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Thailand – Market strategy
Kasem Prunratanamala
Head of Thailand Research
December 2010
Maintain Overweight with SET index target of 1200 for 2011
•
Political uncertainty remains but we expect a happy ending
•
•
Democrat is likely to come back after next election
•
Opposition still lacks a credible leader
•
Strong military support
This will lead to a more stable political situation in 2011, which should lead to
a market re-rating closer to regional peers
•
•
More foreign inflows are likely to over the next few months
Economy forecast to grow 8.0% this year and 5.0% next year with possible
upside surprises in 2011
•
•
SET index target of 1200 for 2011, based on 13x forward P/E
Top picks – KBANK, KTB, STEC, CPF, GLOBAL, PS, LPN, SPALI, AMATA,
HEMRAJ, PTTAR and PTTCH
2
Politics likely to remain calm in 1H11
•
PM Abhisit likely to call snap polls in early 2011 following massive
government spending in 2H10 to boost popularity
•
Early elections to placate rural population following crackdown on protestors
in Rajprasong on 19 May 2010
•
Puea Thai Party still lacks a credible leader to lead them in the next
elections
•
•
Some Puea Thai MPs may cross over to Bhum Jai Thai
Strong military support
3
Political risks
•
Red-shirt protestors may take to the streets again
• We believe the movement is unlikely to gain much support this time around
• The government would have learned how to handle similar situations by now
• And the new army chief, Gen Prayuth Chan-ocha, is more decisive
4
Coalition partners unlikely to switch camps
Government
Democrat
#MPs
172
Bhum Jai Thai
32
Chart Thai Pattana
25
Puea Pandin
32
Ruam Chart Pattana
9
Kit Sangkom
5
Matuphum
3
Total
278
Opposition
Puea Thai Party
Pracharaj
#MPs
189
8
197
5
House dissolution in early 2011 – not too bad an option
•
The Democrats still have a good chance of returning as the government
since coalition partners are not likely to cross over to the Puea Thai Party
•
The current administration still has enough time to speed up spending under
the current budget to boost its popularity upcountry
•
It is not too long a timeframe for red-shirt protestors to wait
6
Global macro outlook
Table 1 : Real GDP growth - scenario
US
Euro-area
Japan
China
Malaysia
Indonesia
Singapore
Thailand
2009
-2.4
-4.1
-5.2
8.7
GDP baseline
2010F
2011F
2.5
2.0-3.0
0.6
1.5
1.5
1.8
10.0
10.0
GDP if euro stalls scenario
2009
2010F
2011F
-2.4
1.5
2.0
-4.1
0.0
0.5
-5.2
1.0
1.5
8.7
10.0
8.0
Interest rate
2010F
2011F
0.50
1.25
1.00
1.50
0.10
0.10
5.85
6.66
2009
-1.7
4.5
-2.0
-2.3
GDP baseline
2010F
7.0
6.1
9.4
8.0
GDP if euro stalls scenario
2009
2010F
2011F
-1.7
5.7
5.0
4.5
6.0
6.1
-2.0
8.0
5.0
-2.3
5.9
5.0
Interest rate
2010F
2011F
2.75
3.25
7.00
7.50
0.70
1.00-2.00
2.00
3.00
2011F
5.5
6.4
6.0
5.0
Source : CIMB
7
Thailand’s key interest rates
Source : BBL, BOT
8
Solid macro outlook
•
Despite political turmoil in Apr-May 2010, Thai economy did surprisingly well
with 9.1% growth in 2Q10 and 6.7% in 3Q10, following a strong growth of
12.0% in 1Q10.
•
•
•
•
We expect Thai economy to grow 8.0% this year and 5.0% next year.
Although global economy is likely to slow, we do not expect a double dip.
Inflation under control at 3.3% this year and 3.6% next year.
Policy rate to rise another 100bp to 3.00% in 2011.
9
Domestic demand will be key growth driver in 2011-12
2009
Real GDP*
% yoy
2010E
2011F
2012F
2009
% contribution
2010E
2011F
2012F
% share
Comments
-2.3
8.0
5.0
5.5
0.1
5.3
5.5
5.4
0.1
3.3
3.4
3.3
62.9
Private consumption
-1.1
5.0
5.3
5.5
-0.6
2.7
2.7
2.8
52.8
Supported by favorable farm income, rehiring as
economic prospects improve, consumer confidence
strengthens and tourism sector recovers.
Public consumption
7.5
6.5
6.4
5.0
0.7
0.7
0.6
0.5
10.1
Potential extension of government subsidy measures
and pay rise for government employees.
-9.2
10.6
7.3
9.2
-2.0
2.2
1.5
2.0
20.5
Private investment
-13.1
14.8
9.0
11.0
-2.2
2.2
1.4
1.8
14.8
Public investment
2.7
-0.4
2.0
3.5
0.1
0.0
0.1
0.2
5.7
Exports
-12.5
14.6
7.0
11.0
-9.0
9.4
4.8
7.7
64.8
Imports
-21.5
22.8
11.6
14.0
-12.5
10.6
6.2
6.8
46.6
Consumption
Investment
Improved business outlook, spending to boost capacity
expansions and stable political scenario.
Continued roll out of infrastructure development
projects.
Global trade activity moderates.
Increased imports of materials and equipment amid
higher consumer spending and domestic investments.
10
Thailand’s quarterly GDP growth forecasts
Thailand's quarterly GDP growth forecasts (%)
15
12.0
9.1
10
6.0
5.3
5
6.7
5.8
4.2
3.9
5.0
0
-5
(2.8)
(4.3)
(4.9)
(7.1)
-10
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10 4Q10E 2011E
Source : CIMB Research, NESDB
11
Foreign inflows likely to come in a big way in 2011
THBm
100,000
80,000
60,000
40,000
20,000
0
-20,000
-40,000
-60,000
06
J
07
J
08
J
09
J
10
J
Source : Stock Exchange of Thailand (SET)
12
Hedge funds very active
Large funds
2,000
Hedge funds
1,500
1,000
500
(500)
(1,000)
(1,500)
Jan-05 Jul-05
Jan-06 Jul-06 Jan-07 Jul-07
Jan-08 Jul-08
Jan-09 Jul-09 Jan-10 Jul-10
Source : Stock Exchange of Thailand (SET)
13
Local institutions start buying again
THBm
20,000
15,000
10,000
5,000
0
-5,000
-10,000
-15,000
-20,000
-25,000
-30,000
06
J
07
J
08
J
09
J
10
J
Source : Stock Exchange of Thailand (SET)
14
Prop desks getting cautious as well
THBm
4,000
3,000
2,000
1,000
0
-1,000
-2,000
-3,000
-4,000
06
J
07
J
08
J
09
J
10
J
Source : Stock Exchange of Thailand (SET)
15
Retail investors dominate market activity
Property fund
7%
Balance fund
3%
Others
7%
Equity fund
20%
Fixed Income fund
63%
Source : Stock Exchange of Thailand (SET)
16
8
Sep-10
14
May-10
18
Jan-10
12
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
(x)
Thailand’s market P/E
+2 s.d.
16
+1 s.d.
Average
10
-1 s.d.
-2 s.d.
6
Source : CIMB estimates
17
2.4
2.2
1.6
1.4
1.2
Aug-10
2.6
Apr-10
2
Dec-09
Aug-09
Apr-09
Dec-08
Aug-08
Apr-08
Dec-07
Aug-07
Apr-07
Dec-06
Aug-06
Apr-06
Dec-05
Aug-05
Apr-05
Dec-04
Aug-04
Apr-04
Dec-03
(x)
Thailand’s market P/BV
2.8
+1 s.d.
+2 s.d.
Average
1.8
-1 s.d.
-2 s.d.
1
Source : CIMB estimates
18
SET’s financial summary
SET Index
P/E (x, pre-EI)
P/E (x, after EI)
P/E (x, core)
Core EPS growth (%)
P/BV (x)
Dividend yield (%)
EV/EBITDA (x)
P/FCF (x, equity)
P/FCF (x, firm)
Net gearing (%)
ROE (%, recurring)
SET Index
CIMB/consensus (x)
CY2009
13.1
12.9
13.7
3.8%
1.8
3.8%
7.1
15.6
24.3
55%
13.5%
735
CY2010
13.8
13.7
14.2
35.3%
2.2
3.4%
7.6
17.7
12.9
43%
16.3%
1,034
1.03
CY2011
12.2
12.1
12.2
16.5%
2.0
3.7%
6.6
14.0
11.7
34%
17.3%
1,034
1.02
CY2012
10.5
10.4
10.5
16.4%
1.8
3.9%
5.6
11.9
9.4
23%
18.2%
1,034
1.03
CY2013
10.4
10.4
10.4
0.8%
1.9
4.7%
5.5
11.3
8.1
2%
9.5%
1,034
1.19
Source : CIMB Research
19
Jun-10
Dec-09
STI
Jun-09
Dec-08
Jun-08
KLCI
Dec-07
Jun-07
Dec-06
Jun-06
SET
Dec-05
Jun-05
Dec-04
Jun-04
30
Dec-03
Jun-03
Dec-02
Jun-02
Dec-01
Regional market comparison
JCI
25
20
15
10
5
0
Source : CIMB Research
20
Regional market comparison
CY10 Core P/E (x)
CY11 Core P/E (x)
CY10 EPS growth (%)
CY11 EPS growth (%)
Thai (SET)
14.2
12.2
35.3
16.5
Mal (KLCI)
16.3
14.4
26.4
13.8
SG (FSSTI)
15.8
14.2
22.3
11.5
Indon (JCI)
18.2
15.2
27.0
20.0
Source : CIMB Research
21
Top picks
Kasikornbank
Krung Thai Bank
Sino-Thai Engineering
Charoen Pokphand
Siam Global House
Pruksa Real Estate
LPN
SPALI
Amata
Hemaraj
PTT Chemical
PTTAR
Simple average
Bloomberg
ticker
KBANK TB
KTB TB
STEC TB
CPF TB
GLOBAL TB
PS TB
LPN TB
SPALI TB
AMATA TB
HEMRAJ TB
PTTCH TB
PTTAR TB
Recom.
O
O
O
O
O
O
O
O
O
O
O
O
Price
(Local)
126.00
17.00
13.70
24.40
10.20
21.10
9.70
11.30
14.00
1.72
158.00
38.50
Target
price Mkt cap
(Local) (US$ m)
155.00 10,042
25.00
6,329
19.00
541
36.00
6,110
14.00
326
36.90
1,551
14.60
477
18.50
646
27.80
497
3.21
556
235.00
7,966
46.00
3,804
Core
P/E (x)
CY2011
CY2012
11.7
10.5
10.6
8.9
29.3
27.4
10.8
9.4
16.4
12.0
9.9
8.0
7.3
6.3
6.4
5.5
11.7
10.0
14.3
7.5
12.5
9.8
10.8
7.8
13.6
10.8
3-yr EPS
CAGR
(%)
24.2
20.9
24.8
21.7
69.9
17.0
21.1
41.2
67.0
54.9
56.6
88.5
42.0
P/BV
(x)
CY2011
1.9
1.4
3.3
2.4
3.1
2.4
2.0
1.7
2.4
1.9
2.0
1.6
2.4
ROE
(%)
CY2011
16.9
14.1
11.6
23.7
20.4
27.0
29.4
29.3
21.6
13.4
16.9
16.0
20.4
Div
yield (%)
CY2011
2.4
3.8
1.3
4.4
1.8
3.6
7.3
6.7
3.4
4.2
3.2
1.6
3.5
Source : CIMB Research
22
Amata Corporation (THB27.8, Outperform)
•
Reiterate OUTPERFORM with an unchanged THB27.80 target price, still
based on 20x CY12 P/E, which is two standard deviations above its
historical average.
•
A calmer political situation and higher Board of Investment (BOI) approvals
bode well for industrial estate demand in CY11. We expect AMATA to sell
1,500 rai (600 acres) of industrial land in 2010 and 1,600 rai (640 acres) in
2011.
•
Its gross margin is expected to remain high at above 50% as competition in
the industry is tame.
23
Charoen Pokphand Foods (THB36, Outperform)
•
Maintain OUTPERFORM and THB36 target price, pegged to 14x CY12
P/E, 20% above its 4-year historical average of 12x. Potential catalysts
include higher chicken prices, robust shrimp exports and newsflow on the
EU export ban.
•
We see a bright outlook for the shrimp export and overseas businesses. We
also expect domestic livestock prices to remain firm, if not rise higher, in the
coming quarters due to flood damage to supply and the unattractiveness of
current prices for new raisers.
•
CPF’s share price deserves a further re-rating as the company’s plan to
raise the sales contribution of processed foods should translate into a
healthier and more stable margin, bringing about higher earnings visibility.
24
Hemaraj Land and Development (THB3.21, Outperform)
•
Reiterate OUTPERFORM with an unchanged THB3.21 target price, still
based on 14.1x CY12 P/E, which is one standard deviation above its
historical average.
•
Construction of Gheco-One is 80% complete and the plant is expected to be
up and running in early 2012. We expect HEMRAJ to book about THB1.4bn
per annum in share of profit from affiliates from the power plant.
•
HEMRAJ owns five out of six industrial estates in the eastern part of
Thailand, the country’s auto hub, and houses 137 auto companies with 203
auto factories, making it a proxy for autos.
25
Kasikornbank (THB155, Outperform)
•
Reiterate OUTPERFORM with an unchanged THB155 target price, still
based on 2.3x CY11 P/BV, which is two standard deviations above its 5-year
historical average.
•
The SME segment, which is KBANK’s bread and butter, is expected to
perform well on the back of continued economic recovery. This will drive
KBANK’s loan growth, net interest margin and fee income growth.
•
We expect KBANK to post double-digit earnings growth with mid-teen ROEs
over the next few years, one of the highest in the sector.
26
Krung Thai Bank (THB25, Outperform)
•
Reiterate OUTPERFORM with an unchanged THB25 target price, still
based on 2.1x CY11 P/BV, which is based on the average P/BV of recent
M&A transactions as the Financial Institution Development Fund (FIDF) may
want to sell its stake to new investors, one of whom is the Ministry of
Finance.
•
•
The sale of this stake may spark speculative interest in the stock.
KTB is still expected to benefit from lending to the government, even though
the government’s pump-priming programmes are expected to play a lesser
role in 2011.
27
LPN Development (THB14.6, Outperform)
•
Reiterate OUTPERFORM, target price of THB14.60, based on 9.5x CY12
P/E, which is the peer average. Potential near-term catalysts are continued
gross margin improvement and favourable 4Q10 results.
•
LPN’s pricing power has improved amid a competitive market environment
on the back of its strong brand equity. This is reflected in its improving gross
margins.
•
LPN boasts solid revenue visibility backed by a strong backlog of THB18bn.
Its backlog to be booked in CY11 is already 92% of our CY11 revenue
forecast.
28
Pruksa Real Estate (THB36.9, Outperform)
•
Maintain OUTPERFORM and target price of THB36.90, based on 14x
CY12 P/E. Potential near-term catalysts are positive newsflow about
presales and backlog as well as gross margin improvements and expense
control despite its aggressive expansion.
•
We expect PS to show a 3-year EPS CAGR of 21%, higher than the sector
average of about 17%. Its robust earnings growth will come from strong
backlog orders, sustainable high margins due to a flexible product mix and
slower SG&A growth.
•
Despite PS’s aggressive expansion, the company remains impressively
well-disciplined in its gearing with its net gearing expected to drop from 44%
to 37% in CY11. We also expect its ROE to be sustained at above 27% for
CY10-12.
29
PTT Aromatic and Refining (THB46, Outperform)
•
Reiterate OUTPERFORM with an unchanged THB46 target price, based
on 7x CY12 EV/EBITDA, a discount to the regional peer average of 9x.
•
We expect its refining margin and aromatics spreads, particularly for PXnaphtha, to improve significantly in 2011.
•
Share price catalysts will come from an improved industry outlook and
strong earnings growth.
30
PTT Chemical (THB235, Outperform)
•
Reiterate OUTPERFORM with an unchanged THB235 target price, still
based on 9x CY12 EV/EBITDA, the average of its regional peers.
•
Increased utilisation at its new 1mtpa ethane cracker will boost PTTCH’s
volume by 40% in 2011.
•
Starting 1 Jan 2011, PTTCH is expected to begin commercial operations at
its all-new polymer production facilities, which has a capacity of 800ktpa of
HDPE, 400ktpa of LLDPE and 300ktpa of LDPE. We expect LDPE, in
particular, to contribute significant earnings in 2011 given its high margin of
US$700/tonne currently.
31
Siam Global House (THB14, Outperform)
•
Maintain OUTPERFORM and target price of THB14, based on DCF with
8.2% WACC and 2.5% long-term growth. Potential catalysts are the rollout
of new stores and further details of its Jaengwattana development plan.
•
We forecast net profit to record a 33% CAGR over CY10-13, supported by
the planned opening of four new stores p.a. and robust same-store-sales
growth.
•
We believe high farm incomes, government populist policies and the
multiplier effect as a result of accelerating investment in the area should
support higher spending in the upcountry. This should support GLOBAL’s
growth over the next few years.
32
Sino-Thai Engineering and Construction (THB19, Outperform)
•
Reiterate OUTPERFORM with an unchanged THB19 target price, still
based on 38x CY12 P/E, three standard deviations above its 3-year
historical average.
•
STEC management is bullish on the sector, saying that the mega
infrastructure cycle has just begun and it expects the cycle to last ten years.
With only a handful of large contractors capable of handling such large-
scale projects, STEC will be busy over the next few years.
•
A tame outlook for building material prices in CY11 bodes well for
contractors’ margins.
33
Supalai Plc (THB18.5, Outperform)
•
Maintain OUTPERFORM and target price of THB18.5, based on 9x CY12
P/E, a 8% discount to the peer average. Potential near-term catalysts are
favourable reports of presales backlog and an expected record high
quarterly performance in 4Q10.
•
SPALI has the highest gross margin and net margin among its peers, on the
back of its hands-on project management and rising bargaining power on
the back of expanding economies of scale.
•
We like SPALI for its well-diversified products in all mid- to upper-low-end
market segments and locations, cheap valuation (5.5x CY12 P/E vs. peer
average of 9.8x while offering an impressive 3-year EPS CAGR of 41%) and
attractive yields (7-10%).
34
Thank you