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Market Talk Investment Strategy Research Division

English research reports are a rough translation of our Thai-language research products. It is produced primarily with time efficiency in mind, so that English-English research reports are a rough translation of our Thai-language research products. It is produced primarily with time efficiency in mind, so that English-reading clients can see what the main recommendations are from our Thai-language research team. Given that this is a rough-and-ready translation, Asia Plus Securities Company cannot be held responsible for translation inaccuracies.

ASIA PLUS SECURITIES CO.,LTD. Broker#8. Research Protection @Copyright 2015

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.

SECURITIES CO.,LTD. Broker#8. Research Protection @Copyright 2015"

Investment Strategy

Tuesday, March 10, 2020

SET Index would remain volatile. Watch for the government's economic stimulus measures and interest rate cuts. There is nothing new for our portfolio. Top picks are LH(FV@B12) and INTUCH([email protected]) for high dividends and CPF(FV@B40) for its acquisition of Tesco businesses. Stay away from oil stocks.

SET Index 1,255.94 Change (pts) -108.63 Market Cap (Million B) 103,624

Watch SET Index signal today

The meeting between OPEC and non-OPEC oil producers late last week turned out disappointing, causing crude oil prices to plunge more than 30%. SET Index plummeted more than 100 pts and closed at 1,255.94 pts, plunging 108.63 pts (-7.96%) with trading value of B103bn! The market was mainly pressured by 1) energy plays, especially PTT (-25.33%), PTTEP (-29.81%), TOP (-21.56%), and GULF (-3.25%), 2) banking plays, led by BBL (-7.39%), KBANK (-8.55%), and SCB (-8.84%), and 3) commerce plays, led by CPALL (-7.94%), CRC (-4.79%), and HMPRO (-3.60%), as well as other big-cap stocks, e.g. PTTGC (-26.63%), IVL (-15.96%), and CPF (-12.00%).

Markets are still surrounded by several negative factors. The economy has been vulnerable for a long time as a result of trade war and it was pressured further by the prolonged and severe COVID-19 outbreak, so many countries are at risk of economic recession now. Fund flow is switching to safe assets, so bond yields are making new lows. Moreover, oil prices are weakened by concern about oil price war, pressuring energy plays. However, stocks already absorbed negative factors and market earnings yield gap is now higher than 6%; this is a good entry point for long-term investment in stocks with solid fundamentals. Many countries will launch economic stimulus measures to keep the economy from decelerating. Another Fed fund rate is expected at the next meeting, following the recent cut by 0.5%. B2,000 cash handout would not be proposed for cabinet approval, but similar measures would be proposed instead. Plus, the interest rate is anticipated to be cut by at least 0.25% at the MPC meeting on March 25. SET Index is still expected to remain volatile. There is nothing new for our portfolio. Top picks are LH and INTUCH, which pay high dividends, and CPF that benefits from its acquisition of Tesco's operation.

Worldwide governments fighting COVID-19, economic deceleration

U.S. stock markets plummeted yesterday: Dow Jones (-7.79%), S&P500 (-7.6%), and NASDAQ (-7.3%). The OPEC meeting late last week turned out disappointing, causing excess crude oil supply (oversupply) to increase further. Meanwhile, COVID-19 (2019 coronavirus) is still spreading and depressing worldwide oil demand. As a result, global crude oil prices plummeted 30% below US$40 on average, while prices of safe assets rose. Notably, U.S. ten-year bond yield fell 0.2% to 0.5%, reflecting that fund flow is switching from risky assets to safe assets.

Net Buy and Sell by Investor Type (Million B) Foreign -3,995.82 Proprietary 957.57 Institutional -12,719.83 Retail 15,758.08

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

As U.S. stock markets plummeted and the economy is at risk, Fed fund rate is more and more likely to be lowered. At the Fed meeting on March 17-18, 2020, Fed has 75% probability of cutting the interest rate by 0.75% to 0.5%, following the emergency interest rate cut by 0.5% earlier in March. U.S. President Donald Trump also signals economic stimulus measures; this morning, he stated that he will hold a meeting with the Congress soon to discuss tax rollouts and other measures to alleviate impacts of the COVID-19 outbreak.

Meanwhile in Thailand, economic stimulus measures are anticipated to be approved by the cabinet meeting today. According to Prime Minister, B1,000 cash handout for 10 million through e-payment will not be considered by the cabinet yet even though it was already approved by economic cabinet. However, the government is expected to launch other measures, probably not direct money injection policies but indirect ones. For example, the government may give back insurance fee for electric meters at B3,000 per household, which would not make as much revenue as cash handout policy but somewhat boost purchasing power. Such measures would benefit commerce plays. We favor CPALL(FV@B91) and JMART([email protected]).

Cut oil price assumption to US$40 in 2020, US$45 later on. Stay away from oil stocks

We slash Dubai crude oil price assumption to US$40 in 2020 and US$45 from 2021 on because the OPEC deal failed and resulted in higher supply while demand is still weakened by the prolonged COVID-19 outbreak. We have NEUTRAL long-term outlook on the petroleum sector. Under new assumption, 2020 fair values of PTTEP and PTT drop to B110 and B42 (from B170 and B55), respectively.

Although lower crude oil prices would benefit the refinery and petrochemical industries, finished oil prices are expected to drop as well, so GRM would remain low. Meanwhile, the petrochemical industry would benefit from lower feedstock cost, but downstream product prices would drop as well, so petrochemical spreads would stay low. Thus, we also revise down assumptions on GRM and petrochemical to reflect lower demand amid the economic deceleration caused by the COVID-19 outbreak (not included in our forecast). We slash Dubai crude oil price assumption to US$40 in 2020, versus late-2019 average price of US$64, which probably results in stock loss of US$20 in 2020, especially in 1Q20. We reiterate UNDERWEIGHT for refinery and petrochemical industries.

Situation similar to 2013 political unrest. Big rebound to follow big correction

Thailand's economy in 2020 is decelerating and probably at risk of recession (when GDP contracts qoq for two consecutive quarters, which is not happening yet). SET Index already plummeted 20%ytd. Compared with prior rounds of economic recession, 1) 1997 Tom Yum Goong crisis, 2) 2008 Subprime crisis, and 3) 2013 political unrest, this situation is most similar to the 2013 political unrest, considering the following factors:

SET Index normally underwent significant correction during crises but rebounded significantly after crises passed. Similarly, SET Index already plummeted, but then it is expected to rebound as usual after negative factors subside (especially the COVID-19 outbreak).


Economic factors during 2013 political crisis vs COVID-2019 outbreak

Source: ASPS Research

SET Index and fund flow during crises


SET rebound after crises


Good entry point to accumulate undervalued stocks

SET Index has been pressured by many factors since mid-2019, especially US-China trade war ad Brexit. In 2020, it is pressured even more severely by the COVID-19 outbreak. Although infection in China has slowed down, infection in other countries has worryingly accelerated. Moreover, Saudi Arabia is increasing oil production, significantly depressing oil prices. All these factors are pressuring global stock markets severely. Notably, SET Index plummeted more than 28% from the 52-week high and entered a bearish market zone.

Considering SET Index of 1,255.94 pts at present and based on 2020 EPS forecast of B85.59 and current one-year bond yield of 0.80%, market earnings yield gap is 6.24%, much higher than 5.15% during the 2013 political crisis and the highest since the Subprime crisis.

Crisis Period SET IndexFund Flow

(Billion B)EYG

Subprime Crisis May 08 - Nov 08 -55.6% -136 9.0%

Political Unrest May 13 - Jan 14 -22.6% -186 5.2%

- Jul 19 - Present -27.9% -142 6.2%

SET rebound for the same time as correction

SET Index

Six months after Subprime crisis 49.3%

Fourteen months after political unrest 24.3%

After COVID-19 Outbreak ?

Political Unrest

(1Q13-2Q13) COVID-19

Export (in USD) -1.6% -2.0%

GDP Growth (%yoy)

(one quarter before recession)4.6% 2.4%

Interest Rate (%) 2.75% > 2% 1.75% > 1%

Inflation (%) 2.2% 1%

Dubai Crude Oil Price (US$) 105 58

Purchasing Power & ConsumptionSluggish,

people not leaving home

Sluggish,

people not leaving home

Tourist Sluggish Sluggish

Budget Delayed disbursement Delayed disbursement

Political Situation Political disagreement Political disagreement


Market returns at present vs 52-week highs


Thailand’s market earnings yield gap


Surrounding factors at present is similar to the 2013 political crisis; SET Index fell 22.6% in eight weeks and took one year and two months to rebound by 24.3%. Amid market panic, SET Index tended to plummet more than fundamentals and then rebound robustly.

SET Index already plunged more than 28% in eight months, but it is likely to rebound with a V-shape pattern afterwards (similar to after prior crises). We recommend stocks that already fell more than actual fundamentals and probably outperform the SET during a rebound. We recommend stocks with the following factors:

1. Already plummeted from July 2019 and underperforming SET return of -27.8% 2. Upside over 20% 3. EPS growth outperforming the market 4. BUY recommendation 5. Beta over 1x (rebounding more robustly than SET return)

8.99%

5.15%884.19

392.87

1607.46

1262.36

(400)

0

400

800

1200

1600

2000

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Yield Gap (Earning Yield - Thai Bond 1 Yr.) SET(RHS) pts

Current market earnings yield gap is 6.42%

Fund outflow of B136bn

Fund outflow of B191bn


Undervalued stocks probably outperforming SET from now on


Tesco deal benefit CPF. CPALL to benefit in long term

CP Group announced its acquisition of Tesco's operation in Thailand and Malaysia for the value of US$10.5bn (B338bn) through CP Retail Holding, newly-established firm held by CPALL (40%), CP Group (40%), and CPF's subsidiary CP Merchandising (20%) and holding 100% stake in CP Retail Development. The deal is financed through CP Retail Development's equity of US$7.5bn, while the other US$3bn is funded through CP Retail Development's loans. After that, CP Group will propose the deal to the Office of Trade Competition Commission (OTCC) and the Malaysian government. The deal is expected to be complete by 2H20 and then consolidated in CPALL and CPF's financial statement from 4Q20 on.

Impact on CPALL – The deal would benefit CPALL more than expected (we initially projected CPALL to fully acquire Tesco operation), lowering risk from capital base. Provided that CPALL fully invests in the deal (under CP Retail Holding) through loans, based on capital base of B108bn, net gearing would increase from 0.9x at present to 1.8x, lower than debt covenant of 2.0x. This deal would help CPALL expand commerce business in the long term as follow:

1) CPALL would have more integrated commerce business and seize the biggest market share in all commerce segments. For the wholesales business (MAKRO), the number of MAKRO stores would stay at 94. For the hypermarket business, the number of stores (Tesco Lotus plus MAKRO Food Service) would increase from 40 to 431. For the convenience stores (CPALL), the number of stores would increase from 12,000 to 13,300. CPALL's modern trade market share in Thailand would rise from 31.9% at present to 43.5%. Meanwhile, the number of overseas stores would rise from 7 to 76, while overseas businesses would expand to Malaysia, in addition to MAKRO's businesses in Cambodia, Myanmar, China, and India.

2) CPALL would have better bargaining power with suppliers.

However, it would take time for business synergy. In the short term, profit from Tesco business is expected at B7.3bn/year, but this would be negated by interest expense of B3.5bn (considering CP Retail Holding's loans of US$3bn or B96bn), so total profit from Tesco business would be B3.8bn; CPALL holds 40% stake in CP Retail Holding, so it would recognize shared profit of B1.5bn. Including interest expense of B3.5bn from CPALL’s investment in CP Retail Holding through loans, the deal would decrease CPALL's profit by B2bn. Including this deal in our forecast from 4Q20 on while not including business synergy yet, we revise down earnings forecast by 1.8% to B25bn or 12.6% growth in 2020 and by 6.4% to 7.3% growth in 2021. In terms of valuation, 2020 P/E ratio of 22.7x is the lowest in many years, while the price is likely to increase as a capital increase is less likely. CPALL is

CompanyLast Price

(09/03/2020)FairValue Upside PER 20F Div Yield 20F (%) EPS Growth 20F Beta Return

TOP 32.75 65.00 98.5% 11.0 5.34 -3.28% 1.53 -52.2%

PLANB 4.20 8.30 97.6% 19.1 4.70 14.69% 1.63 -46.2%

WHA 2.68 4.89 82.6% 11.1 5.03 9.67% 1.47 -42.7%

STEC 14.80 24.00 62.2% 15.1 3.04 0.70% 1.64 -44.2%

TFG 3.04 4.80 57.9% 9.7 4.12 21.83% 1.47 -31.8%

BCPG 14.70 21.30 44.9% 12.6 4.49 29.56% 1.20 -31.0%

SET Index -27.9%


favorable for solid business in the long run. Based on conservative forecast (including this Tesco deal), new fair value is B80, still providing almost 25% upside. We reiterate BUY.

Impact on CPF – CPF would benefit from the acquisition of Tesco business in Asia in the long term as follow:

1) CPF's goods (raw and ready-meal goods) distribution channels would widen. CPF's sales through Tesco Lotus in Thailand would have great growth potential from B0.7bn at present. Following CPALL's acquisition of MAKRO, CPF's sales through MAKRO increased from B0.5bn/year in 2013 to B10bn/year at present.

2) Cost would decrease, especially logistic cost. 3) The deal would enhance food service, especially Tesco Lotus' food court management.

After acquiring Tesco operation in Asia, end-2020 net gearing would increase from 1.35x (initial projection) to 1.5x, still lower than the covenant of 2x.

We maintain forecast in 2020 while, including Tesco business in Asia from 4Q20 on, revise up forecast by 0.1% in 2021 and 0.3% in 2022. We estimate CPF's net profit and normalized profit to grow 16.8%yoy and 18.9%yoy in 2020 and then 4.7%yoy and 11.4%yoy in 2021. Pork businesses in Thailand and Vietnam are expected to rebound; pork price in Thailand rose 6.3%wow to B68/kg. Chicken export is also expected to grow further, so 1Q20 normalized profit is projected to grow further from 4Q19. 2020 fair value is still B40, while the price already plummeted more than 21% despite strong growth in core businesses. We reiterate BUY.

SET vs Sector Return 2019 SET vs Sector Return 2020 YTD

Source: ASPS Research Source: ASPS Research


Market Talk Top Picks


StartDate Avg. Cost Last

MCS 14-Jan-20 5% -12.56% 9.95 8.70 14.20 5.88 6% 7.96

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.

DIF 17-Feb-20 20% -2.28% 16.78 16.40 n.a. n.a. n.a. 6.30Dividend yield is expected over 6%p.a. Premium is only 9%. Positive

sentiment from increasing 5G usage

STEC 14-Feb-20 10% -12.43% 16.90 14.80 24.00 15.68 1% 2.90

2020 profit is not worrying. Backlog of B88bn will generate revenue until

2023; B37bn of backlog would make revenue in 2020 and boost profit

by 20%yoy.

CPALL 24-Feb-20 10% -8.93% 70.00 63.75 91.00 21.56 15% 2.07The government's economic stimulus measures would be launched after

the 2020 budget bill is passed and ready for disbursement in April 2020.

AOT 27-Feb-20 10% -3.41% 62.38 60.25 75.76 32.71 -21% 1.30COVID-19 outbreak in China has slowed down after one month passed. COVID-19 infection in Thailand would also slow down in summer. AOT

has over 15% upside now.

CPF 19-Feb-20 15% -15.83% 28.75 24.20 40.00 10.08 17% 2.911Q20 normalized profit is expected to grow robustly from 4Q19. Pork

price in Thailand rebounds significantly, fully boosting 1Q20 profit.

LH 09-Mar-20 5% -2.38% 8.40 8.20 12.00 11.87 -19% 7.51After only two projects worth B3.35bn were opened in 1Q20, presales would speed up in 2Q-4Q20; 16 projects are planned to be opened in

2020. Dividend yield is expected over 7%p.a.

JMART 05-Mar-20 10% -6.04% 7.45 7.00 11.62 10.23 13% 6.94

2020 profit is expected to grow 13%, driven by JMT's debt purchase for

management. Yet, share price fell YTD, so 2020 P/E ratio drops to 10x,

widening upside.

INTUCH 27-Feb-20 15% -2.50% 53.33 52.00 73.10 15.02 9% 4.84Despite not remarkable growth, INTUCH is favorable for solid

fundamentals and over 20% discount from ADVANC.

Stock Classification

Accumulated contribution returns since beginning of the year

Stocks WeightAccumulated

Return

PriceFair Value

PER

2020F

EPS Growth

20F

Dividend

Yield Strategist Comment

Yesterday we excluded PTTEP from portfolio and increased investment in AOT by 5% and LH by 5%.

Accumulated returns since our recommendation

Accumulated returns

Beta Portfolio

-2.3%

-2.4%

-2.5%

-3.4%

-6.0%

-8.9%

-12.4%

-12.6%

-15.8%

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

DIF

LH

INTUCH

AOT

JMART

CPALL

STEC

MCS

CPF

Dividend35%

Defensive30%

Growth35%

Dividend Defensive Growth

STECCPFCPALL

DIFAOT

MCSJMARTINTUCHLH

Min,0.59

Beta Portfolio, 1.04

Max,1.251516

-11.85%

-5.60%-4.66%

-20.50%

-6.31%-7.96%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

YTD MTD -1D

ASPS Portfolio SET Index

Equity Calendar

Research DivisionMarch 10, 2020

Monday Tuesday Wednesday Thursday Friday9 10 11 12 13

XD XD Par decrease XD XD

AYUD @B0.75 AMANAH @B0.0111111111 QHOP B8.29 par (from B8.44) ABPIF @B0.1367 AUCT @B0.25

BROCK @B0.02 AMANAH 10 existing : 1STD @free AIMCG @B0.2000 CAZ @B0.1071

DREIT @B0.0294 ASN @B0.0.011111111111 XD AIMIRT @B0.2047 DDD @B0.125

DRT @B0.20 ASN 5 existing : 1STD @free BA @B0.10 ASIMAR @B0.05 DOD @B0.35

GFPT @B0.20 B-WORK @B0.1956 BDMS @B0.30 ASP @B0.07 LALIN @B0.21

HANA @B0.65 BKER @B0.0600 CSC @B3.90 BGRIM @B0.22 MCS @B0.40

KIAT @B0.03 FN @B0.0037 CSC-P @B5.40 BKI @B5.00 PDG @B0.10

MEGA @B0.41 FORTH @B0.30 DOHOME 6 existing: 1STD @free CPW @B0.059 PDJ @B0.10

NKI @B1.00 MGT @B0.04 DOHOME @B0.018518518519 CTARAF @B0.0845 PLAT @B0.20

NKI 35 existing: 1STD @free MTI @B2.90 KBS @B0.06 GLOBAL @B0.2052910053 PRIN @B0.03

OTO @B0.10 SAAM @B0.025 LIT @B0.24 GLOBAL 21 existing: 1STD @free PYLON @B0.27

QLT @B0.30 SAMART @B0.15 LUXF @B0.1600 HARN @B0.18 PSTC @B0.01

SR @B0.03 SAMTEL @B0.32 M-II @B0.1400 M-CHAI @B3.00 RJH @B0.50

SRIPANWA @B0.1131 SE @B0.05 M-PAT @B0.0220 SCP @B0.40 SIRI @B0.06

TKN @B0.15 SMK @B2.03 M-STOR @B0.0980 SUSCO @B0.11 SKE @B0.025

TTW @B0.30 SNP @B0.50 MNIT @B0.025 THG @B0.30 SPG @B0.70

SNP 50 existing: 1STD @free MNIT2 @B0.03 TPIPP @B0.20 TAKUNI @B0.0274

XN TFG @B0.055 MSC @B0.45 UVAN @B0.17 TIP @B1.15

DREIT @B0.0794 TNR @B0.24 NSI @B5.20 (spec. div 3.64) WICE @B0.09 TNITY @B0.44

WORK @B0.30 OGC @B0.57 XO @B0.05 TPP @B0.60

PMTA @B0.50 TRUE @B0.09

XN PSH @B0.95 XN TVO @B0.75

SPRIME @B0.174 PTG @B0.50 ABPIF @B0.7657 UNIQ @B0.27

SKN @B0.0306 CTARAF @B0.0445

New shares trading SVOA @B0.04 Conversion

NBC 267.718m shrs (xr) SVOA-PA @B0.04 ALT-W1 1:1w @B3.00

S5013C2006C 198m units TK @B0.55 UKEM-W2 1:1w @B0.50 (final)

S5013C2006D 198m units TMD @B0.55

TPIPL @B0.03

TSE @B0.12

TWP @B0.074

VCOM @B0.16

VIH @B0.14

WINNER @B0.10

XW

TAPAC 2 exisitng: 1TAPAC-W4 @free

16 17 18 19 20XD XD XD XD XD

AGE @B0.09 BJCHI @B0.13 GRAMMY @B0.20 2S @B0.07 CCET @B0.03

CMR @B0.0585 BM @B0.08 CHARAN @B0.50 KCAR @B0.34

CWT @B0.0381 CGH @B0.0125 EA @B0.30 ROH @B1.4346

JKN @B0.14 CM @B0.06 MACO @B0.016

JKN 8 existing: 1STD @free CNT @B0.04 ML @B0.03 XW

LANNA @B0.30 ZIGA @B0.039 NTV @B1.58 CIG 2 existing: 1CIG-W8 @free

SEAOIL @B0.011111111111 PATO @B0.60

SEAOIL 10 existing : 1STD @free SANKO @B0.05

SPCG @B0.72 TBSP @B0.45

TNPF @B0.108 TKS @B0.40

TQM @B1.10

UAC @B0.135 XNUKEM @B0.0162 HPF @B0.122 MPC meeting

23 24 25 26 27Last trading day XD XD Share delist

THE-W2 BAT-3K @B1.00 BH @B2.05 SVI-W3

BH-P @B2.05

XE TMILL @B0.11 XD

THE-W2 1:4w @B3.50 (final, "SP") TSTE @B0.10 DCON @B0.015

XR

A5 13:1n @B1.00

ConversionSVI-W3 1.5098:1w @B2.9408 (final)

30 31XDCPN @B1.30

SF @B0.22

ConversionBROOK-W5 1:1w @B0.25

GLOCON-W4 1:1w @B0.50

PERM-W1 1:1w @B1.80

PROUD-W2 1.174:1w @B1.533

SCB-P 1:1

SINGER-W1 1:1w @B7.00

SINGER-W2 1:1w @B14.00

TCJ-W2 1.02:1w @B9.804

VGI-W2 1:1w @B10.00

BOT : Feb-20 Trade

March 2020

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