1. finance
2. bank

Regional Daily, 8 January 2015
5
Regional Daily
Ideas Troika
Top Stories
Kasikornbank (KBANK TB)
Financial Services - Banks
Buy THB218.00 TP: THB264.20
Mkt Cap: USD15,863m
Pg2
KBank expects to report for 4Q14 healthy loan growth as well as stable NIM
and credit costs. Maintain BUY and THB264.20 TP. Management made no
changes to its 2015 targets despite concerns of a prolonged economic
downturn.
Analyst: Fiona Leong ([email protected])
Bangkok Bank (BBL TB)
Financial Services - Banks
Buy THB192.00TP: THB220.00
Market Cap: USD11,114m
Mkt Cap: USD11,114m
Pg3
We expect BBL to report for 4Q14 a sequential pickup in loan and deposit
growth, slightly higher-than-expected provision charges and a 10bps drop in
net interest margin. Maintain BUY and THB220.00 TP (15% upside).
Analyst: Fiona Leong ([email protected])
Strategy - Thailand
Pg4
The ten tycoons profiled in this report control listed assets worth USD80bn or
18% of the Thai equities market. Generally, the more focussed groups such
as Pruksa (property) and BGH (healthcare) outperformed the larger, more
diversified groups such as Central, CP, and TCC (Thai Bev) Groups.
Analyst: Athaporn Arayasantiparb ([email protected])
Pg5
Vote Of Confidence By Leading Venture Capital Firms.
Other Key Stories
Hong Kong
NetDragon (777 HK)
Technology - Software & Services
HKD13.38
Neutral HKD14.52 TP: HKD13.38
Malaysia
CARiNG Pharmacy (CARING MK)
Consumer Non-cyclical - Healthcare
Neutral MYR1.19 TP: MYR1.27
Analyst: Yujie Li ([email protected])
0
Pg6
Moving Forward With Care
2
2
Analyst: Alexander Chia ([email protected])
.
.
0
0
0
0
2
2
.
.
0
0
0
0
See important disclosures at the end of this report
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1
Company Update, 6 January 2015
Krung Thai Bank (KTB TB)
Buy (Maintained)
Financial Services - Banks
Market Cap: USD9,365m
Target Price:
Price:
THB26.00
THB22.10
Macro
Risks
Expect Slight Beat Of 4Q14 Earnings Estimate
Growth
Value
Krung Thai Bank Plc (KTB TB)
Relative to Stock Exchange of Thailand Index (RHS)
124
22.0
118
20.0
113
18.0
107
16.0
101
14.0
180
160
140
120
100
80
60
40
20
95
Sep-14
Jul-14


Source: Bloomberg
Avg Turnover (THB/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (THB)
Free float (%)
Share outstanding (m)
Shareholders (%)
Financial Institution
Development Fund
State Street Bank Europe Ltd
791m/24.2m
17.6
17.7
15.8 - 24.4
45
13,976


55.1
4.8
Thai NVDR
4.7
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
(2.7)
(8.3)
(6.8)
0.9
41.7
Relative
(2.7)
(2.0)
(2.2)
0.8
19.4
Shariah compliant

Loan growth gained momentum in 4Q14. Krung Thai Bank (KTB)
recorded net loan growth of 8.1% YTD (bank level) for 11M14,
translating into annualised growth of 8.8%. This is an acceleration from
the 5.9% annualised growth achieved for 9M14 and is ahead of
management’s targeted 2014 loan growth of 5-7%.
Deposits surged 13.2% in two months. Deposits jumped 13.2%,
between Sep and Nov 2014, lifting YTD growth to 14.4% for 11M14
(9M14: +1% YTD). Management attributed the strong growth to the
bank’s successful deposit campaigns. This lowered its loan-to-deposit
ratio (LDR) to 83% in Nov 2014 (Sep 2014: 94.6%). To ensure that the
improved liquidity does not become a drag on net interest margin (NIM),
management intends to: i) reduce the bank’s interbank borrowings, and
ii) boost loan growth via increased working capital loans to the small and
medium-sized enterprise (SME) segment and expansion of its retail
customer base. Management believes KTB’s LDR will rise to the low90% in 2015.
Fee income to be flat in 4Q14. Management guided that fee income will
be similar to the THB6.90bn (-4% QoQ) achieved in 3Q14. Management
attributed the still-weak fee income trend to the country’s sluggish
economic conditions.
Non-performing loans (NPLs) stabilising. NPLs, which rose 8% QoQ
in 3Q14, have started to stabilise in 4Q14. Still, management indicated
that 4Q14 provision charges will likely be similar to the THB2.82bn
booked in 3Q14.
4Q14 net profit likely to be beat our forecast, albeit slightly. Our
projected FY14 net profit of THB32.83bn implies 4Q14 earnings of
THB7.66bn (-18% QoQ). We believe KTB will likely post net profit that
will be slightly higher than our estimates, given our more conservative
assumption on provision charges.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Net interest income (THBm)
58,122
64,481
69,257
74,306
80,530
Reported net profit (THBm)
23,366
33,929
32,832
38,438
43,510
37.4
45.2
(3.2)
17.1
13.2
23,366
33,929
32,832
38,438
43,510
Recurring EPS (THB)
1.97
2.43
2.35
2.75
3.11
DPS (THB)
0.73
0.88
0.95
1.12
1.20
Recurring P/E (x)
11.2
9.1
9.4
8.0
7.1
P/B (x)
1.69
1.50
1.35
1.23
1.11
Net profit growth (%)
Fiona Leong +603 9207 7638
[email protected]
Recurring net profit (THBm)
Dividend Yield (%)
3.3
4.0
4.3
5.1
5.4
Return on average equity (%)
14.9
17.4
15.1
16.0
16.4
Return on average assets (%)
1.1
1.4
1.3
1.4
1.4
(1.8)
2.5
2.3
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
3
0
0
.
2
0
0
For the soon-to-be released 4Q14 results, we expect KTB to report .
0
healthy loan growth, a surge in deposits, stable provision charges but 0
flattish non-interest income. Maintain BUY and THB26.00 TP (17.7% 0
upside), valuing stock at 1.4x FY15 P/BV. We believe KTB would likely
beat our 4Q14F earnings of THB7.66bn, albeit slightly, given our more
conservative assumption on provision charges.
Nov-14
24.0
May-14
130
Mar-14
26.0
Jan-14
Vol m
Price Close




Source: Company data, RHB
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2
Results Preview and Company Update, 8 January 2015
Bangkok Bank (BBL TB)
Buy (Maintained)
Financial Services - Banks
Market Cap: USD11,114m
Target Price:
Price:
THB220.00
THB192.00
Macro
Risks
Ending 2014 On a Stronger Note
Growth
Value
Bangkok Bank (BBL TB)
Price Close
Relative to Stock Exchange of Thailand Index (RHS)
220
102
210
99
200
96
190
93
180
90
170
87
160
30
84
20

15

Nov-14
Sep-14
Jul-14
May-14
Mar-14
5
Jan-14
Vol m
10
Source: Bloomberg
Avg Turnover (THB/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (THB)
Free float (%)
Share outstanding (m)
Shareholders (%)
Thai NVDR
State Street Bank and Trust
Company
803m/24.6m
20.8
14.9
169 - 215
66
1,909


30.8
3.3

Share Performance (%)
YTD
1m
3m
6m
Absolute
(1.3)
(4.0)
(2.8)
(2.8)
12m
7.6
Relative
0.1
3.5
1.2
(1.1)
(9.4)
Shariah compliant
Ending 2014 with 1-2% loan growth and... A seasonal pickup in loan
demand in 4Q would see BBL post loan growth of 1-2% for 2014 (Sep
2014: -0.6% YTD). Management expects loan growth to strengthen in
2016 and 2017 on a rebound in the economy and the rollout of
infrastructure projects. For 2015, BBL would focus on the small- and
medium-sized enterprise (SME) segment to mitigate weak loan demand
from large corporates and medium-sized companies.
…5-6% deposits growth. BBL went on an aggressive deposit
accumulation mode in 4Q14 that led to deposit growth of 5-6% for 2014
(9M14: -0.8% YTD), while loan-to-deposit ratio (LDR) improved to 8687% (Sep 2014: 90.7%).
But net interest margin (NIM) fell 10bps QoQ in 4Q14 on higher
interest expense arising from the deposit campaigns. The increased
marketing and promotional expenses would also see 2014 operating
expenses rise by c.12% YoY.
Fee income grew 2-3% QoQ in 4Q14 on higher sales of mutual funds
and bancassurance products, but loan-related and transactional fees
remained flattish. For 9M14, BBL saw a 1% YoY dip in net fees and
services income due largely to lower stock market volumes.
Provision expenses 6% higher than THB8.5bn guidance for 2014.
Extra provisions on the back of strong 4Q14 loan growth and the
restructuring of a corporate loan (which would be completed in 1Q15)
would see BBL close 2014 with provision charges of THB9.0bn.
Elsewhere, asset quality remains solid with gross non-performing loans
(NPL) ratio maintained at 3Q14’s level of 2.65%.
4Q14 earnings to meet expectations. Our projected FY14 net profit of
THB36.84bn implies 4Q14 earnings of THB9.27bn (-3% QoQ). We
expect 4Q14 net profit to fall within our estimate.
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Net interest income (THBm)
54,952
55,879
59,500
62,500
67,500
Reported net profit (THBm)
31,847
35,906
36,837
40,607
45,708
16.5
12.7
2.6
10.2
12.6
31,847
35,906
36,837
40,607
45,708
Recurring EPS (THB)
16.7
18.8
19.3
21.3
23.9
DPS (THB)
6.50
7.52
7.80
8.50
9.50
Recurring P/E (x)
11.5
10.2
9.9
9.0
8.0
P/B (x)
1.34
1.24
1.14
1.06
0.98
Net profit growth (%)
Fiona Leong +603 9207 7638
[email protected]
Recurring net profit (THBm)
Dividend Yield (%)
3.4
3.9
4.1
4.4
5.0
Return on average equity (%)
12.3
12.6
12.0
12.2
12.7
Return on average assets (%)
1.4
1.4
1.4
1.5
1.5
(0.2)
0.5
0.3
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
1
0
0
.
3
0
0
From management’s 4Q14 preview, we expect Bangkok Bank (BBL) to .
0
report a sequential pickup in loan and deposit growth, slightly higher- 0
than-expected provision charges and a 10bps drop in net interest 0
margin. Maintain BUY and THB220.00 TP (15% upside), which values
the stock at 1.2x FY15F P/BV (historical mean: 1.2x). At the current
price, BBL trades at undemanding 1.1x P/BV (-0.5SD historical mean).

25




Source: Company data, RHB
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3
Strategy, 8 January 2015
d
Strategy - Thailand
Overweight
Macro
Risks
The Ten Tycoons
Growth
Value
P/E band chart for SET index
Listed assets linked to Thailand’s ten richest families, based on our
selection criteria, are worth approximately USD80bn or 18% of the value
of the Thai stock market. By helping foreign investors learn more about
the quirks, strengths, and weaknesses of these influential business
groups, we aim to reduce a disadvantage they may face when investing
in Thailand, where local investors enjoy an obvious information
advantage.

Source: Bloomberg
P/E band chart for Central Pattana

Source: Bloomberg
P/E band chart for CP Foods
Source: Bloomberg
Unless otherwise mentioned, all share price data as at close on
26 December 2014

Ten tycoons of many stripes. We highlight ten of Thailand’s wealthiest
families who continue to have sizable exposure to equities market. While
consumer-related businesses (food & beverage, retailing) dominate the
list, there is also strong representation from other sectors such as
banking and healthcare. Two of Thailand’s top ten most valuable
companies, Bangkok Bank (BBL TB, BUY, TP: THB220.00) and CP All
(CPALL TB, TRADING BUY, TP: THB48.00), are still linked to these
business families.
Strategic focus pays off. Though the value of listed assets linked to
these business groups rose only 12% in 2014 (vs a gain of 15% for the
Thai equities market), it was largely skewed by the performance of two
large groups which controlled the CP Group and Thai Beverage (THBEV
SP, NR). Many business groups that focused on a narrower array of
businesses saw their wealth grow at a much greater pace than the
broader market. Apart from their strategies, we also look at their winning
corporate cultures and favourable market positions.
Family champions. In addition, we also highlight some BUY ideas
linked to the business families. Pruksa (PS TB, BUY, TP: THB43.00)
could benefit from the country’s lower interest rates given its leadership
in the low-end housing segment. Increasingly, there are signs that MK
Restaurants (M TB, BUY, TP: THB75.00) may see a turnaround in its
negative same-store sales growth (SSSG). Though Bangkok Bank may
not be our Top Pick in the sector, it does have some redeeming factors.
The bank’s high level of conservatism bolsters its balance sheet strength
during periods when credit risk may rise. Central Pattana (CPN TB, BUY,
TP: THB62.00) will benefit the most once the Chirathivat family – its
majority shareholder – is aggressively growing the retail business.
Central Pattana is a landlord, developing department stores for brands
like Central and Robinson Department Store (ROBINS TB, NEUTRAL,
TP: THB62.00) and also manages the rental space and shopping
centers within those same malls. We believe that their business model is
relatively defensive and financially sound.
Stock Highlights
Com pany Nam e
Athaporn Arayasantiparb, CFA, +65 6232 3884


1

1

1




Bangkok Bank
Price
Target
THB192.50 THB220.00
P/E (x)
P/B (x)
Yield (%)
Dec-15F
Dec-15F
Dec-15F
9.1
1.1
4.4
BUY
Central Pattana
THB44.50
THB62.00
24.2
4.1
Charoen Pokphand
THB27.25
THB34.00
14.0
1.7
2.0
BUY
MK Restaurants Group
THB57.50
THB75.00
19.4
3.8
4.1
BUY
Veena Naidu License No. 24418, 66 2862 9752
Pruksa Real Estate
THB27.75
THB43.00
8.4
1.8
3.6
BUY
[email protected]
Source: Company data, RHB. Date as of 26 Dec 2014.
[email protected]
See important disclosures at the end of this report
-
Rating
BUY
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4
1
Corporate News Flash, 8 January 2015
NetDragon (777 HK)
Neutral (Maintained)
Technology - Software & Services
Market Cap: USD936m
Target Price:
Price:
HKD13.38
HKD14.52
Macro
Risks
Vote Of Confidence By Leading Venture Capital Firms
Growth
Value
NetDragon (777 HK)
Relative to Hang Seng Index (RHS)
17.0
99
16.0
92
15.0
86
14.0
80
13.0
74
12.0
67
11.0
16
14
12
10
8
6
4
2
61
0
0
.
2
0
0
What’s new?
.
0
0
NetDragon (ND) announced on 6 Jan that its online education subsidiary, 0
BAE, issued preferred shares for a total consideration of USD52.5m
(HKD409.5m) to IDG Capital Partners (USD20m), Vertex Venture (a whollyowned subsidiary of Temasek Group) (USD10m), Alpha Animation (USD6m),
ND (USD10m) and others (USD6.5m). ND’s stock price went up 8.2%
yesterday on this announcement. Upon closing of this transaction, BAE is
70.16% owned by ND, 4.19% by IDG, 2.09% by Vertex, and 1.25% by Alpha
Animation, assuming full conversion of the preferred shares and all ordinary
shares are issued pursuant to the Share Award Scheme to staff and
consultants.
Our view:


Nov-14
Jul-14
Sep-14
105
May-14
111
18.0
Mar-14
19.0
Jan-14
Vol m
Price Close
Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
DJM Holdings
IDG
12.4m/1.48m
19.3
-7.9
11.8 - 18.4
38
500
49.4
11.9
Share Performance (%)


2

.
2
0
.
2





This should be the largest transaction in China’s education space
over the last two years in terms of the amount of dollars raised and
implied valuation, according to our check through media reports. The
transaction valued BAE at USD477.5m. ND told us that it will consider
another round of fund raising in future but will maintain its controlling
status to the end.
Vote of confidence. We believe there are mainly three reasons for IDG
and Vertex to invest in BAE: i) they believe that China’s online education
market has huge potential, ii) as IDG and Vertex were both investors of
91Wireless which ND sold previously, they know ND’s chairman well and
trust his ability to build another successful platform business, iii) ND has
expertise and strength in building online platforms and is putting more
than half of its resources in its online education business. Alpha
Animation is a strategic investor of BAE as its animation solutions may
add value to ND’s online education products and platform.
Maintain NEUTRAL but keep a close watch. We maintain NEUTRAL
on ND as its online education business has not generated revenues in
scale yet. ND has pilot launched its online education device and is
making progress in content acquiring and partnership building. Our TP of
HKD13.38 (implying 7.9% downside) consists of HKD7.80/share for its
gaming business and HKD5.60/share for its cash. If we factor in the
online education business, ie add the value of ND’s 70.16% stake in
BAE based on the transaction implied value (USD477.5m for 100% of
BAE), our TP could be HKD18.40.
YTD
1m
3m
6m
12m
Absolute
6.3
16.7
7.1
(0.7)
(14.9)
Forecasts and Valuations
Dec-12
Dec-13
Relative
5.8
17.9
5.8
(1.5)
(19.3)
Total turnover (CNYm)
826
885
934
1,024
1,115
Reported net profit (CNYm)
282
6,141
242
262
313
Recurring net profit (CNYm)
282
122
256
262
313
Recurring net profit growth (%)
68.9
(56.8)
109.8
2.6
19.1
Recurring EPS (CNY)
0.55
0.23
0.50
0.51
0.61
DPS (CNY)
0.22
0.32
0.33
0.36
0.43
Recurring P/E (x)
21.3
49.6
23.3
22.7
19.1
P/B (x)
4.24
1.28
1.24
1.22
1.19
P/CF (x)
10.0
74.6
19.4
17.9
14.9
1.9
2.8
2.9
3.1
3.7
EV/EBITDA (x)
14.0
8.5
8.8
8.2
5.9
Return on average equity (%)
19.5
204.4
5.2
5.4
6.4
Shariah compliant
Yujie Li +852 2103 5680
[email protected]
Dividend Yield (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report
Source: Company data, RHB
Dec-14F Dec-15F Dec-16F
net cash net cash net cash net cash net cash
(20.3)
(27.7)
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(21.1)
5
Company Update, 8 January 2015
CARiNG Pharmacy (CARING MK)
Neutral (from Sell)
Consumer Non-cyclical - Healthcare
Market Cap: USD72.8m
Target Price:
Price:
MYR1.27
MYR1.19
Macro
Risks
Moving Forward With Care
Growth
Value
Caring Pharmacy (CARING MK)
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
107
1.90
99
1.70
90
1.50
82
1.30
73
1.10
65
0.90
5
5
4
4
3
3
2
2
1
1
56
Sep-14
May-14
0
0
.
2
0
0
We view Caring’s commitment to 10 new outlets in 2015 and increasing .
0
retail presence vis-à-vis its peers as positive for the long run. We 0
upgrade our call to NEUTRAL (from Sell) with an unchanged MYR1.27 0
TP (6.7% upside) pegged to 16x 2015F P/E. However, we reiterate our
cautious stance on the near-term outlook for this stock due to intense
competition and cost pressures.


Nov-14
2.10
Jul-14
116
Mar-14
2.30
Jan-14
Vol m
Price Close

Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
Motivasi Optima Sdn Bhd
Jitumaju Sdn Bhd
0.17m/0.05m
52.9
6.97
1.07 - 2.23
31
218
50.4
18.1
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
0.0
0.8
(32.4)
(46.6)
(37.7)
Relative
1.4
1.5
(26.7)
(38.7)
(32.3)



A quick update. Management recently said it was committed to opening
about 10 new outlets in 2015. These outlets are to be located in strategic
and densely populated urban areas around the Klang Valley, in line with
its new expansion strategy. Caring Pharmacy (Caring) currently has a
strong foothold in urban middle class areas like Damansara, and
Bangsar. The group plans to operate a total of 115-120 outlets by 2016.
Industry development. Our recent observation on Caring’s major
competitors – Cosway (M) SB (Cosway) and Guardian Health & Beauty
SB (Guardian) – has shown a reduction in outlet numbers in major states
like Kuala Lumpur and Selangor. We believe this is due to the
competition from independent pharmacies and the high costs incurred in
maintaining pharmacists at these outlets. Caring has now surpassed
Guardian with 102 outlets vs 99 respectively. Meanwhile, Cosway
remains in the lead with 138 outlets.
Goods and services tax (GST) is a minimal concern. We expect
Caring to experience minimal impact from the implementation of the
GST. This is due to the healthcare demand being inelastic. Hence, we
expect the group’s sales to remain steady post GST.
Risks. We remain cautious on: i) increasing price competition, ii)
underperformance of new outlets, iii) rising operating costs – personnel
and marketing, and iv) scarcity of good new locations.
Forecasts. We make no changes to our forecasts at this juncture.
Upgrade to NEUTRAL. We upgrade Caring to NEUTRAL (from Sell)
with an unchanged MYR1.27 TP pegged to 16x 2015F P/E. We believe
the recent selldown of its shares has priced in the two consecutive
quarterly earnings disappointments and the weakness in the financial
market. We view the group’s increasing presence in the retail pharmacy
market vis-à-vis its peers as positive, in the long run. However, the
operating environment remains challenging in the near term.
Forecasts and Valuations
Shariah compliant
Alexander Chia +603 9207 7621
[email protected]


2

.
2
0
.
2




May-13
May-14
321
338
367
395
401
Reported net profit (MYRm)
20.6
16.1
16.6
18.1
19.5
Recurring net profit (MYRm)
20.6
16.1
16.6
18.1
19.5
Recurring net profit growth (%)
12.5
(21.8)
3.1
9.0
8.2
Recurring EPS (MYR)
0.09
0.07
0.08
0.08
0.09
Total turnover (MYRm)
May-15F May-16F May-17F
Recurring P/E (x)
12.6
16.1
15.6
14.3
13.3
The Research Team +603 9207 7663
P/B (x)
2.60
2.30
2.01
1.76
1.53
[email protected]
P/CF (x)
25.2
9.9
11.8
10.4
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report
Source: Company data, RHB
na
7.1
74.3
8.5
7.5
6.1
41.2
15.1
13.7
13.1
12.4
net cash
net cash
net cash
net cash
net cash
(49.5)
(42.1)
(34.4)
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RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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