Investment Strategy

April 22, 2015
Investment Strategy
EUs threat to ban imports of seafood from Thailand would only be negative sentiment for the market in the
short term, while SET Index will still be driven by 1Q15 earnings previews for the real sector. Todays top
pick is VNG(FV@B10.25) for its 1Q15 profit is likely good.
SET Index
Change
Market cap (Bm)
1,569.35
9.03
39,217.99
Net buy and sell by investor type (Bm)
Foreign
Proprietary Trading
Institution
Retail
2,346.36
623.68
585.46
-3,555.50
SET Index Sensitivity
(x)7)
(456
14.0x
14.5x
15.0x
15.5x
16.0x
16.5x
17x
18x
A48.9.
pr 15E
58E May
:.;. 15E
58E
1,196
1,239
1,281
1,324
1,367
1,409
1,495
1,580
1,227
1,271
1,315
1,359
1,403
1,447
1,534
1,622
Jun
8<.9.15E
58E
Sep
=.9.15E
58E
Dec
>.;. 15E
58E
1,258
1,303
1,348
1,393
1,438
1,483
1,573
1,662
1,352
1,400
1,448
1,497
1,545
1,593
1,690
1,786
1,446
1,497
1,549
1,601
1,652
1,704
1,807
1,910
EU's yellow card to affect Thai seafood exporters for short term
With January-February export growth of -4.9%, Thailand's export is projected to contract in 1Q15, and full-year export
growth is not likely to improve from 2014. In addition to trading partners' slowing economy, the EU also threatened to ban
Thai seafood exporters over illegal labor and undisclosed source of raw material. Thailand is given six months to tackle
these problems within October 2015, otherwise the ban will be ultimately imposed. The EU excluded Thailand from the
generalized scheme of preferences (GSP) lists in early 2015, so Thailand's duty on frozen shrimp exports has increased
from 4.2% to 12% and the tariff on cooked shrimp has risen from 7% to 20% since 2014. Thailand exported total 148,000
tons of seafood to the EU at the total value of B26.3bn in 2014 (versus 176,000 ton of seafood totaling B31bn in 2013),
making up 3.1% of total export in 2014: shrimp (28.5%), fish (9.7%), squid (5.81%), other canned seafood (40%), and other
goods (16%).
This warning would have an effect on the SET, especially seafood exporters like TUF and CFRESH that make most of their
income from seafood export. However, this issue would only have negative sentiment but no significant impact on their
earnings in 2015-2016 since most seafood exporters do not severely violate the regulation. The yellow card would have a
Porranee Thongyen, CISA limited effect on CFRESH(BV@3.41) since most of its exported shrimps come from its own farms. Although
License No: 004146
TUF(Buy:FV@B26) generates most of its income from tuna and shrimps, it has a strict policy not to use illegal raw material
porranee@asiaplus.co.th or measures, so it would not be affected by the ban. Moreover, since TUF has overseas allies, it has production bases in
Therdsak Thaveeteeratham
many countries, e.g. India (holding 25.12% stake), thus having a limited negative effect. CPF(FV@B32) mainly makes profit
License No: 004132
therdsak@asiaplus.co.th
Pobchai Phatrawit
License No: 052647
pobchai@asiaplus.co.th
Assistant Analysts
Maraporn Kiwiriyakun
English research reports are a rough translation of our Thai-language
research products. It is produced primarily with time efficiency in mind, so
that English-reading clients can see what the main recommendations are
from our Thai-language research team. Given that this is a rough-and-ready
translation, Asia Plus Securities pcl cannot be held responsible for
translation inaccuracies.
The Thai language research reports and information contained therein
are compiled from public data sources and our analysts' interviews
with executives of listed companies. They are presented for
informational purposes only and not to be deemed as solicitations to
buy or sell any securities. Best attempts have been made to verify
information from these vast sources, but we cannot guarantee their
accuracy, adequacy, completeness and timeliness. The analyses and
comments presented herein are opinions of our analysts and do not
necessarily reflect the views of Asia Plus Securities.
from livestock, feed, and overseas businesses, while only 2% of its profit comes from shrimp export and most of its shrimps
are probably from farms in Thailand, so it would be affected insignificantly.
Looking for real sector 1Q15 profit. Top picks: TASCO, VNG
1Q15 net profit of the 11 commercial banks was reported at B52.4bn, growing 6.2%qoq and 3.1%yoy (2% better than
projected). Operating expense decreased due to seasonal effect. Net loans stayed flat, but likely to increase in 2H15 owing
to accelerated disbursement of government budget (investment and expenditure) and economic stimulus measures. The
policy rate cut has affected commercial banks since they are net lenders with a large proportion of floating rate loans.
However, we maintain the banking sector's earnings forecast, estimating the sector's net profit growth at 9.9%yoy in 2015
and 12.9%yoy in 2016 (underperforming the market though). We reiterate NEUTRAL.
The market will be focusing on the real sector's potential earnings from now on. We are working on 1Q15 earnings preview.
Initially, we estimate market earnings to leap significantly from B69.2bn in 4Q14 to above B200bn in 1Q15, having positive
sentiment and becoming a driving force for the market. According to our study on each sector, we project 1Q15 market
earnings to rebound close to B223bn in 1Q14 (the peak of 2014). Earnings of the following sectors are expected to grow
yoy:
Construction material Earnings of many companies are expected to be strong. TASCO would also benefit
from high asphalt selling price, soaring demand, and lower production cost thanks to falling oil prices. VGN would
benefit from dropping raw material cost (given that selling prices stay high). MCS would enjoy higher sales and
increasing orders. SCC's 1Q15 profit is expected to grow 16%yoy thanks to sales of investment in Siam Michelin
co, ltd.
Contractor STPI's profit will be remarkably high if a conclusion on the income from the urgent project is made
by April 2015 and the income is recognized in 1Q15.
Hotels and hospitals 1Q15 profit is expected to rebound significantly from 1Q14 since 1Q15 tourism volume is
projected to rise by 22%yoy.
Air transportation THAI and AAV's earnings are projected to revive remarkably thanks to the oil price plunge
and a rebound in passenger volume. However, share prices would be depressed by the ICAO issue in 2Q15.
ICT Migrating subscribers from 2G network to 3G network reduces regulatory cost. JAS recognized
extraordinary profit from sales of assets into JASIF.
On the other hand, earnings of commodity sectors are projected to decline from 1Q14. For the energy and
petrochemical sector, stock loss is still expected in 1Q15 (no stock loss in 1Q14) while normalized profit is likely to stay flat,
thus resulting in weaker net profit. For the agribusiness sector, pork and chicken prices have been declining, and first
quarter is usually a low season for food export, so net profit is expected to fall.
For earnings plays, top picks are TASCO and VNG.
VNG(FV@B10.25) Product selling prices have been high as a result of increasing demand; demand for particle
boards has grown as the global economy rebounds. Due to limited supply in Asia, particle board and MDF prices
have not dropped much like other commodities. Production costs (e.g. rubberwood scrap and glue) have dropped
and stayed low throughout the year. Also, the company has been focusing on expanding production lines of highmargin goods. Therefore, VNG's FY2015 net profit is estimated to jump by 42%yoy.
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TASCO(FV@152) Accelerated government investment in roads expansion (additional B40bn budget) has
resulted in asphalt undersupply, thus benefiting TASCO most. Since TASCO has its own asphalt factory in
Malaysia and asphalt tank ship, it can import asphalt for sales in Thailand. Asphalt sales volume is expected to
jump by 80%yoy in 1Q15, so its net profit is projected to skyrocket in 1Q15 and 2Q15.
Fourth day of foreign net buy in Asia. Thailand has foreign net buy again
Foreign investors continued to posses a net buy position in Asian stock markets for the fourth day in a row at US$467m
yesterday. South Korea was with foreign net buy for the 11th day, while the Philippines was with foreign net buy for the first
time, though slightly at only US$5.8m, after facing eight consecutive days of net sell. For Thailand, foreign investors
reversed to be net buyers of US$72.48m or B2,346m (totaling B8,962m net buy from early April until present); proprietary
traders also bought net for 11 days straight (totaling B8,480m since the beginning of the month) and local institutions
returned to be net buyers again at B585m. Accordingly, SET Index was able to close up 9 pts like its opening yesterday
Mln USD
ytd
mtd
-5d
-1d
6,000
5,000
4,000
3,000
126
251
6
-
12
1,000
72
2,000
-1,000
Indonesia
Philippines
S. Korea
Taiwan
Thailand
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Stocks Recommended in Market Talk
Start
Stocks
Date
Price
Fair Value
Start
Last
Accumula
ted Return
PER
2015F
PBV
2015F
Dividend
Yield
Strategist Comment
30-Min Chart
Inexpensive laggard stock with high dividend.
SPALI
05-Jan-15
31.96
23.43
22.30
-4.8%
6.98
1.83
5.80
TASCO
21-Apr-15
152.00
127.00
138.00
8.7%
12.71
2.87
2.17
STPI
05-Jan-15
23.64
16.96
17.50
3.2%
8.88
2.71
4.29
PTT
08-Jan-15
398.00
341.06
354.00
3.8%
9.47
1.37
3.95
PTTEP
03-Feb-15
134.00
115.03
121.50
5.6%
11.46
1.21
3.70
VNG
09-Apr-15
10.25
7.70
8.15
5.8%
9.94
1.72
4.02
ASK
12-Mar-15
30.10
22.50
19.80
-12.0%
8.27
1.59
8.46
RCL
25-Mar-15
13.10
9.10
9.75
7.1%
22.46
0.82
2.23
SAMART
16-Apr-15
41.00
30.25
31.00
2.5%
16.85
3.21
3.21
Backlog making up 80% of FY2015 income target.
Domestic rubber demand makes record high.
Revise up forecast by 45%. BUY.
Potential winner of EPC Contractor bid. Likely to win
other projects too, but share price has not risen yet.
Rebounding crude oil price,
LPG price float benefiting PTT.
Crude oil oversupply subsides.
Benefiting petroleum business.
Growing demand, lower cost, high margin,
growing profit, developing new products with attractive
growth story.
Benefiting from policy rate cut.
Low P/E ratio, high dividend yield.
HRCI rising countinuously,
low fuel cost promotes earnings growth.
FY2015 profit to grow 25% owing to digital economy.
New energy business to boost profit by threefold.
AIT excluded; TASCO included in portfolio yesterday
Accumulated returns since our recommendation
ASK
-12.0%
-4.8%
SPALI
SAMART
2.5%
STPI
3.2%
PTT
3.8%
PTTEP
5.6%
VNG
5.8%
RCL
7.1%
TASCO
-15%
8.7%
-10%
-5%
0%
5%
10%
Note: In calculating returns from a stock we recommended, we use the average price on the day of our recommendation as cost and compare it with the
recent closing price. This will result in accumulative returns until the day we recommend closing the position to take profit or cut loss.
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