Underweight.
Demand for construction materials was weak in 1H07, following a slowdown
in domestic spending and investment, and weak housing sales. Nonetheless,
demand for construction materials should pick up next year, in anticipation
of improving consumer confidence, rising housing demand and more
mega-project construction activities. Our top pick for the sector is Siam
Cement (SCC TB), which now offers 23% upside potential to our target
price of Bt302 (sum-of-parts valuation), plus generous 6.1% dividend yield
for 2008.
SCC
Consumer
Underweight
The Cabinet has approved the Draft Wholesale and Retail Business Act
proposed by the Ministry of Commerce. The Draft Act now needs to be
reviewed by the Office of the Council of State before it is submitted to
the National Legislative Assembly to be enacted into law. Meanwhile,
the Ministry of Interior will depend on existing city planning and building
control laws to limit construction of new stores by modern retail trade
stores. We believe the Act will make modern trade store expansion in certain
areas more difficult in future.
HMPRO
96