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Hana Microelectronics Outperform (16E TP Bt34.50)

Close Bt31.00

Electronic Components June 10, 2016

Growth driven by rising demand for sensors Price Performance (%)

Source: SET Smart

FY16 FY17

Consensus EPS (Bt) 2.691 3.020

KT ZMICO vs. consensus ‐1.5% ‐4%

Share data

Reuters / Bloomberg HANA.BK/HANA TB

Paid‐up Shares (m) 804.88

Par (Bt) 1.00

Market cap (Bt bn / US$ m) 25.00/708.00

Foreign limit / actual (%) 100.00/76.63

52 week High / Low (Bt) 44.00/24.50

Avg. daily T/O (shares 000) 1,126.00

NVDR (%) 7.15

Estimated free float (%) 46.55

Beta 0.64

URL www.hanagroup.com

CGR

Anti‐corruption Level 4 (Certified)

Waraporn Wiboonkanarak Analyst, no. 2482 [email protected] 66 (0) 2624‐6273

Ruchanon Chiemkarnkit Assistant analyst [email protected] 66 (0) 2624‐6268

Growing in line with accelerating auto and telecommunication markets HANA has changed its product mix to focus on sensor equipment used in the automotive and telecommunication sectors, for which demand is rising alongside accelerating growth in IT applications. We initiate our coverage on HANA with an Outperform rating. Our 2016E target price of Bt34.50/share is based on 13X PER (vs. sector’s average PER of 15X), which seems justified when considering the expected earnings growth of 13% CAGR in 2017‐19E. We believe the firm’s weak business outlook for 2016E has been priced in, so HANA is attractive in particular for anticipated dividend yields of 6‐7% p.a.

2016E operating performance to be impacted by inventory adjustment

HANA’s 1Q16 net profit fell by 41%YoY and 6%QoQ owing mainly to the deceleration of orders for laptop/touchpad products that accounted for 13% of total revenue. The firm’s management anticipates that orders will remain slow during 2Q16‐3Q16 before picking up in 4Q16 when Windows 10 is developed. While revenue from PC products is projected to decline by 22%YoY, HANA’s overall revenue should still grow by 5%YoY, driven mainly by an anticipated good performance from the products in the automotive communication consumer segment and the industrial segment. However, higher depreciation costs at the plants in Lamphun and Cambodia will likely keep the firm’s gross profit margin low at 13.6% (vs. 14.8% in 2015); therefore, the firm’s 2016E bottom line is expected to fall by 8.5%YoY.

Brighter outlook for 2017‐19E following the change in product mix

HANA’s operating performance should improve in 2017‐19E, with expected earnings growth of 13% CAGR. The bright earnings outlook should be driven by growing demand for sensor equipment used in the automotive and telecommunication sectors. We believe the revenue contribution from this product line will rise to 55‐64% of the total revenue in 2017‐19E. Meanwhile, HANA has continued to reduce the exposure of laptop/touchpad products. Consequently, the firm’s overall revenue trend should become less volatile. Finally, the firm’s wide‐margin product line and benefits of economies of scale should help to increase the gross profit margin to 14‐14.8%.

Strong financial status with a net cash position

HANA saw a low D/E ratio and cash on hand of Bt9.1bn as of the end of 1Q16. Also, its earnings outlook for the next few years seems promising. We thus project dividend yields of 6‐7% p.a. in 2016‐19E, assuming a payout ratio of 68%. The current share price is trading at 11x PER, which we believe already reflects the weak earnings outlook for this year. We view that now is a good time to accumulate the stock for the expected attractive dividends. Financials and Valuation

FY Ended 31 Dec 2014 2015 2016E 2017E 2018E

Revenues (Bt mn) 21,227 20,521 21,604 22,813 24,210

Net profit (Bt mn) 3,405 2,066 2,130 2,328 2,588

EPS (Bt) 4.23 2.57 2.65 2.89 3.21

EPS growth (%) 48% ‐39% 3% 9% 11%

Norm. Profit (Bt mn) 1,948 2,328 2,130 2,328 2,588

Norm. Profit growth (%) 37% 20% ‐8.5% 9.3% 11.1%

Dividend (Bt) 2.00 2.00 1.80 1.97 2.19

BV (Bt) 22.82 24.13 24.98 25.90 26.93

FY Ended 31 Dec 2014 2015 2016E 2017E 2018E

Norm. PER (x) 12.4 10.4 11.3 10.4 9.3

EV/EBITDA (x) 5.3 5.2 5.4 4.9 4.5

PBV (x) 1.3 1.2 1.2 1.2 1.1

Dividend yield (%) 6.7% 6.7% 6.0% 6.6% 7.3%

ROE (%) 11.1% 12.3% 10.8% 11.4% 12.2%

Net Gearing (%) ‐41% ‐42% ‐41% ‐42% ‐43%

Company Initiation


Investment Theme and Valuation We initiate our coverage on HANA with an Outperform rating and the 2016E target price of Bt34.50/share. HANA’s earnings growth will potentially be underpinned by the positive outcome of its decision to shift its product mix to highlight sensor equipment used in the automotive and telecommunication sectors. The demand from these sectors is rising alongside the accelerating growth of a variety of IT applications designed to serve new groups of consumers. HANA’s 2016E earnings are expected to decelerate by 8.5% in 2016E, pressured by the slowdown in the computer industry where demand has been on the downtrend. We believe the recent fall in the share price to trade at PER of a mere 11x over 2016E earnings presents a good time to accumulate the stock while awaiting earnings recovery in 2017‐19E (with expected earnings growth of 13% CAGR). In addition, the anticipated average dividend yield of 6‐7% is another appeal.

Figure 1: Peer comparison Peer company Price Mkt Cap EPS Growth (%) PER (x) Yield (%) ROE (%) CAGR (%) PEG

(Local) (mn) 15 16E 17E 15 16E 17E 16E 14 15 16E 17E 16E‐18E 16E

DELTA 70.00 87,317 13.8 4.0 11.7 13.9 13.3 11.9 4.2 20.9 21.7 20.5 20.9 11.2 1.19

KCE 83.00 47,323 21.9 35.5 9.4 21.4 16.4 15.0 1.8 37.5 31.4 33.7 29.7 8.83 1.86

SVI 5.10 11,555 ‐3.0 4.9 27.9 16.6 15.8 12.4 2.2 18.2 14.9 11.3 12.4 21.6 0.73

SMT 7.20 6,026 n.a. n.a. 33.5 n.a. 20.6 15.4 n.a. ‐14.6 ‐3.4 10.6 18.2 22.4 n.a.

HANA 30.00 24,146 19.50 ‐8.50 9.3 10.4 11.3 10.4 6.0 11.1 12.3 10.8 11.4 11.8 0.96

THAILAND'S AVERAGE 15.6 15.1 13.1 3.6 16.3 15.4 16.8 16.6 15.8

Source: Bloomberg, KT ZMICO Research

Figure 2: PER (average 11.4x) and PBV band (average 1.3x)

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Source: Bloomberg, KT ZMICO Research

Positive signs from the change in product mix The computer industry used to be the key growth driver for manufacturers of electronic products, including HANA, whose market share for touchpads used in computers stands at 45% of the global market. However, the growing popularity of smartphones has reduced the demand for computers, thus affecting the overall computer industry. In a bid to cope with the changing trend, HANA has begun to make adjustments by shifting its attention to products used in the automotive and telecommunication industries where the outlook is brighter than the computer industry. Hence, in 2015 the revenue contribution from its PC products dropped to 16% of total revenue vs. 22% in 2014, with the figure expected to drop further to 10‐13% in 2016‐19E.


Figure 3: Global shipments of laptops and desktop PCs Figure 4: HANA’s product mix in 2015‐19

174 194 202 197170 170

134129 127 123

121 121

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Other Automotive Telecom Computer Source: Market Realist, IDC, KT ZMICO Research Source: HANA, KT ZMICO Research

Sensors used in smartphones will become more significant HANA is an expert in the manufacturing of sensors used in the automotive and telecommunication industries. At present, the products used in the telecommunication sector contribute around 31% of the firm’s total revenue. We believe the growing demand for cellular phones in the low‐to‐mid price range in emerging countries, higher volume of connections between electronic devices and cellular phones amid the growing Internet‐of‐things trend, and 4G/5G technology are all important factors prompting electronic manufacturers to proactively develop themselves. A number of IT applications require larger amounts of sensors in devices in order to increase features for a variety of consumer applications, e.g., entertainment, weather forecasts, heart rate calculation, fingerprint scans for security purposes, etc. At present, a basic smartphone contains fewer sensors compared to high‐end smartphone models, e.g., Samsung Galaxy S5 (six sensors) and iPhone 6 (10 sensors). Seeing the changing trend, HANA plans to raise the revenue contribution from sensors to 32‐36% in the new few years.

Figure 5: Sensor growth in Samsung smartphones in 2010‐15 Figure 6: Mobile generation

Source: IDC, Statista, KT ZMICO Research Source: Qualcomm, KT ZMICO Research

Figure 7: Global Smartphone shipments in 2011 ‐ 19 Figure 8: Vendor market share in 2011‐15

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Samsung Apple Huawei Lenovo Xiaomi Source: IDC, Statista, KT ZMICO Research Source: IDC, KT ZMICO Research


Automobiles will become more like portable computers Apart from sensors used in smartphones, HANA is also in the supply chain of sensors used in automobiles (16% of total revenue in 2015). We see continuing growth in this market, as sensors are required for the enhancement of driving efficiency and assistance. It should be noted that OEM‐based auto parts makers in the first tier are now developing autonomous car systems that require sensors as major equipment for system development. HANA should benefit from this trend and the firm is thus expected to raise the revenue contribution from sensors used in automobiles to 20‐28% in the next few years.

Figure 9: Catalyst for sensor growth Figure 10: ADAS are key to semi and fully autonomous vehicles

Source: Sensata, KT ZMICO Research Source: Sensata, KT ZMICO Research

Earnings Performance Hit by the flood crisis in late 2011, but recovered rapidly Back in late 2011 when many central provinces in Thailand were hit hard by the flood crisis, the supply chain in the electronic sector was severely impacted. Nonetheless, HANA was impacted at a lesser extent when compared to its peers and managed to recover rapidly due to its extensive production bases in Thailand, the US and China. This is evidenced by the firm’s strong core profit growth of 29% CAGR during 2012‐15. The major growth contributors were the PCBA and IC packaging segments that grew at average rates of 3% and 11% p.a., respectively. Meanwhile, a larger portion of high‐margin IC products, economies of scale and the depreciation of the baht from Bt31.03/US$ in 2012 to Bt34.25/US$ in 2015 were all major factors driving the gross profit margin to 14.8% in 2015 vs. 9.8% in 2012. Figure 11: HANA’s revenue and profit in 2011‐15 Figure 12: HANA’s profitability in 2011‐15

16,315 17,233 17,667

21,227 20,521

1,597 1,092 1,420 1,948 2,328

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2011 2012 2013 2014 2015Revnue Core profit

m.n.

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2011 2012 2013 2014 2015GPM EBIT margin Core profit margin

Source: HANA, KT ZMICO Research Source: HANA, KT ZMICO Research


Deceleration in 1Q16 earnings caused by Chinese economic slowdown and downtrend in computer industry The Chinese economic slowdown has negatively affected HANA’s PCBA business, especially the computer/PC product group that contributed 13% of total revenue in 1Q16. For the same quarter, the revenue from this business dropped by 41%YoY, causing the 1Q16 gross profit margin to narrow by 6% YoY and 41%QoQ. In addition, due to declining economies of scale from the PCBA product group, the firm’s 1Q16 gross profit margin stood at 12.3% vs. 17.9% in 4Q15 and 12.1% in 1Q15. The management expects the impact from the slowdown in the PC business to linger during 2Q‐3Q16, but the situation should begin to improve in 4Q16 when Windows 10 is developed. Being concerned about the declining demand for PC products, we thus project a 22% YoY decrease in revenue to be generated by PC products in 2016E. On the contrary, products used in the automotive communication consumer and industrial sectors (accounting for 66% of total revenue) are likely to drive the firm’s 2016E revenue growth by 5%YoY. However, the expansion of the plants in Lamphun and Cambodia may create a larger depreciation burden, squeezing the company’s gross profit margin to 13.6% in 2016E vs. 14.8% in 2015. Hence, HANA’s 2016E net profit is expected to fall by 8.5%YoY.

Figure 13: HANA’s 1Q16 earnings results

Profit and Loss (Btmn)

Year‐end 31 Dec 1Q15 4Q15 1Q16 % YoY % QoQ 2016E % YoY YTD(%2016E)

Revenue 4,994 5,125 4,742 (5.0) (7.5) 21,604 5.3 22.0

Gross profit 603 918 582 (3.5) (36.6) 2,940 (3.0) 19.8

EBITDA 633 933 554 (12.4) (40.6) 2,960 (4.0) 18.7

Interest expense (2) (2) (2) (9.3) (23.3) (8) 6.1 20.5

Other income 98 126 104 6.9 (17.4) 480 2.6 21.8

Income tax (15) (5) (4) (69.8) (8.2) (43) (8.0) 10.1

Forex gain (loss) 88 71 128 45.7 80.8 0 (100.0) n.m.

Net profit (loss) 517 822 484 (6.4) (41.1) 2,130 3.1 22.7

Core profit (loss) 429 751 356 (17.0) (52.6) 2,130 (8.5) 16.7

Reported EPS (Bt) 0.64 1.02 0.60 (6.4) (41.1) 2.65 3.1 22.7

Gross margin (%) 12.08 17.92 12.27 13.61

EBITDA margin (%) 12.67 18.20 11.68 13.70

Net margin (%) 10.35 16.04 10.20 9.86

Current ratio (x) 4.92 5.06 5.56 4.95

Interest coverage (x) 181.16 278.30 147.95 200.66

Net debt / equity (x) 0.05 (0.42) (0.44) (0.41)

BVPS (Bt) 23.32 24.13 24.58 24.98

ROE (%) 2.78 4.22 2.47 10.78

Source: KT ZMICO Research

Brighter outlook for 2017‐19E following the change in product mix HANA’s operating performance should improve in 2017‐19E, with expected earnings growth of 13% CAGR. The bright earnings outlook should be driven by growing demand for sensor equipment used in automobiles and cellular phones. With long‐standing expertise and a production cost advantage over its peers, HANA will try to increase its market share. Our preliminary forecasts call for revenue contributions from PCBV and IC packaging products to rise to 55%, 60%, and 64% of the total revenue in 2017 to 19E, respectively. In the recent analyst meeting, the management expressed concern over the economic slowdown and disclosed that they had attempted to reduce the revenue exposure of computer/PC products; the revenue portion from these products is thus expected to be reduced to approximately 10‐11% in 2017‐19E. Hence, the impact from this weak business on the firm’s overall earnings performance should eventually become minor. While the firm’s profit margin may be pressured by costs linked to the plant expansion projects in the short term, its margin should gradually improve thanks to potential economies of scale. Hence, the gross profit margin is projected at 14‐14.8% during 2017‐19E.


Figure 14: HANA’s revenue and profit growth in 2015‐19E Figure 15: HANA’s profitability in 2015‐19E

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2015 2016E 2017E 2018E 2019EGPM EBIT margin Core margin


Strong financial status with a net cash position HANA saw a low D/E ratio and cash on hand of Bt9.1bn as of the end of 1Q16. Also, its earnings outlook for the next few years seems promising. The firm’s strong financial status will not only facilitate its future expansion plans but also enable it to maintain its dividend payments. After reserving cash of US$100mn as per the firm’s policy, HANA is expected to offer dividends per share (DPS) of Bt1.8, Bt2.0, Bt2.2 and Bt2.5 in 2016E to 2019E, respectively. The expected DPS for 2016E implies a DPS of 6.0%, assuming a payout ratio of 68%. Figure 16: DPS in 2011‐2019 Figure 17: Total assets as of 1Q16

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Cash and equivalents , 6,104 btmn

Short‐Term Investments , 3,017 btmn

Account receivable , 3,318 btmn

Inventories , 3,367 btmn

PP&E‐net , 7,075 btmn



Company Profile HANA provides electronic manufacturing service (EMS) with three major product groups: i) PCBA: putting IC components and electronic parts into PCB; ii) IC packaging: manufacturing and testing electrical circuits and iii) micro displays: manufacturing liquid crystal on silicon (LCOS) products used for converting an electrical signal to a high‐definition image signal. The company highlights its extensive service range as its major strategy that brings the company a competitive advantage over rivals.

Figure 18: Product mix by product in 2011‐15 Figure 19: Product mix by end user in 1Q15‐1Q16

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HANA’s services cover clients in different industries. With a focus on offering high‐end products with a lengthy product lifecycle and useful life, the firm can set a clear long‐term business strategy.

Figure 20: Product mix by location of customers in 2015 Figure 21: HANA’s plants in 2014‐16

Malaysia31%

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HANA’s extensive production bases give the firm a number of production alternatives. At present, there are six production bases both domestically and internationally. Its domestic plants are located in Lamphun (two plants) and Ayutthaya (one plant). Internationally, one plant is located in China and one in the US. In addition, the firm commenced a new overseas plant in Cambodia in Sep‐15 in a bid to cope with higher labor costs, which is a major problem for the sector that requires a huge labor force. For this new plant, HANA will focus on products that mostly require manpower; this will enable it to benefit from production cost savings, as the minimum wage in Cambodia is threefold lower than in Thailand. The lower labor costs will also allow HANA to help its clients manage costs, which will be another attraction for potential clients in a number of industries that are facing problems related to high labor costs and high labor turnover.


Industry Overview and Outlook The global semiconductor market value jumped from US$144.4bn in 1995 to US$335.2bn in 2014, representing growth of 9% CAGR during the period. In 2015, the industry’s growth contracted slightly by ‐0.2%YoY due to the global investment slowdown. According to the World Semiconductor Trade Statistics (WSTS), the world’s semiconductor market will grow to US$341bn and US$352bn in 2016E and 2017E, respectively. Major growth contributors will be producers from Asia Pacific, accounting for 60% of the total market value globally, with 21%, 10%, and 9% being contributed by producers in the US, Europe and Japan, respectively. Figure 22: Global semiconductor sales Figure 23: Global regional semiconductor market

Source: WSTS, SIA, KT ZMICO Research Source: WSTS, SIA, KT ZMICO Research

Global sales of semiconductor products have been driven by growing demand from each industry. In particular, combined sales of semiconductor products related to PC/computers and communication (e.g., smartphones) accounted for 63.8% of the total global market value in 2015, with huge demand coming from emerging markets. PricewaterhouseCoopers (PWC) projected that the global semiconductor market will be driven by automotive and industrial products, with projected growth of 9% CAGR and 8% CAGR in 2016‐19E for the respective products. According to PWC, the expected growth should be driven by rising demand for electronic parts used in automobiles and control systems in the industrial sector. Finally, another semiconductor market research house, IC Insight, anticipated that the market value of communication‐related products would achieve 6% CAGR during 2016‐19E, driven by growing demand for basic cellular phones in developing countries. Figure 24: Total global semiconductor market by end user 2015

Figure 25: Total global semiconductor market by product segment 2015

Source: WSTS, SIA, KT ZMICO Research Source: WSTS, SIA, KT ZMICO Research

With the technological growth in 2015, sensor and Opto market grew rapidly at around +4% and +11%, respectively. IC Insight projected the sales of sensor and Opto equipment to achieve 5.6% CAGR and 8.3% CAGR, respectively, during 2016‐21E, driven by growing demand for light speed and automatic control systems used in different industries.


Upside/Downside Risks Technological changes HANA’s business involves dynamic technologies, with over 40% of total revenue being generated by products used in computers and cellular phones. Thus, there is risk that the firm may lose its competitiveness. In a bid to manage this risk factor, HANA has attempted to enlarge its client base to cover a variety of industries and it continues to invest in state‐of‐the‐art equipment. Furthermore, the company has also sought production bases that will bring it a competitive advantage over peers in order to cope with problems related to growing labor costs and higher labor turnover. Exchange rates Almost 100% of HANA’s revenue is in US dollar terms; meanwhile, over 60% of its total costs are in the same currency, which can act as a natural hedge. In addition, capital expenditures are also in US dollar terms. To manage FX risks, HANA signs forward contracts, which are extended every 3‐6 months. The fluctuations in currency exchange rates certainly have a direct impact on the firm’s profit and loss profile. Note that for every Bt1 that the Thai baht weakens against the US dollar (i.e., variance from our current baht/US$ exchange rate assumption), it would result in a 4.2% increase in our net profit projections for HANA.


FINANCIAL TABLE

PROFIT & LOSS (Btmn) 2014 2015 2016E 2017E 2018E 2019E

Revenues 21,227 20,521 21,604 22,813 24,210 27,081 Cost of sales and service (18,358) (17,491) (18,664) (19,610) (20,683) (23,054) Gross profit 2,869 3,030 2,940 3,203 3,527 4,028 SG&A (993) (1,115) (1,237) (1,309) (1,388) (1,537) EBITDA 3,001 3,084 2,960 3,239 3,559 3,981 Depreciation & amortization 1,125 1,168 1,257 1,346 1,421 1,491 EBIT 1,876 1,916 1,702 1,894 2,138 2,490 Interest expense (8) (8) (8) (7) (6) (5) Other income / exp. 448 468 480 491 511 543 EBT 2,315 2,375 2,174 2,377 2,643 3,029 Corporate tax (367) (47) (43) (48) (53) (61) FX gain (loss) 107 (262) ‐ ‐ ‐ ‐ Extra Items 1,350 ‐ ‐ ‐ ‐ ‐ Non‐controlling ‐ ‐ ‐ ‐ ‐ ‐ Net profit 3,405 2,066 2,131 2,330 2,590 2,968 Reported EPS 4.23 2.57 2.65 2.89 3.22 3.69 Core net profit 1,948 2,328 2,131 2,330 2,590 2,968 Core EPS 2.42 2.89 2.65 2.89 3.22 3.69 Dividend (Bt) 2.00 2.00 1.80 1.97 2.19 2.51 BALANCE SHEET (Btmn) 2014 2015 2016E 2017E 2018E 2019ECash and equivalents 8,331 9,121 9,162 9,380 9,909 10,522

Accounts receivable 3,354 3,318 3,687 3,894 4,132 4,622

Inventories 3,329 3,367 3,528 3,707 3,910 4,358

Investment 331 ‐ ‐ ‐ ‐ ‐

PP&E‐net 6,566 7,075 7,327 7,491 7,381 6,990

Other assets 141 243 243 243 243 243

Total assets 22,051 23,123 23,948 24,716 25,574 26,735

ST debt & current portion 360 347 300 260 220 160

Long‐term debt 516 534 530 460 380 320

Total liabilities 3,688 3,699 3,842 3,865 3,895 4,106

Paid‐up shares 805 805 805 805 805 805

Shareholder equity 18,364 19,424 20,105 20,851 21,680 22,630

Total liab. & shareholder equity 22,051 23,123 23,948 24,716 25,574 26,735

CASH FLOW (Btmn) 2014 2015 2016E 2017E 2018E 2019E

Net income 3,772 2,114 2,131 2,337 2,598 2,976 Non‐cash adjustment (249) (45) ‐ ‐ ‐ ‐ Depreciation & amortization 1,125 1,168 1,257 1,338 1,412 1,483 Change in working capital (464) (281) (336) (253) (291) (607) Cash flow from operations 4,184 2,956 3,052 3,423 3,719 3,852 Capex (Invest)/Divest (788) (1,601) (1,510) (1,400) (1,300) (1,100) Others (480) 97 ‐ ‐ ‐ ‐ Cash flow from investing (1,268) (1,505) (1,510) (1,400) (1,300) (1,100) Debt financing (repayment) (16) ‐ (52) (110) (120) (120) Equity financing ‐ ‐ ‐ ‐ ‐ ‐ Dividend payment (1,610) (1,610) (1,449) (1,589) (1,767) (2,024) Others (9) 796 ‐ ‐ ‐ ‐ Cash flow from financing (1,635) (814) (1,500) (1,699) (1,887) (2,144) Net change in cash 1,282 637 41 323 532 608 Free cash flow 2,917 1,451 1,542 2,023 2,419 2,752 FCF per share (Bt) 3.62 1.80 1.92 2.51 3.01 3.42 PROFITABILITY 2014 2015 2016E 2017E 2018E 2019ERevenue growth (%) 20.2% ‐3.3% 5.3% 5.6% 6.1% 11.9%

EBITDA growth (%) 32.3% 2.8% ‐4.0% 9.5% 9.9% 11.9%

EPS growth (%) 48.0% ‐39.3% 3.1% 9.4% 11.2% 14.6%

Gross margin (%) 13.5% 14.8% 13.6% 14.0% 14.6% 14.9%

EBITDA margin (%) 14.1% 15.0% 13.7% 14.2% 14.7% 14.7%

Operating margin (%) 8.8% 9.3% 7.9% 8.3% 8.8% 9.2%

Net margin (%) 16.0% 10.1% 9.9% 10.2% 10.7% 11.0%

Core profit margin (%) 9.2% 11.3% 9.9% 10.2% 10.7% 11.0%

Effective tax rate (%) 15.8% 2.0% 2.0% 2.0% 2.0% 2.0%


Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore,

prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully.

An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG.

A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY. KT ZMICO is a co‐underwriter of TPBI.

Anti‐corruption Progress Indicator

Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws.

Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives

Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes

Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.)

Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases

Insufficient or not clearly defined policy

Data not available / no policy

DISCLAIMER

This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.

KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS

STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.

KT•ZMICO Securities Company Limited 8th, 15th-17th, 19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500

Telephone: (66-2) 695-5000 Fax. (66-2) 631-1709

Phaholyothin Branch 3rd Floor, Shinnawatra Tower II,

1291/1 Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66-2) 686-1500

Fax. (66-2) 686-1666

Ploenchit Branch 8th Floor, Ton Son Tower,

900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 626-6000

Fax. (66-2) 626-6111

Sindhorn Branch 2nd Floor, Sindhorn Tower 1, 130-132

Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66-2) 627-3550

Fax. (66-2) 627-3582, 627-3600

Viphavadee Branch G Floor, Lao Peng Nguan 1 Bldg.,

333 Soi Cheypuand, Viphavadee-Rangsit Road, Ladyao, Jatujak, Bangkok 10900

Telephone: (66-2) 618-8500 Fax. (66-2) 618-8569

Chachoengsao Branch 108/34-36 Mahajakkrapad Road,

T.Namuang, A.Muang, Chachoengsao 24000

Telephone: (038) 813-088 Fax. (038) 813-099

Chonburi Branch 4th Floor, Forum Plaza Bldg.,

870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287-635

Fax. (038) 287-637

Pattaya Branch 382/6-8 Moo 9, T. NongPrue,

A. Banglamung, Cholburi 20260 Telephone: (038) 362-420-9

Fax. (038) 362-430

Khon Kaen Branch 5th Floor, Charoen Thani Princess Hotel,

260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000

Telephone: (043) 389-171-193 Fax. (043) 389-209

Sriworajak Building Branch1st – 2nd Floor, Sriworajak Building, 222

Luang Road, Pomprab, Bankgok 10100

Telephone: (02) 689-3100 Fax. (02) 689-3199

Central World Branch 999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan,

Bangkok 10330 Telephone: (66-2) 673-5000,

(66-2) 264-5888 Fax. (66-2) 264-5899

Chiang Mai Branch 422/49 Changklan Road, Changklan

Subdistrict, Amphoe Meuang, Chiang Mai 50100

Telephone: (053) 270-072 Fax: (053) 272-618

Phuket Branch 22/61-63, Luang Por Wat Chalong Road,

Talat Yai, Mueang Phuket, Phuket 83000

Tel. (076) 222-811,(076) 222-683 Fax. (076) 222-861

Pak Chong Branch 173 175, Mittapap Road, Nong Sarai, Pak Chong,

Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574

Hat Yai Branch 200/301 Juldis Hatyai Plaza Floor 3,

Niphat-Uthit 3 Rd, Hatyai Songkhla 90110

Telephone: (074) 355-530-3 Fax: (074) 355-534

Phitsanulok Branch Krung Thai Bank, Singhawat Branch

114 Singhawat Road, Muang, Phitsanulok 65000 Telephone: 083-490-2873

Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our

views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in

securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are

made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.

Bangkhae Branch 6th Floor The Mall Group Building Bangkhae

275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160

Tel. (66-2) 454-9979 Fax. (66-2) 454-9970

Nakhon Ratchasima Branch 624/9 Changphuek Road, .

Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222

Fax: (044) 247171

Cyber Branch @ North Nana Krung Thai Bank PCL, 2 Floor,

North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua

Subdistrict , Wattana District, Bangkok 10110

Telephone: 083-490-2871

Nakhon Pathom Branch1156 Petchakasem Road, Sanamchan Subdistrict,

Amphoe Meuang , Nakhon Pathom Province 73000

Telephone: (034) 271300 Fax: (034) 271300 #100

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