Thanachart Securities

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1 Friday, January 4, 219 Current Market Net Trade Index vs Market data Close % Δ Net Trade (Bt bn) Prev. -1M YTD (index) index (LHS) (index) Index 1, % Foreign ,9 (RHS) 8 Turnover (Bt m) 39, % Retail ,8 7 Mkt Cap (Bt bn) 15, % Institutes ,7 Stock Gainers 53 stocks Proprietary ,6 6 Stock Losers 658 stocks 1,5 5 Note: Data for Market only 1,4 4 Jan-17 Jul-17 Dec-17 Jun-18 Dec-18 Thanachart Securities TOP STORY (BUY) Good recovery momentum We expect a decent recovery of s 7-Eleven and subsidiary MAKRO s domestic business in 4Q18F, and for this to confirm the company s hiccup year in 218 is over. This, along with being a key beneficiary of election and government stimulus spending, leads us to reaffirm our BUY call on, a country and sector top pick. Market Valuation Market data 218F 219F 22F PE (x) Norm EPS growth (%) EV/EBITDA (x) P/BV (x) Yield (%) ROE (%) Net D/E (x) Major Indices Close Δ % Δ 22, % NASDAQ 6, % FTSE 6, % SHCOMP () 2, % 25, % FTSSI () 3, % KOSPI 1, % JCI () 6, % MSCI Asia % % Currency /Bond data Close Δ % Δ Dollar index % Bt/US$ % 1JPY/US$ % 1Y bond yield (TH) % 1Y treasury yield (US) % Commodities Close Δ % Δ NYMEX (US$/bbl) % BRENT (ICE) (US$/bbl) % DUBAI (US$/bbl) % Baltic Dry Index 1, % Baltic Supramax Index % GRM (US$/bbl) % Gold (US$/oz) 1, % Coal (Newcastle)* % (US$/tonne)* (US$ cent/lb)** HDPE-Naphtha % Ethylene-Naphtha % PX-Naphtha % BZ-Naphtha % Steel-HRC % Rubber SICOM TSR2 1, % Rubber TOCOM 1, % Raw Sugar** % White Sugar** % Source: Thanachart, Bloomberg Please note that due to the interest of timeliness, this product was not edited.

2 BUY (Unchanged) TP: Bt 86. (Unchanged ) 3 JANUARY 219 New Information Upside : 22.% CP ALL Public Co Ltd ( TB) Good recovery momentum Thanachart Securities We expect a decent recovery of s 7-Eleven and subsidiary MAKRO s domestic business in 4Q18F, and for this to confirm the company s hiccup year in 218 is over. This, along with being a key beneficiary of election and government stimulus spending, leads us to reaffirm our BUY call on, a country and sector top pick. 7-Eleven looks back on track We expect strong 7-Eleven business momentum in 4Q18F with 2% same-store sales growth (SSSG), margin expansion and more new store openings. Unscathed by a drop in Chinese tourists, the business is being driven by the success of the Line Friends stamp promotion, many local festivals that increase customer traffic, and stronger beverage sales, particularly from All Café (boosted by the hot weather and All Café outlet expansion from 4,6 in 4Q17 to 5,6 in 3Q18, and more in 4Q18). 7- Eleven branch openings ended the year slightly above s target of 7 new stores, or a 7% increase y-y. Earnings upside for MAKRO in 4Q18F MAKRO s SSSG turned positive in November last year after negative numbers in 2Q-3Q18, whereas gross margins on merchandise sales will likely have started to widen after being pressured by lower butchery and agricultural prices in 1H18. While the momentum of MAKRO s domestic business has improved and could beat our forecast, its overseas business loss may be lower q-q on a delay in launching another branch in (see below), and the high spending and tourist season in Cambodia. We foresee some potential upside to our 4Q18F profit estimate for MAKRO of Bt1.6bn, down 14% y-y, implying less of a drag on s 4Q18F profit, which we estimate to fall 5% y-y. Third n store postponed MAKRO currently operates three branches outside : one in Cambodia and two in. The launch of its third n store has been put off from 4Q18 to 1Q19 due to a delay in being awarded a license. Since larger losses tend to be incurred in the store ramp-up period, any opening delays could lead to lower overseas losses vs. our projections, which we estimate to peak at Bt943m this year, before falling to Bt854m next year, Bt639m in 221F, and Bt43m in 222F. Store launches in other countries face uncertainties in finding decent locations and getting licenses. We see our new store assumptions as quite aggressive, ie, the same as its expansion plan (see Exhibit 1). Though the launch costs for the third n store will be put off, there could be other launch delays (we assume 11 new overseas branches in 219F). Limited downside risk to our earnings We expect gross margins to recover from 4Q18F, less of a hit to 7-Eleven s bill payment service from banks waiving online fees, a potential consumption boost from government stimulus spending, while we also don t foresee any new negative factors. As such, downside risk to our respective 219-2F EPS growth of 12% and 2% y-y appears limited. We reaffirm our BUY call and DCFbased 12-month TP of Bt86/share. COMPANY VALUATION PHANNARAI TIYAPITTAYARUT phannarai.von@thanachartsec.co.th Y/E Dec (Bt m) 217A 218F 219F 22F Sales 489, ,14 589, ,984 Net profit 19,98 2,612 23,42 27,392 Consensus NP 2,857 23,674 27,184 Diff frm cons (%) (1.2) (2.7).8 Norm profit 19,98 2,612 23,42 27,392 Prev. Norm profit 2,612 23,42 27,392 Chg frm prev (%)... Norm EPS (Bt) Norm EPS grw (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div yield (%) ROE (%) Net D/E (%) PRICE PERFORMANCE (Bt/shr) (%) 1 Rel to Index (5) (1) 5 (15) Jan-18 May-18 Sep-18 Jan-19 COMPANY INFORMATION Price as of 3-Jan-19 (Bt) 7.5 Market Cap 19,692.4 Listed Shares (m shares) 8,983.1 Free Float (%) 56.4 Avg Daily Turnover M Price H/L (Bt) 9./63. Sector Commerce Major Shareholder CP Group 33.89% Sources: Bloomberg, Company data, Thanachart estimates Please see the important notice on the back page

3 NEWS CLIPPING Govt admits poll date to be delayed : Politics can't overlap with HM's coronation. The election date will likely be delayed from Feb 24 to avoid having poll-related activities overlapping with those of the coronation ceremony, Deputy Prime Minister Wissanu Krea-ngam said yesterday. Stronger baht 'will hurt exporters and farmers': Exporters are worried about the baht appreciating against the US dollar, fearing it will hit exports and farm incomes amid the slowing of both the local and global economies. Govt throws ball in EC's court while suggesting a month's delay in elections : The junta-backed government yesterday tossed a hot potato toward the Election Commission (EC), putting the onus on the agency to decide the date of the general election taking into account the preparations for the royal coronation ceremony, while suggesting a month's delay from the tentatively scheduled February 24. Analysts: Election to sour sentiment : Delay past mid-year may cause negativity. Investment sentiment in 's capital market may turn negative if the general election is delayed until the end of the second quarter or the second half, says the Investment Analysts Association (IAA). Officials to keep an eye on food prices : The Commerce Ministry pledges to shore up key farm products this year if their prices fall below targets set by the ministry. Brown Line monorail gets nod under PPP framework : The 22-kilometre Brown Line monorail project linking Khae Rai in Nonthaburi and Lam Sali in Bangkok worth billion baht will be developed under the publicprivate partnership (PPP) model. Hunt for yield, fragile property market high on BOT watch list : The Bank of (BOT) is keeping watch on risks to the financial system posed by factors ranging from investors' search for yield and fragility in the property market to high household debts and increasingly large swings in capital movements. IPO market tipped to stage rebound : Despite the gloom that set in over the market for initial public offerings (IPO) late last year, most investment experts expect more deals to come in this year - especially on the junior board Market for Alternative Investment (MAI). SCB, KBank take cue from BoT, hike fixed-deposit rates : Siam Commercial Bank (SCB) and Kasikornbank (KBank) have raised their fixed-deposit rates by 25 basis points, following in the footsteps of Government Savings Bank (GSB), which partly passed through the central bank's higher rate in December. KBank to pour Bt8bn into startups : has plans to inject Bt8 billion into Chinese startups within the next five years in order to utilise disruptive technology to support the digital bank. Urgent need for industry to speed up technology change, KPMG study finds : The fourth industrial revolution (Industry 4. or i4.) requires transformational change at a pace that the majority of manufacturers will fail to meet if they continue on their current trajectory, according to new research from KPMG International. THANACHART SECURITIES 3

4 Market data Close Δ % Δ PRICE CHANGE - MOST ACTIVE Index 1, % Change 1 Day (%) Change 1 Week (%) 5 Index 1, % 1 Index 2, % MAI Index % Economic data Current -1M -3M BEAUTY KT B GULF BEM SCC Saving Rate (%) Fixed Deposit - 3M (%) Fixed Deposit - 1Y (%) Govt Bond Yield 1Y (%) Govt Bond Yield 1Y (%) Treasury Yield 1Y (%) Policy Rate (%) VIX Index TED Spread (%) , Thai BMA ADVANC BJC BDMS (6) (4) (2) (1) (5) 5 1 Change 1Month (%) Change Year-To-Date (%) BEM KT B SCC GULF ADVANC Forward PE Band BANPU (index) 3, 2,5 2, 1,5 1, 5 25x 21x 17x 13x 9x 6x BDMS BDMS (3) (2) (1) 1 (4) (2) 2 4 SECTOR CHANGE Change 1 Day (%) Change 1 Week (%) F 22F PE Discount to (x) STD = 7x STD = 4x Average = 1x (2) (4) -1 STD = -2x -2 STD = -4.9x (6) (8) Jan-3 Oct-6 Jul-1 Apr-14 Jan-18 (2.) (1.5) (1.) (.5)..5 (6.) (4.) (2.) Change 1 Month (%) Change Year-To-Date (%) (15.) (1.) (5.). (3.) (2.) (1.). 1. THANACHART SECURITIES 4

5 REGIONAL MARKET PERFORMANCE REGIONAL FUND FLOWS Change 1 Day (%) Change 1 Week (%) Change 1 Day (-1D) S.Korea S&P5 (4.) (2.) S&P5 S. Korea (4.) (2.) (5) (1) (15) (2) (25) (3) (35) (123) (287) (33) Korea Philip. Asia-6 Change 1 Week (-1W) (1) (2) (3) (4) (5) (6) () (72) (171) (394) (486) Korea Philip. Asia-6 Change 1 Month (%) Change Year-To-Date (%) Change 1 Month (-1M) S. Korea 1, 5 (5) (1,) (1,5) (2,) (2,5) (3,) (3,5) (4,) 311 (28) (38) (388) (44) (2,794) (3,684) Philip. Korea Asia-6 S&P5 (15) (1) (5) 5 S.Korea S&P5 (4) (2) 2 4 Change Year-To-Date (YTD) 2 1 (1) (2) (3) (4) (5) (6) (7) (149) (597) (642) Korea Philip. Asia-6 THANACHART SECURITIES 5

6 General Disclaimers And Disclosures: This report is prepared and issued by Thanachart Securities Public Company Limited (TNS) as a resource only for clients of TNS, Thanachart Capital Public Company Limited (TCAP) and its group companies. Copyright Thanachart Securities Public Company Limited. All rights reserved. The report may not be reproduced in whole or in part or delivered to other persons without our written consent. This report is prepared by analysts who are employed by the research department of TNS. While the information is from sources believed to be reliable, neither the information nor the forecasts shall be taken as a representation or warranty for which TNS or TCAP or its group companies or any of their employees incur any responsibility. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither TNS, TCAP nor its group companies accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The information and opinions contained herein have been compiled or arrived at from sources believed reliable. However, TNS, TCAP and its group companies make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user. TNS, TCAP and its group companies perform and seek to perform business with companies covered in this report. TNS, TCAP, its group companies, their employees and directors may have positions and financial interest in securities mentioned in this report. TNS, TCAP or its group companies may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this report. Note: Thanachart Securities Public Company Limited act as a Market Maker and Derivative Warrants Issuer. At present, TNS has issued 9 Derivative Warrants which are ADVA16C1912A, AOT16C1912A, BANP16C1912A, BDMS16C1912A, CBG16C1912A, CK16C1912A, CPAL16C1912A, PTT16C1912A, TRUE16C1912A (underlying securities are ADVANC, AOT, BANPU, BDMS, CBG, CK,, PTT, TRUE). Since TNS covers those underlying securities in research report, consequently TNS incurs conflicts of interest. Moreover, Investors are advised to carefully review the details and information in the prospectus before making investment decisions. Note: Our major shareholder TCAP (Thanachart Capital Pcl) which holding 1% of Thanachart Securities, TCAP has stake in THANI for more than 65% and being the major shareholder of THANI. Thanachart Capital Public Company Limited (TCAP), Ratchthani Leasing Public Company Limited (THANI), MBK PUBLIC COMPANY LIMITED (MBK) and PATUM RICE MILL AND GRANARY PUBLIC COMPANY LIMTED (PRG ) are related companies to Thanachart Securities Public Company Limited (TNS). Since TNS covers those securities in research report, consequently TNS incurs conflicts of interest. Recommendation Structure: Recommendations are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 1% or more, the recommendation is BUY. If the downside is 1% or more, the recommendation is SELL. For stocks where the upside or downside is less than 1%, the recommendation is HOLD. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal recommendation. For sectors, an Overweight sector weighting is used when we have BUYs on majority of the stocks under our coverage by market cap. Underweight is used when we have SELLs on majority of the stocks we cover by market cap. Neutral is used when there are relatively equal weightings of BUYs and SELLs. THANACHART SECURITIES 6

7 Thanachart Securities Pcl. Research Team 19 Floor, MBK Tower 444 Phayathai Road, Pathumwan Road, Bangkok 133 Tel: Pimpaka Nichgaroon, CFA Head of Research Kalvalee Thongsomaung Food, Hotel, Media Phannarai Tiyapittayarut Property, Retail Siriporn Arunothai Small Cap Research, Healthcare Pattadol Bunnak Auto, Food & Beverage Thaloengsak Kucharoenpaisan, AFM Analyst, Retail Market Adisak Phupiphathirungul, CFA Retail Market Strategy Pattarawan Wangmingmat Senior Technical Analyst Saksid Phadthananarak Construction, Transportation Supanna Suwankird Energy, Utilities Wichaya Wongpanuwich, CFA, FRM Analyst, Retail Market Sittichet Rungrassameephat Assistant Analyst, Quantitative Chak Reungsinpinya Energy, Petrochemical Nuttapop Prasitsuksant Electronics, Telecom Sarachada Sornsong Bank, Financial Rata Limsuthiwanpoom Industrial Estate, Property Fund, REITs Witchanan Tambamroong Technical Analyst THANACHART SECURITIES 7