Equity research│September 20, 2017

Asia Pacific Daily - 20 September 2017

Equity Research Reports…

▌IDEA OF THE DAY | China Education (OVERWEIGHT) - Invest for a bright future | P2 We assume coverage on the China education sector with an Overweight rating. K-12 after-school tutoring is our preferred segment and New Oriental Education (EDU) is our top pick. Our order of preference is: 1) K-12 after-school tutoring providers, EDU and TAL Education (TAL), 2) K-12 private school players, China Yuhua and China Maple Leaf, and 3) vocational training provider, Tarena. We forecast the K-12 after-school tutoring market to post a 4-year revenue CAGR of 12.7% yoy to Rmb1.29tr by 2020F. This market is still quite fragmented as the market shares of the no.1 and no.2 players, TAL and EDU, were only 0.8% and 0.7% in 2016, respectively. We expect leading players to benefit from the recent 'Gaokao' reform and further consolidate the market. We view the amendment to the Law for Promoting Private Education that came into effect on 1 Sep 2017 as beneficial to private education providers, including Yuhua and China Maple Leaf. We use DCF as our key valuation methodology given education players' relatively stable and predictable cash flows. ——————————————————————————————————————————————————————————————————————————————————————— ▌Australia Frontier Digital Ventures (ADD, tp:A$0.78▲) - Portfolio quality improving | P3 New Hope Corporation (HOLD, tp:A$1.79▲) - Value beneath the Acland conundrum | P4 ——————————————————————————————————————————————————————————————————————————————————————— ▌Indonesia Kalbe Farma (HOLD, tp:Rp1,680.00) - A challenging prescription | P5 Surya Citra Media (HOLD, tp:Rp2,500.00) - Ratings likely to remain subdued | P6 ——————————————————————————————————————————————————————————————————————————————————————— ▌Malaysia Formosa Prosonic Industries Bhd (NR, ctp:RM1.14) - Sound of music | P7 UMW Holdings (HOLD▲, tp:RM5.90▲) - Accelerating towards earnings recovery | P8 ——————————————————————————————————————————————————————————————————————————————————————— ▌Thailand Krungthai Card (REDUCE▼, tp:THB102.50) - Too optimistic on lower credit costs in FY18-19F | P9 True Corporation (ADD, tp:THB7.49) - FY17-18F net profit turnaround imminent | P10

Showcasing CIMB Research Ideas

THB: BTS Group 18/9 Synergistic growth along MRT lines

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IN: Strategy Note-Alpha 15/9 Metals: continued rally is contrary to history

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HKG: Property - Overall 14/9 Navigating farmland conversion in HK

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THB: Telco - Mobile 13/9 Rationalisation of spectrum reserve prices a catalyst

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KR: S-Oil Corporation 12/9 Robust refining margins ahead

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Regional Equity Research Contact

Michael GREENALL, CFP Regional Head of Research T: (60) 3 2261 9088 E: michael.greenall@cimb.com

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CIMB Conference / Events |

SGX-CIMB Catalist Day 20 November 2017; Singapore; Singapore —————————————————————————————————————————

CIMB Korea C-Suite Double Bagger Conference 22 - 23 November 2017; Malaysia; Seoul —————————————————————————————————————————

CIMB 10th Annual Malaysia Corporate Day 04 January 2018; Malaysia; Kuala Lumpur

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Navigating China│Education│September 19, 2017

Sector Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFACustomEntityStatement

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Education Invest for a bright future ■ We assume coverage on China education with an Overweight. K-12 after-school

tutoring is our preferred segment; New Oriental Education (EDU) is our top pick. ■ We view the K-12 after-school tutoring providers as the key beneficiaries of ‘Gaokao’

reform and see top players enjoying policy tailwinds and gaining market share rapidly. ■ Among the private education providers, China Yuhua is our top pick. ■ We expect further cooperation between tertiary education providers and vocational

education providers to bode well for industry players like Tarena, in the long term.

Assume coverage with Overweight; EDU is top pick Riding the tailwinds of favourable policy and consumption upgrade trends in China, we see education as a defensive sector with strong growth potential. We assume coverage on the China education sector with an Overweight rating and choose EDU as our top pick. Our order of preference is: 1) K-12 after-school tutoring providers, EDU and TAL Education (TAL), 2) K-12 private school players, China Yuhua and China Maple Leaf, followed by 3) vocational training provider, Tarena International (Tarena).

K-12 after-school tutoring the key beneficiary of Gaokao reform We forecast K-12 after-school tutoring 4-year revenue CAGR of 12.7% yoy to Rmb1.29tr by 2020F. This market is still quite fragmented as the market shares of the no.1 and no.2 players, TAL and EDU, were only 0.8% and 0.7%, respectively, in 2016. With the standardisation of the National Higher Education Entrance Examination (Gaokao), we expect TAL and EDU to record strong 3-year offline K-12 enrolment CAGR of 40.0% and 30.7%, respectively, lifting their market shares to 1.7% and 1.2% in 2020F.

Top players embracing “ed-tech” for further market consolidation Education technology (ed-tech) will continue to serve as an important supplement for offline education providers to increase education quality and facilitate penetration into lower-tier cities, enabling market share gain, in our view. We expect EDU, TAL and Tarena to successfully expand into lower-tier cities, capitalising on their dual-teaching models (live broadcast teaching) and online platforms. We forecast EDU’s and TAL’s online revenue to record CAGR of 30.7% and 72.8%, respectively, in FY17-20F.

Favourable government policies a boost to private education We view the amendment to the Law for Promoting Private Education that came into effect on 1 Sep 2017 as beneficial for private education providers like Yuhua and China Maple Leaf. Both are waiting for detailed rules from local government before deciding whether to change their high schools to profit-making entities, which will give them greater flexibility in tuition fees. We forecast Yuhua to deliver 3-year core net profit CAGR of 19.4% in FY16-19F, driven by new school openings, higher utilisation rates and tuition fees.

Vocational education providers to cooperate with universities Many provincial governments have, in recent years, encouraged the private sector to partner with universities to provide practical training to raise job landing rates. We expect Tarena to cooperate more with universities to offer special classes beginning in the first year of university, bringing in recurring cash flows and lowering customer acquisition costs. Its IT-related K-12 courses are also a medium-term earnings growth driver, in our view. We project 3-year non-GAAP net profit CAGR of 23.2% for FY16-19F for Tarena.

Valuation justified by strong earnings growth We use DCF as our key valuation methodology given education players’ fairly stable and predictable cash flows. We believe K-12 after-school tutoring players should command a higher PEG relative to other education sub-segments due to their more robust long-term earnings growth profiles, driven by strong brand names and their ability to provide high quality education vs. peers by leveraging technology. The 1.25x CY18F target PEG we attribute to our top pick, EDU, is 0.6 s.d. above its 5-year average historical forward PEG.

Figure 1: Target price and implied valuation comparison

SOURCES: CIMB, COMPANY REPORTS

China

Overweight (no change)

Highlighted companies

China Yuhua Education Corp ADD, TP HK$4.50, HK$3.80 close

Share price drivers include: 1) expansion of new schools in the pipeline, 2) earnings improvement driven by higher utilisation rates and operational leverage, and 3) further earnings upside from M&A activities. New Oriental Education ADD, TP US$114.3, US$87.2 close

Share price drivers include: 1) acceleration in learning centre growth, 2) continued utilisation improvement, and 3) dual-teacher model as a mid-term growth driver. TAL Education Group ADD, TP US$40.30, US$33.01 close

Share price drivers include: 1) continued rapid learning centre expansion, 2) fast growth of dual-teacher model and online education, and 3) enhanced course offerings driving near-term growth.

Summary valuation metrics

Insert

Analyst(s)

Lei YANG, CFA

T (86) 21 5047 1771 x108 E lei.yang@cimb.com ONG Khang Chuen T (852) 2539 1326 E kc.ong@cimb.com

P/E (x) Dec-17F Dec-18F Dec-19F

China Yuhua Education Corp 20.91 15.68 New Oriental Education 42.06 31.68 23.96 TAL Education Group 88.13 52.19 33.92

P/BV (x) Dec-17F Dec-18F Dec-19F

China Yuhua Education Corp 2.93 2.71 New Oriental Education 7.57 6.24 5.02 TAL Education Group 19.23 13.39 9.19

Dividend Yield Dec-17F Dec-18F Dec-19F

China Yuhua Education Corp 2.94% 3.16%New Oriental Education 0.52% 0.52% 0.52%TAL Education Group 0.08% 0.00% 0.00%

Target price

(LC$) Upside

Implied

CY17F

P/E

Implied

CY18F

P/E

2-year

revenue

CAGR

2-year

core EPS

CAGR

Implied

CY18F PEG

(against 2

year core

EPS CAGR)

New Oriental Education 114.30 31.1% 51.8 39.4 24.5% 31.5% 1.25TAL Education 40.30 22.1% 100.8 68.9 40.7% 55.1% 1.25China Yuhua 4.50 18.4% 19.9 16.5 9.8% 16.3% 1.01Maple Leaf Education 9.60 16.6% 30.0 22.7 24.6% 24.0% 0.95Tarena 16.70 15.3% 20.3 14.4 15.7% 21.1% 0.68

2

IT Services│Australia│Equity research│September 19, 2017

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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Frontier Digital Ventures

Portfolio quality improving

Frontier’s (FDV) half-yearly business and financial update has highlighted to us ■the improving average quality of investee businesses.

A greater proportion of FDV’s portfolio is now in monetisation phase, creating more ■revaluation upside than was the case six months ago.

While recent currency movements have undermined valuation, overall our ■valuation increases slightly to A$0.78 per share.

In view of the revaluation potential over FY18, we retain an ADD recommendation. ■FDV shares are high risk.

New additions improve monetisation mix FDV has provided an update on its operations for the half-year to June 2017. While our forecasts have not changed in a significant way, recent additions to the portfolio (InfoCasas in Latin America, Propzy in Vietnam and AutoDeals in the Philippines) are more advanced down the monetisation path, boosting the average “quality” of the portfolio. There is now more revaluation upside potential in the current portfolio of companies than was the case just six months ago.

Changes to forecasts We have revised our forecasts to reflect recent acquisitions, unfavourable forex movements, recent revenue and cost trends, higher unrealised forex losses and higher share plan amortisation changes. The non-cash nature of most of our changes means that changes to our forecasts at the operating cash flow level are not material. There is some risk that our FY19 and FY20 revenue growth forecasts for some portfolio companies are too low. Our sum-of-the-parts valuation increases slightly to A$0.78/share.

Risks and catalysts Risks to FDV’s revenues and share price include: 1) key investee companies failing to grow audience and revenues at the expected rate; 2) operating costs of investee companies being higher than forecast; 3) significant changes in the political, economic or regulatory landscape in countries where FDV invests; and 4) significant changes in competitor behaviour. Potential re-rating catalysts for FDV include: 1) stronger-than-expected performance from FDV portfolio companies; 2) more rapid monetisation from early-stage companies in the portfolio; and 3) realisation of value through IPO or sale of one of the portfolio companies.

Investment view We retain a positive view on FDV. FDV offers investors exposure to the growth in online advertising marketplaces in newly emerging economies with large populations, a rapidly growing middle class, and growing smart phone usage. FDV has created significant value since investing in most of its portfolio companies and we expect that it will continue to do so. FDV invests in early-stage ventures in high-risk economies and therefore its shares are high risk. Investors with a low risk profile should not invest in FDV shares.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

ADD (no change) Current price: A$0.75 Target price: A$0.78 Previous target: A$0.77 Up/downside: 4.1% Reuters: FDV.AX Bloomberg: FDV AU Market cap: US$132.0m A$165.3m Average daily turnover: US$0.02m A$0.03m Current shares o/s 216.0m Free float: 42.2%

Price performance 1M 3M 12M

Absolute (%) 7.1 28.2 63 Relative (%) 7.6 29.1 55 Ivor RIES

T (61) 3 9947 4182 E ivor.ries@morgans.com.au

Financial Summary Dec-16A Dec-17F Dec-18F Dec-19F Dec-20F

Revenue (A$m) 2.14 10.05 16.95 19.74 26.97Operating EBITDA (A$m) -4.33 -8.18 -5.80 -4.26 -0.38Net Profit (A$m) -3.67 -9.01 -6.05 -4.48 -1.88Normalised EPS (A$) (0.035) (0.041) (0.027) (0.020) (0.009)Normalised EPS Growth 201% 17% (34%) (26%) (58%)FD Normalised P/E (x) NA NA NA NA NADPS (A$) - - - - - Dividend Yield 0% 0% 0% 0% 0%EV/EBITDA (x) NA NA NA NA NAP/FCFE (x) NA NA NA NA NANet Gearing (44.6%) (25.7%) (31.7%) (20.6%) (13.3%)P/BV (x) 3.14 3.60 2.99 3.20 3.22ROE (13.0%) (18.5%) (11.9%) (8.4%) (3.7%)% Change In Normalised EPS Estimates 0% (35%) (52%) (452%)Normalised EPS/consensus EPS (x) 1.03 1.37 2.03 -0.85

72

90

108

126

144

162

0.300

0.400

0.500

0.600

0.700

0.800Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

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Coal Mining│Australia│Equity research│September 19, 2017

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

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New Hope Corporation

Value beneath the Acland conundrum

NHC’s FY17 free cash flow, cash at bank and dividend positively surprised versus ■our expectations reflecting higher prices and solid execution.

De-risking a potential low-capex, 2Mtpa development at Lenton enabled by the ■Burton acquisition has lifted our valuation and demonstrates the value in NHC’s undeveloped assets being overlooked by the market.

Similarly, we show that NHC can safely deploy its under geared balance sheet into ■further Bengalla JV equity to generate strong EPS accretion and market leverage.

Strong cash flows and an under-appreciated asset base offers clear appeal for ■value investors. However we maintain a Hold due to prolonged Acland uncertainty.

Cash generation ahead of expectations NHC’s impressive FY17 net operating cash flow ($284m) and free cash flow ($200m) were 7-9% ahead of our forecasts. NHC paid out 65% of underlying EPS as dividends in FY17 reflecting its strong balance sheet ($237m cash), cash flow outlook and despite Acland risk. We forecast $400m in free cash generation over FY18-19, ably supporting both dividends and growth options.

Acland Stage 3 state of play NHC confirms it is working with the regulators toward mitigating key Land Court concerns that may enable the approval of the Acland Stage 3 ML and EA, including updating the groundwater model via undertaking more work. We see the commercial logic and a palatable political pathway toward Acland’s ultimate approval. However we struggle to see the political imperative for the State Government to do this while; 1) a State election; 2) the AWL process and 3) the Judicial Review are all pending. The JR will commence in 1Q18 and risks extending 6-12 months. We agree with NHC and its auditors that the project will produce, but think that investors may not properly value this upside until more of these hurdles are cleared.

Changes to earnings and valuation Changes are detailed page 4. The largest adjustments reflect the depletion of Acland Stage 2, attribution of higher cash holdings, and the lifting of our risk weighting (to 60%) on a potential 2Mtpa low-capex development at Burton commencing FY19.

Value versus sentiment a conundrum Our DCF based valuation revises to $1.79ps (from $1.66). The Burton acquisition and the potential to acquire further JV equity at Bengalla (see page 3) demonstrates the unrecognized value in NHC’s development assets and the flexibility in its ungeared balance sheet. These offer growth and diversification options while the Acland riddle is solved over time. We conservatively assume the worst case of Acland’s closure in FY20 and note that our valuation would lift to $2.19 if Acland 3 is developed and de-risked) from 2020. We’re tempted to take a positive view during the current spike in pessimism. However we think that negative sentiment attached to the Acland/QBH uncertainty is likely to be prolonged during the JR period, and maintain a cautious view for now.

SOURCE: MORGANS, COMPANY REPORTS

▎Australia

HOLD (no change) Current price: A$1.78 Target price: A$1.79 Previous target: A$1.66 Up/downside: 0.8% Reuters: NHC.AX Bloomberg: NHC AU Market cap: US$1,181m A$1,479m Average daily turnover: US$0.23m A$0.29m Current shares o/s 831.2m Free float: 34.7%

Price performance 1M 3M 12M

Absolute (%) 13.4 16.7 13.4 Relative (%) 13.9 17.6 5.4 Tom SARTOR

T (61) 7 3334 4503 E tom.sartor@morgans.com.au

Financial Summary Jul-16A Jul-17A Jul-18F Jul-19F Jul-20F

Revenue (A$m) 513.6 842.0 902.7 726.7 414.2Operating EBITDA (A$m) 68.2 300.0 332.6 240.6 143.7Net Profit (A$m) (53.7) 140.6 164.8 115.9 74.1Normalised EPS (A$) 0.04 0.17 0.20 0.14 0.09Normalised EPS Growth (58%) 352% 16% (30%) (36%)FD Normalised P/E (x) 46.89 10.37 8.97 12.76 19.97DPS (A$) 0.040 0.100 0.100 0.070 0.040Dividend Yield 2.25% 5.62% 5.62% 3.93% 2.25%EV/EBITDA (x) 20.37 4.14 3.41 4.42 7.24P/FCFE (x) 11.23 7.28 7.45 10.42 21.45Net Gearing (5.2%) (12.8%) (17.9%) (21.1%) (21.9%)P/BV (x) 0.85 0.80 0.77 0.75 0.74ROE 1.75% 7.92% 8.72% 5.95% 3.73%% Change In Normalised EPS Estimates 5.3% (3.7%) (12.6%)Normalised EPS/consensus EPS (x) 0.91 0.99 0.89

78.0

91.3

104.7

118.0

131.3

1.30

1.50

1.70

1.90

2.10

Price Close Relative to S&P/ASX 200 (RHS)

Source: Bloomberg

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Vol m

4

Pharmaceuticals│Indonesia│September 19, 2017 Shariah Compliant

Company Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Kalbe Farma A challenging prescription ■ KLBF’s growth outlook remains weak post UHC, despite 5% revenue growth in 1H17.

We forecast revenue CAGR of 9% in 2016-19F vs. 12% in the past 5 years. ■ Pricing power remains weak while volume pressure across its various business

segments is equally high. ■ New businesses pose execution risks and may take time to generate targeted returns.

A more aggressive dividend policy may help to assuage investors’ concerns. ■ While it lacks growth catalysts, KLBF benefits from being a defensive and largest

pharma play, with dividend upside potential. This underpins our unchanged Hold call.

Growth in moderation post UHC Post Universal Health Coverage (UHC) implementation in 2014, KLBF’s revenue growth has declined from an average of 15% in 2010-13 to 7% in 2014-16. Generic drugs grew at a faster rate than higher margin branded drugs, lowering both revenue growth and margins. We believe UHC would eventually slow over-the-counter (OTC) drugs’ growth, like in neighbouring countries. Meanwhile, there is intense competition in the beverage division and pricing is under pressure in its nutrition business.

Weak pricing power leaves margin at the mercy of macro factors The structural margin compression in branded drugs might see gross margin shrinking to c.55% by 2019F vs. the past six years’ 61% average. Other businesses’ margins depend on the exchange rate and prices of raw materials, e.g. skimmed milk. To its credit, margins have been resilient despite these pressures. We forecast gross margin to average 48.7% in 2017-19F vs. pre-UHC’s average of c.49%, and operating margin to average 15.6%. Consequently, we expect net margin of c.11.6% in 2017-19F vs. c.12% in 2011-16.

New businesses face execution risks and would take time to deliver KLBF has identified oncology and biosimilar drugs as new business areas (projected EBIT margins of 18-20%) to counter the pressure from UHC. To that end, the company has invested c.Rp720bn in total to build factories. The new businesses are expected to contribute c.5% of pharmacy’s revenue by 2018F, and we project it to make up for the pressure from UHC in five years’ time. The risk is in execution and that it may take more time to generate the targeted returns, in our view.

Dividend could be more generous Over FY13-17F, KLBF’s dividend payout was 40-50% of earnings or yields of 1.0-1.3%. Its FCF yields were 0.2-2.0% over the past 5 years, and we project 2.0-2.3% in FY17-19F, assuming a capex of Rp1.2tr p.a. (an average of 5.3% of revenue vs. 5% average in the past 3 years). We believe KLBF has room to expand its payout ratio given its net cash of c.Rp3tr as at end-1H17. We project ROE of c.19% in the next 3 years, vs. mean of 21.5% in the past 3 years, on 50%/55% payout in 2018/19F, in line with its guidance.

Lacking catalysts but still a defensive play KLBF’s share price is up by 14% YTD, on the back of resilient revenue growth of c.5% yoy in 1H17. We believe yoy growth in 2H17F will be more challenging as 2H16 got a boost from its injection line which contributed c.5% of pharmacy’s revenue. We lower our FY18/19F earnings by 5%/10%, and maintain Hold with an unchanged TP of Rp1,680, based on 29x FY18F P/E (-0.75 s.d. of 5-year mean). We note that the share price underperformed the market in 2016. Key catalyst: better growth. Key risk: Rp volatility.

SOURCE: COMPANY DATA, CIMB FORECASTS

Indonesia

HOLD (no change) Consensus ratings*: Buy 10 Hold 14 Sell 2

Current price: Rp1,750 Target price: Rp1,680 Previous target: Rp1,680

Up/downside: -4.0% CIMB / Consensus: -7.3%

Reuters: KLBF.JK Bloomberg: KLBF IJ Market cap: US$6,178m Rp82,031,464m Average daily turnover: US$3.11m Rp41,385m Current shares o/s: 46,875m Free float: 43.5% *Source: Bloomberg Key changes in this note

FY18F Revenue decreased by 2%. FY18F EPS decreased by 5%.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 0 10.1 2.9 Relative (%) -0.1 7.3 -8

Major shareholders % held PT Gira Sole Prima 10.2 PT Santa Seha Sanadi 9.7 PT Diptanala Bahana 9.5 Insert

Analyst(s)

Patricia GABRIELA

T (62) 21 3006 1734 E patricia.gabriela@cimb.com

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Revenue (Rpb) 17,887 19,374 20,758 22,830 25,149Operating EBITDA (Rpb) 2,998 3,454 3,660 4,071 4,513Net Profit (Rpb) 2,004 2,300 2,393 2,655 2,942Core EPS (Rp) 42.76 49.06 51.06 56.63 62.76Core EPS Growth (2.9%) 14.7% 4.1% 10.9% 10.8%FD Core P/E (x) 40.93 35.67 34.28 30.90 27.88DPS (Rp) 19.34 19.24 22.00 25.53 31.15Dividend Yield 1.11% 1.10% 1.26% 1.46% 1.78%EV/EBITDA (x) 26.74 23.15 21.65 19.40 17.43P/FCFE (x) 46.79 80.54 48.80 56.17 47.01Net Gearing (21.3%) (21.1%) (24.5%) (24.4%) (24.5%)P/BV (x) 7.84 6.89 6.15 5.55 5.04ROE 20.2% 20.6% 19.0% 18.9% 18.9%% Change In Core EPS Estimates (5.84%) (5.35%) (9.73%)CIMB/consensus EPS (x) 0.95 0.95 0.93

78.0

88.0

98.0

108.0

1,300

1,500

1,700

1,900Price Close Relative to JCI (RHS)

50

100

150

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5

Media - Integrated│Indonesia

Company Flash Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

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Surya Citra Media Ratings likely to remain subdued ■ While SCTV’s audience shares may remain soft in Sep 2017, its sister company IVM’s

performance could show improvement following the success of its recent line-ups. ■ Mixed audience shares and lacklustre adspend in 3Q17 may together depress

revenue growth, which we pencil in at 4-6% yoy, a tad behind FY17F’s growth. ■ Risk skews to the downside, we think, as earnings may lag behind consensus.

SCTV’s audience shares remain weak but IVM’s strengthens ● SCTV (SCMA’s main TV channel) recorded 14.5% prime time audience share and

13.2% all time audience share in Aug 2017, flat from Jul 2017, partially thanks to the SEA Games aired during the month; most of the football matches recorded very strong audience share of more than 20%.

● Excluding the SEA Games effect, we estimate SCTV’s prime time audience share was 11-12% in Aug, more or less the level we expect to see by the end of Sep 2017.

● To improve its audience share, SCMA may do a same-day launch for 3-4 new Sinemart series in Oct 2017, completely replacing the existing ones.

● IVM (SCMA’s secondary TV channel), on the other hand, continued to perform well despite the end of ‘Bintang Dangdut Pantura’ in Aug 2017. Following the finale of the talent show, IVM aired ‘Stand Up Comedy Academy (SUCA): Season 3’ during weekday prime time and ‘D’ Academy Mengguncang Indonesia (DAMI) 2017’ during weekend prime time. Its afternoon Television Films (FTVs) also did very well, paving the way to strong 15-16% all time audience share in Sep 2017, we reckon.

Expect mid-single-digit revenue growth in 3Q17F ● On the back of SCTV’s weakening audience share (hence, lower rate cards) and

lacklustre adspending environment, we now estimate 4-6% yoy revenue growth in 3Q17F (from previously 6-8%), leaving it with a lot of catching up to do in 4Q17F despite our conservative FY17F revenue growth forecast of 5.0% yoy to Rp4.65tr.

● We maintain our FY17F forecast for now, pinning hopes for better audience share on 4Q17F, although risks may skew to the downside.

● In addition to FMCG companies (e.g. UNVR) cutting their ad expenses, cigarette companies HMSP and GGRM also significantly cut their TV ad expenses and shifted to below-the-line (BTL) advertising. According to Nielsen, clove cigarette ad expenses fell Rp1.1tr (or -27% yoy), which is in line with SCMA’s statement. SCMA said it received the hardest hit from the cigarette companies, where revenue contribution fell from c.8% at the end of FY16 to c.2% currently.

Cost should remain under control; maintain our FY17F estimates ● Despite weak revenue growth, management mentioned that cost should remain under

control. It guided for flat to slightly negative P&B expenses growth as it no longer aired Torabika Soccer League in FY17F. We still estimate a more conservative 4.0% P&B expense growth as we remain cautious given higher programme acquisition cost from Sinemart (to improve SCTV’s audience share) as well as higher-than-expected SEA Games programme acquisition costs.

● We maintain our FY17F earnings estimate of Rp1.6tr, which implies 6.7% yoy growth. Reiterate Hold ● Although the share price has de-rated 19% YTD (and down by as much as 30% over

the past few weeks), we expect sentiment to remain subdued given SCTV’s weak audience share and lagging consensus forecasts. Our Hold call and Rp2,500 target price (21.4x 2018F P/E, 1 s.d. below 5-year mean) are maintained.

● Upside risks to our call include recovery in SCTV’s audience share. Downside risks include lower-than-expected revenue growth in 3Q-4Q17F following lacklustre audience share.

Figure 1: SCMA is currently trading at 19.9x forward P/E

SOURCES: CIMB, COMPANY REPORTS

Indonesia

September 19, 2017 - 11:57 AM

HOLD (no change) Consensus ratings*: Buy 15 Hold 2 Sell 0

Current price: Rp2,280 Target price: Rp2,500 Previous target: Rp2,500

Up/downside: 9.6% CIMB / Consensus: -14.2%

Reuters: SCMA.JK Bloomberg: SCMA IJ Market cap: US$2,515m Rp33,337,250m Average daily turnover: US$2.89m Rp38,511m Current shares o/s 14,622m Free float: 19.4% *Source: Bloomberg Key financial forecasts

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) -1.3 -17.1 -20.6 Relative (%) -1.1 -19.9 -32.3

Major shareholders % held PT Elang Mahkota Teknologi Tbk. 74.7 Insert

Analyst(s)

Kevie ADITYA

T (62) 21 3006 1738 E kevie.aditya@cimb.com

Dec-17F Dec-18F Dec-19F

Net Profit (Rpb) 1,602 1,734 1,893Core EPS (Rp) 109.6 118.6 129.4Core EPS Growth 6.52% 8.27% 9.12%FD Core P/E (x) 20.81 19.22 17.61Recurring ROE 44.8% 44.8% 45.0%P/BV (x) 8.97 8.27 7.62DPS (Rp) 89.7 97.1 105.9Dividend Yield 3.93% 4.26% 4.65%

54.0

72.8

91.5

110.3

1,800

2,300

2,800

3,300

Price Close Relative to JCI (RHS)

50

100

Sep-16 Dec-16 Mar-17 Jun-17

Vol m

6

Lifestyles│Malaysia│September 19, 2017

Eyes on the Ground

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Formosa Prosonic Industries Bhd Sound of music ■ FPI is estimated to be the largest audio system parts manufacturer in Malaysia,

supplying a wide range of components for audio systems and music instruments. ■ Given its recent strategic tie-ups with global music instrument makers, FPI expects

the music instrument components segment to be its key revenue driver in future. ■ Technavio expects the global musical instruments market (revenue) to reach a value

of US$18bn in 2021F, growing by a 3-year CAGR of 8.9% (FY18-21F). ■ FPI’s net cash position was RM155.3m at end-2Q17, c.55% of its current market cap. ■ Ex-cash 12-month trailing P/E stands at 4.7x, with historical 5-year average dividend

yield of 4.9%.

Malaysia’s largest audio parts manufacturer Formosa Prosonic Industries (FPI) is an original equipment manufacturer (OEM) specialising in production of components used in high-quality audio systems and music instruments. Its capabilities are extensive, encompassing various manufacturing services from the production of complex components to finished products for its globally-renowned clients. With two manufacturing facilities (Port Klang and Sungai Petani), FPI believes it is Malaysia’s largest audio parts producer in terms of sales and production capacity. Musical instrument segment showing stellar growth FPI has two main product segments – audio systems and musical instruments. The bulk of its revenue is derived from the resilient and mature audio system business, which contributed ~83.6% of its total FY16 revenue. The musical instrument components segment has shown extraordinary growth, with 112.0-120.2% revenue growth in FY14-16, reaching RM56.6m in FY16. FPI’s management anticipates that this segment will be its main earnings growth driver in the near term. Strategic alliances formed with global musical instrument makers FPI’s competitive advantage in the musical instrument components segment is its formation of strategic long-term alliances with various makers of global musical instrument brands. As these companies aim to introduce new products and expand their manufacturing facilities in Malaysia, FPI could benefit from their growth through tie-ups as their preferred parts supplier. In anticipation of major order growth, FPI invested RM16m capex in FY16 to enhance its production capabilities. Global musical instruments market to reach US$18bn in 2021F According to Technavio (a London-based global market research firm), the worldwide musical instruments market would expand to reach US$18bn by 2021F, based on a 3-year CAGR of 8.9%. This growth is expected to be supported by: i) technological development of more advanced musical instruments, ii) growing popularity of music-related activities, and iii) the rising number of musicians globally. Net cash position of RM155.3m makes up ~55% of market cap The group had a net cash position of RM155.3m at end-2Q17. This makes up c.55% of its current market cap, translating into RM0.63 net cash per share. Based on its 5-year historical track record (FY12-16), the group’s dividend payout ratio was in the 54.5-109.6% range. This translates into dividend yields of 2.6-6.1% for the same period, with a historical 5-year average yield of 4.9%. Superior dividend yields and trailing P/E at a discount to peers FPI does not appear to have any direct rivals globally, given its unique exposure to consumer electronics sub-segments of audio systems and musical instruments. We see consumer electronic stocks as comparable listed peers. FPI’s 12-month trailing ex-cash P/E of 4.7x is trading at a deep 72% discount to the 16.8x simple average 12-month trailing P/E of other consumer electronic makers. FPI’s 3-year average dividend yield (FY14-16) is also superior at 4.6%, vs. peers’ average of 1.3%.

SOURCE: COMPANY DATA, CIMB

Malaysia

NON RATED Current price: RM1.14 Consensus Tgt Price: RM Up/downside: N/A Reuters: FPIB.KL Bloomberg: FOR MK Market cap: US$67.32m RM282.0m Average daily turnover: US$0.33m RM1.39m Current shares o/s: 247.4m Free float: 45.1%

Source: Bloomberg Price performance 1M 3M 12M

Absolute (%) -8.8 23.2 40.7 Relative (%) -9.2 23.6 32.8

Major shareholders % held Wistron Corporation 28.0 Permodalan Nasional Berhad 16.2 Chang Song Hai 5.3

This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CIMB's coverage universe. It does not carry investment ratings and CIMB does not commit to regular updates on an ongoing basis.

Insert

Analyst(s)

Walter AW

T (60) 3 2261 9093 E walter.aw@cimb.com

90

113

136

159

0.70

0.90

1.10

1.30

Price Close Relative to FBMKLCI (RHS)

5

10

Sep-16 Dec-16 Mar-17 Jun-17

Vol m

Financial Summary Dec-12A Dec-13A Dec-14A Dec-15A Dec-16A

Revenue (RMm) 734.5 543.0 252.1 310.0 343.8EBITDA (RMm) 45.0 35.4 21.8 27.4 23.7Pretax profit (RMm) 36.6 24.0 8.6 21.6 16.1Net Profit (RMm) 27.1 21.8 7.6 19.4 13.5Core EPS (RM) 0.11 0.09 0.03 0.08 0.05Core EPS growth - -18.2% -66.7% 166.7% -37.5%FD core P/E (x) 10.5 12.8 38.3 14.4 23.0 DPS (RM) 0.06 0.06 0.03 0.07 0.06Dividend yield 5.2% 5.2% 2.6% 6.1% 5.2%EV/EBITDA (x) 5.05 6.87 11.33 9.66 12.38Net gearing -34.8% -29.1% -28.2% -18.4% -9.3%P/BV (x) 1.2 1.1 1.2 1.1 1.1 ROE 11.8% 9.0% 3.1% 7.8% 5.4%

7

Autos│Malaysia│September 19, 2017 Shariah Compliant

Company Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Insert Insert

UMW Holdings Accelerating towards earnings recovery ■ We left UMW’s 2Q17 briefing feeling confident on the group’s earnings recovery,

driven by narrowing losses from non-listed OG assets and stronger auto contribution. ■ We expect stronger earnings in 2H17 following completed cost rationalisation exercise

for its non-listed oil & gas assets in India, Oman and China in 1H17. ■ Moreover, we project stronger earnings from M&E in 2H17F due to maiden

contribution from aerospace manufacturing and higher automotive earnings. ■ We upgrade the stock to Hold with a higher RM5.90 TP as we roll over our valuation

to FY19F, still based on 14x P/E. We prefer Bermaz for exposure to the auto sector.

More positive after 2Q17 analyst briefing We attended UMW Holdings’ 2Q17 analyst briefing together with 15 sell-side analysts at the group’s headquarters in Shah Alam this afternoon. The briefing was hosted by Group Chief Operating Officer, Azmin Che Yusoff. We were encouraged to learn that the group is expecting minimal operating losses from the remaining non-listed OG assets following the complete cessation of its loss-making Arabian Drilling Services in Oman.

On track to exit the non-listed OG assets in 2018 The non-listed OG assets posted wider pretax losses of RM70.6m in 2Q17 vs. RM15m in 1Q17 due to lower drilling activities and equipment demand due to lower crude oil prices and one-off cost of RM55m related to the cessation of operations in Oman. UMW also completed the disposal of one of the non-listed OG assets in China in May 17. Overall, the group is on track to complete the disposal of all its 16 non-listed OG assets in 2018.

Expecting stronger automotive earnings in 2H17F In addition, we also expect stronger earnings from the automotive division on the back of higher (3.3% hoh) volume growth in 2H17. We see an encouraging outlook for the auto division due to favourable forex from the strengthening of RM in the current quarter. Moreover, the group is planning to open bookings for the highly anticipated sports utility vehicle, Toyota C-HR in Oct 17. The new model will allow UMW to compete in the compact SUV segment, which is currently dominated by Honda HR-V and Mazda CX-3.

Strengthening of heavy equipment segment with Komatsu UMW recently announced that it is planning to form a strategic partnership with Komatsu (Japan) to grow the market penetration of Komatsu’s products in Malaysia, Singapore, Myanmar and Papua New Guinea. Under the partnership, UMW will hold a 74% stake, while Komatsu the remaining 26%. We learnt that this partnership will allow UMW to have access to advanced heavy equipment with better pricing from the principal. However, we do not expect major earnings from this partnership in the near term.

Meaningful aerospace earnings may only materialise in 2019F Management said the group is on track to deliver its first engine fan-case in Oct 17. However, we expect the aerospace division to remain in the red in FY17F due to start-up costs. The group incurred RM25m pretax loss in 1H17 mainly due to pre-operating expenses. We expect the losses to narrow by half in 2H17F once the group starts product delivery. However, we only expect meaningful earnings in FY19F.

We upgrade UMW to Hold with a higher RM5.90 TP We upgrade to Hold as we think the worst is over following the disposal of UMW-OG and ongoing efforts to dispose non-listed OG assets. We raise our target price to RM5.90 as we roll over our valuation to FY19F, still based on 14x P/E, 10% premium to its FY09-FY14 historical mean of 13x. Key upside risks are accelerated disposal of non-listed OG and strengthening of RM, while key downside risks are delayed disposal of non-listed OG and depreciation of RM against US$.

SOURCE: COMPANY DATA, CIMB FORECASTS

Malaysia

HOLD (previously REDUCE) Consensus ratings*: Buy 1 Hold 5 Sell 10

Current price: RM5.44 Target price: RM5.90 Previous target: RM4.90

Up/downside: 8.5% CIMB / Consensus: 20.6%

Reuters: UMWS.KL Bloomberg: UMWH MK Market cap: US$1,517m RM6,356m Average daily turnover: US$0.38m RM1.61m Current shares o/s: 1,168m Free float: 37.8% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) -4.6 -2.7 3.3 Relative (%) -4.6 -2 -4.3

Major shareholders % held Permodalan Nasional Bhd 42.1 EPF 12.0 KWAP 8.0 Insert

Analyst(s)

Mohd Shanaz NOOR AZAM

T (60) 3 2261 9078 E shanaz.azam@cimb.com

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Revenue (RMm) 14,442 10,965 10,366 11,129 11,569Operating EBITDA (RMm) 1,054 (359) 608 782 858Net Profit (RMm) 370.5 (401.8) 308.5 394.6 495.1Core EPS (RM) 0.32 (0.34) 0.26 0.34 0.42Core EPS Growth (52%) (208%) 28% 25%FD Core P/E (x) 16.93 NA 20.34 15.90 12.67DPS (RM) 0.20 0.00 0.10 0.20 0.20Dividend Yield 3.68% 0.00% 1.84% 3.68% 3.68%EV/EBITDA (x) 11.80 NA 18.37 14.23 13.49P/FCFE (x) 7 NA NA 5,405 NANet Gearing 35.0% 61.5% 48.9% 43.0% 44.8%P/BV (x) 0.97 1.35 2.25 2.13 1.96ROE 5.6% (7.1%) 8.2% 13.6% 15.9%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 1.58 1.13 1.22

75.0

89.0

103.0

3.90

4.90

5.90

Price Close Relative to FBMKLCI (RHS)

5101520

Sep-16 Dec-16 Mar-17 Jun-17

Vol m

8

Finance Companies│Thailand│September 19, 2017

Company Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Insert Insert

Krungthai Card Too optimistic on lower credit costs in FY18-19F ■ We believe the market is too optimistic on KTC’s lower credit costs in FY18-19F. ■ We expect competition in credit cards and personal loans to intensify further in FY18F. ■ KTC’s growth in the past mainly came from new customers, and we believe lower

credit lines for new customers could hurt its loan growth. ■ Domestic consumption is likely to remain lacklustre in 3Q-4Q17. ■ Downgrade to Reduce with an unchanged target price of THB102.50 (based on 2.2x

FY17F P/BV).

Too optimistic on lower credit costs in FY18-19F We believe investors are too optimistic on KTC’s falling credit costs in FY18-19F, as its share price is up 15% from its YTD-low at the start of Aug 17. We believe it will take at least six months to find out if the lower credit lines for new credit cards and personal loans will result in a better asset quality. Although it had ample NPL coverage ratio of 528% as of 2Q17, we think it will not write back its provisions in future.

Expect competition to intensify next year After the Bank of Thailand lowered the credit lines for those with monthly incomes of less than THB30k, we expect competition to intensify in credit cards and personal loans next year, especially in the middle- to high-income segment as they have high purchasing power and are not affected by the lower credit lines. We believe all credit card and personal loan companies will focus on these groups with more marketing and promotion campaigns to boost growth. This could result in higher cost-to-income ratios.

New customers drove its growth in the past We reaffirm our view that lower credit lines for new credit card and personal loan customers with monthly incomes of less than THB30k will have a material impact on KTC’s card and loan growth. In FY14-16, its credit card and personal loan growth was mainly driven by new accounts and higher ticket sizes (Figs 1 & 2). Majority of its new customers earn less than THB30k, are in their first jobs and have never had credit cards or personal loans before. As such, the lower credit lines could lower KTC’s loan growth.

Lacklustre domestic consumption in 3Q-4Q17F We expect domestic consumption to remain lacklustre in 3Q-4Q17F due to the royal cremation ceremony in late Oct 17. The government has asked media broadcasters to tone down all programmes and advertising during Oct 17. We believe the Thai consumers’ spending will remain muted during the period. Although we anticipate the government to launch stimulus measures to boost consumption at end-FY17F, we believe there will be intense competition in the credit card and personal loans space.

Downgrade to Reduce with an unchanged target price of THB102.50 We downgrade KTC from Hold to Reduce but maintain our GGM-based target price of THB102.50, which is based on 2.2x FY17F P/BV (assuming LT ROE of 19% and COE of 10.3%). Our Reduce rating is non-consensus as we think investors are too optimistic on KTC’s valuation and earnings growth outlook for next year. Upside risks to our call include stronger-than-expected loan growth and lower cost-to-income ratio in FY18-19F.

SOURCE: COMPANY DATA, CIMB FORECASTS

Thailand

REDUCE (previously HOLD) Consensus ratings*: Buy 12 Hold 2 Sell 2

Current price: THB114.5 Target price: THB102.5 Previous target: THB102.5

Up/downside: -10.5% CIMB / Consensus: -15.1%

Reuters: KTC.BK Bloomberg: KTC TB Market cap: US$892.2m THB29,522m Average daily turnover: US$7.72m THB259.4m Current shares o/s: 257.8m Free float: 35.0% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 6 -12.3 -12.6 Relative (%) -0.6 -18.2 -25.5

Major shareholders % held Krung Thai Bank 49.5 Insert

Analyst(s)

Weerapat WONK-URAI

T (66) 2 761 9224 E weerapat.wo@cimb.com

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Net Interest Income (THBm) 8,012 9,348 10,078 9,719 10,177Total Non-Interest Income (THBm) 5,848 6,631 7,406 7,235 7,460Operating Revenue (THBm) 13,860 15,979 17,484 16,954 17,636Total Provision Charges (THBm) (5,183) (6,070) (6,699) (6,392) (6,521)Net Profit (THBm) 2,073 2,495 3,070 2,789 3,003Core EPS (THB) 8.04 9.66 11.86 10.78 11.60Core EPS Growth 18.1% 20.1% 22.8% (9.2%) 7.7%FD Core P/E (x) 14.24 11.86 9.65 10.63 9.87DPS (THB) 3.25 4.00 4.86 4.42 4.76Dividend Yield 2.84% 3.49% 4.25% 3.86% 4.15%BVPS (THB) 33.87 39.88 46.88 53.23 60.08P/BV (x) 3.38 2.87 2.44 2.15 1.91ROE 25.7% 26.2% 27.3% 21.5% 20.5%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 1.11 0.99 0.96

63.0

80.1

97.3

114.4

94.0

114.0

134.0

154.0

Price Close Relative to SET (RHS)

5101520

Sep-16 Dec-16 Mar-17 Jun-17

Vol m

9

Telco - Integrated│Thailand│September 19, 2017

Company Note

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN THE UNITED STATES IT IS DISTRIBUTED BY CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH.

Powered by the EFA Platform

Insert Insert

True Corporation FY17-18F net profit turnaround imminent ■ Yesterday, True’s board approved a third round of asset sale and lease-back. ■ The board also approved the extension of the lease contract and its participation in

the capital increase at the DIF level. ■ We estimate total net proceeds of THB47bn and net gains of THB40bn. ■ We are neutral on this transaction but positive that management is trying to deliver on

its net profit commitment for FY17-18F. ■ Maintain Add; Catalysts are 1) effective cost control, and 2) subsiding risk of cash call.

A third asset sale and lease-back transaction True’s board of directors yesterday approved three transactions with Digital Telecommunication Infrastructure Fund (DIF): 1) an asset sale and lease-back, 2) extension of the previous lease contracts, and 3) participation in a capital increase. In summary, True will dispose of 3.1k cellular towers and 1.5m core km of optical fibre cables (OFC) to DIF for THB65bn-72bn, enter a 15-year lease agreement at a gross cost of THB94bn and participate in DIF’s capital increase by injecting THB11bn-24bn (Fig 1).

Details of the deals The deals will be divided into two tranches. The first tranche will account for 19% of total transaction value, be 100% financed by DIF via debt and completed by Dec 17. The second tranche will be the remaining value, be 100% funded by DIF’s new capital and completed by Jun 18. DIF is required to call an EGM to approve both transactions by Oct 17; True is not required to do so.

Net proceeds At THB68.5bn, the average of the proposed selling price spectrum, total net proceeds should be THB47bn or THB0.35 per share, 25.3% of which will be received by Dec 17 and the remaining by Jun 18. Our assumptions: 1) fees are 2% of transaction value, 2) the effective tax rate is 10% of transaction value excluding asset book value and transaction fees, and 3) 100% debt financing for tranche 1 and 100% equity financing for tranche 2 (Fig 2).

Net gains We estimate True could recognise net gains from tranche 1 of THB11bn or THB0.08 per share in 4Q17F and from tranche 2 of THB29bn or THB0.21 per share in 2Q18F. We expect gross gains from tranche 1 to be THB11bn and its net financial impact to be THB196m a quarter. Meanwhile, gross gains from tranche 2 should be THB29bn and its net financial impact THB503m a quarter.

Long-term P&L impact Other than net gains from the transactions, True will have to bear higher net costs of THB2bn a year, in our view. Assuming a 7% asset rental yield, True’s rental fee to DIF will be THB4.8bn a year. At 15 years of useful life, the asset disposal will decrease True’s depreciation expense by THB476m a year. Given its 28% holding stake in DIF, True will be able to realise equity income from DIF of THB1.1bn a year. Meanwhile, we assume the proceeds will be used as detailed in Figure 3.

Maintain Add with unchanged SOP-based target price of THB7.49 We reiterate our Add call on True. This proposed transaction already caused True’s share price to spike 5% yesterday, equal to the expected net gain from this transaction. We are neutral on this deal as we see creditors benefiting more than shareholders. We think management is proceeding in 2 tranches so it can deliver net profits for FY17-18F as per its promise to the investment community. Management has to control costs strictly in order to sustain profitability in FY19F and avoid any cash calls.

SOURCE: COMPANY DATA, CIMB FORECASTS

Thailand

ADD (no change) Consensus ratings*: Buy 8 Hold 11 Sell 7

Current price: THB6.35 Target price: THB7.49 Previous target: THB7.49

Up/downside: 18.0% CIMB / Consensus: 23.2%

Reuters: TRUE.BK Bloomberg: TRUE TB Market cap: US$6,404m THB211,888m Average daily turnover: US$19.51m THB650.6m Current shares o/s: 33,368m Free float: 31.6% *Source: Bloomberg Key changes in this note

No change.

Source: Bloomberg

Price performance 1M 3M 12M Absolute (%) 24.5 3.3 -11.2 Relative (%) 17.9 -2.6 -24.1

Major shareholders % held CP group 50.2 China Mobile International Holdings Limited 18.0 UBS AG Hong Kong Branch 9.0 Insert

Analyst(s)

Pisut NGAMVIJITVONG

T (66) 2 761 9226 E pisut.ng@cimb.com

Financial Summary Dec-15A Dec-16A Dec-17F Dec-18F Dec-19F

Revenue (THBm) 118,781 124,719 141,194 154,860 169,085Operating EBITDA (THBm) 22,110 25,070 34,382 43,345 53,492Operating EBITDA Margin 18.6% 20.1% 24.4% 28.0% 31.6%Net Profit (THBm) 4,413 (2,813) (4,297) (70) 5,634Core EPS (THB) 0.11 (0.06) (0.13) (0.00) 0.17Core EPS Growth (53%) (159%) 103% (98%)FD Core P/E (x) 58.07 NA NA NA 37.61DPS (THB) - 0.005 - - - Dividend Yield 0.000% 0.077% 0.000% 0.000% 0.000%EV/EBITDA (x) 11.03 11.19 9.61 8.21 6.79P/FCFE (x) 40.65 NA NA NA NANet Gearing 116% 52% 92% 113% 113%ROE 3.72% (2.08%) (3.36%) (0.06%) 4.35%% Change In Core EPS Estimates 0% 0% 0%CIMB/consensus EPS (x) 1.26 0.21 2.45

57.0

71.3

85.6

99.9

4.70

5.70

6.70

7.70

Price Close Relative to SET (RHS)

1122

Sep-16 Dec-16 Mar-17 Jun-17

Vol b

10

Asia Pacific Daily│Equity research│September 20, 2017

REGIONAL HEAD

Michael William GREENALL Regional Head of Research +60 (3) 2261 9088 michael.greenall@cimb.com

COUNTRY HEADS OF RESEARCH

Ivy NG, CFA Siew Khee. LIM Erwan TEGUH Kasem PRUNRATANAMALA, CFA Ben BEI Malaysia Singapore Indonesia Thailand Hong Kong/China +60 (3) 2261-9073 +65 6210-8664 +62 (21) 3006-1720 +66 (2) 657-9221 +852 2532-1116 ivy.ng@cimb.com siewkhee.lim@cimb.com erwan.teguh@cimb.com kasem.prunratanamala@cimb.com Ben.bei@cimb.com Dohoon LEE Satish KUMAR South Korea India +82 (2) 6730-6121 +91 (22) 6602-5185 dohoon.lee@cimb.com satish.kumar@cimb.com Yolan SEIMON Ralph Christian BODOLLO Sri Lanka Philippines +94 (11) 230-6273 +63 (2) 888-7118 yolan@jkstock.keells.com rbodollo@securitybank.com.ph Coverage via partnership arrangement with Coverage via partnership arrangement with John Keells Stock Brokers SB Equities

REGIONAL SECTOR HEADS

KJ KWANG Ivy NG, CFA Raymond YAP, CFA Offshore & Marine Plantations Transportation +82 (2) 6730-6123 +60 (3) 2261-9073 +60 (3) 2261-9072 kj.hwang@cimb.com ivy.ng@cimb.com raymond.yap@cimb.com

7

11

Asia Pacific Daily│Equity research│September 20, 2017

DISCLAIMER WJV#05 The content of this report (including the views and opinions expressed therein, and the information comprised therein) has been prepared by and belongs to CIMB save that (i) if it is a report written by the analyst(s) of John Keells Stock Brokers (“John Keells”), it belongs to John Keells; (ii) if it is a report written by the analyst(s) of SB Equities Inc (“SBE”), it belongs to SBE; and (iii) if it is a report written by the analyst(s) of Morgans Financial Limited (“Morgans”), it belongs to Morgans. This report is distributed by CIMB and in respect of sections of the report relating to (i), (ii) and/or (iii) aforesaid, it is distributed pursuant to an arrangement between John Keells, SBE and Morgans respectively and none of the aforesaid parties is an affiliate of CIMB. 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Country CIMB Entity Regulated by Hong Kong CIMB Securities Limited Securities and Futures Commission Hong Kong India CIMB Securities (India) Private Limited Securities and Exchange Board of India (SEBI) Indonesia PT CIMB Securities Indonesia Financial Services Authority of Indonesia Malaysia CIMB Investment Bank Berhad Securities Commission Malaysia Singapore CIMB Research Pte. Ltd. Monetary Authority of Singapore South Korea CIMB Securities Limited, Korea Branch Financial Services Commission and Financial Supervisory Service Thailand CIMB Securities (Thailand) Co. Ltd. Securities and Exchange Commission Thailand

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AAV, ADVANC, AMATA, ANAN, AOT, AP, BA, BANPU, BBL, BCH, BCP, BCPG, BDMS, BEAUTY, BEC, BEM, BJC, BH, BIG, BLA, BLAND, BPP, BTS, CBG, CENTEL, CHG, CK, CKP, COM7, CPALL, CPF, CPN, DELTA, DTAC, EA, EGCO, EPG, GFPT, GLOBAL, GLOW, GPSC, GUNKUL, HMPRO, INTUCH, IRPC, ITD, IVL, KBANK, KCE, KKP, KTB, KTC, LH, LHBANK, LPN, MAJOR, MALEE, MEGA, MINT, MONO, MTLS, PLANB, PSH, PTL, PTG, PTT, PTTEP, PTTGC, QH, RATCH, ROBINS, S, SAWAD, SCB, SCC, SCCC, SIRI, SPALI, SPRC, STEC, STPI, SUPER, TASCO, TCAP, THAI, THANI, THCOM, TISCO, TKN, TMB, TOP, TPIPL, TRUE, TTA, TU, TVO, UNIQ, VGI, WHA, WORK. Corporate Governance Report: The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 - 89 70 - 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A

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Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2016, Anti-Corruption 2016 AAV – Very Good, n/a, ADVANC – Very Good, Certified, AEONTS – Good, n/a, AMATA – Excellent, Declared, ANAN – Very Good, Declared, AOT – Excellent, Declared, AP – Very Good, Declared, ASK – Very Good, Declared, ASP – Very Good, Certified, BANPU – Very Good, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – not available, Declared, BCP - Excellent, Certified, BEM – Very Good, n/a, BDMS – Very Good, n/a, BEAUTY – Good, Declared, BEC - Good, n/a, BH - Good, Declared, BIGC - Excellent, Declared, BJC – Good, n/a, BJCHI – Good, Declared, BLA – Very Good, Certified, BPP – not available, n/a, BR - Good, n/a, BTS - Excellent, Certified, CBG – Good, n/a, CCET – not available, n/a, CENTEL – Very Good, Certified, CHG – Very Good, n/a, CK – Excellent, n/a, COL – Very Good, Declared, CPALL – not available, Declared, CPF – Excellent, Declared, CPN - Excellent, Certified, DELTA - Excellent, Declared, DEMCO – Excellent, Certified, DIF – not available, n/a, DTAC – Excellent, Certified, EA – Very Good, Declared, ECL – Good, Certified, EGCO - Excellent, Certified, EPG – Good, n/a, GFPT - Excellent, Declared, GGC – not available, n/a, GLOBAL – Very Good, Declared, GLOW – Very Good, Certified,

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GPSC – Excellent, Declared, GRAMMY - Excellent, n/a, GUNKUL – Very Good, Declared, HANA - Excellent, Certified, HMPRO - Excellent, Declared, ICHI – Very Good, Declared, III – not available, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Good, n/a, IVL - Excellent, Certified, JAS – not available, Declared, JASIF – not available, n/a, JUBILE – Good, Declared, KAMART – not available, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KGI – Good, Certified, KKP – Excellent, Certified, KSL – Very Good, Declared, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Very Good, n/a, LPN – Excellent, Declared, M – Very Good, Declared, MACO – Very Good, n/a, MAJOR - Good, n/a, MAKRO – Good, Declared, MALEE – Very Good, Declared, MBKET – Very Good, Certified, MC – Very Good, Declared, MCOT – Excellent, Declared, MEGA – Very Good, Declared, MINT - Excellent, Certified, MTLS – Very Good, Declared, NYT – Excellent, n/a, OISHI – Very Good, n/a, PLANB – Very Good, Declared, PLAT – Good, Declared, PSH – not available, n/a, PSL - Excellent, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Declared, RATCH – Excellent, Certified, ROBINS – Very Good, Declared, RS – Very Good, n/a, SAMART - Excellent, n/a, SAPPE - Good, n/a, SAT – Excellent, Certified, SAWAD – Good, n/a, SC – Excellent, Declared, SCB - Excellent, Certified, SCBLIF – not available, n/a, SCC – Excellent, Certified, SCN – Good, Declared, SCCC - Excellent, Declared, SIM - Excellent, n/a, SIRI - Good, n/a, SPA - Good, n/a, SPALI - Excellent, Declared, SPRC – Very Good, Declared, STA – Very Good, Declared, STEC – Excellent, n/a, SVI – Excellent, Certified, TASCO – Very Good, Declared, TCAP – Excellent, Certified, THAI – Very Good, Declared, THANI – Very Good, Certified, THCOM – Excellent, Certified, THRE – Very Good, Certified, THREL – Very Good, Certified, TICON – Very Good, Declared, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TK – Very Good, n/a, TKN – Good, n/a, TMB - Excellent, Certified, TNR – not available, n/a, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – not available, n/a, TRUE – Very Good, Declared, TTW – Very Good, Declared, TU – Excellent, Declared, TVO – Very Good, Declared UNIQ – not available, Declared, VGI – Excellent, Declared, WHA – not available, Declared, WHART – not available, n/a, WORK – not available, n/a. Companies participating in Thailand’s Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of October 28, 2016) are categorized into: - Companies that have declared their intention to join CAC, and - Companies certified by CAC

CIMB Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition: Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition: Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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