Market Talk Investment Strategy Research Division

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The Thai language research reports and information contained therein are compiled from public data sources and our analysts' interviews with executives of listed companies. They are presented for informational purposes only and not to be deemed as solicitations to buy or sell any securities. Best attempts have been made to verify information from these vast sources, but we cannot guarantee their accuracy, adequacy, completeness and timeliness. The analyses and comments presented herein are opinions of our analysts and do not necessarily reflect the views of Asia Plus Securities.

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Investment Strategy

Wednesday, January 29, 2020

The government is using many economic stimulus measures focusing on all economic segments. However, the budget is limited, so they would not boost the economy significantly. Thus, more easing monetary policies are expected. We invest 5% more in ROBINS, switching from PSH. Top picks are BCH(FV@B22.10) and MCS(FV@B14.20).

SET Index 1,513.26 Change (pts) -10.89 Market Cap (Million B) 67,114

Watch SET Index signal today

Yesterday, SET Index fell for the second day – pressured by the 2019 coronavirus outbreak, a delay in the 2020 budget bill, and potential U.S. GSP cut on Thai export goods (second round) – and finally closed at 1,513.26 pts, plunging 10.89 pts (-0.71% ) with trading value of B67.1bn. The market was mainly weakened by 1) food plays, especially CPF (-4.96%), CBG (-1.41%), and TU (-3.50%), 2) energy plays, particularly BGRIM (-4.62%), GPSC (-4.08%), and GULF (-2.31%), and 3) transportation plays, led by AOT (-1.09%) BTS (-1.52%), as well as some other big-cap stocks, e.g. SCC (-2.27%) and VGI (-5.88%).

At the latest meeting, the cabinet approved many new economic stimulus measures focusing on private investment (tax privilege, low-interest loans, and a hike in disability allowance to B1,000) as well as the Western Orange Line (Bang Khun Non – Min Buri) worth B128bn. These measures would have positive sentiment on Thailand's economy, but they would not inject a massive amount of money into the economic system in 2020. The economy is still dull now. From now on, financial measures would be limited, while monetary measures would be used to boost the economy. At the MPC meeting next week, the interest rate is anticipated to be cut one more time to 1%, so market earnings yield gap may widen to 4.8-5%. However, market earnings yield gap at present are probably high thanks to low bond yield, so it may not indicate cheap valuation. We recommend defensive plays with inexpensive valuation and high dividend yields, in line with our portfolio. Today we cut investment in PSH while increase investment in ROBINS from 5% to 10% as this is the final bend before the share swap for CRC shares in early-February 2020; ROBINS is now lower than the tender offer price of B66.50. Top picks are MCS and BCH.

Fed fund rate likely unchanged at Fed meeting tonight. More focus on coronavirus

Yesterday, most stock markets underwent correction as a result of the 2019 coronavirus outbreak, except U.S. stock markets S&P500 and Dow Jones that went up 1.01% and 0.66% after U.S. leading economic indicators turned out strong, especially consumer confidence index (CCI) of 131.6 in January (better than 128 expected). 4Q19 earnings of U.S. tech firms (e.g. Apple and Facebook) are projected to beat forecasts.

At the Fed meeting on January 28-29 (concluded at 2:00 tonight, Thailand's time), Fed fund rate is anticipated to be kept at 1.75%. Meanwhile, markets have been more concerned about the outbreak of 2019 coronavirus, which has killed 132 and infected 5,974 so far. It is still spreading and psychologically discouraging people from leaving home and traveling abroad,

Net Buy and Sell by Investor Type (Million B) Foreign -651.20 Proprietary -2,262.61 Institutional -907.10 Retail 3,820.91

Therdsak Thaveeteeratham Fundamental Investment Analyst on Capital

Market, Technical Investment Analyst License No: 004132

Paradorn Tiaranapramote Fundamental Investment Analyst on Securities

License No: 075365

Takit Chardcherdsak Fundamental Investment Analyst on Securities

License No: 087636

Wanapruk Komonwitayatorn Fundamental Investment Analyst on Securities

License No: 110506

Pawat Pattrapong Quantitative Analyst Assistant

Market Talk Investment Strategy | Research Division

affecting spending and tourism. It has negative sentiment on the aviation and tourism-hotel industries as well energy plays. We recommend staying away from these stocks (see more in Market Talk on January 27) as well as electronic part plays:

Electronic part – Electronic part plays plummeted yesterday, especially KCE (-14.4%), DELTA (-7.8%), and HANA (-3.5%). As a result of the 2019 coronavirus outbreak, auto firms with production bases in Wuhan (e.g. GM, Honda, and Nissan) are anticipated to halt production temporarily, so electronic part export to China would drop temporarily in 1Q20. Meanwhile, electronic part facilities in other cities have not stopped production yet. As long as industries in China halt production, it would have limited impact on Thai electronic part exporters because they make small shares of income from China, e.g. HANA (18%), DELTA (14%), KCE (10%), and SVI (5%). We reiterate UNDERWEIGHT, concerned about worldwide economic deceleration and THB fluctuation; no electronic part plays are advisable now.

Food exporter – TU(FV@B20) makes less than 1% of total income from China while its marketing approach in China is just at the beginning, so TU would be limitedly affected. On the other hand, CPF(FV@B40), which makes 24% of total income from China, plummeted 4.96% yesterday. According to CPF, none of its production bases across China has not halted production yet. As food is one of the four basic necessities of life, the food industry is anticipated to be limitedly affected by the outbreak. We reiterate BUY for CPF. The pork business is anticipated to rebound robustly in 2020 because global pork prices (especially in China and Vietnam) are rising as a result of the African Swine Fever (AFS) outbreak in China and Vietnam.

CPF’s income breakdown

Source: CPF

2020 economy facing many negative factors, encouraging interest rate cut

Pressured by many negative factors, Thailand's 2020 GDP growth still has downside risk from our forecast of 2.8%yoy. Export is still uncertain amid trade war issues and the 2019 coronavirus outbreak. Government budget disbursement is still delayed; the Constitutional Court is set to review the petition on the 2020 budget bill today. Purchasing power is pressured by the drought. Tourism is depressed by the 2019 coronavirus outbreak. Amid these negative factors, the government is anticipated to proceed with financial and monetary measures to

Business in Thailand

33%

Business in Vietnam

15%

Business in Other

Countries28%

Feedmill in China19%

Chicken Farm in China

4%

Food in China1%

Market Talk Investment Strategy | Research Division

stimulate the economy. Yesterday, the cabinet approved additional measures valued B110bn focusing on private investment, effective until December 31, 2020, which is estimated to stimulate GDP by 0.25%, as follows:

Deduction of 2.5 times (originally 2 times) expenditure on machinery, available on January 1 – December 31, 2020.

Tariff exemption on 146 items of imported machinery, available until December 31, 2020. Provided by the Export-Import Bank of Thailand (EXIM Bank), special loans with fixed

interest rates of 2% in year 1-2 and 4% in year 3-5 of up to B100m each or B5bn in total, available until December 31, 2020.

Approval on the construction of Western Orange Line (Bang Khun Non – Min Buri) worth B143bn, selecting private partners by October 2020 and starting construction by November 2020.

Raising disability allowance from B800/month to B1,000/month.

These measures would have positive psychological sentiment. However, they would have limited actually impact on the economy because a small amount of money into the economic system. Additional economic stimulus is anticipated to be booked. The MPC is expected to cut the interest rate further in 1H20 in order to stimulate the economy. At the MPC meeting on February 5, 2020 (first meeting in 2020), the interest rate is anticipated to be lowered by 0.25% to 1%. If the rate is cut, THB would weaken further from B30.7-30.8/US$ – already weakening the most among Asian currencies by 2.7%ytd – and probably meet our assumption of B31/US$. Weak THB would benefit exporters, while an interest rate cut would adversely affect banking plays.

BOT may cut interest rate. Positive sentiment on dividend plays

Thailand's GDP drivers are pressured by many negative factors. Government budget disbursement is delayed by a delay in the budget bill. The coronavirus outbreak is hurting tourism and export. The severe drought is hurting consumption. Fund outflow has continued. All these factors are keeping SET Index under correction.

Market earnings yield gap vs SET Index (2008 – present)

Source: SET / ASPS Research

Market Talk Investment Strategy | Research Division

Market earnings yield gap is 4.97% now (higher than usual), not because of a growth in market earnings but mainly due to a plunge in SET Index and low bond yields. Notably, one-year bond yield plummeted to 1.14% now, lower than the interest rate of 1.25%. Thus, the Bank of Thailand (BOT) is anticipated to cut the interest rate. Meanwhile, earnings of listed companies are projected to be weakened by many factors, so we may revise down markets earnings forecast further.

Considering SET fluctuation and low bond yields, we recommend defensive stocks with particular positive factors as well as stocks with solid fundamentals and high dividends:

Valuation of defensive plays with particular positive factors and dividend plays

Source: SET / ASPS Research

SET vs Sector Return 2019 SET vs Sector Return 2020 YTD

Source: ASPS Research Source: ASPS Research

Company SectorLast Price

(28/01/2020)FairValue Upside PER 20F

Div Yield

19F (%)

Defensive Stocks with positive factorBCH HELTH 15.60 22.10 41.7% 28.89 1.68

EASTW ENERG 11.80 14.00 18.6% 17.11 3.53

ROBINS COMM 66.25 70.00 5.7% 20.98 2.04

Dividend StocksPSH PROP 13.90 18.50 33.1% 6.01 8.76

POPF PF&REIT 13.10 n.a. n.a. n.a. 7.89

MCS STEEL 9.70 14.20 46.4% 7.49 6.34

Market Talk Investment Strategy | Research Division

Market Talk Top Picks

Source: ASPS Research

StartDate Avg. Cost Last

MCS 14-Jan-20 15% -2.51% 9.95 9.70 14.20 6.27 13% 7.33

Thanks to 4Q19 export volume to Japan of 10,000-13,000 tons, 2019

profit is expected to grow 31.7%yoy. 2020 profit would shine further,

driven by Shibuya as well as other projects.

CPF 30-Dec-19 15% 0.88% 28.50 28.75 40.00 10.54 5% 3.13Pork and chicken prices in Thailand keep rising (especially pork price),

directly benefiting CPF.

POPF 21-Jan-20 20% 0.77% 13.00 13.10 n.a. n.a. n.a. 7.95 Dividend yield expected over 8%p.a. Low fluctuation. Safe haven.

ROBINS 30-Dec-19 5% 1.53% 65.25 66.25 70.00 19.36 10% 2.15

ROBINS may have capital gain from the share swap with CRC owing to

CRC's stronger business bases, better growth potential, and better

business diversification (food, hardline, fashion).

BCH 22-Jan-20 15% -2.09% 15.93 15.60 22.10 25.54 13% 1.90

Thanks to 9.3% treatment revenue from social security patients, 2020

profit is expected to grow. Plus, the coronavirus outbreak has positive

sentiment on BCH.

PSH 10-Jan-20 10% -8.55% 15.20 13.90 18.50 5.86 3% 8.99PSH benefits from projection on LTV revision. The price has not

rebounded much. Dividend yield over 8%p.a.

EASTW 07-Jan-20 10% 6.31% 11.10 11.80 14.00 16.28 9% 3.86

EASTW benefits from the drought. It is gradually raising raw water

selling price with new formula. 2020 profit is expected to grow for the

first time in five years.

TU 27-Jan-20 10% -3.50% 14.30 13.80 20.00 12.02 39% 4.35Tuna and shrimp business continue recover in 2020, plus, TU benefits

from THB depreciation.

Accumulated contribution returns since beginning of the year

Accumulated returns since beginning of the yearAccumulated returns

Accumulated returns since our recommendation

WeightDividend

Yield

Accumulated

Return

EPS Growth

20F

PER

2020F

Price

Yesterday we reduced PSH 5% from portfolio and switched to TU

Beta Portfolio

Today we reduce PSH by 5% and switch to ROBINS

Stocks Fair Value Strategist Comment

6.31%

1.53%

0.88%

0.77%

-2.09%

-2.51%

-3.50%

-8.55%

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0%

EASTW

ROBINS

CPF

POPF

BCH

MCS

TU

PSH

Dividend45%

Defensive30%

Growth25%

Dividend Defensive Growth

POPFMCSPSH

TUCPF

ROBINSEASTWBCH

Min,0.42 Beta Portfolio,

0.84

Max, 1.23

2.50% 2.50%

-1.47%

-4.21% -4.21%

-0.71%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

YTD MTD -1D

ASPS Portfolio SET Index

Equity Calendar

Research DivisionJanuary 29, 2020

Monday Tuesday Wednesday Thursday Friday27 28 29 30 31

Par decrease Last trading day XE XD Conversion

ERWPF B9.1705 par (from B9.2528) STAR-W3 STAR-W3 1:1w @B4.00 (final, "SP") SCB @B0.75 B-W5 1:1w @B0.35

SCB-P @B0.75 CSC-P 1:1

XD XD XN UV @B1.00 EPCO_W3 1.0361:1w @B4.8259

BTS @B0.18 TSC @B0.60 QHOP @B0.15 SIMAT-W2 1.1261:1w @B13.32

TLGF @B0.2219 TWZ-W5 1:1w @B0.10 (final)

New shares trading XR

S5013C2003A 99m units YCI 1:2n @B10.00

New shares trading

S5013C2003A 198m units

S5013C2003B 99munits

S5019C2003A 60m units

S5024C2003A 20m units

S5024C2003B 20m units BOT : Nov-19 Trade

Monday Tuesday Wednesday Thursday Friday3 4 5 6 7

Conversion XD XD Last trading day XE

BH-P 1:1 WP @B0.20 TAPAC @B0.06 WHA-W1 WHA-W1 10.2396:1w @B3.4181 (final, "SP")

XD Conversion

IRC @B0.4164 GJS-W3 0.50:1w @B0.1668 (final)

MOC : Jan-20 CPI MPC meeting KTIS @B0.15 PDJ-W3 1:1w @B1.00 (final)

10 11 12 13 14

XD XD XD

DTAC @B1.61 METCO @B10.00 1DIV @B0.24

PUBLIC HOLIDAY TDEX @B0.27

(Makha Bucha Day)

Conversion

TCAP-P 1:1

17 18 19 20 21

XR Conversion XE XR Conversion

NEX 4:1n @B2.50 NUSA-W3 1:1w @B1.00 (final) UKEM-W2 1:1w @B0.50 (final, "SP") KWG 1.7561:1n @tba STAR-W3 1:1w @B4.00 (final)

24 25 26 27 28

Conversion XD

ECF-W3 1.0008:1w @B4.9958 PICO @B0.25

PICO-P @B0.25

NESDB - GDP 4Q/18 BOT : Jan-20 Trade

Monday Tuesday Wednesday Thursday Friday2 3 4 5 6

XD

KSL @B0.05

XR

T 10:1n @B0.03

Conversion

MOC : Feb-20 CPI WHA-W1 10.2396:1w @B3.4181 (final)

9 10 11 12 13

Conversion

UKEM-W2 1:1w @B0.50

16 17 18 19 20

MPC meeting

23 24 25 26 27

30 31

BOT : Feb-20 Trade

January 2020

February 2020

March 2020

C = conversion, CB = convertible bonds, PP = private placement, p = preferred shares, w = warrants, n = new, STD = stock dividend, NPG = Non-Performing Group Provided by Amika (ext 1229)