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29-Jul-2013

Morning Matters

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WHAT’S INSIDE

On The Platter

Bangkok Dusit Medical (BGH TB; FVTHB 222.0-Buy): Still Expanding Despite Slower Growth

Bangkok Dusit Medical (BGH) continues to expand its portfolio hospitals – earmarked as its growth driver for the next few years – despite a temporary slowdown in revenue growth this year. We maintain our BUY recommendation on the stock, as our TP is based on its expansion plan. BGH is still cheaply valued at 31x 2013F P/E compared to its regional peer IHH Holdings’ (Neutral, FV: MYR3.87) 48x.

Rojana Industrial Park (ROJNA TB; FVTHB 10.55- Neutral (from Buy): Core Business Yet To Normalise

Rojna booked >THB2bn in extra insurance claims and a flood protection subsidy in 1HFY13. While we expect it to record THB1.3bn in earnings this year, 2HFY13 is expected to be sluggish as its core business has not yet normalised. Our new NAV of THB10.55/share reflects its existing 8,500-rai landbank, power plant (soon to be upgraded to 430MW) and 22% stake in Ticon. Downgrade to NEUTRAL.

MEDIA HIGHLIGHTS

CPF buys Russian pork firm

Low-cost airlines enjoy high margins

LPG price to rise in Sept

Condos hard hit by failures

True's search for partner to resume after fund established

MCOT gets govt's provisional nod for digital TV licence bid ECONOMIC HIGHLIGHTS

Thailand: Global economic slowdown and strong baht hit exports

China: Industrial profits growth moderates as economy cools

UK: Help-to-Buy plan could inflate housing

US: Consumer sentiment increases to six-year high

US: Obama says he has narrowed decision on next Fed chairman

SET Intra-Day Graph

Source: Bloomberg

Key Market Indices (26 July 2013)

Value Chg % Chg % YTD

SET 1476.71 20.03 1.4% 6.1%

SET50 1002.93 15.51 1.6% 6.1%

SET100 2207.59 33.41 1.5% 6.2%

Dow Jones 15558.83 16.59 0.1% 18.7%

S&P500 1691.65 5.71 0.3% 18.6%

Nasdaq 3613.17 33.57 0.9% 19.7%

FTSE 6554.79 -65.64 -1.0% 11.1%

FSSTI 3236.10 -38.66 -1.2% 2.2%

Hang Seng 21968.95 0.02 0.0% -3.0%

Nikkei 13888.36 -842.92 -5.7% 33.6%

KLCI 1807.61 -2.39 -0.1% 7.0%

SHANGHAI SE 2010.85 -22.48 -1.1% -11.4%

JCI 4658.87 -59.23 -1.3% 7.9%

SET 5-yr avg 2012 2013F

PE (x) 14.2 16.8 13.9

P/BV (x) 1.8 2.3 2.2

Yield (%) 4.0 2.9 3.2

Key Statistics

SET Value by investor Type: Daily

Buy (THBm) Sell (THBm) Net (THBm)

Institution 4,639.71 3,905.81 733.90

Proprietary 6,993.22 8,897.86 -1,904.64

Foreign 12,348.13 12,451.57 -103.43

Retail 20,205.98 18,931.81 1,274.17

SET Value by investor Type

MTD (THBm) YTD (THBm) Institution -5,561.00 64,661.66

Proprietary 2,034.00 -4,900.86

Foreign 2,834.00 -73,750.54

Retail 693.00 13,989.75

SET50 Index Future

Long Short Net MTD YTD

Institution 8,771 6,505 2,266 -798 12,407

Foreign 4,184 5,840 -1,656 -1,457 -14,297

Local 12,701 13,311 -610 2,255 1,890

Foreign Fund Flows (USDm) Last MTD YTD YTD(%)

- - - -

See important disclosures at the end of this report 2

Media Highlights

CPF buys Russian pork firm

Charoen Pokphand Foods Plc (CPF), the SET-listed flagship of the CP Group, will pay 3.15 billion baht for a 83% stake in Russia Baltic Pork Invest ASA (RBPI), a large-scale grain and pork producer in Russia's Kaliningrad region. Under the deal worth 76.8 million euros, CPF Investment Limited (CPFI), a subsidiary of CPF, will purchase the shares from Capman Russian Fund L.P in the third quarter of this year. RBPI, which also has operations in Nizhny Novgorod and Penza in the west, is planning to expand its operations to mainland Russia. The deal is part of CPF's expansion plans in food and into Russia, where it already operates feed mill and integrated swine businesses, said president and CEO Adirek Sripratak. In 2009, CPF invested 3.5 billion baht to build advanced feed mills and swine farms in Lukhovitsy County.(Bangkok Post) Low-cost airlines enjoy high margins

Budget carriers are better off than full-service carriers at profit margin generation as the latter get stuck with cumbersome operating systems, relatively lower productivity and higher costs. The rates achieved by Thai AirAsia (TAA), Nok Air and Thai Airways International (THAI) serve to underscore how the two industry groups perform in terms of profitability.TAA, the country's largest low-cost carrier (LCC), captured a net return of 12% in the first quarter, while rival Nok Air claimed a 14% margin and flag carrier THAI recorded a 9.8% return on equity.THAI had a 2.3% return on assets for all of 2012. TAA chief executive Tassapon Bijleveld told the Bangkok Post his airline plans to ramp up its profit margin to 15% in a few years, while Nok Air chief financial officer Vitai Ratanakorn said his airline is confident it can sustain double-digit growth this year. (Bangkok Post) LPG price to rise in Sept

The price of liquefied petroleum gas (LPG) for households will definitely start to rise by 0.50 baht per kilogramme per month in September, Energy Minister Pongsak Raktapongpaisal affirmed on Saturday. Mr Pongsak said prices had to start going up after years of subsidies that have cost the state Oil Fund 140 billion baht. The government proposes to increase the price of LPG used for cooking by 37% to 24.82 baht by August 2014 from 18.13 baht now. If LPG prices continued to be subsidised, Mr Pongsak said, it would be a heavy burden for the Oil Fund and would be unfair to motorists using petrol. The Oil Fund receives its money from levies on other fuels. LPG for transport is still artificially cheap at 21.38 baht, while the price for industrial users is 28.07 baht per kilogramme. The price of LPG for transport will rise incrementally by 50 satang a month starting next February until the price reaches 24.82 baht. (Bangkok Post) Condos hard hit by failures

Condominium developers have been the worst affected by project failures, says the Agency for Real Estate Affairs. Of 18,404 housing units that had sales suspended in the first half of this year, 47% or 8,567 were condos, according to a survey by the property consultant. Single houses accounted for 4,598 units or 25%, while townhouses comprised 2,414 or 13%. The rest was land allocation of 1,643 plots or 9%. A total of 89 residential projects worth 45.8 billion baht suspended their sales out of 1,378 projects, the survey showed. In terms of project value, single houses accounted for 20.4 billion baht or 44%, with condos at 15.5 billion or 34% and townhouses at 4.81 billion or 11%. The largest segment with sales suspended was condos priced at 1-2 million baht with 5,122 units. The main cause of failure was insufficient market study. (Bangkok Post) True's search for partner to resume after fund established

TRUE CORP'S search for a strategic partner will resume once the establishment of an infrastructure fund and sales of shares in non-core businesses are complete, according to chief financial officer Noppadol Dej-udom. Meanwhile, a CAT Telecom source said TrueMove has reached a preliminary agreement to transfer to the state agency 4,500 of the 7,000 telecommunications towers it utilises under its concession with CAT. Ownership of the 4,500 towers is at the centre of an arbitration dispute between CAT and TrueMove. TrueMove has also proposed buying back the 4,500 towers from the state agency and including them in the infrastructure fund's assets.(The Nation) MCOT gets govt's provisional nod for digital TV licence bid

The government has agreed in principle to allow MCOT to participate in the upcoming bidding for digital-TV broadcasting

licences. The National Economic and Social Development Board (NESDB) proposed the preparation of a strategic plan by

MCOT in this regard, prior to submitting it to the Cabinet for approval. Yesterday's meeting of the Economic Affairs Committee

also covered the issue of operational guidelines for the proposed State Railway of Thailand's (SRT) organisational-efficiency

improvement and land-development plans for seven large plots of land. PM's Office Minister Varathep Ratanakorn said after

the meeting, which was chaired by Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong, that the panel had agreed

in principle to allow MCOT to participate in the bidding for digital-TV broadcasting licensing. This is in accordance with the

Cabinet's resolution, which specified that MCOT must notify the Cabinet in advance if it wanted to join the bidding. (The

Nation)


Economic Highlights

Thailand: Global economic slowdown and strong baht hit exports

The Commerce Ministry has announced it may downgrade the target for Thailand's export growth this year by up to 6.5% from its previous target of 7-7.5%, after shipments in the first half grew by only 0.95% y-o-y. The ministry said the changes were due mainly to the global economic slowdown and China's slower-than-expected economic growth. To counter the decline, the ministry said it would launch a number of measures next month to strengthen and promote Thai exports for the remainder of the year, which would focus on new markets and increasing export value. Thai exports in the1H13 were valued at USD113.3bn, an increase of only 0.95%. In baht terms, exports declined by 3.72% to THB3.33trn. (The Nation)

China: Industrial profits growth moderates as economy cools

Growth in Chinese industrial companies’ profits slowed in June as the economy cooled, costs rose and prices fell on moderating demand and overcapacity. Net income increased 6.3% y-o-y to RMB502.4bn, the National Bureau of Statistics said, down from a 15.5% pace in May. Profit from main business operations fell 2.3% after an 8.8% gain the previous month, it said. The moderation in profit growth was due to a slowdown in sales gains, higher raw-material costs and a high comparative base in June last year. (Bloomberg)

UK: Help-to-Buy plan could inflate housing

UK Business Secretary Vince Cable said there’s a risk the government’s program to boost housing demand might lead to a bubble unless it’s properly designed. The Help-to-Buy plan to provide mortgage guarantees “could be a problem, it could inflate the market, but if it’s properly designed it could be a useful addition,” Cable said. “We mustn’t risk returning to the problems of the last decade, when housing got out of control.” Cable’s comments follows similar warnings from the International Monetary Fund and former Bank of England Governor Mervyn King about the risks associated with the Help-to-Buy program, under which banks will be encouraged to lend to riskier home buyers. (Bloomberg)

US: Consumer sentiment increases to six-year high

Consumer confidence unexpectedly increased in July to the highest level in six years as Americans’ views of their finances improved. The Thomson Reuters/University of Michigan final index of consumer sentiment advanced to 85.1 in July from 84.1 at the end of June. An increase in personal wealth tied to higher property values and stock portfolios is keeping confidence elevated and consumers spending. Stronger finances, along with job gains that have picked up from the second half of 2012, are also helping blunt the effects of higher payroll taxes.(Bloomberg) US: Obama says he has narrowed decision on next Fed chairman

President Barack Obama said his nominee for Federal Reserve chairman will be someone who embraces the central bank’s dual mandate to promote price stability and maximum employment, and he has narrowed his choice “to some extraordinarily qualified candidates.” Obama isn’t expected to nominate a successor to the current chairman, Ben S. Bernanke, until at least September, an administration official said. Bernanke, whose second four-year term ends on Jan. 31, hasn’t indicated whether he would seek or accept a third term. Last month, Obama said the Fed chairman has stayed in the post “longer than he wanted.” (Bloomberg)


Outperform

Current Target Upside/

Rec. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013F 2013F

ADVANC Buy 293.00 293.00 0.0 23.4 4.3

AOT Buy 190.00 188.00 -1.1 25.2 1.6

BTS

Trading Buy 8.45 10.20 20.7 39.0 6.4

INTUCH

Trading Buy 91.25 104.00 14.0 19.3 4.7 .

PTT Buy 339.00 388.00 14.5 8.6 4.1

PTTGC Buy 74.00 82.10 10.9 9.9 4.6

Underperform

Current Target Upside/

Rec. Price Price Downside PE (x) Yield (%) Remarks

(Bt) (Bt) (%) 2013F 2013F

AP Sell 6.00 11.30 14.0 6.8 3.2

KTB Buy 18.50 28.30 53.0 8.6 4.1

TCAP Neutral 36.50 41.00 12.3 4.8 3.6

TISCO Sell 40.75 41.00 0.6 7.6 6.3

AP Sell 6.00 11.30 14.0 6.8 3.2

26 25 24 23 19 26 25 24 23 19

1 PTTGC 168.3 215.2 126.5 87.8 126.5 PTTEP -132.9 162.2 56.2 227.8 56.2 BAY 9,339.2 KBANK -840.2 INTUCH 49,741.7 SCC -7,286.5

2 BH 160.3 176.6 105.6 60.2 105.6 DTAC -98.3 18.8 42.1 423.6 42.1 INTUCH 7,971.9 NMG -310.3 BAY 16,168.3 BANPU -3,056.6

3 PTT 156.5 67.4 150.5 488.0 150.5 SCC -94.1 -82.4 49.9 299.1 49.9 PTT 2,253.7 TMB -150.6 ADVANC 14,521.2 KBANK -2,537.9

4 SCB 152.0 41.5 -31.7 107.7 -31.7 KTB -79.2 52.6 -131.8 30.5 -131.8 AOT 2,248.9 TISCO -118.5 DTAC 12,676.9 LH -1,605.3

5 BBL 98.8 -240.4 -189.1 -81.4 -189.1 BGH -62.1 -1.9 47.3 -33.8 47.3 PTTGC 2,078.7 PTL -112.3 PTT 9,499.7 SIRI -969.8

6 KBANK 98.4 250.6 345.8 -258.8 345.8 HMPRO -58.3 -76.4 -5.0 29.5 -5.0 ADVANC 1,392.6 MCOT -93.8 PTTGC 8,993.8 DEMCO -644.7

7 BAY 94.6 331.1 251.6 -413.7 251.6 BLA -37.8 -1.0 5.3 10.4 5.3 CPF 1,265.2 THAI -88.9 PTTEP 8,250.8 CK -458.0

8 CPALL 82.4 125.3 11.2 281.3 11.2 TMB -29.4 -3.4 -14.5 12.1 -14.5 KTB 1,060.8 THRE -84.6 MAKRO 4,308.5 UV -417.8

9 TRUE 74.8 48.9 -136.0 -67.6 -136.0 LH -27.1 -43.4 54.5 90.5 54.5 CPALL 967.7 ASP -80.5 CPALL 3,970.6 ASP -346.5

10 JAS 68.9 -0.1 14.8 -5.3 14.8 LPN -23.6 -16.4 34.9 -9.3 34.9 LH 928.3 VGI -79.4 BIGC 3,734.0 IRPC -337.2

11 MINT 60.1 6.5 41.5 121.3 41.5 TOP -21.4 15.3 42.1 -3.9 42.1 BEC 792.6 TSF -65.8 TOP 3,659.1 RML -312.9

12 BIGC 37.2 64.3 14.3 8.3 14.3 HEMRAJ -20.2 -4.7 26.9 11.3 26.9 CPN 783.7 HEMRAJ -62.9 TMB 3,638.2 TRC -252.2

13 BANPU 35.2 16.1 5.7 46.1 5.7 DCC -19.6 -3.9 5.5 7.4 5.5 DTAC 762.5 VNT -58.5 CPN 3,464.5 BLA -250.4

14 CPN 34.6 39.5 55.8 89.5 55.8 MAKRO -15.2 32.0 96.1 57.3 96.1 SCC 709.7 TRC -56.2 CPF 3,446.5 MINT-W4 -238.0

15 DELTA 34.4 12.2 48.0 75.4 48.0 GLOW -14.8 -11.1 -5.3 16.4 -5.3 TUF 665.5 ITD -55.2 TUF 3,152.7 LRH -196.4

16 STEC 31.9 5.6 -7.5 21.7 -7.5 SIM -13.7 -0.4 -8.2 -4.3 -8.2 BH 663.1 SIM -30.9 MINT 3,115.2 QH -193.3

17 SAMART 26.9 12.7 23.7 21.3 23.7 TRC -11.5 -2.2 -8.4 0.2 -8.4 PTTEP 659.4 PLE -25.9 TCAP 2,909.1 GUNKUL -191.9

18 INTUCH 24.1 1,140.1 715.5 1,206.2 715.5 IRPC -11.5 0.9 32.5 10.1 32.5 BTS 605.9 HMPRO -24.3 SPALI 2,846.7 NOBLE -168.7

19 CPF 22.1 332.5 104.7 161.3 104.7 VNT -9.6 -19.3 -6.8 -2.5 -6.8 BIGC 541.9 DSGT -23.5 THAI 2,711.3 TWFP -137.6

20 EGCO 19.4 -83.0 3.1 10.2 3.1 SRICHA -9.2 0.4 -1.8 0.5 -1.8 LPN 538.7 KCE -22.2 BBL 2,707.6 MCOT -136.7

% % of % of

Turn. paidup paidup

1 TRUE 5.07 1 TISCO-P 66.16 65.86

2 JAS 4.36 2 BBL 30.85 29.99

3 TMB 6.05 3 KBANK 27.12 28.50

4 NWR-W1 4.34 4 INTUCH 23.26 5.41

5 KTB 9.49 5 SPALI 23.20 17.94

6 BLAND-W4 1.07 6 E-W1 21.17 22.27

7 LHBANK 15.14 7 THRE 19.59 15.50

8 CPALL 18.84 8 GOLD-W1 18.91 14.87

9 BAY 37.61 9 LH 18.43 21.18

10 INTUCH 21.05 10 NMG-W3 18.13 0.76

11 N-PARK 0.29 11 LPN 17.78 21.73

12 IRPC 22.11 12 TWFP 16.09 24.77

13 MINT 23.44 13 DTAC 15.97 13.33

14 HMPRO 12.66 14 TCAP 15.28 12.60

15 PTTGC 25.93 15 AP 14.51 12.92

16 HEMRAJ 41.21 16 THIP 14.50 12.64

17 MAKRO 88.49 17 BAY 14.26 13.89

18 CPF 12.66 18 PRANDA 13.90 14.59

19 QH 1.78 19 LALIN 13.65 13.53

20 SIM 8.69 20 GBX 12.71 13.54

Source : SET.OR.TH

Most Active Values (Btmn)

29 July 2013

Jul13 Jul 13

Total Volume Shares

(Last)

NVDR Shrs. Paid up CapitalNVDR Shrs.

26-Jul-13 2-Jan-13

Net Buy Net Sell Net Buy Net Sell

2 Jan- 26 Jul 1326 July 13

1,908,842,894

17,760,100 9,245,000 22,400 22,300 27,005,100 8,515,100

16,661,000

33,858

3,055,500 15,259,500 18,315,000

NetBuy Sell Total

355,975 11,692,317 12,048,292

572,486,791 8,297,700

649,009,806 682,155,834

588,894,920 8,363,300 25,024,300

3,206,420,305

-12,204,000

1,716,553,249

2,393,260,193

745,786,296

307,949,569 398,317,265

-11,336,342 173,363,101

347,000,000

3,812,375 8,154,900

10,138,900 2,538,700

11,058,000 71,000 11,129,000 10,987,000

6,338,800

11,967,275 -4,342,525

10,295,200 2,189,600

11,299,246 3,918,954 73,461,142 77,281,246

3,800,100

6,242,400 4,052,800

7,609,100 3,690,146

3,512,494,860

392,073,718

688,125,265 544,461,149

74,160,598 74,970,598

10,025,921,523

1,647,740,300

1,847,470,241 2,123,251,472

298,663,788 12,478,240

320,609,239 1,475,698,768 262,436,531

1,529,116 2,354,634 9,506,055

825,000,000

406,666,954

8,000,000

866,357,163

111,592,900

1,011,300

6,074,143,747

2,771,200 4,656,000

4,590,700

3,220,405 2,499,000

389,500 4,201,200

1,884,800

5,719,405

147,453,300 1,089,076,392

5,835,723 -19,523

56,511,000 59,270,000

112,643,100

138,413,000 -3,811,700

-886,400

721,405

843,803,210

414,870,479 367,964,647

1,159,700 -5,843,900

2,859,920,138 2,291,887

-4,409,000

5,999,900

378,189,185 315,525,949 2,367,811,000

1,277,816,397 195,218,150 161,065,653

4,865,327 4,595,000 9,460,327 270,327

2,351,000 6,760,000 9,111,000

2,908,100 2,927,623

7,236,485

2,607,500

1,307,100 5,929,385

6,358,0872,033,100

5,179,800 7,787,300

-3,542,500

2,572,300

500

4,324,987

5,844,400 5,844,900

-4,622,285

8,457,3002,457,400

Most Active Volume (shares) NVDR Shares to Total Paid-up Shares(%)

NET BUY NET SELL Month to Date Year to Date

THAI NVDR : Top Ranking


Platform 1

Corporate News Flash, 29 July 2013

Bangkok Dusit Medical (BGH TB) Buy (Maintained) Consumer Non-cyclical - Healthcare Services Target Price: THB222

Market Cap: USD7,769m Price: THB157

Still Expanding Despite Slower Growth

Macro

1.00

Risks

2.00

Growth

1.00

Value

2.00

Source: Bloomberg

Avg Turnover (THB/USD) 473m/15.4m

Cons. Upside (%) 10.8

Upside (%) 41.9

52-wk Price low/high (THB) 96.8 - 175

Free float (%) 46

Shareholders (%)

Prasert Prasarttong Osoth & Family

18.8

Wichai Thongtang & Family 12.0

Bangkok Airways 7.9

Shariah compliant

Kowit Pongwinyoo +662 862 9743

[email protected]

Source: Company data, RHB estimates

Bangkok Dusit Medical (BGH) continues to expand its portfolio hospitals – earmarked as its growth driver for the next few years – despite a temporary slowdown in revenue growth this year. We maintain our BUY recommendation on the stock, as our TP is based on its expansion plan. BGH is still cheaply valued at 31x 2013F P/E compared to its regional peer IHH Holdings’ (Neutral, FV: MYR3.87) 48x.

20 new hospitals by end-2014. BGH currently has 30 hospitals under

its umbrella and expects to add another 20 new ones, bringing the total to 50 by end-2014. 10 new hospitals are now under construction and another five will commence building works by yearend. The remaining five will be built in mid-2014. With an upcoming sturdy network of 50 hospitals nationwide and in Cambodia, BGH would have sufficient facilities to offer services to domestic and foreign patients when the Asian Economic Community (AEC) kicks off in 2015. Along the way, it will also expand its non-core high-margins businesses such as pharmaceutical products and lab testing services. With such plans in hand, BGH expects its revenue to increase to THB75bn in 2015, from THB47.9bn in 2012, an increase of 57%.

To open specialist hospitals in the future. After the abovementioned

expansion, BGH plans to focus on opening specialist hospitals with a capacity of 50 beds each from 2015 onward to meet the high demand for specialist treatments among domestic and overseas patients. The aim is to open approximately five specialist hospitals catering to cancer, spine, childcare, geriatric care and bone patients in 2016.

Core operation to slow down in 2013. Middle-income earners have

been affected by the Government’s first car scheme and the slowdown of the economy. As a proportion of BGH’s customers are from the middle-income segment, we expect the Company’s performance to be slightly impacted this year. Due to this, management has trimmed its revenue growth forecast for this year to 12% from 15% previously.

86

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128

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146

88

98

108

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128

138

148

158

168

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188

Bangkok Dusit Medical (BGH TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover (THBm) 23,997 36,892 47,862 49,948 55,245

Reported net profit (THBm) 2,295 4,711 7,937 7,785 8,897

Recurring net profit (THBm) 2,069 4,341 6,142 7,785 8,897

Recurring net profit growth (%) na 109.8 41.5 26.8 14.3

Core EPS (THB) 1.70 3.24 4.08 5.04 5.76

DPS (THB) 1.52 1.23 1.83 1.79 2.05

Dividend Yield (%) 1.0 0.8 1.2 1.1 1.3

Core P/E (x) 92.0 48.4 38.3 31.1 27.2

Return on average equity (%) 29.4 19.8 22.4 19.5 21.3

P/B (x) 12.2 7.2 6.2 5.9 5.7

P/CF (x) 31.7 32.5 34.8 23.3 20.1

EV/EBITDA (x) 28.1 19.9 16.4 11.9 10.8

Net debt to equity (%) 46.2 47.3 46.3 40.2 36.3

Our vs consensus EPS (%) 4.7 1.4

Bangkok Dusit Medical (BGH TB) 29 July 2013


Recommendation Chart

Source: RHB estimates, Bloomberg

0

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140

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Aug-08 Nov-09 Feb-11 May-12

Price Close

NR

126

137

175

222 Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Profit Not Rated


Date Recommendation Target Price Price

2013-06-11 Buy 222 151

2013-05-15 Buy 222 174

2013-02-28 Buy 175 149

2013-01-28 Buy 137 130

2012-10-16 Buy 137 108

2012-08-15 Buy 126 99


Platform 1

Company Update, 29 July 2013

Rojana Industrial Park (ROJNA TB) Neutral (from Buy) Property - Real Estate Target Price: THB10.55

Market Cap: USD399m Price: THB8.70

Core Business Yet To Normalise

Macro

3.00

Risks

3.00

Growth

2.00

Value

2.00

Source: Bloomberg

Avg Turnover (THB/USD) 28.7m/0.95m

Cons. Upside (%) 21.8

Upside (%) 21.3

52-wk Price low/high (THB) 8.45 - 14.2

Free float (%) 31

Shareholders (%)

Sumikin Bussan Corporation 21.0

Vinichbutr Family 30.7

Shariah compliant

Wanida Geisler 66 2862 9748

[email protected]


Rojna booked >THB2bn in extra insurance claims and a flood protection subsidy in 1HFY13. While we expect it to record THB1.3bn in earnings this year, 2HFY13 is expected to be sluggish as its core business has not yet normalised. Our new NAV of THB10.55/share reflects its existing 8,500-rai landbank, power plant (soon to be upgraded to 430MW) and 22% stake in Ticon. Downgrade to NEUTRAL.

Good news in 1HFY13. Rojana Industrial Park (Rojna)’s 2QFY13

results are expected to be robust as it will book THB1.2bn from a tax-exempt flood protection subsidy that has been approved by the Thai Cabinet. Hence, its 1HFY13 earnings will largely comprise extra gains from insurance claims in 1QFY13 and the flood protection subsidy in 2QFY13. While 1HFY13 results will be a reflection of its good news, we expect 2HFY13 to be sluggish as its core business has yet to normalise.

Core business needs time to turn profitable. Demand for land at its

industrial park in Ayudhaya, which was hit by floods in end-2011, has yet to rebound. Meanwhile, 75% of its new Prachinburi estate Phase I has been presold but the transfer of land title deeds and revenue recognition will take place only next year. We note that its Prachinburi estate is Honda (Automobile) Thailand’s second hub. Its flood-hit 260MW power plant recently resumed operations but the utilisation rate remains low. Moreover, its second condominium project in China is facing cost overruns, which will put further pressure on its bottomline.

2013F earnings comprise mainly extra gains. Because its core

business has yet to normalise, Rojna is expected to incur losses from its core operations in 2013F. However, the insurance claim, the flood protection subsidy from the Government as well as the gain from the sale of its hotel in China will help boost its 2013F bottomline to THB1.3bn. Next year, we estimate that half of the land sales at its Prachinburi estate will be realised, while its power plant – which will be upgraded to 430MW – will turn profitable.

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Rojana Ind Park (ROJNA TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover (THBm) 8,180 6,327 6,171 8,379 13,224

Recurring net profit (THBm) 647 681 7 (964) 1,448

Recurring net profit growth (%) (11.9) 5.2 (99.0) (13640.1) na

Consensus EPS (THB) 0.81 1.03

EPS (THB) 0.71 (0.52) 0.94 0.92 0.95

DPS (THB) 0.50 0.20 0.30 0.44 0.46

Dividend Yield (%) 5.7 2.3 3.4 5.1 5.3

Return on average assets (%) 3.0 (2.3) 4.0 4.1 4.9

Return on average equity (%) 12.8 (11.6) 21.3 18.3 17.7

P/E (x) 12.2 na 9.2 9.5 9.1

P/B (x) 1.68 2.21 1.79 1.68 1.56


Rojana Ind Park (ROJNA TB) 29 July 2013


New estates need time to generate revenue. Rojna’s Ayuthaya estate was

damaged by floods in end-2011 and demand for industrial land in that area has not fully recovered. Last year, it acquired 7,000 rai of land in the non-flood zones of Prachinburi and Rayong. About 75% of its total 4,000 rai of land in Phase 1 of its Prachinburi estate has been pre-sold to Honda (1,600 rai), Ticon Industrial Estate (400 rai) (TICON: TB; BUY, TP: THB24) and other auto parts suppliers (1,000 rai). With only 1,000 rai left, Rojna is accumulating land to prepare for its Prachinburi Phase II estate. Although 75% of this new estate is already sold, the transfer of land title deeds and revenue recognition will not take place until next year.

Demand for utilities has not recovered. Its 260MW power plant has resumed

operations but the utilisation rate remains low. Even though its gross margin will soon turn positive for the first time since 4QFY11, this business is likely to incur a net loss for FY13. Its new 170MW power block, which will kick in by 4QFY13, needs time to ramp up its capacity.

China condo project earns single-digit gross margin. Currently, its THB3.6bn

second condo project in Changzhou, China is facing cost overruns. Around 90% of its units have been sold and the project has been completed, but its gross margin will only be in single digits. Note that Rojna aims to close this project within this year in order to minimise any potential loss.

Joining ITD for Dawei. Rojna has agreed to collaborate with Italian-Thai

Development (ITD: TB, Not Rated) to develop the industrial estate zone of the Dawei deep sea port project in Myanmar. Rojna will hold 50% of the special-purpose vehicle (SPV) to manage the estate while ITD, which has been granted a 75-year concession to develop Dawei, will own the other half. After receiving substantial proceeds from insurance claims and the Government subsidy, Rojna is now financially healthy enough to begin this new project. Nevertheless, as the project is only at its early stage, it will be a long time before it generates any returns for the Company.

New NAV comprises appraised value of physical assets. Our previous NAV of

THB24.5bn was derived from the appraised value of its landbank, its 430MW power plant, ongoing condo project in China at a 45% gross margin, its holdings in Ticon at our previous TP of THB31, as well as the DCF of its utilities/service business.

Amid an economic slowdown, it would be more conservative to focus our valuation only on its physical assets, ie its landbank, 430MW power plant, condo project in China with only a single-digit gross margin, as well as its holdings in Ticon at a new TP of THB24. Hence, our NAV declines to THB16.9bn or THB10.55 per share.

Figure 1: Previous NAV calculation Figure 2: New NAV calculation

Landbank THB bn

1) Ayudhaya 1500 rai @ THB3-4m/rai 5.3

2) Non-flood zone 7000 rai @ THB2.5-2.8m/rai 17.5

Power 430mw (DCF) 9.7

Condo in China THB3.6bn (85% sold) 3.1

Utilities and service DCF (WACC 8%, Terminal growth 2%) 6.2

TICON 193m shares 5.8

Hotel in China 200-room priced at US$32m 1.0

Total assets 48.5

Minus: Net debt end-13 (11.1)

Cost of hotel (0.8)

Cost of condo (1.7)

Land Dev cost (11.4)

Plus: ROJNA W-2, W-3 0.9

NAV 24.5

NAV/share (THB) 15.30 (Fully diluted on 1.6b shares)

Landbank THB bn

1) Ayudhaya 1500 rai @ THB3-4m/rai 5.3

2) Non-flood zone 7000 rai @ THB2.5-2.8m/rai 17.5

Power 430mw (DCF) 9.7

Condo in China THB3.6bn (85% sold) 3.1

TICON 193m shares 4.5

Total assets 40.0

Minus: Net debt end-13 (9.8)

Cost of condo (2.8)

Land Dev cost (11.4)

Plus: ROJNA W-2, W-3 0.9

NAV 16.9

NAV/share (THB) 10.55 (Fully diluted on 1.6b shares)

Source: RHB estimates Source: RHB estimates



Financial Exhibits



Profit & Loss (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total turnover 8,180 6,327 6,171 8,379 13,224

Cost of sales (6,337) (4,909) (4,727) (7,264) (10,022)

Gross profit 1,843 1,418 1,444 1,115 3,202

Other operating costs (680) (887) (1,045) (1,089) (1,124)

Operating profit 1,163 531 399 26 2,078

Operating EBITDA 1,721 1,146 987 610 2,785

Depreciation of fixed assets (558) (615) (588) (584) (708)

Operating EBIT 1,163 531 399 26 2,078

Net income from investments 191 120 271 352 401

Other recurring income 24 13 84 50 70

Interest expense (420) (524) (625) (604) (525)

Exceptional income - net 21 (1,235) 1,214 2,381 -

Pre-tax profit 979 (1,095) 1,343 2,205 2,023

Taxation (102) - (30) (103) (53)

Minority interests (211) 541 (119) (796) (523)

Profit after tax & minorities 666 (554) 1,194 1,306 1,448

Reported net profit 666 (554) 1,194 1,306 1,448

Recurring net profit 647 681 7 (964) 1,448

Cash flow (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Operating profit 1,163 531 399 26 2,078

Depreciation & amortisation 558 615 588 584 708

Change in working capital 468 3,439 (4,611) 2,652 (150)

Other operating cash flow (991) (468) (918) 2,431 70

Operating cash flow 1,198 4,117 (4,542) 5,693 2,705

Interest paid (420) (524) (625) (604) (525)

Tax paid (102) - (30) (103) (53)

Cash flow from operations 676 3,593 (5,197) 4,987 2,127

Capex (1,717) (2,249) (6,412) 2,493 (584)

Other new investments 119 13 (178) 141 160

Other investing cash flow 51 274 274 (284) 94

Cash flow from investing activities (1,547) (1,962) (6,316) 2,350 (330)

Dividends paid (570) (687) - (733) (689)

Proceeds from issue of shares 278 764 836 400 400

Increase in debt 569 (516) 9,546 (7,221) (1,500)

Cash flow from financing activities 277 (439) 10,382 (7,554) (1,789)

Cash at beginning of period 1,120 526 1,718 587 370

Total cash generated (594) 1,192 (1,131) (217) 9

Implied cash at end of period 526 1,718 587 370 379



Financial Exhibits



Balance Sheet (THBm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Total cash and equivalents 526 1,718 587 370 379

Inventories 5,927 5,888 6,919 6,619 6,819

Accounts receivable 650 176 337 337 337

Other current assets 1,298 1,690 3,019 2,000 2,000

Total current assets 8,401 9,472 10,862 9,326 9,535

Total investments 1,796 1,903 2,352 2,563 2,803

Tangible fixed assets 10,257 12,089 17,908 14,831 14,708

Total other assets 2,728 2,488 2,691 2,705 2,720

Total non-current assets 14,781 16,480 22,951 20,099 20,231

Total assets 23,182 25,952 33,813 29,425 29,766

Short-term debt 4,237 3,512 5,786 3,500 3,000

Accounts payable 479 777 522 850 900

Other current liabilities 3,810 6,830 4,995 6,000 6,000

Total current liabilities 8,526 11,119 11,303 10,350 9,900

Total long-term debt 7,159 8,153 12,935 8,000 7,000

Other liabilities 142 82 298 298 298

Total non-current liabilities 7,301 8,235 13,233 8,298 7,298

Total liabilities 15,827 19,354 24,536 18,648 17,198

Share capital 969 1,160 1,370 1,470 1,570

Retained earnings reserve 2,617 1,405 2,657 3,231 3,990

Other reserves 1,419 1,992 2,618 2,918 3,218

Shareholders' equity 5,005 4,557 6,645 7,619 8,778

Minority interests 2,350 2,041 2,632 3,158 3,790

Total equity 7,355 6,598 9,277 10,777 12,568

Total liabilities & equity 23,182 25,952 33,813 29,425 29,766

Key Ratios (THB) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F

Revenue growth (%) 18.9 (22.7) (2.5) 35.8 57.8

Operating profit growth (%) (8.9) (54.3) (24.9) (93.5) 7884.2

Net profit growth (%) (12.0) (183.2) 0.0 9.4 10.8

EPS growth (%) (18.4) (173.0) 0.0 (2.5) 3.5

Bv per share growth (%) (14.4) (23.9) 23.5 6.9 7.9

Operating margin (%) 14.2 8.4 6.5 0.3 15.7

Net profit margin (%) 8.1 (8.8) 19.3 15.6 10.9

Return on average assets (%) 3.0 (2.3) 4.0 4.1 4.9

Return on average equity (%) 12.8 (11.6) 21.3 18.3 17.7


DPS 0.50 0.20 0.30 0.44 0.46

Recurrent cash flow per share 0.72 3.38 (4.11) 3.51 1.40



SWOT Analysis

Thailand’s third-largest industrial estate operator by sales

Well-diversified businesses in industrial estates (IE), utilities and property development

Owns 22% of Ticon, Thailand’s largest developer of ready-built factories and warehouses

Post-2011 floods, its IE in Ayuthaya will take time to regain investor confidence

Sensitive to external and internal risks

Healthy foreign direct investment (FDI) in Thailand

The bulk of earnings comes from recurring income, which provides a buffer against any downturn

New estate in Prachinburi needs time to develop

Sales are slow in Ayuthaya’s flood zone

High gearing

Source: Company data, RHB estimates Source: Company data, RHB estimates

Company Profile Rojana Industrial Park’s main businesses are in industrial estates, utilities and property development. Its industrial estates business commands the highest margins and contributes the most to its gross profit, followed by utilities. It now has four industrial estates - one in Ayuthaya, two in Rayong and one in Prachinburi - with a total landbank of 8,500 rai. Its power plant located in Ayuthaya’s Rojana Industrial Park currently has a capacity of 265MW, which will increase to 430MW in 2H13. The Group also has THB3.6bn worth of condo projects in Changzhou, China.

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Recommendation Chart


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Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Profit Not Rated

Source : RHB estimates, Bloomberg

Date Recommendation Target Price Price

2013-05-17 Buy 15.3 12.2

2013-04-23 Buy 15.3 12.3

7

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8

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Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2012

ADVANC BCP DRT IRPC NOBLE QH SC SYMC TOP AOT BECL EASTW KBANK PHOL RATCH SCB THAI TSTE ASIMAR BKI EGCO KK PS ROBINS SCC TIP TTA BAFS BMCL ERW KTB PSL RS SE-ED TIPCO

BANPU BTS GRAMMY LPN PTT SAMART SIM TISCO BAY CPN HEMRAJ MCOT PTTEP SAMTEL SIS TKT BBL CSL ICC NKI PTTGC SAT SNC TMB

2S BROOK DTAC HMPRO MACO OFM S&J SSSC THRE TSC ACAP BWG DTC HTC MAKRO OGC S&P STANLY TIC TSTH AF CENTEL ECL IFEC MBK OSIHI SABINA STEC TICON TTW AIT CFRESH EE INTUCH MBKET PAP SAMCO SUC TIW TUF AKR CGS EIC ITD MFC PDI SCCC SUSCO TK TVO AMATA CHOW ESSO IVL MFEC PE SCG SVI TLUXE UAC AP CIMBT FE JAS MINT PG SCSMG SYNTEC TMT UMI ASK CK FORTH KCE MODERN PHATRA*** SFP TASCO TNITY UP ASP CM GBX KGI MTI PJW SITHAI TCAP TNL UPOIC AYUD CPALL GC KSL NBC PM SMT TCP TOG UV BEC CPF GFPT L&E NCH PR SPALI TFD TPC VIBHA BFIT CSC GL LANNA NINE PRANDA SPCG TFI TRC VNT BH DCC GLOW LH NMG PRG SPI THANA TRT WACOAL BIGC DELTA GUNKUL LRH NSI PT SPPT THCOM TRU YUASA BJC DEMCO HANA LST OCC PYLON SSF THIP TRUE ZMICO *** PHATRA was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25, 2012.

AEONTS BGT CMO GENCO JTS LHBANK NC PTL SGP SWC TPAC UT AFC BLA CNS GFM JUBILE LHK NNCL Q-CON SIAM SYNEX TPCORP VARO AGE BNC CNT GLOBAL JUTHA LIVE NTV QLT SIMAT TBSP TPIPL WAVE AH BOL CPL GOLD KASET LOXLEY OSK QTC SINGER TCB TPP WG AHC BROCK CRANE HFT KBS MAJOR PAE RASA SIRI TEAM TR WIN AI BSBM CSP HTECH KC MATCH PATO RCL SKR TF TTCL WORK AJ BTNC CSR HYDRO KDH MATI PB RICH SMIT TGCI TWFP

ALUCON BUI CTW IFS KIAT MBAX PICO ROJNA SMK THANI TYCN AMANAH CCET DRACO IHL KKC M-CHAI PL RPC SOLAR TKS UBIS APCO CEN EASON ILINK KTC MDX POST SAM SPC TMD UEC APCS CHUO EMC INET KWC MJD PPM SCBLIF SPG TMI UIC APRINT CI EPCO IRC KWH MK PREB SCP SSC TNH UMS ARIP CIG FNS IRCP KYE MOONG PRECHA SEAFCO SST TNPC UOBKH AS CIMBI*** FOCUS IT LALIN MPIC PRIN SENA STA TOPP UPF ASIA CITY FSS JMART LEE MSC PSAAP SF SVOA TPA US

*** CIMBI was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25, 2012.

IOD (IOD Disclaimer)

การเปิดเผลผลการส ารวจของสมาคมส่งเสริมสถาบันกรรมการบรษิัทไทย (IOD) ในเรื่องการก ากับดูแลกิจการ (Corporate Governance) นี้เป็นการด าเนินการตามนโยบายของส านักงานคณะกรรมการก ากับหลักทรัพย์และตลาดหลักทรัพย์ โดยการส ารวจของ IOD เป็นการส ารวจและประเมินจากข้อมูลของบรษัทจดทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทยและตลาดหลกัทรัพย์เอ็มเอไอ ที่มีการเปิดเผยต่อสาธารณะและเป็นข้อมูลที่ผูล้งทุนทั่วไปสามารถเข้าถงึได้ ดังนั้นผลส ารวจดังกล่าวจึงเป็นการน าเสนอในมุมมองของบุคคลภายนอกโดยไม่ได้เป็นการประเมินการปฏิบัติและมิได้มีการใช้ข้อมูลภายในในการประเมิน

อนึ่ง ผลการส ารวจดังกล่าว เป็นผลการส ารวจ ณ วนัที่ปรากฎในรายงานการก ากับดแูละกิจการบริษัทจดทะเบียนไทยเท่านั้น ดังนั้นผลการส ารวจจึงอาจเปลี่ยนแปลงได้ภายหลังวันดังกล่าว ทัง้นี้บริษัทหลักทรัพย์ อาร์เอสบี โอเอส เค จ ากัด (มหาชน) มิได้ยืนยันหรือรับรองถึงความถูกต้องของผลการส ารวจดงักล่าวแต่อย่างใด

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