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2017 Outlook for the Thai and Global Economies, Investments

Thailand Economic Outlook in 2017

Thai Equity Market: Bracing for inflation & fund outflows

Happy New Year

A KASIKORNBANK PUBLICATION

9TH ISSUE 1, JANUARY 2017

Shareholder Newsletter

THAILAND

T h a i l a n dEconomic Outlook in 2017

1 Thai Economic Overview

Key risks presentedby Thailand’s major trade partners

Among higher over-year growth in 2017, impressive performances will be recorded in new economies in Asia, Europe and South America. Against this uptrend, all key economies, except the US, will face weakergrowth in accordance with each nation’s economic structural problems. These economies, in particular China, the EU and Japan, will therefore create repercussions on a global scale. As a result, limited global economic growth is foreseen for the medium term. As for medium-term risk factors, close watch should be kept on US economic policy and the stability of the European bloc. US trade policy and Fed Funds rate hike: US President-elect Donald Trump has shown a preference for growing trade protectionism, via increases in import tariffs for countries having a high trade surplus with the US. In such a scenario, China would be the main target, given its position atop the list of countries having a trade surplus with the US, above Mexico. If the US opts to implement radical trade protectionism with China, this would eventually create negative impacts on both sides, and then global trade would plunge further. The Fed Funds Rate hike in December 2016 was the start of an upward trend after a long pause since December 2015. It is also expected that the Fed will consider raising its policy rate twice in 2017, a result would be heightened yields of long-term US treasury bonds, meaning higher borrowing costs. Aside from the fragility of its banking sector, the EU will face more risks caused by political factors that could hurt confidence in its economy and foreign exchange stability. Those important issues include negotiations to determine the relationship between the UK and the EU, with a focus on tax-free access to EU markets, which, if not realized, would lead to relocations of production bases from the UK and high volatility of the Pound Sterling. Of equal significance are general elections in the Netherlands, France and Germany to be held in 2017, in which the possibility of having another Brexit-type vote could become a campaign issue. If this trend were to spread across the key EU economies, the bloc’s stability could be jeopardized, while global monetary and capital markets will likely confront increased fluctuation.

In 2017, Thailand’s overall economy may experience similar growth to 2016 at 3.3 percent YoY. Main drivers will likely remain public investments and tourism, while exports could benefit from global commodity prices that already bottomed out this year. Goods with promising trends are mainly those closely related to world crude oil prices, particularly petrochemicals, rubber and refined petroleum products, which are expected to shore up export value in 2017 to positive territory for the first time in four years. However, economic risks to be aware of are mostly on the external front, from protectionist US trade policy and political issues in the EU i.e. Brexit implementation and general elections in many member countries, to China’s slowing economy and hefty household debt in Thailand amid household income that has not increased significantly.

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Public expenditures and tourism – key drivers of

2017 Thai economy

In the midst of an international economic environment that is yet to fully recover, with more risk factors in sight, the Thai economy has to rely upon domestic expenditures, led by those under public investment projects where progress has been evident in the transport infrastructural sector, in accordance with urgent plans in 2016. For 2017, a number of projects are ongoing from this year, while many involve new construction, i.e. the Pink, Yellow and Orange electric mass transit lines, three motorways and Suvarnabhumi International Airport Phase II. KResearch estimates the total capital fund from these projects to be injected into the 2017 economy at around 5 - 10 percent of GDP. Tourism will remain a lucrative sector in 2017, although measures to suppress illegal tour operations, or “zero-dollar tours” were implemented in October 2016, which consequently reduced the number of Chinese visitors to Thailand in the fourth quarter of 2016. It is expected, however, that the situation will ease in the first quarter of 2017, following the government’s effort to create correct understanding among Chinese tourism business operators. For full-year 2016, KResearch expects total Chinese tourists in Thailand to amount to 9 million persons, rising 13.4 percent above 2015. This figure will contribute to the aggregate number of incoming foreign travelers at 32.5 million persons, equal to over-year growth of 8.6 percent and generating tourism receipts of Baht 1.60 trillion, up by 10.3 percent from the figure of Baht 1.45 trillion recorded in 2015 – realizing positive growth for the second consecutive year. For 2017, KResearch sees continued growth in the number of foreign tourist arrivals in Thailand, although not double-digit growth as experienced from 2010 onward (except in 2014 due to domestic unrest), as the tourist base has already expanded considerably.

Progress of public projects

boosting private investment

Private investment in 2016 is rather static, relative to the previous year, due in part to excess capacity in some industries. On the other hand, private investment in the service sector, especially real estate, construction, retail and wholesale, hotels and restaurants, has performed well, as it benefits from the strength of Thailand’s major driving forces, including public investment and tourism. Such a trend will likely continue into 2017, when investment in transport infrastructure will be distributed in the outer areas of Bangkok and regional provinces. In addition, maintaining the interest rate at 1.50 percent p.a. per the easing monetary policy will play a part in supporting private investment.

Rising global crude oil prices…

supporting export value

and inflation Due to an OPEC resolution to curb production capacity to 32.5 million barrels per day with a quota for each particular member, plus the decision of Russia – a non-member country – to also cut its output, crude oil prices in world markets in 2017 may rise to an average of USD 50.0 per barrel, compared to the USD 41.0 per barrel in 2016. However, OPEC members’ compliance with the agreement should be closely monitored. The expected uptrend in global crude oil prices has buoyed the prices of certain Thai exports that are related to oil prices, for example, petrochemicals, refined petroleum and rubber products. Those exports, accounting for 11 percent of total export value, will contribute to minimal export growth in 2017, while the inflation rate will rise from 0.2 percent in 2016 to 1.8 percent.

3 Thai Economic Overview

Lofty household debt levels…

pressuring the purchasing power

of Thai households

Rising inflation in 2017, in line with higher crude oil prices in world markets, will elevate household spending burdens as well, while their incomes may not increase significantly. Household debt that has accumulated over time will also undermine their purchasing power. Nevertheless, the government’s stimulus measures should help lessen such adverse impacts to a certain degree; such measures include those related to income – welfare assistance for low-income earners, farmer assistance and an increase of minimum wages, and tax tools aimed at stimulating spending.

Challenges in 2017

versus certain supporting factors

Economic supports

• Public expenditures and investments play a crucial role in driving the Thai economy.• Tourism retains satisfactory growth, although at a slower pace due to this year’s high base of comparison.

Issues to be monitored

• Trade protectionism of the US and other countries may negatively affect economic recovery and stability in the medium term.• Risks could be incurred from Brexit implementation and fragility in Europe.• Fed Funds rate hike will produce impacts on capital movements, asset prices and foreign exchange.• China’s economy may continue to slow down, although the country should escape from a hard landing.• Purchasing power of the household sector is limited by the persistent household debt problem.

THAILAND

ECONOMIC

4

Bracing for ECON

• A bumpy road ahead. The SET looks challenging in 2017 in view of higher oil prices, a potential increase in inflation and a coming hawkish era. We forecast 2017 EPS to grow by 4.18% to Baht 104.60 compared to estimated growth of 37.38% in 2016, as earnings in the refinery and banking sectors and of steel companies are expected to grow significantly this year. Apart from these factors, markets received a boost in 2016 from low to negative bond yields globally, which sparked funds flowing into risky assets. As the situation is going to change next year, we expect the SET’s PER will return to its normal level of 13 - 15x, or 1,360 - 1,570. • YE2017 SET Index target 1570. KS Research expect the SET to trade at a PER of 15x, which translates into 1,570 in YE2017. Energy stocks will likely be the key player along with an oil price uptrend. Market capitalization of the energy sector is currently 18% of the SET, which would offset foreseen headwinds such as inflation, an interest rate uptrend and fund outflows. We estimate a dividend yield of 3% for the SET in 2017.

Thai Equity Market

KASIKORN SECURITIES PUBLIC COMPANY LIMITED

5 Stock Market Condition

infl ation & fund outfl owsNOMIC

Price (Bt) Target price Upside16-Dec-16 (Bt.) (%) 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E 2016E 2017E

P/E (x) P/BV (x) Net profit grth (%) Div. yield (%) ROE (%)Stock Rating

PTT OP 363.00 404.00 11.3 10.5 9.7 1.3 1.2 397.5 7.7 3.0 3.0 8.7 8.5PTTEP OP 91.25 105.00 15.1 23.1 19.0 0.9 0.9 149.6 21.5 2.2 2.7 3.8 4.6BANPU OP 18.70 23.10 23.5 69.2 6.9 1.2 1.1 191.0 897.9 2.7 5.8 2.0 16.2BEAUTY OP 11.90 15.50 30.3 48.5 33.8 27.7 24.5 82.9 43.3 1.4 1.9 60.4 76.8GLOBAL OP 17.50 20.70 18.3 44.0 38.1 4.0 3.8 65.1 21.1 0.4 0.5 9.4 10.5TKN OP 26.50 33.00 24.5 49.9 34.6 18.0 16.0 84.6 44.2 1.5 2.2 37.9 48.9BIG OP 5.45 6.40 17.4 24.3 19.4 15.5 11.8 72.0 25.4 2.5 3.1 71.8 69.0MEGA OP 24.50 30.00 22.4 26.4 20.8 4.5 4.1 15.4 27.0 2.4 2.7 17.8 20.6

• “Selective Plays” that have strong growth catalysts. Our three investment strategies focus on: 1) stocks that will benefit from cost-push inflation, such as those in the upstream petroleum industry that will benefit from a wider gap between oil exploration & production costs and market selling prices of oil, among which our top picks are PTT, PTTEP and BANPU; 2) stocks with strong brand recognition and a competitive advantage that can pass on costs to consumers and benefit from government stimulus spending measures, namely, BEAUTY, BIG, GLOBAL, and TKN; and 3) stocks that benefit from a weaker baht, such as MEGA.

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Bracing for inflation and fund outflows KS Research expect 2017 will be a challenging year for Thai stocks. We foresee several headwinds, such as a potential increase in inflation, an upturn in oil prices and a hawkish monetary policy era that would result in funds exiting equities. The SET will likely react to these factors by moving in a tight sideways channel, which leads us to believe that the SET’s valuation will likely return to a normal level of 13 - 15x, equivalent to 1,360 - 1,570, based on our current YE2017 EPS forecast of Baht 104.60 that we revised up by 1.85% from our previous estimate of Baht 102.70. The SET yielded a return of 18.10% YTD (as of December 14, 2016), which marks a four-year high and exceeds its historical 10-year growth CAGR of 9.4%. In the first seven months, the index advanced by over 20% to reach a PER of 17x. Major central banks across the globe jumped onto the bandwagon by adopting negative interest rates, such as the Bank of Japan, which implemented an interbank rate of -0.1%. Japanese bond yield dipped to a record-low -0.27% and thus the global bond yield fell dramatically. With safe-haven assets providing lower yields, global stock market valuations became undemanding following sell-offs triggered by China’s economic growth slowdown that began in 2014, which, incidentally, limited downside risk. This encouraged investors who were hunting for higher yields to exit safe-haven assets and move into riskier asset classes. Emerging markets in Asia consequently took center stage in attracting massive foreign capital. Thailand was no exception. Massive inflows, as indicated by foreign cumulative net buying of Baht 132 billion in the first nine months of the year, coupled with huge retail investing fueled by low interest rates, drove the SET’s valuation to a demanding 14.5 - 17x vs 11.5 - 14.5x in 2010 - 2011 when central banks around the world tightened monetary policy. The situation is going to change next year. Kasikorn Research Center forecasts moderate GDP growth of 3.3% in 2017, the same growth as in 2016, with the key contributors to be 1) public spending (+10.8%); 2) private investment (+2.8%); and 3) exports, which are expected to recover from -2% to +0.8% and thus potentially offset a lower consumer spending growth outlook next year of 2.2% compared to 2.7% for 2016. The moderate GDP growth outlook will likely cause 2017 EPS to grow at a slower pace of just 4.18%. More Fed rate hikes are likely in 2017, as evidenced by a pickup in global bond yields in September 2016, and we believe this trend will continue in 2017 as higher oil prices will lead to higher inflation. The SET’s valuation is thus expected to return to a normal level of 13 - 15x. In 1Q2017, fund outflows will be a big feature of the Thai market as well as other emerging markets in light of expectations of more Fed rate hikes and a Trump effect, i.e., if he is able to deliver on his array of promises that stand to benefit the US business sector. The end-effect of this would be funds flowing back into US markets. Inflation will also return to the spotlight after global crude oil prices recently began trending up. The upstream petroleum industry and industries that can promptly pass on costs to consumers will benefit and thus outperform the market. On the flip side, industries that shoulder oil-related expense or that rely on domestic consumption will suffer. Selective plays, particularly stocks that tend to have strong growth catalysts, look attractive in view of heavy outflows and higher inflation. Thailand’s current account that remained a surplus for 11 consecutive quarters is deemed a key factor that has helped underpin the stock market amid massive fund outflows and a deep correction, which resulted in the market’s valuation and dividend yield becoming more attractive. Consumer stocks recovered in 2016 and outperformed many industries in the SET. The retail sector gained 38.9% and the food sector rose 34.5% driven by 1) a low base effect in year-ago period; 2) higher employment; 3) low interest rates; and 4) low oil prices and government stimulus measures. An uptrend in oil prices and higher financial costs will spell disaster for consumer stocks, though some that have strong bargaining power will be able to promptly pass on higher costs to consumers, while those with strong overseas expansion will be able to shift into higher gear and outperform the market.

GDPGROWTH


Source: Bloomberg, KS Research

Fig 2 Thai GDP growth and SET EPS growth

Source: KBank

Fig 1 Thai Macro-Economic Forecast 2016 - 2017

Unit: % YoY 2016 2017

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- Government 11.5 8.5

- Private 1.3 2.8

Private Consumption 2.7 2.2

Inflation 0.2 1.8

Thai economic forecast 2016 - 2017

private consumption and public spending are expected to grow at a lower rate of 2.2% and 8.5% (vs estimated 11.5% growth for 2016) after both witnessed strong growth thus far in 2016. Inflation thus looks likely to climb to 1.8% vs 0.2% in 2016. An economic recovery of Thailand’s major trading countries, i.e., the US and Europe, and of emerging markets Cambodia, Laos, Myanmar and Vietnam, will play a crucial role in boosting the export sector. Commodities will enjoy higher prices along with oil prices and inflation. Private investment should also brighten following massive government spending. Consumer spending, however, will feel the pain in 2017 after strong growth this year, while the government will likely tone down new measures after a series of spending stimulus measures were implemented in 2016. In view of the moderate GDP growth outlook, SET 2017 EPS will grow at a slower pace compared to our expected strong recovery/improvement in 2016. The refinery sector will record massive inventory gains this year. SCB and KTB are expected to post strong earnings growth following huge loan-loss provisions in 2015, and THAI’s earnings look set to recover after it recorded a huge extra expense in 2015. The SET will not only be pressured by moderate GDP and consumer spending growth forecasts but also a potential increase in inflation, rising oil prices and a coming hawkish monetary policy era, which would result in funds flowing out of the market. These looming headwinds will negatively affect the SET, which could experience rangebound trading. We thus expect the market’s trading range to be 1,360 - 1,570, equivalent to our expected PER of 13 - 15x. KS Research forecast earnings of the 97 stocks under our coverage at Baht 741.62 billion in 2017 (EPS Baht 104.60, or growth of 4.18%).

Investment Themes Inflation looks set to climb following rising oil prices, which will fuel fund outflows. Amid this scenario, we would focus on stocks that benefit from the following: 1. Cost-push inflation: The upstream petroleum industry will benefit from higher oil prices, as the gap will widen between oil exploration & production costs and market selling prices of oil. KS Research top picks are PTT, PTTEP and BANPU. 2. Strong brand recognition and a competitive advantage: These stocks are able to pass on costs to consumers and benefit from government stimulus spending measures. Among these, our top picks are BEAUTY, BIG, GLOBAL and TKN. 3. Baht weakness: Stocks that benefit from a weaker Thai Baht. KS Research top pick is MEGA.

GDP growth to be moderate;low EPS growth for 2017

Thailand’s GDP is forecasted to grow at a similar pace to that of 2016. Many listed companies that saw significant growth in 2016 are unlikely to enjoy such strong growth in 2017, and thus SET EPS growth looks set to slow in 2017. According to Kasikorn Research Center, Thailand’s GDP is forecasted to grow moderately by 3.3% in 2017. The pace of growth is similar to that forecasted for 2016 of 3.3%. Key factors expected to drive economic growth are 1) an export recovery to growth of 0.8% against an estimated contraction of 2% in 2016; and 2) private investment growth of 2.8% vs forecasted 1.3% growth in 2016. On the other hand,

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Fig 3 US Dollar Index

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Mar 16, BOE cutdeposit rate to -0.40% Jun 23, Brexit

referendum

Aug 4, BOE rate cut to historical low 0.25%

Nov 8, US Presidential Election 2016

Dec 13-14, FOMC raisted policy rate by 0.25%


Fig 4 Regression of SET against exchange rate

y = -150.26x + 6721.9R² = 0.6125

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Inde

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Fund outflows to be the SET’s key feature in 2017 on a divergent monetary policy between the Fed and ECB Fund outflows will be a key feature of the SET in 2017. The divergence of monetary policy between the ECB and Fed has weakened the euro and strengthened the USD. The baht is less likely to escape the USD’s strengthening mantra, and thus weakness in the baht will be a major factor that will cause funds to flow out of the market. The Fed announced an increase in its key short-term rate by 25 bps to 0.50 - 0.75%, which was its first hike this year and only the second in the past decade. The increase was in line with market expectations. More importantly, the latest Fed dot plot is showing an increased probability of a rate hike to 1.375% from 1.125% in 2017 and to 2.125% from 1.875% in 2018. The long-term interest rate forecast also increased to 3% from 2.875%. Furthermore, the dot plot points to an accelerated schedule for rate hikes from two to three next year, while the 2018 - 2019 forecast remains at three. The European Central Bank left its refinancing rate on hold at 0% and interbank interest rate at -0.4% at its October 20 meeting. It also extended its QE program for another nine months to end in December 2017. The size of bond purchases will reduce from 80 billion euros a month to 60 billion euros between April and December 2016. On the heels of the USD’s strengthening, the Thai baht looks set to depreciate further. KASIKORNBANK forecasts the baht will weaken to 36.50 per USD. which will result in funds increasingly flowing out of the market in the foreseeable future.

USD speculation likely to run rampant ona Fed rate hike and Trump policy effect

In addition to the Fed’s tightening monetary policy, higher fund inflows to the US would likely fuel speculation in the USD, as investors are cheering the pro-business promises of President-elect Donald Trump. The USD Index climbed more than 4.3% on November 11, 2016 when Trump was announced the winner of the election, and USD speculation is likely to run rampant and push the USD Index up even further when Trump takes the presidential oath on January 20, 2017. The baht has weakened by roughly 2.22% to date since the US election. Meanwhile, the USD has been gaining strength, and thus the baht’s weakness looks likely to be prolonged for the foreseeable future. There is a likelihood the baht could weaken to 37 per USD, though Kasikorn Research Center has set an end-2017 Baht/USD target of 36.50. While the baht depreciated from35 per USD to 36 per USD, foreign investors dumped equities and bonds by as much as Baht 28.5 billion and Baht 82.7 billion.KS Research regression analysis shows a strong relationship between the SET and the baht’s movement based on an R-squareof 0.61. Data YTD indicates a decline in the SET when the baht weakened to 36 - 37 per USD.

ENERGY9 Stock Market Condition

Source: IEA, KS Research

Fig 5 OPEC production quota vs Dubai crude price

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Total OPEC Crude Oil Production Output Data

New OPEC's production quota = 32.5mn bbls/day

New OPEC's production quota + Non-OPEC cut by 0.6mn bbls/day

Source: IEA, KS Research

Fig 6 OECD oil inventories

OPEC and non-OPEC’s agreed crude production cut led to higher oil price assumptions

OPEC and non-OPEC members finally committed to a crude oil production cut. The surprise announcement, which marks the first cut in eight years, sent global crude oil prices soaring, as it will in effect offset the current excess supply in the market. Coupled with an IEA forecast for higher global oil demand in 2017, the global market should see an improving demand/supply dynamic in the near term. We thus raise our Dubai crude price assumption to USD 53 and USD 65 in 2017 and 2018. OPEC reached a preliminary agreement with non-OPEC members to cut oil production on September 30, 2016. Later at an official meeting

held on November 30, the cartel announced a production cut of 1.3 million bpd to 32.5 million bpd starting in January 2017. Saudi Arabia, the world’s largest crude producer, will reduce output by 490,000 bpd to 10.1 mn bpd, and Iraq, the second-largest producer, will cut production by 210,000 bpd to 4.4 mn bpd. Non-OPEC countries also agreed to reduce crude production by 558,000 bpd. Including the OPEC output cut, global crude output will decrease by 1.76 mn bpd. As Saudi Arabia recently pledged to increase its production cut to 700,000 bpd, global crude production should fall to 2 mn bpd if both groups can follow through on their commitments. This agreement marks a major strategic move that will result in a balance between global demand and supply starting in 2Q2017, as it will offset the current supply glut of 2 mn bpd. In addition to the agreed production cut, the IEA forecasts a 1.2 mn bpd increase in global oil demand in 2017. This adds weight to a demand/supply balance happening sooner rather than later. KS Research estimates a Dubai crude oil price of USD 53 in 2017 and USD 65 per barrel in 2018.

Energy sector to get back on track as the SET’s best performer as an oil price uptrend looms

The price of oil plays a crucial role in the performance of the energy sector, particularly the upstream industry. As a global crude price uptrend looms, the Thai energy sector looks set to return to its outperforming ways and become the market’s biggest gainer. Back when global crude oil peaked at USD 120 - 140 per barrel, the energy sector’s market capitalization increased to 35% of the SET. On the flip side, its market capitalization reduced to 30% at USD 50 - 70 per barrel and 32% at USD 70 - 100 per barrel. Amid the downward spiral in oil prices that hit USD 26.2 per barrel in February, the energy sector’s market capitalization contracted sharply to 15% of the SET’s total market cap. The energy sector’s market capitalization increased gradually after global crude rose to USD 51 per barrel, and thus its market capitalization rose to 18% of the SET. We believe crude oil prices have entered an uptrend, and this will fuel speculative trading in energy stocks and thus boost its market capitalization. Each 1% increase in energy sector market cap will push the SET Index up by 2.87 pts. Energy stocks will be a virtual knight in shining armor in terms of underpinning the SET benchmark index while other sectors suffer from looming headwinds, such as moderate GDP growth forecasts, weaker consumer spending in light of higher oil prices, a higher inflation outlook, continuing Fed rate hikes, and risk of fund outflows.

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OUTP

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Fig 7 WTI vs Market cap of energy sector as a % of SET

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Fig 8 Sector Market cap as a % to SET

Note: Service Sector comprises Commerce, Healthcare, Tourism, Transportation.

SET 5,862,469,768,083 100 12,223,442,387,051 100

AGRI & FOOD 210,837,391,031 3.6 754,493,360,458 6.2

CONSUMP 66,781,211,339 1.1 104,938,238,167 0.9

FINCIAL 1,008,151,014,790 17.2 2,297,486,709,626 18.8

INDUSTRIAL 350,462,099,360 6.0 581,364,279,698 4.8

PROP&CON 741,651,698,897 12.7 2,243,119,544,585 18.4

ENERG 2,064,039,256,380 35.2 1,829,679,792,518 15.0

SERVICE 635,830,880,538 10.9 2,965,245,037,061 24.3

ICT & ETRON 611,809,576,801 10.4 1,356,904,898,171 11.1

Baht % Baht %

Market Cap (11-Feb-16)

Sector

Market Cap (04-Jul-08)


Fig 9 Oil price and infl ation


Fig 10 Infl ation vs Energy Index

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Upstream petroleum sector to outperform the SET

Higher oil prices will lead to higher inflation. This coupled with weak consumer spending and a resulting increase in prices of goods will take a toll on domestic consumption-linked sectors as well as those that are affected by oil prices, such as aviation, construction materials, and the medium to downstream petrochemical sectors. Yet the upstream petroleum industry is expected to outperform the SET, as energy stocks are viewed as a good hedge against inflation. Other industries that have a strong cushion against higher costs in terms of finance and oil and that will be able to pass on higher costs to consumers and that will benefit from the government’s latest stimulus measures will also be able to beat the market. OPEC’s production cut agreement signaled its intention to tighten demand-supply dynamics and push crude prices up. On the other side of the knife, inflation will likely accelerate after global markets experienced years of deflation. This inflation factor and Fed rate hikes will be major headwinds to investment. KResearch Center forecasts inflation to increase by 1.8% in 2017 compared to 0.3% in 2016. The bottom line is that this is the first inflation forecast of more than 1% in the past couple of years. Historical data in the past eight years (2008 - 2016) shows a correlation between inflation and the energy sector. On the other hand, domestic consumption-linked sectors have a reverse correlation to inflation. For example, the property sector as well as construction materials typically decline amid higher inflation.



Fig 11 Infl ation vs Property Index

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Fig 12 Infl ation vs Construction Material Index

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Fig 13 US 10-year bond yield and Thai 10-year bond yield


Fig 14 PE SET against Thai 10-year government bond yield

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SET PER to reduce, as a Fed rate hike will influence Thai policy rate

The Fed signaled a rate hike at its September 20 - 21, 2016 meeting, which drove global bond yields higher. The yield on the 10-year Treasury note jumped from 1.59% in September to 2.53% in mid-December. Likewise, Thailand’s 10-year bond yield rose from 2.20% to 2.75% in the same period. The Fed provided a strong signal that it will continue to increase interest rates. We do not expect Thailand’s Monetary Policy Committee to move in lockstep with the Fed but rather wait to see whether it continues with its rate hike plan in 2017. Nevertheless, we expect the Fed to increase interest rates at a faster pace than market consensus forecasts, which could influence the MPC in 2H2017. Regardless, we believe the yield on Thailand’s long-term bond will appreciate in response to a new global hawkish monetary era. The relationship between Thailand’s 10-year bond yield and the SET’s PER indicates that the market is able to accept a higher PER when the policy rate is in a downward trend. In 2008 - 2009, Thailand’s 10-year bond yield decreased from 16% to 8% and the SET’s PER increased from 9x to 15x. The 10-year yield shrank from 11% to 7% and PER rose from 10x to 14x in 2008 - 2010, and the yield fell from 10% to 2% and PER rose from 10x to 16x in 2010 - 2016. Contrarily, a higher bond yield allowed the market to trade at a lower PER, as in 2007 - 2008 when the yield increased from 11% to 15% and PER contracted from 14x to 11x.

KS Research believes the dovish monetary policy trend has ended and the world is embracing a hawkish era. Investors are likely going to take flight to safe-have assets once again as risk appeal diminishes. We expect the 10-year bond yield to be 2.7 - 3% in 2017, and thus the market’s PER will likely return to its normal level of 13x - 15x.

12

TRADE


Fig 16 Sector performance (1H2016)

24.4 23.821.2

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Fig 17 Sector performance (2H2016-current)

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Fig 15 10-year SET return growth CAGR 9.4%

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2017 to be a challenging year after a rosy 2016

The SET yielded a return of 18.10% as of December 14, 2016. The return in 1H2016 was spectacular at 12.60%, as the negative rate trend adopted by major central banks cast a shadow on safe-haven assets, and that prompted investors to pour funds into risky assets. Commodity-linked sectors such as energy increased notably and domestic consumption stocks benefitted from a low-base effect, low interest rates and government stimulus measures. On the flip side, the loose monetary policy era pushed the insurance sector down sharply by 17.10% in the period. In sum, the SET was in the throes of an interest rate downward in the first half. In 2H2016 (as of December 14, 2016), the SET yielded a moderate return of 5.50% as interest rates rose gradually, which fueled fund outflows and thereby caused the baht to weaken. The SET swung wildly, but the insurance sector recovered with a gain of more than 16.40%. The electronics sector, which benefits from a weak baht, advanced by roughly 24.70%. The consumer staples sector grew at a rapid pace in the first half but the retail sector rose at a lower pace of 14.40%, while the food sector increased further by just 8.80%. The transportation sector gained a mere 0.20% vs 16.00% in 1H2016.


Fig 20 SET Index target by standard deviation

Mean 10 years +0.1 S.D. +0.2 S.D. +0.3 S.D. +0.4 S.D. +0.5 S.D. +0.7 S.D. +1 S.D.PER (X) 14.97 15.31 15.64 15.98 16.31 16.65 17.32 18.332016 EPS 100.4 100.4 100.4 100.4 100.4 100.4 100.4 100.4SET Target 1,503 1,537 1,570 1,604 1,638 1,672 1,739 1,840

Mean 10 years -0.1 S.D. -0.2 S.D. -0.3 S.D. -0.4 S.D. -0.5 S.D. -0.7 S.D. -1 S.D.PER (X) 14.97 14.63 14.30 13.96 13.62 13.29 12.61 11.602016 EPS 100.4 100.4 100.4 100.4 100.4 100.4 100.4 100.4SET Target 1,503 1,469 1,435 1,401 1,368 1,334 1,266 1,165

Mean 10 years +0.1 S.D. +0.2 S.D. +0.3 S.D. +0.4 S.D. +0.5 S.D. +0.7 S.D. +1 S.D.PER (X) 14.98 15.31 15.64 15.98 16.31 16.65 17.32 18.332017 EPS 104.6 104.6 104.6 104.6 104.6 104.6 104.6 104.6SET Target 1,567 1,601 1,636 1,671 1,706 1,742 1,812 1,917

Mean 10 years -0.1 S.D. -0.2 S.D. -0.3 S.D. -0.4 S.D. -0.5 S.D. -0.7 S.D. -1 S.D.PER (X) 14.97 14.63 14.30 13.96 13.62 13.29 12.61 11.602017 EPS 104.6 104.6 104.6 104.6 104.6 104.6 104.6 104.6SET Target 1,566 1,531 1,495 1,460 1,425 1,390 1,319 1,213

Source: KS Research


Fig 18 Thai current account and SET Index

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The situation is going to change next year. The Fed is likely to continue with more rate hikes in 2017, as global bond yields picked up in September 2016. We also believe this will continue in 2017, as investors expect the Fed to increase interest rates over course of the year. The SET’s valuation is thus expected to return to a normal level of 13x - 15x. However, Thailand’s current account that has remained a surplus for 11 consecutive quarters is a key factor that helped underpin the stock market amid massive fund outflows and a deep correction, which resulted in the SET’s valuation and dividend yield becoming more attractive. Historical data shows a deficit current account in 2012 - 2014 resulted in the SET Index correcting by more than 26%.

SET to trade in a PER band of 13x - 15x in 2017

The market will likely face several headwinds in 2017. GDP growth is forecasted to grow moderately by 3.3%, the same pace as in 2016, and consumer spending looks set to slow down. These factors together with a potential increase in inflation, higher oil prices, a coming hawkish monetary policy era and risk of fund outflows will likely cause the SET to drift in a tight sideways channel. KS Research expect the SET’s PER will return to a normal band of 13x - 15x, and thus 2017 EPS will grow by 4.18% to Baht 104.60, up 1.85% from our prior estimate of Baht 102.7. This translates into a SET range of 1,360 - 1,570.

14


Fig 21 SET PER

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Fig 22 SET PBV

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INVESTPTT (Target Price: Baht 404.00) • KS Research maintain our Outperform rating on PTT but raise our YE2017 target price to Baht 404.00 from Baht 377.00 on the back of an 8% increase in PTTEP’s target price and a 4 - 6% earnings upgrade from the expected end of PTT’s NGV and LPG subsidy obligations. • KS Research believe PTT’s earnings will reach a record high in 2017 as it is the largest beneficiary when gas costs fall and product prices rise. Such an industry environment is likely to continue at least until 2Q2017, while implementation of the Oil Fund Act in mid-2017 will eliminate the annual Baht 5 billion burden from subsidized NGV and LPG prices. • The potential divestment of PTT’s petrochemical assets to PTTGC in 1H2017 and the listing of its retail oil business may generate an extra gain, which would result in upside to our earnings forecasts.

PTTEP (Target Price: Baht 105.00) • KS Research maintain our Outperform rating on PTTEP but raise our DCF-based target price to Baht 105.00 from Baht 97.00 as we raise our long-term sales volume assumption by 9% to factor in the potential concession renewal of the Bongkot field, as well as a potential USD 400 million decrease in CAPEX due a delay of the Mozambique project. • KS Research like PTTEP owing to 1) OPEC and non-OPEC oil production cuts for the first time in eight years that brightens the outlook for upstream players; 2) an expected earnings growth CAGR of 44% in 2017 - 2018; 3) an improvement in earnings quality from lower volatility in deferred tax; and iv) upside from potential M&As.

BANPU (Target Price: Baht 23.10) • KS Research reiterate our Outperform rating on BANPU with a YE2017 target price of Baht 23.1. Our rating is premised on the turnaround in earnings that began in 4Q2016 and will continue into 2017. The coal industry’s demand/supply balance shows potential for tightening in 2017. • In addition to this positive catalyst, the coal price will likely remain high, as all commodities and energy prices are on upward trends. Although BANPU has not been able to secure its ASP to the usual degree for this period, it is shielded from the downside from this as it has the option of maintaining its stripping ratio at the 2016 level, which is lower than we project in our current assumptions. Therefore, we stand by our 2017 earnings forecast of Baht 13.9 billion, implying PER of just 6.9x.

Investment themes

The market will likely face several headwinds in 1Q2017. For a safe bet, we would recommend portfolio rebalancing to curb volatility, which looks likely to increase in view of fund outflows due to higher inflation and interest rates. We recommend stocks that have a strong growth outlook based on the following:

1. Cost-push inflation: The upstream petroleum industry will benefit from higher oil prices, as the gap will widen between oil exploration & production costs and market selling pricesof oil. KS Research top picks are PTT, PTTEP and BANPU.


TMENT 2. Strong brand recognition and competitive advantage:These stocks are able to pass on costs to consumers and benefit from government stimulus spending measures. Among these, KS Research top picks are BEAUTY, BIG, GLOBAL and TKN.

BEAUTY (Target Price: Baht 15.50) • KS Research expect BEAUTY to take over the No. 1 spot in the cosmetic retail shop market worth Baht 10 billion from current market leader Oriental Princess in 2018, sooner than our previous assumption of 2017. Net profit is projected to grow at a CAGR of 52% in 2016 - 2018 driven by effective marketing and strong customer relations system. • Same-store sales growth should climb above 20% while sales via the brick-and-mortar channel (modern trade, overseas markets) should increase at a significant pace over the period. • Expect a record-high 4Q2016 net profit on the back of 1) Chinese customers stocking up for the coming Chinese New Year; 2) a marketing campaign to celebrate the 10th anniversary of its Beauty Buffet line; and 3) effective cost management that will boost GPM.

BIG (Target Price: Baht 6.40) • KS Research reiterate our Outperform rating on BIG with a revised target price of Baht 6.40 from Baht 5.10 previously. Our new target price derived from a 22.9x PER, equivalent to the commerce sector’s 10-year average. We like BIG due to its solid earnings growth and impressive ROE of 69%. • KS Research estimate 2016 - 2018 earnings of Baht 790 million, Baht 991 million, Baht 1.2 billion representing solid growth of 72%, 25% and 23% on solid sales growth of mirrorless cameras. While we believe social media will be a key driver to drive the Thai camera market due to strong active social media user growth of 19%, we see a new product cycle to be another key driver in 4Q2016 and 2017. • KS Research thus expect record-high 4Q2016 earnings, which will provide a short-term catalyst during earnings result period. The stock currently trades at 16x PER 2017 and 13x PER 2018.

GLOBAL (Target Price: Baht 20.70) • KS Research reiterate our Outperform on GLOBAL with a new target price of Baht 20.70, up from Baht 16.70 following an upward earnings revision. • KS Research new target price is derived from a PER multiple of 45x 2017EPS, which is 0.5SD above its historical mean. With our view that government stimulus will boost consumption in upcountry markets in 2017, while a potential recovery in soft commodity prices should help lift overall farm income, we expect GLOBAL to benefit more than its peers as its main customers are in the provinces. • Additionally, based on a continued branch aggressive expansion and greater contributions from high-margin products, KS Research expect GLOBAL’s earnings to grow by 65.1%, 21.1% and 14.8% in 2016 - 2018, or at a 3-year CAGR of 31.9%.

TKN (Target Price: Baht 33.00) • KS Research reinitiate coverage of TKN with an Outperform rating and target price of Baht 33.00. Our target is derived from a PER of 42.6x, equivalent to +1SD the stock’s historical average. • KS Research rating reflects a strong 2016 - 2018 earnings growth CAGR of 52% supported by new capacity from the new Rojana plant, which will double current capacity, and BOI privileges. We believe international sales will be a key driver due to rapid growth in China. • The outlook is further enhanced by further expansion potential in western countries and the Asian region due to a strong trend toward healthy food. The stock currently trades at 34.6x PER 2017 and 26.4x PER 2018.

16

Fig 23 Sector Weighting and Top picks

Source: KS Research

Sector Sector Weight Top Pick (s)Banking Overweight SCB

Commerce Overweight BIG, BEAUTY, GLOBAL, M EGA

Electronics Overweight KCE, DELTA

Energy Overweight PTT, PTTEP, BANPU

Healthcare Overweight BH, CHGInsurance Overweight BLA

Agribusiness and Food Neutral TKN

Construction M aterials Neutral -

Contractor Neutral CK, STEC

Finance Neutral -

ICT Neutral ADVANC

Personal Products & Pharmaceutical Neutral -

Residential Neutral AP, ORI, SPALI

Industrial Estate Underweight -

Petrochemical Underweight -

Transportation Underweight -

Utilities Underweight GPSC, TPCH

Fig 24 SET growth by sector

Source: KS Research

2015 2016E 2017E 2015 2016E 2017EGrowth 17E

(%YoY)Sector Growth 16E

(%YoY)Growth 16E

(%YoY)Core Profit (Btmn) Net Profit (Btmn)Growth 17E

(%YoY)

Agribusiness & Food 2,817 3,383 4,156 20.1% 22.9% 2,766 3,388 4,161 22.5% 22.8%Banking 189,941 195,076 211,722 2.7% 8.5% 190,300 195,659 212,341 2.8% 8.5%Commerce 36,708 43,350 54,093 18.1% 24.8% 37,669 44,252 54,117 17.5% 22.3%Commercial 7,880 9,088 9,800 15.3% 7.8% 7,880 9,088 9,800 15.3% 7.8%Construction Materials 51,281 58,618 55,483 14.3% -5.3% 51,354 58,434 55,263 13.8% -5.4%Personal Products & Pharmaceuticals

208 227 315 9.2% 38.4% 234 238 335 1.9% 40.5%

Contractor 5,469 5,210 3,989 -4.7% -23.4% 6,681 5,244 4,084 -21.5% -22.1%Electronics 11,567 11,818 14,443 2.2% 22.2% 13,079 12,869 14,443 -1.6% 12.2%Energy 138,570 155,682 173,419 12.3% 11.4% 12,247 149,334 167,785 1119.3% 12.4%Finance & Securities 6,603 8,255 9,967 25.0% 20.7% 6,681 8,335 10,047 24.8% 20.5%Health Care 12,419 13,485 14,408 8.6% 6.8% 12,419 13,485 14,408 8.6% 6.8%ICT 64,957 45,112 35,969 -30.6% -20.3% 82,203 47,816 37,016 -41.8% -22.6%Industrial Estate 1,558 468 1,269 -70.0% 171.3% 1,986 956 1,249 -51.8% 30.6%Insurance 4,028 5,756 4,509 42.9% -21.7% 4,108 5,650 4,509 37.5% -20.2%Petrochemical 31,863 42,021 43,998 31.9% 4.7% 36,514 48,288 42,182 32.2% -12.6%Property Fund 1,169 1,073 1,033 -8.2% -3.7% 1,192 1,524 1,587 27.8% 4.1%Residential 31,843 32,547 34,537 2.2% 6.1% 33,880 33,129 34,587 -2.2% 4.4%Transportation 17,262 39,787 35,053 130.5% -11.9% 15,661 36,146 35,273 130.8% -2.4%Utilities 30,947 34,391 40,787 11.1% 18.6% 25,404 36,302 38,576 42.9% 6.3%SET 647,092 705,347 748,949 9.0% 6.2% 542,258 710,137 741,762 31.0% 4.5%SET Excl. Insurance 643,064 699,592 744,440 8.8% 6.4% 538,150 704,487 737,253 30.9% 4.7%SET Excl. Energy&Petro 476,658 507,644 531,533 6.5% 4.7% 493,497 512,514 531,796 3.9% 3.8%SET Excl. Banking 457,151 510,271 537,227 11.6% 5.3% 351,959 514,477 529,421 46.2% 2.9%

Stocks that benefit from a weaker Baht. KS Research top pick is MEGA.

MEGA (Target Price: Baht 30.00)• KS Research reiterate our Outperform rating on MEGA with a target price of Baht 30.00. MEGA is one of our top picks

for 1Q2017 due to a strong 2016 - 2018 earnings growth CAGR forecast of 18%, benefit from a weakening USD/Baht andcompelling valuation trading at 21.2x PER 2017, or 0.5SD below its historical mean.

• MEGA will benefit from a weakening USD/Baht trend in 2017 as most of its revenue is derived from overseas with the majority in USD. An oil price recovery will also help boost consumption demand in some of MEGA’s markets that rely on energy exports. We expect Bio-Life, which MEGA fully acquired in November 2016, to be a key growth driver adding Baht 55 million/Baht 59 million to the bottom line in 2017 - 2018 due to resilient growth of the Malaysian market and full-year earnings recognition.

• KS Research estimate 4Q2016 earnings to reach a record high, which will act as a short-term share price catalyst.Key factors behind the expected strong earnings are 1) a strong contribution from MegaWeCare amid its peak 4Q2016 season; and 2) a much lower FX loss due to a stable Naira/Baht and USD/Baht depreciation.


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Investment Ratings Outperform: Expected total return of 10% or more within a 12-month period Neutral: Expected total return between -10% and 10% within a 12-month period Underperform: Expected total return of -10% or worse within a 12-month period

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DWs Underlying Stocks: AAV, ADVANC, AOT, AP, BA, BANPU, BBL, BCP, BDMS, BEAUTY, BEM, BH, BLA, BTS, CBG, CENTEL, CHG, CK, CPALL, CPF, CPN, DELTA, DTAC, EPG, GL, GLOW, GPSC, HMPRO, INTUCH, ICHI, IRPC, ITD, IVL, KCE, KTB, KTC, LH, LPN, MAJOR, MINT, MTLS, PLANB, PS, PTG, PTT, PTTEP, PTTGC, QH, ROBINS, SAWAD, SCB, SCC, SIRI, SPALI, STEC, STPI, TASCO, THAI, THCOM, TMB, TOP, TPIPL, TRUE, TTA, TU, UNIQ, VGI, WHA and WORK.

18

Overall in 2017, the global economy may expand faster than this year, but uncertainties will likely prevail. The IMF forecast stands at 3.4 percent growth, against the 3.1 percent for 2016 (Source: IMF, World Economic Outlook, October 2016), driven mainly by recoveries in new economies, e.g., India, China and the ASEAN-5*, which are expected to register average growth of 6.3 percent. However, volatility cannot be avoided, especially in Europe where almost half of the EU states will hold general elections. Key nations, including France, will hold Presidential elections, and Germany will also hold general elections during the third quarter. In Italy, a majority just voted against constitutional reform, and that could trigger an “Italexit” from the EU as Britain has done.

On the US side, investors may need to follow Mr. Trump’s economic stance closely, and whether it will be identical to his campaign promises or differ from them. It is sure that the new administration’s policies will differ from his predecessor on a number of issues, e.g., lower corporate income taxation, less emphasis on trade with China and Mexico, and protection of jobs against illegal immigrant workers, etc. The post-US election impact will more likely than not add further volatility to money markets, in that the USD may strengthen and US bond yields may also rise after investors shift money from low-risk assets to assets with higher risk, e.g., US equities. Trade partners such as China and Japan, may feel the effect of Trump’s focus on domestic economic stimulation. However, trade protectionism will likely only have a limited impact on Asian economies, since their exports to the US are not significant when compared to their GDP. But USD appreciation may cause funds outflows back to the US, which warrants close monitoring, going forward.

The year 2016 may be remembered by many of you as another year of difficult investment. Stock exchanges worldwide

twice experienced significant corrections, i.e., in January after China’s important RMB devaluation, and in June after the unexpected Brexit vote,

which caused serious volatility in global financial markets.

2017 Outlook for the Thai and

Global Economies, Investments

KASIKORN ASSET MANAGEMENT COMPANY LIMITED

19 Investment Channels

What also needs to be followed is the divergence of economic policies between major central banks. As an important example, Fed Funds rate hikes are expected to be gradual, perhaps only once or twice in 2017, in contrast to Europe where their negative interest rate policy will likely be maintained. Markets view that the ECB may adopt further monetary policy easing to support their economy amid Brexit impacts, political risks and weaknesses in regional commercial banks. As for the Bank of Japan, they must take into consideration Japan’s existing problems, including deflation, an appreciating Yen and their ageing society; they are likely to shift their focus over the long term from expansion of their monetary base toward monitoring of interest rate movements. With respect to China and India, interest rate cuts as part of their easing policies will likely continue so as to encourage private investment and consumption. Such divergence may then result in investment and money market capital flight, worldwide.

Another factor toward volatility since the beginning of 2016 has been oil prices. After they fell to lower than USD 30 per barrel amid global exchange corrections early this year, they recovered incrementally as concern toward global supply eased. At last, the best news of the year came with the OPEC deal for their first production cut in eight years to shore up global oil prices that had been pressured by a supply glut. Responding to that resolution, oil prices surged to over USD 50 per barrel. KASIKORN ASSET MANAGEMENT (KAsset) views that next year’s oil prices may move within a range of USD 50 - 60 per barrel. In Thailand, our 2017 economy may perform quite similarly to 2016 with growth of 2.5 - 4.0 percent expected through 2017 - 2019. Key drivers include domestic expenditures and tourism that have recorded uninterrupted growth, plus the government’s economic stimuli aided by a policy of budget deficit at 2.6 percent of GDP and further realization of infrastructure investments. Such slow economic growth may convince Thailand’s Monetary Policy Committee to retain their key policy rate until the end of 2017.

As for investments in 2017, volatility due to the above scenario may make realization of satisfactory returns on investment more difficult. Investment diversification and precise selection are advised as being key to efficient portfolio management. KAsset holds a positive viewpoint toward ASEAN and Indian stocks, since such shares have been successful in achieving higher growth than other regions. Even though government stimuli have helped reinforce the economic recovery and listed company profits here, there may still be some risk of capital outflows due to rapid appreciation of the USD. To cushion against portfolio fluctuations, we recommend that you look into global infrastructure stocks since they will be crucial to the overall economic system, generally have consistent revenue generation and cashflows, as well as less sensitivity to global economic cycles. Before completing this article, KAsset would like to introduce our “My Port Simulator” tool to assist investors in portfolio management to match with their risk appetites using suggested portfolio models. With this tool, investors can experiment with portfolio management by adjusting their investment ratios as they wish. The simulator also displays past yields, so investors can gain vital information toward decision making before actually making investments. Additionally, investors will recognize the benefits of investment allocations into a variety of assets to mitigate risk. Interested investors are welcome to try out the simulator by clicking on the “My Port Simulator” icon under the “Investment Tools” menu on the main page of www.kasikornasset.com. For further information, get in touch with the KAsset Contact Center at Tel. +662-6733888.

* Thailand, Indonesia, the Philippines, Malaysia and Vietnam ** Estimated by KASIKORN ASSET MANAGEMENT and KASIKORNBANK

20

KBank gears up sustainable business strategies

21 Shareholder News Update

KASIKORNBANK has announced its 2017 business plan, targeting growth in line

with Thailand’s projected 3.3 percent economic growth in the year to come, almost on par

with this year’s level. KBank’s assessment is that consumer demand for digital banking

services will continue to rise in Thailand. At the same time, the changing service landscape

powered by technological advances is giving new players, particularly FinTech operators,

a greater role in the financial services industry. The Bank has responded with key strategies

of applying digital technologies to multiple services and of working with business partners

to boost long-term competitiveness for sustainable growth. The Bank is also determined

to provide innovative service experiences and develop business models based on digital

technology, along with IT development to reinforce our digital banking leadership.

KBank will continue to adhere to the Customer Centricity principle, providing services in response to customer demand, with strategies to become the Customers’ Main Bank in all segments. The Bank’s major 2017 financial targets have been established at appropriate growth levels, including average loan growth of 4 - 6 percent and a gross NPL ratio of 3.3 - 3.4 percent. Business directions have been set for four business divisions, ensuring that they offer excellent products and services to our retail and corporate customers. Retail Business: KBank aims at being a retail bank by global standards (World Best-in-Class Retail Bank) and to improve the quality of branch service and advisory to global standards (Best Experience & Advisory at Branch). We also continue to strive towards developing full-service digital financial innovations, placing great significance on mobile banking in line with customer lifestyles. SME Business: KBank intends to remain the leading bank for SMEs along with being their main bank, promoting sustainable growth through maintaining value chains for customers, enhancing access to funding for new customers with potential, and offering innovative digital products.

Risk form Brexit

Gradual increase in Fed Fund Rate

China Economy Slowdown

Household debt accumulated

Tourism

Government spending and megaproject investment

In 2017,Thailand economy growth in line with 2016

driven mainly government spending

Factor Boost EconomyFactor to monitor

Thailand Economy in 2017

Source: KASIKORNBANK

2016

2017f

2018f

Change (%)

Government

Spending

ExportNo. tourist

Inflation

GDP

22

Financial Targets of KBank in 2017

Loans Growth (%)

Overseas Service Network in AEC+3

Total LoansGrowth4 - 6%

Retail Customers Loan growth 5 - 7%

SME Customers Loan growth 4 - 6%

Corporate Customers Loan growth 4 - 6%

ChinaUpgrades to Locally Incorporated Institution

In present, oversea service haveLocally Incorporated Institution 2 branchesBranch and Sub-Branch 6 Branches and Representative Office 9 Offices (Data at November 29, 2016)

CambodiaOpen branch

in Phnom Penh

Vietnam

Indonesia

MyanmarFinding open branch in 2017 - 2018

Lao PDRLocally Incorporated Institution 2 branches

Enhance digital platform for cross-border settlements


Corporate Business: KBank is determined to be the leader in providing an array of fund mobilization services (Best Funding Solutions) from issuing securities and REITs to mergers and acquisitions for the best cost. Winner of the Best Transaction Banking Provider award, KBank provides a large number of transactions in foreign currencies including AEC+3 and other major currencies from across the globe. Global Business: KBank aims at becoming the leading bank for regional settlements and investment through: Infrastructure for international money transfers and settlements in ASEAN currencies; support for Thai businesses in the CLMVI countries; border trade centers promoting trade on borders; supporting fund mobilization for investment in infrastructure such as power plants, roads and ports in CLMV; and mergers and acquisitions (M&A), especially among Thai and Japanese

businesses. The Bank will continue to expand its networks abroad through 2017, including Locally Incorporated Institution (LII) conversion in China, branch expansion in Lao PDR, broadening services at the Phnom Penh Branch, and seeking means of opening branches in Vietnam, Indonesia and Myanmar by 2018. To maintain competitiveness and tap into new markets as they form and expand along with evolving digital lifestyles, the Bank will continue to develop new business models through business partnerships as well as the development of comprehensive services, and apply advanced technology with all customer segments. The Bank will push forward implementation of technological plans under the lead of the KASIKORN BUSINESS-TECHNOLOGY GROUP (KBTG), as explained below.

23 Shareholder News Update

In 2017, The Bank planning to roll out blockchain technology for OriginCert document certification, with letters of guarantee (L/G) as the pilot application for business customers. The service will reduce the work time involved in providing the service while putting in place the components of the digital ecosystem needed for L/G services. The service will include a database allowing customers to be assured of the documents’ accuracy and be able to reference data more easily. KBank will also utilize World Class UI/UX Design concepts in crafting user-friendly digital interfaces for customers. At the same time, the Bank is concerned for those who have more difficulty than most in accessing financial services and supports the Thai startup Beacon Interface in developing an innovative mobile app enabling the visually impaired to conduct financial transactions with ease. The app is scheduled to roll out in the first quarter of 2017. KBank will also work on existing technologies to strengthen cyber security, which would involve its immune system to external cyber threats, with the development of tools for inspection, detection, and prevention of data leakage.

Besides placing importance on applying technology to the development of innovation, establishing partnerships is KBank’s core operational direction, aiming at promoting Thailand’s digital ecosystem through partnerships with major technology firms in joint technology development and with educational institutions and other organizations to create innovation labs supporting the incubation of ideas for commercialization. The Bank will support FinTech and startups through the Bank’s strong points, for example API access to customer databases for the development of services, business suggestions for banking, and information on regulations and technology as well as financing. The Bank is more than ready to lend support to FinTech companies and tech startups in creating superlative services where the greatest possible customer convenience is provided. This will ensure that customers and KBank together achieve sustainable growth, equipped with global competitiveness, thus strengthening the Thai economy ultimately.

KBank’s Digital Strategiesin 2017

KBank’s Digital Strategiesin 2017


Enterprise in Ecosystem

Large Technology

Company

Startup and FinTech

In 2017,

KBank’s

Investment

Technology

Technology Used Virtually

for Every Customer SegmentBuilding Strong Partnerships

to Work

24

KBank shows loyalty to late King

At KBank Head Office, Chairman of the Board and Chief Executive Office, together with KBank executives and employees sang the song of Sansoen Phra Barami or the royal anthem and took an oath of loyalty to the late His Majesty King Bhumibol Adulyadej. The ceremony was organized per the Cabinet’s resolution in parallel with similar events held by other organizations throughout the country in remembrance of His Majesty’s great benevolence to the Thai people, which were broadcast live from the Government House.

KBank joins hand with BDMS Group to extend service network in response to over 10% growth in healthcare spending

To capitalize on over 10 percent growth in healthcare spending via credit cards, KBank in collaboration with Bangkok Dusit Medical Services (BDMS) extended services under the BDMS-KBank co-branded credit card, highlighting it as a healthcare credit card with the largest network of leading hospitals in Thailand. These are five hospitals under BDMS Group, including Bangkok Hospital, Samitivej Hospital, BNH Hospital, Phyathai Hospital and Paolo Hospital. Within five years, KBank aims to issue 222,000 BDMS-KBank co-branded credit cards, with the total spending of over Baht 26 billion.

New startup of KBank wins two prizes in global FinTech competition

Beacon Interface - a new startup of KBank - was awarded two prizes for its financial app in Singapore FinTech Festival 2016, organized by the Monetary Authority of Singapore (MAS), the city state’s central bank, i.e., “Winner of Global FinTech Hackcelerator” from MAS, and the “Developer Hub Award” from Citigroup, one of the major sponsors of the event. This app allows visually impaired persons to conduct financial transactions on smartphones with security and convenience just like those with normal eye vision, which is consistent with KBank policy of promoting Thais to have greater access to financial services.

25 KBank News Update

KBank receives two major awards from Asiamoney

A KBank executive represented the Bank in receiving two awards for Best Domestic Bank in Thailand and Best Domestic Debt House in Thailand at the Asiamoney Best Domestic Bank Awards 2016, organized by Asiamoney magazine.

KBank and IBM develop blockchain technology for future business transformation

KBank, in cooperation with IBM, the world’s IT giant, introduced blockchain technology to certify original documents for greater credibility, with document storage and retrieval service system. The new service will focus on accuracy under a common standard, risk mitigation, swift verification and security, all hoped to create an exemplary platform for business data connection among diverse organizations. Other organizations and commercial banks are welcome to join this program for customer benefits in the future.

KBank winsBest Cash Management Bank in Thailand KBank executives accepted the Best Cash Management Bank in Thailand from the 10th Annual Best Financial Institution Awards 2016, organized by Alpha Southeast Asia magazine, for the fifth consecutive year. The accolade reinforces our excellence in providing comprehensive services, especially our efficient cash management service that is recognized internationally.

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SIRIRAJ PIYAMAHARAJKARUN HOSPITAL

27 Good Health, Good Mind

Taking control over sugar

Diabetes, Thyroid and Endocrine Clinic

Services range from screening and diagnostics to assessment and treatment of diabetes, thyroid and endocrine disorders for patients aged 15 years and older. Our highly skilled and experienced medical team provides accurate diagnostic services and optimal treatment with close follow up empowering the best possible self care.

Taking control over sugar Diabetes, Thyroid and Endocrine Clinic,

Siriraj Piyamaharajkarun Hospital

Assessment of risk of developing diabetes; diagnosis and treatment of diabetes.Diagnosis and treatment of thyroid and endocrine disorders, for example adrenal gland disorder, parathyroid disorder and pituitary disease.Podiatry (foot care) diagnosis and consultation for persons suffering diabetes.Nail clipping for persons suffering diabetes; self-care advice, including nutrition and good eating habits, for those with diabetes or obesity.Assessment of potential complications from diabetes such as retinopathy and diabetic kidney disease.

Medical Services

Our clinic is open 07:00 a.m. - 09:00 p.m. daily, 4th floor, D zoneFor more information, call +662-4191474

28

You do not have to give up your favorite foods, although it would be wise to be a little bit picky about how it is cooked. Healthy ways of cooking include boiling, steaming, grilling, preparing as a salad or stir-fried with less oil. Limit the amounts you eat at each meal by following the guide for healthy eating below.

Divide your plate into four sections with a portion from each food group in each section: Leafy greens, non-root vegetables: two portions (half a plate) Rice/carbohydrate: one portion (1/4 plate) Lean meat: one portion (1/4 plate)

If you still feel hungry, fruit that is not too sweet and low-fat milk or other dairy products such as yogurt are good after-meal options.

Rice, noodles and bread may be consumed normally; no need to cut down significantly, except that overweight patients should cut consumption in half.Instead of sweets, take high-fiber fruit that is not too sweet in recommended amounts two or three times a day.Take more vegetables at every meal.Eat whole fruits and vegetables rather than juice.Eggs are good, but leave the yolk if you have high cholesterol.Stick to lean meat, avoid the skin.

Meal ideas for diabetics

Eating tips for those suffering diabetes

SIRIRAJ PIYAMAHARAJKARUN HOSPITAL

29 Good Health, Good Mind

Diabetes doesn’t prevent you from eating normal food. The only concerns are being careful about sugar content and types of carbohydrates. Controlling your fat intake also helps to control blood sugar and cholesterol levels. You should also constantly watch your weight, maintaining it at an appropriate level.

Beyond these considerations, you should eat at the proper times and in similar amounts each meal. To lose weight, reduce the amount of food at each meal but do not skip meals. Being hungry may lead to overeating that could cause fluctuations in blood sugar levels.

Eat fish and tofu often.Choose low-fat foods - boiled, baked, steamed and grilled food is healthier than deep-fried or stir-fried dishes.Use moderate amounts of soybean or bran oil when necessary for frying.Avoid regular consumption of foods containing with coconut milk or animal fat, deep-fired foods such as puffs, pies, cakes and fast food items such as hamburgers and pizza.Drink unsweetened, non- or low-fat milk rather than flavored milk.Avoid sweet drinks, soda, candy, chocolate and very sweet food.Opt for artificial sweetener in place of sugar.Choose a diet moderate in salt.Always read nutritional labels to ensure that your daily sugar intake is below 20 grams.

The Diabetes Diet

Diabetes

Think before Eat

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kbank eng 1-2560 (06 01 2560)

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