Thursday, August 13, 2009

CLSA Defensive on Thai Stock

OEs at bottom, but no oil kick

We remain defensive on the Thai SET as 46% of the market is linked to oil. Longer term we are more bullish as ROEs and share prices have the chance to recover from these very low levels. We are underweight energy and overweight banks. The defensive nature of the telecom sector keeps us overweight. We highlight four stocks which stand out from our study of PBs/ROEs: TOP, PTTCH, BBL and KBANK.

Thai market: remain defensive

q We maintain our defensive stance after the Thai market’s 1H09 rise driven by a massive oil price rise.

q Despite a negative short term view, we believe that an entry point will present itself in the next month or two. The start of earnings upgrades and an ROE near the bottom of its cycle makes us more positive over the long term.

Energy: Massive ROE decline done, but upside seems low

q Thailand’s energy and materials sectors combined account for 46% of SET’s market cap. Without a strong rise in oil prices, energy companies will likely underperform.

q ROE has de-rated to 17% from 60% in 2002/03. Lower margins, higher levels of equity and regional over-capacity for downstream companies keep us negative.

Banks: sector with the biggest ROE/PB re-rating potential

q Thai banks are trading on a PB nearly 40% below the regional average. This has been justified due to the six year fall in ROE from 25% to 9%. We expect this bottom of the economic crisis to also be a bottom for bank ROEs.

q The potential turnaround from these deep discount levels relative to the past and the region is what keeps us overweight Thai banks.

Telecoms: hard to see an ROE recovery from here

q The Thai telecoms sector, like others in Thailand, has seen a steady decline in ROE from a 2003 high of 35% to the current 15%.

q We are cautious about a strong profit turnaround in the telecom sector due to the strong price competition, which has reduced Arpus and high penetration rates.

q While we are sceptical about a 3G regulatory windfall, it could be a positive surprise.

Four stocks which look interesting based on this ROE/PB study

q Four stocks look interesting from this study of PB and ROE: Thai Oil, PTT Chemical, Bangkok Bank and Kasikornbank.

Large caps – top buys

Advanced Info (ADVANC)

Bangkok Bank (BBL)

Kasikornbank (KBANK)


Mid/small caps – top buys

Electricity Gen (EGCO)

Hana Microelec (HANA)

LPN Development (LPN)

Sino-Thai (STEC)

Thaicom (THCOM)

Tisco Financial (TISCO)

Large caps – top sells

Krung Thai Bank (KTB)


TMB Bank (TMB)

With best regards,


Andrew Stotz, CFA

Head of Research

CLSA Securities (Thailand) Ltd.

16/F M. Thai Tower, All Seasons Place, 87 Wireless Road, Pathumwan

Bangkok 10330, Thailand

General: +662 257 4600, Direct: +662 257 4632, Mobile: +6681 874 0397


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