THAI: Capital increase via public offering

Today’s company update


THAI: Capital increase via public offering

News:

Regarding THAI’s capital increase, the number of newly issued shares is 483.89 million shares (ms) while the offering price is set at Bt 31 a piece. The allotments are as follows:

1) Ministry of Finance 246.933 ms

2) Existing shareholders 221.831 ms at ratio of 1 old share to 0.2667 new shares

3) Retail investors 15.106 ms.

Recommendation & Valuation

Although THAI’s capital increase might have some impact from EPS dilution resulting to lower our PER-derived target price (from Bt 37.75 to Bt 36.75). However, as Baht to US$ is stronger than our expectation, THAI should benefit from this currency movement. For every Bt 1/US$ strengthening other things being equal, we estimate the company’s earnings will increase by around 9%. As such, we are reviewing our earnings projection and target price for ’11. However, for existing shareholders and retail investors, we recommend subscribing the offered shares as the offering price of Bt 31 provides attractive upside of 18%.

Small bank: Outlook update for small banks

Auto H/P loan continues strong

Car sale growth +52% YoY in Aug and +54% YoY for 8M10: Domestic car sales continue strong in Aug-10 with total car sales of 65,724 units, increasing 52% YoY (but flat MoM). Meanwhile, the cumulative car sales (8M10) was 488,088 unit, up by 54% YoY

TISCO and KK is our pick

TISCO and KK valuations and div yield is attractive. Currently, TISCO is trading at PER of 9.1x/10.5x and PBV of 1.8x/1.7x of ‘10F/’11F earnings. Meanwhile, KK is presenting PER of 6.5x/8.9x and PBV of 0.7x/0.7x in ‘10F/11F. Assuming dividend payout at 60% for TISCO and 50% for KK, its current offers dividend yield of 7% for TISCO and 6% for KK.

Technical Analysis

However, the index’s pattern has not lost its rising trend, with the main support at 900 points performing well. The index was able to bounce from the 25-day EMA line along with the appearance of a Hammer sign.

Let Punch! - BUY (CENTEL, LH, HMPRO)

Thailand Telecom : Positive sign regarding Court ruling on CAT labor union petition

News: According to Krungthep Thurakij, the Administrative Court will announce today (postponed from yesterday) whether the Court will accept a petition filed by CAT’s labor union against the 3G auction. However, the Court stated that an emergency protection ruling would not happen as the auction has not yet taken place and no damage has occurred.


Comment:

? The preliminary comments from the Court are positive for the sector, implying that the risk of the 3G auction being suspended is minimal.

? In addition, the chance that the Court will dismiss the petition of the labor union is high given that the labor union itself is not considered a party directly impacted by the auction. Earlier, the Court rejected several lawsuits filed by TOT’s labor union.

? Lawsuits from parties that would be directly impacted, like CAT Telecom and the TOT, appear unlikely. There is still no progress from the CAT/TOT sides. Objections from both state telecom enterprises have diminished as the government, the major shareholder of both firms, has shown its support for the upcoming auction.


Recommendation: This should reaffirm the viability of the 3G auction on 20-28 Sep. We maintain our Trading Buy recommendation for both ADVANC (TP of Bt110/sh) and DTAC (TP of Bt60/sh). In the near term, despite less upside to the target price, ADVANC appears attractive to us for two reasons (1) the highest possibility of securing one license (2) its underperformance of 15% compared to the SET and 17% to DTAC.

SET is on track for 1,000 points

SET is on track for 1,000 points


Despite the impressive SET index rally of 24% YTD versus a negative return of (-3.8%) for MSCI ex Japan (and -6.0% for S&P), SET valuation is still inexpensive at 12x compared with the regional average at 14.2x. Note that since our recent index upgrade to 1,000 points (based on PER of 13.5X) in late July, the SET has already rallied by nearly 10%.

Decoupling is possible under no global recession case

Weak economic readings from the US continue to dampen investor confidence about the outlook of the economy and raise concern about a double-dip recession at the global level. Nonetheless, with the Fed’s recession gauge remaining at the rock-bottom level, we think Asian economies and Thailand will be able to diverge their economic trend from those of the US and EU (G2). The main driver for growth in Asia is not only much-improved intra-regional trade, but also sound domestic economies. As far as the Thai economy is concerned, overall growth will be driven by solid recovery in domestic consumption and investment, which will push GDP growth to 7.5% YoY this year and 5.5% in 2011. Nonetheless, our assumption requires some measure of stability in the political environment over the next 18 months.

Our top picks:

Our top stock picks for the month remain domestic plays, which should benefit from the new spending/investment cycle. We think real fundamental factors such as the government budget, employment market, wealth stream, as well as sentiment related stories, will accelerate the above trend growth (pent-up demand) and lead to the recovery of pricing power and corporate profitability expansion. Our 2011 earnings growth projection for the related sectors is attractive at 15-20%, while we still foresee the potential for further upgrades. Based on this theme, we prefer Banks, Construction and Consumer plays, such as BAY, TSTH, CK, LPN and ROBINS.