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

Country Assessment
Regional Equity Strategy Q4 2007
Sector recommendation and stock picks for Thailand
SECTOR REMARKS STOCK SELECTION
Communication
Neutral
We are seeing easing competition in Thailand's cellular market. Three
major cellular operators raised their tariff rates in 2Q07 and early 3Q07.
We believe Thai cellular tariff rates are on a continued upward trend,
at least for the rest of the year. We also believe the revenue sharing
rate is unlikely to be raised near term. The Committee set up to look
into the amendment of the concession fee is not expected to come up
with the solution within this year. Hence, the risk of ADVANC having
to raise its concession fee payable to TOT from 20% to 30% of its prepaid
service revenue has also eased. Our top pick for the sector is ADVANC,
which is offering a generous 2008 dividend yield of 7.1%.
ADVANC
Electronics
Components
Neutral
We remain Neutral on the Electronics sector. While we still like the sector's
fundamentals, sentiment should remain weak due to concerns over (i)
potential negative impact of the US economic slowdown, and (ii) the
strong baht against the US dollar. Note that all companies in this sector
export the bulk of their products, and would be negatively affected by
a global economic slowdown and strong baht. Our top pick for the
sector remains Calcomp Electronics (CCET).
CCET
Energy
Overweight
(Upgrade)
We are upgrading the Energy sector to Overweight from Neutral for
three main reasons. First, we expect refining margins to remain healthy
at >US$6/bbl at least until 2008, as demand growth still outpaces new
refining capacity addition. Second, global oil prices are likely to remain
high in the next two years. Lastly, listed companies' expansion plans
are still on track, which means they should benefit from increased capacities
in the next few years. Our top picks for the sector are PTT Plc. (PTT TB)
and Thai Oil Plc. (TOP TB).
PTT, TOP
Entertainment
Overweight
We are positive about Thailand’s Entertainment sector in 4Q07 and 2008,
premised on expectations of rebounding consumer confidence following
an improving political scene. The sector's solid cash flow should ensure
high dividend payouts, and is offering sustainable and attractive 5.7%
average dividend yield for 2008. We remain Overweight on the sector.
Our top picks in the sector are BEC World (BEC TB) and Major Cineplex
(MAJOR TB).
BEC, MAJOR
Property
Development
Overweight
Residential property developers are likely to benefit from the interest
rate cuts and rebounding consumer confidence in 2H07 and 2008. We
prefer residential developers that focus on low-to-mid priced property
development, where demand remains strong. These include Quality Houses
(QH TB), Asian Property Development (AP TB), Preuksa Real Estate (PS
TB). Commercial property developers e.g. retail and office space, are
expected to be less affected by the slowing economy, thanks to their
strong recurring rental income, which are normally fixed for three years.
Nonetheless, rental reversions upon contract renewals could be lower
than expected given the current weak market environment. Construction
contractors should see positive news flow relating to bids for the mass
transit system projects assuming they proceed as planned, although we
expect construction to commence only in 2008. Our top picks for the
sector are ITD and CK.
AMATA, AP,
ITD
Transportation
Neutral
We maintain Neutral rating for Transportation sector in 4Q07 despite
their cheap valuation. Several overhanging issues would continue to
undermine the share price in the short term. Our top pick is Bangkok
Expressway (BECL TB) given its sustainable cash flow.
BECL
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