Thanachart Securities

Transcription

1 Monday, February 11, 219 Current Market Net Trade SET Index vs MSCI Asia x JP Market data Close % Δ Net Trade (Bt bn) Prev. -1M YTD (index) SET index (LHS) (index) SET Index 1, % Foreign ,9 MSCI Asia x JP (RHS) Turnover (Bt m) 56, % Retail Mkt Cap (Bt bn) 16, % Institutes Stock Gainers 54 stocks Proprietary Stock Losers 885 stocks Note: Data for SET Market only 1,8 1,7 1,6 1,5 1,4 Jan-18 May-18 Aug-18 Dec Thanachart Securities TOP STORY Media (NEU) Perfect storm While we are Neutral on the overall media sector, we remain bearish on Thai TV operators despite sharp falls in stock prices. The TV sector is in the midst of a crisis in our view with players struggling to break even. We reaffirm SELL on BEC and WORK while we have a BUY call on RS for its non-media business. BEC (SELL) A falling knife BEC has been focusing more on cost cutting and finding new revenue sources. However, its effective ad rate has yet to stop falling and we have to once again cut our earnings estimates, halving them for F. We reaffirm our SELL rating. GRAMMY (SELL) Catalysts unclear After its distressed finances since 213, GRAMMY changed its business structure. GRAMMY then divested its stakes in its two digital TV channels, resulting in an eased financial status. Currently, GRAMMY operates music, home shopping and movie businesses which we see as only providing organic growth. RS (BUY) Taking off Amid the changing media landscape, RS has adjusted itself to meet a new growth phase emerging from its multi-platform commerce (MPC) business. This has lifted its margin and profitability. We reaffirm our BUY call on RS with a DCF-based TP of Bt2 (unchanged) for its 51% EPS growth in 219F, mainly driven by its MPC business. WORK (SELL) Still under pressure We factor in WORK s newly set-up commerce business into our forecasts but reaffirm SELL on what we see as a pricey valuation at a 26x PE and a continued weak media business. We cut our earnings further by 3-12% in 219-2F and our TP to Bt2 (from Bt25). Energy (NEU) A muted week P.7 Small crude build but rig count is up again NOPEC bill being considered in the U.S. A new wave of LNG projects En Plus: PTTEP analyst meeting takeaways Results Comment P.9-1 INTUCH (BUY) Lower-than-expected dividend from impairment loss in THCOM PSL (BUY) In-line, strong 4Q18 results 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 Dow Jones 25, % NASDAQ 7, % FTSE 7, % SHCOMP (China) 2,618..% Hang Seng 27, % FTSSI (Singapore) 3, % KOSPI 2, % JCI (Indonesia) 6, % MSCI Asia % MSCI Asia x JP % 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$/bbl) % Baltic Dry Index % Baltic Supramax Index % GRM (US$/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 THAILAND Sector Note 8 FEBRUARY 219 Sector Weighting Neutral Thailand Media Sector Perfect storm Thanachart Securities Sector Valuation Current Target Norm EPS grw Norm PE EV/EBITDA Div yield BBG price price 218F 219F 218F 219F 218F 219F 218F 219F Company Code Rec. (Bt) (Bt) (%) (%) (x) (x) (x) (x) (%) (%) BEC World BEC TB SELL na na na GMM Grammy GRAMMY TB SELL na (6.4) RS Pcl RS TB BUY Workpoint Ent' WORK TB SELL (58.5) Source: Thanachart estimates, Based on 7 February 219 closing prices While we are Neutral on the overall media sector, we remain bearish on Thai TV operators despite sharp falls in stock prices. The TV sector is in the midst of a crisis in our view with players struggling to break even. We reaffirm SELL on BEC and WORK while we have a BUY call on RS for its non-media business. More worrying structural issues After four years of value destruction since liberalization in 214, we believe the Thai TV sector is still in the midst of a crisis where most of the players are struggling to break even. Slow ad spending (adex) growth is the least of our concerns, and we see three more worrying structural issues. 1) The new, deep-pocketed shareholders of some TV channels, such as PPTV, Amarin and ONE, appear willing to make losses to gain market share for some years ahead. 2) Online media platforms, including Line TV, Netflix, YouTube, Facebook, Viu, etc., will likely take a long time to capture market share from the traditional TV platform. 3) Ad rates among the top incumbent players have been hit, but not yet done. Worse to come in 219F We expect competition in the TV business to intensify this year and we foresee further drops in utilization levels as well as ad rates. Drivers are more aggressive attempts to boost viewership by the well-off newcomers such as PPTV and Amarin. PPTV, which broadcasts the popular entertainment program, The Voice Thailand, and sports content, plans to launch soap operas in 2Q19. This implies downside risk to other players utilization rates. We also the expect ad rates of the top two players, Ch.7 and Ch.3, to fall further this year as their combined average viewership has declined to 2.4m/day in 218 from 2.7m in 217 and 3.5m in 214. Survival plans BEC is focusing on cost cutting, and after Bt5m of savings in 218, the company targets Bt5m in 219F. BEC is also looking for new revenue sources, including Bt5m of revenue in 219F from selling its content overseas and more revenue sharing from online platforms. WORK recently introduced its commerce business. RS has earned a lot from its new commerce business, and made the biggest profits vs. its peers. Potential relief measures The regulator is looking for ways to help subsidize unpaid digital TV license fees. This is obviously good news for TV operators but leaves the structural issues mentioned above unchanged. Assuming subsidization of all 3% of unpaid fees, BEC, with three licenses, should benefit the most at Bt.97/share or 18% of our TP, GRAMMY (two licenses) at Bt.79 or 14% of our TP, WORK (one) at Bt1.59 or 8% and RS (one) at Bt.66 or 3%. The plan hasn t been finalized yet and will likely take time in our view. KALVALEE THONGSOMAUNG kalvalee.tho@thanachartsec.co.th Media Index Relative To SET (Index) SETENTER Index (%) 1 Rel to SET Index (1) 7 (2) 6 (3) 5 (4) 4 (5) Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Source: Bloomberg Sector And Stock Changes YTD RS WORK Sector SET GRAMMY (%) BEC Source: Bloomberg Changes In Numbers Mkt. cap REC Target Price (US$m) New Old New Old BEC 43 SELL SELL GRAMMY 174 SELL SELL RS 494 BUY BUY WORK 345 SELL SELL Source: Thanachart estimates Please see the important notice on the back page

3 SELL (Unchanged) TP: Bt 5.5 (From: Bt 11. ) 8 FEBRUARY 219 Change in Numbers Downside : 12.7% BEC World Pcl (BEC TB) A falling knife Thanachart Securities BEC has been focusing more on cost cutting and finding new revenue sources. However, its effective ad rate has yet to stop falling and we have to once again cut our earnings estimates, halving them for F. We reaffirm our SELL rating. Better late than never BEC is now being more aggressive in cost cutting and finding new revenue sources. Cost-cut benefits came to around Bt5m in 218 and the company expects Bt5m this year. Its key new revenue source is content sales abroad, mainly soap operas, especially to China. This is a good move in our view as it shouldn t create extra costs for BEC. The company expects to make revenue of Bt3m in 219F and for this to keep rising. That said, the continued fall in the average ad rate at home will likely keep profit under check. Under the current industry environment, BEC s Ch.3 in our view will likely continue to struggle to make a profit. Ch.3 viewership fell from a peak of 1.75m eyeballs a day in 213 (pre-liberalization) to 1.4m in 214, 1.1m in 218, and 95k in January 219. Its ad revenue also declined from Bt15bn in 214 to Bt9bn in 218F. Ad rates to fall further This report is a part of our report, Thailand Media Sector Perfect storm, dated 8 February 219, which discusses the fierce industry competition both from TV players and online platforms (LINE TV, Netflix and Viu). BEC s average ad rate has declined from Bt2k/min (before liberalization) to Bt144k in 218F. We estimate rates of Bt136k in 219F and Bt129k in 22F. The drop in the ad rate is unlikely to come with better utilization, which we estimate to stand at 67% from 218F onwards. Cutting our earnings We now factor in additional revenue from selling its content abroad (Bt25m in F) and a higher revenue contribution from program re-runs on online platforms. But we still cut our F earnings by 46-56% as we assume about 3% lower ad rates. This is based on our analysis of the ad rate per rating ratio, which implies that BEC s rate is still expensive compared to peers. Our forecast of earnings turning around from Bt24m in 218F to +Bt216m in 219F is based on new revenue sources. We expect Ch.3 to continue operating at a loss. We reaffirm our SELL call with a lower DCF-based 12-month TP of Bt5.5 (from Bt11.) Expecting a 4Q18F loss We estimate BEC to post a Bt17m loss in 4Q18F vs. a Bt364m loss in 4Q17, with the lower loss being a result of higher revenues from other sources, not from Ch.3. Note that BEC plans to book non-recurring personnel expenses for its early retirement program in 4Q18F, which could lead to it posting a larger loss than we had expected previously. COMPANY VALUATION KALVALEE THONGSOMAUNG kalvalee.tho@thanachartsec.co.th Y/E Dec (Bt m) 217A 218F 219F 22F Sales 11,35 1,76 1,393 1,26 Net profit 61 (24) Consensus NP (16) Diff frm cons (%) na (14.8) (57.6) Norm profit 3 (24) Prev. Norm profit Chg frm prev (%) na (45.6) (55.9) Norm EPS (Bt). (.1).1.1 Norm EPS grw (%) (99.7) na na (16.1) Norm PE (x) na na EV/EBITDA (x) P/BV (x) Div yield (%) ROE (%). na Net D/E (%) PRICE PERFORMANCE (Bt/shr) BEC Rel to SET Index (%) (2) 8 6 (4) 4 (6) Feb-18 Jun-18 Oct-18 Feb-19 COMPANY INFORMATION Price as of 7-Feb-19 (Bt) 6.3 Market Cap (US$ m) 43. Listed Shares (m shares) 2,. Free Float (%) 46.5 Avg Daily Turnover (US$ m) M Price H/L (Bt) 13.8/4.7 Sector Media Major Shareholder Maleenont Family 38.4% Sources: Bloomberg, Company data, Thanachart estimates Please see the important notice on the back page

4 SELL (Unchanged) TP: Bt 5.8 (From: Bt 8. ) Change in Numbers Downside : 12.8% 8 FEBRUARY 219 GMM Grammy Pcl (GRAMMY TB) Catalysts unclear Thanachart Securities After its distressed finances since 213, GRAMMY changed its business structure. GRAMMY then divested its stakes in its two digital TV channels, resulting in an eased financial status. Currently, GRAMMY operates music, home shopping and movie businesses which we see as only providing organic growth. Divestments of stakes in digital TV channels GRAMMY has two digital TV channels ONE and GMM25. GRAMMY sold its 5% stake in ONE channel to the Prasarttong- Osoth family, which is also the owner of PPTV, for approximately Bt1.9bn. GRAMMY has a 31% remaining stake in ONE. Although ONE s rating rose to be in the top six in 218, the channel has suffered from higher operational costs and we believe it just reached break-even level in 2H18F. GRAMMY also sold its 5% stake in the GMM25 channel to the Sirivadhanabhakdi family, which is also the owner of Amarin TV, for Bt1bn. GRAMMY still has a 5% stake in GMM25. GMM25 focuses on series, targeting teens and young adults, and it is still making losses. Share of losses from digital TV business This note is part of our report, Thailand Media Sector Perfect storm, dated 8 February 219, which discusses fierce industry competition from both TV and online platforms. ONE channel s top-rated programs are news and dramas & series, targeting Bangkok and urban people. Meanwhile, GMM25 s top-rated shows are dramas and series, targeting Bangkok and urban folk, as well as teens and young adults. We expect a combined share of losses from ONE and GMM25 of -Bt7m in F (from -Bt3m during ). We project ONE channel to make some profits while GMM25 continues to make losses given its narrow audience base. Organic growth for core business After the divestment of its two digital TV licenses, GRAMMY is continuing to run three key businesses: music (showbiz, digital & YouTube, copyright and product sales), home shopping, and movies. The 219F revenue contributions are 47% for music, 48% for home shopping and 5% for movies. We believe those businesses could generate organic revenue growth of 5% p.a. Reaffirming SELL Though GRAMMY s earnings look set to turn around from losses to profits from 218F onwards, we reaffirm our SELL call on the stock with a lower DCF-based 12-month TP of Bt5.8 (from Bt8.). This is due to: 1) our bearish view on the TV media industry remaining intact, 2) we would like to see a clear earnings turnaround trend, and 3) there could be a risk of it operating its digital TV business at a loss again if ONE channel or GMM25 channel want to boost their market share by investing more in production or content costs or offering higher ad rate discounts. COMPANY VALUATION KALVALEE THONGSOMAUNG kalvalee.tho@thanachartsec.co.th Y/E Dec (Bt m) 217A 218F 219F 22F Sales 7,595 6,695 7,12 7,38 Net profit (384) Consensus NP Diff frm cons (%) (39.4) (57.) (66.3) Norm profit (561) Prev. Norm profit (24) (186) (152) Chg frm prev (%) na na na Norm EPS (Bt) (.7) Norm EPS grw (%) na na (6.4) 9.9 Norm PE (x) na EV/EBITDA (x) P/BV (x) Div yield (%) ROE (%) na Net D/E (%) (9.4) (7.3) (12.) (2.4) PRICE PERFORMANCE (Bt/shr) GRAMMY (%) 11 Rel to SET Index 1 (5) 9 (1) (15) 8 (2) 7 (25) 6 (3) 5 (35) Feb-18 Jun-18 Oct-18 Feb-19 COMPANY INFORMATION Price as of 7-Feb-19 (Bt) 6.65 Market Cap (US$ m) Listed Shares (m shares) Free Float (%) 21.7 Avg Daily Turnover (US$ m). 12M Price H/L (Bt) 1./5.6 Sector Media Major Shareholder Paiboon Damrongchaitham 48% Sources: Bloomberg, Company data, Thanachart estimates Please see the important notice on the back page

5 BUY (Unchanged) TP: Bt 2. (Unchanged ) Company Update Upside : 3.7% 8 FEBRUARY 219 RS Public Co Ltd (RS TB) Taking off Thanachart Securities Amid the changing media landscape, RS has adjusted itself to meet a new growth phase emerging from its multi-platform commerce (MPC) business. This has lifted its margin and profitability. We reaffirm our BUY call on RS with a DCF-based TP of Bt2 (unchanged) for its 51% EPS growth in 219F, mainly driven by its MPC business. Reaffirming BUY We like RS for its multi-platform commerce (MPC) business that has proven to be a success over the past four years. RS was the first mover in the digital TV industry before finding an opportunity in the commerce business through its Ch.8. The MPC growth strategy involves product selection, market studies, media management, and data analysis, which we expect to be a recipe for success and growth. Looking ahead, we estimate MPC sales to increase to Bt2.65bn in 219F, from Bt2.1bn in 218, Bt1.39bn in 217, Bt228m in 216 and Bt232m in 215. The MPC business, which accounts 57% of our 219F total revenue, should enhance RS s margin and ROE. MPC in 219F RS targets its MPC sales at Bt3.bn in 219F vs. our forecast of Bt2.65bn. We believe that RS s MPC customer base of 1.1m, with 7k active members, is at a scale that can be utilized and where it can expand its business through many platforms, not only via Ch F MPC strategies are: 1) increasing its percentage of repeat purchases to 3% this year, up from 24% in 218 and 15% in 216, 2) boosting the efficiency of its telesales team, which we expect to contribute 31% of MPC sales in 218F, 3) doubling SKUs from 1 at the end of 218, 4) conducting more efficient data analysis, and 5) seeking higher-margin products. This year, RS plans to focus more on its MPC direct sales (wholesale agents) and other potential joint-venture businesses. We leave this as upside to our forecasted numbers. Media business remains tough This note is part of our report, Thailand Media Sector Perfect storm, dated 8 February 219, which discusses the fierce industry competition from both TV players and online platforms (LINE TV, Netflix and Viu). Ch.8 has been hit by the competition with a decrease in utilization in F. We project Ch.8 to make a lower loss of Bt25m in 219F vs. Bt35m in 218F. We assume a flat rate of Bt35k/minute in 219F from 218, but expect higher utilization of 44% in 219F, up from 35% in 218F. RS s top-rated programs remain its news, dramas and series. Strong 4Q18F earnings catalysts We estimate RS s 4Q18F earnings to come in at Bt135m, an increase of 22% y-y and 26% q-q. The key driver will likely be its MPC business while its TV business is in the normal low season in the fourth quarter of the year. We expect its 4Q18F MPC sales to come in at Bt6m, posting a record quarterly high. For its media business, we foresee a slight improvement from Ch.8 with a lower loss on a y-y basis. COMPANY VALUATION KALVALEE THONGSOMAUNG kalvalee.tho@thanachartsec.co.th Y/E Dec (Bt m) 217A 218F 219F 22F Sales 3,52 3,89 4,63 5,363 Net profit Consensus NP Diff frm cons (%) (12.) Norm profit Prev. Norm profit Chg frm prev (%)... Norm EPS (Bt) Norm EPS grw (%) na Norm PE (x) EV/EBITDA (x) P/BV (x) Div yield (%) ROE (%) Net D/E (%) 58.1 (35.) (33.2) (33.7) PRICE PERFORMANCE (Bt/shr) RS Rel to SET Index Feb-18 Jun-18 Oct-18 Feb-19 COMPANY INFORMATION (%) 1 (1) (2) (3) (4) (5) Price as of 7-Feb-19 (Bt) 15.3 Market Cap (US$ m) Listed Shares (m shares) 1,1.1 Free Float (%) 41.2 Avg Daily Turnover (US$ m) M Price H/L (Bt) 34./14.4 Sector Media Major Shareholder Chetchotisak Family 41% Sources: Bloomberg, Company data, Thanachart estimates Please see the important notice on the back page

6 SELL (Unchanged) TP: Bt 2. (From: Bt 25. ) Change in Numbers Downside : 18.% 8 FEBRUARY 219 Workpoint Entertainment (WORK TB) Still under pressure Thanachart Securities We factor in WORK s newly set-up commerce business into our forecasts but reaffirm SELL on what we see as a pricey valuation at a 26x PE and a continued weak media business. We cut our earnings further by 3-12% in 219-2F and our TP to Bt2 (from Bt25). Weakening media outlook WORK targets to recapture its TV rating (which has fallen to 1. rating point from a peak of 1.5 in mid-217) by launching 1 new programs this year. We believe it also needs to replace some of its programs given lower ratings for some existing shows. The new programs are to include variety shows, quizzes and sports content targeting Bangkok and urban audiences. This is to avoid having too many singing contest shows, some of which have reached mature stage with their ratings falling. WORK targets flat revenue from Workpoint TV of Bt2.5bn-2.6bn in 219 but we expect a lower amount of Bt2.4bn. We assume a drop in its average ad rate to Bt67k/minute (from Bt75k/minute in 218) with flat utilization in 219F. This report is part of our Thailand Media Sector report Perfect storm, dated 8 February 219. New merchandise business WORK recently introduced its new merchandise business. The model involves selling consumer products via its Workpoint TV channel, retail stores and wholesale agents, i.e. skin care, food supplement, personal care, home and lifestyle products. WORK s home-shopping Hello Shops are on air during unoccupied airtime slots on Workpoint TV. WORK targets merchandise revenue of Bt6m in 219 (from Bt6m in 218F) vs. our Bt43m forecast. This is similar to what its peer RS Pcl (RS TB, BUY, Bt15.3) has been doing successfully. However, it remains to be seen how much focus and effort WORK will put into it. Cutting our earnings We cut our earnings estimates by 3-12% in F and lower our DCF-based 12-month TP, using a 219F base year, to Bt2 (from Bt25), given the weak industry outlook and Workpoint TV s softer-than-expected performance. Despite its plan for 1 new programs, we assume WORK maintains its rating point at as we foresee fiercer competition from the incumbents Ch.3, Ch.7 and ONE, and second-tier players with deeper pockets such as PPTV and Amarin TV. We assume WORK s ad rate declines further from its peak of Bt85k/minute in 1Q18 to Bt75k in 218, Bt67k in 219F, Bt64k in 22F, and Bt62k in 221F before stabilizing afterwards (vs. our previous assumption of Bt71k in 221F). We estimate WORK s utilization rate at 56-57% in 219-2F, from 55% in 218F (vs. our previous projections of 61-63%). We expect a 4Q18F loss We expect WORK to post a Bt4m loss in 4Q18F vs. a Bt22m loss in 4Q17, on the back of lower revenue but higher costs. We estimate WORK s 4Q18F ad rate to decline further to Bt65k, from Bt8k in 4Q17, a peak of Bt85k in 1Q18, Bt8k in 2Q18 and Bt7k in 3Q18. There have also been additional costs related to its Asian Games 218 sports content. COMPANY VALUATION KALVALEE THONGSOMAUNG kalvalee.tho@thanachartsec.co.th Y/E Dec (Bt m) 217A 218F 219F 22F Sales 3,853 3,365 3,231 3,217 Net profit Consensus NP Diff frm cons (%) (11.7) (16.8) (23.3) Norm profit Prev. Norm profit Chg frm prev (%) (.8) (3.) (12.1) Norm EPS (Bt) Norm EPS grw (%) (58.5) Norm PE (x) EV/EBITDA (x) P/BV (x) Div yield (%) ROE (%) Net D/E (%) (1.7) (13.7) (23.9) (25.6) PRICE PERFORMANCE (Bt/shr) WORK (%) 9 Rel to SET Index (2) 5 (4) 4 3 (6) 2 (8) Feb-18 Jun-18 Oct-18 Feb-19 COMPANY INFORMATION Price as of 7-Feb-19 (Bt) 24.4 Market Cap (US$ m) Listed Shares (m shares) Free Float (%) 49.5 Avg Daily Turnover (US$ m) 3. 12M Price H/L (Bt) 83.5/2.9 Sector Media Major Shareholder Mr. Prapas & Mr Phanya 47.% Sources: Bloomberg, Company data, Thanachart estimates Please see the important notice on the back page

7 Energy Sector Neutral Chak Reungsinpinya News Update A muted week Small crude build but rig count is up again NOPEC bill being considered in the U.S. A new wave of LNG projects En Plus: PTTEP analyst meeting takeaways Last week saw a small build for crude oil inventory in the U.S. and rig count went up again. U.S. commercial crude oil inventory rose by 1.26 mbbls for the week ending 1 Feb 219. This was marginally below consensus forecast of a 2.2 mbbls inventory increase. Still, crude inventory remains 5% above its 5-year average, and we think inventory could remain elevated for the remainder of this year as we see OPEC+ production cut as only enough to balance the market. Baker Hughes reported that U.S. oil rig count rose by 7 rigs to 854 active rigs as of 8 Feb 219. NOPEC bill The House Judiciary Committee of the U.S. House of Representatives has approved a bill known as the No Oil Producing and Exporting Cartels Act, or NOPEC. The legislation, if it were to become law, would revoke the sovereign immunity for OPEC member countries from U.S. lawsuits. Not the first time: A similar version of this bill has been considered at various points in time in the U.S. for the past 2 years yet none has actually been passed. So even if President Trump has publicly said he supported the bill, we see limited likelihood that this bill will become law given the U.S. strong ties to Saudi Arabia, OPEC s de-facto leader. Likely a way to keep pressure on OPEC: We think this is the U.S. way of holding OPEC accountable to its action; it would likely keep OPEC from making production cut too deep which would help keep oil prices relatively low. A new wave of LNG projects With local market s hype on Mozambique LNG reaching FID, we provide an update on developments in global LNG market. According to the IGU, there will be approx. 45mtpa of liquefaction capacity completed in 219F. This is coming on top of the 43mtpa of capacity completed in 218. With about 3% capacity growth in F, we think LNG market could be under pressure at least in the near term. Ex 1: U.S. crude oil inventory w-w change (m bbls) (2) (4) (6) (8) (1) Nov Dec Jan Feb Source: EIA Ex 2: Global LNG liquefaction capacity (mtpa) F 219F 22F 221F 222F Source: IGU Ex 3: PTTEP sales volume (KBOED) Q18 2Q18 3Q18 4Q18 1Q19F Source: Company data Looking forward, we expect a record volume of new LNG liquefaction capacity to be sanctioned in 219F. Consultants at Wood Mackenzie put the number at 6mtpa in 219F, nearly tripling 21mtpa capacity sanctioned in 218. Below is a list of major projects that have recently been given a green light and those that could follow suit in the near future: THANACHART SECURITIES 7

8 Golden Pass LNG: This $1bn LNG export project is a JV between heavy weights Exxon and Qatar Petroleum. It is located in east Texas and will have a capacity of 15.6mtpa (3 trains of 5.2mtpa each). The FID was announced on 7 Feb 219 with expected start-up in 224F. Mozambique LNG: Project operator, Anadarko Petroleum, has commented that it expected to reach FID for Mozambique LNG by mid-219 after having executed a handful of sale-purchase agreements (SPAs). This 12.8mtpa project could cost $22-28bn (based on Anadarko s capex plan) and is likely to start up in 225F. Arctic LNG 2: Following the successful development of Yamal LNG, Novatek (Russia s largest independent oil & gas company) aims to get this $25bn project off the ground in 2H19F. Total liquefaction capacity is 19.8mtpa. Driftwood LNG: This Tellurian-led project is likely to hit FID by the end of 1Q19F. So far, Total, GE, and Bechtel have been confirmed as project partners. Total size is 27.6mtpa with $3bn of capital investment. This project is unique among major LNG projects as Tellurian is trying to get customers to jointly invest in the project and have the option of offloading LNG at the operating cost of $3/mmbtu. Sabine Pass and Corpus Christi expansions: Cheniere Energy is likely to give a go ahead for Train 6 at Sabine Pass (4.5mtpa) as well as expansion to Corpus Christi LNG terminal that could add another 9.5mtpa of liquefaction capacity. En Plus: PTTEP analyst meeting takeaways Below are the key takeaways from PTTEP s analyst meeting: Coming home: Management dedicated most of the time discussing their Coming Home strategy whereby PTTEP will focus on Thailand, Myanmar and Malaysia for its E&P developments. In Myanmar, the company is working on gas-to-power opportunity that would help lift demand for gas from its Zawtika project. If successful, this could help improve the chance of M3 (which is currently assessed to be sub-commercial) getting to development stage as well. In Malaysia, the company plans to use its expertise to tap small pockets of gas which Petronas has previously deemed uneconomical to develop. In Thailand, aside from winning Bongkot and Erawan contract renewals, the company also sees opportunities to accelerate Ubon development and to study resource potential in the Andaman Sea. Mozambique LNG nearing FID: Management gave very bullish comments on the prospect of Mozambique LNG project reaching FID in the near term. With 7.5mtpa of SPA secured, the consortium is working on another 2mtpa of HOA conversion to SPA. This would get them over the hurdle and begin working on project financing. Low domestic gas demand a key near-term headwind: For 219F, management sees low domestic gas demand as near-term headwind to production growth. However, we think 1Q19F is likely to be the lowest quarter with volume progressively increasing through the rest of the year. THANACHART SECURITIES 8

9 Intouch Holdings Pcl (INTUCH TB) - BUY, Price Bt57, TP Bt55 Nuttapop Prasitsuksant nuttapop.pra@thanachartsec.co.th Results Comment Lower-than-expected dividend from impairment loss in THCOM INTUCH reported a net profit of Bt1.8bn in 4Q18, up 5% y-y but down 32% q-q. Excluding impact from impairment losses in THCOM, we estimate a normalized profit at Bt2.3bn in 4Q18, down 5% y-y and 15% q-q due to weaker satellite operations in THCOM but flat contribution from ADVANC s mobile business. Total normalized profit of Bt11.3bn in 218 made up only 9% of our forecast. AIS Group: Full-year contribution from ADVANC was lower 1% y-y due to its slower revenues growth, pressured by a fierce pricing competition in the market, while network-related expenses continued to rise. Satellite business turned around to a Bt247m profit in 218 (Bt2.5bn loss in 217). Even its total sales dropped 1% y-y, but a lower depreciation cost after a huge impairment in 217 resulted as a positive earnings this year. THCOM booked another Bt2.3bn impairment loss in 4Q18 but was partially offset by a Bt2bn gain from its CSL divestment in early 218. JV and Venture Capital: Contribution from mobile business in Laos (LTC) was impacted by natural disasters in 218, thus dropped 39% y-y. However, loss of online shopping business continues to decline as average daily sales was up 33% from last year. INTUCH made a Bt4m investment in 4Q18 in a digital map and location system provider Ecart Studio. An announcement of a Bt1.17/share final dividend payment is lower than we expected. This is due to an unexpected impairment loss in THCOM which turned its operation into loss, thus THCOM could not pay dividend in 2H18. XD date is set on 21 February, with a payment date on 24 April. Income Statement (unconsolidated) Income Statement 12M as Yr-end Dec (Bt m) 4Q17 1Q18 2Q18 3Q18 4Q18 (Bt m) q-q% y-y% % 218F 218A 219F Revenue 2,191 1,767 1,528 1,537 1,54 Revenue (3) 15 6,371 5,654 Gross profit Gross profit (24) (21) 16 1,891 1,497 SG&A 1, SG&A 56 (43) 16 1,917 1,669 Operating profit 2,658 3,224 3,447 2,866 2,531 Operating profit (12) (5) 1 12,68 12,456 EBITDA 3,437 3,715 3,95 3,37 3,53 EBITDA (9) (11) 93 14,88 15,748 Other income Other income Other expense 6 Other expense - 43 Interest expense Interest expense Profit before tax 2,641 3,27 3,427 2,855 2,52 Profit before tax (12) (5) 14 12,9 12,196 Income tax Income tax (4) (55) Equity & invest. income 3,196 3,29 3,316 2,752 2,736 Equity & invest. income (1) (14) 1 12,94 12,628 Minority interests (123) (155) (15) (63) (157) Minority interests na na (43) (525) 974 Extraordinary items (695) (36) (485) Extraordinary items na na na 22 Net profit 1,755 3,64 3,298 2,75 1,847 Net profit (32) ,491 12,865 Normalized profit 2,449 2,992 3,224 2,742 2,332 Normalized profit (15) (5) 9 11,289 12,865 EPS (Bt) EPS (Bt) (32) Normalized EPS (Bt) Normalized EPS (Bt) (15) (5) Balance Sheet (unconsolidated) Financial Ratios Yr-end Dec (Bt m) 4Q17 1Q18 2Q18 3Q18 4Q18 (%) 4Q17 1Q18 2Q18 3Q18 4Q18 Cash & equivalent 8,417 1,32 1,43 9,87 1,213 Sales grow th (17.3) (36.2) (34.1) (34.6) (29.7) A/C receivable 1,86 1,996 1,853 1,916 2,25 Operating profit grow th 2. (3.6) 17.4 (6.8) (4.8) Inventory EBITDA grow th 1. (9.6) 6.3 (12.6) (11) Other current assets 2,223 4, Norm profit grow th (6.9) (1.1) 13.1 (5.3) (4.8) Investment 22,978 2,22 25,21 22,992 25,761 Norm EPS grow th (6.9) (1.1) 13.1 (5.3) (4.8) Fixed assets 11,93 11,474 11,71 1,67 7,883 Other assets 3,48 4,8 3,386 3,39 3,411 Gross margin Total assets 5,96 53,627 51,885 49,76 5,9 Operating margin S-T debt ,652 EBITDA margin A/C payable 1,294 1,11 1,51 1,8 1,167 Norm net margin Other current liabilities 4,219 8,985 3,648 2,976 3,186 L-T debt 7,139 6,924 7,32 6,761 4,531 D/E (x) Other liabilities Net D/E (x) (.) (.1) (.1) (.1) (.1) Minority interest 8,411 8,14 8,329 8,348 7,173 Interest coverage (x) Shareholders' equity 28,915 27,56 3,819 28,919 3,768 Interest rate Working capital 637 1, Effective tax rate Total debt 7,561 7,327 7,46 7,182 7,183 ROA Net debt (856) (2,993) (2,582) (2,625) (3,3) ROE Sources: Company data, Thanachart estimates THANACHART SECURITIES 9

10 Precious Shipping Pcl (PSL TB) - BUY, Price Bt8.45, TP Bt18. Saksid Phadthananarak saksid.pha@thanachartsec.co.th Pattadol Bunnak pattadol.bun@thanachartsec.co.th Results Comment In-line, strong 4Q18 results PSL s 4Q18 normalized earnings came in at Bt153m, up 28% y-y and 42% q-q. The results were strong and pretty much in line with our expectation. Key drivers were falling interest expenses, declining SG&A, rising equity income and some improvement in the average freight rate. PSL s freight rate in 4Q18 stood at US$11,274/ship/day, up 5% y-y and flat q-q. This was slightly lower than our expectation on the back of the US-China trade war and some impact from the global slowdown. Freight rates improved for both Supramax and Ultramax vessel sizes (25% and 22% of PSL s 36-ship fleet) but decreased slightly in the Handysize segment (53%). Despite the strong 4Q18 results, we think it is worth noting the sharp drop in the freight index so far in 1Q19. The Handysize index fell 25 % y-y in January 219 and the Supramax index is down 31%. Normally, the 1Q is the low season for the shipping industry due to it being the new-ship delivery period while the 1Q18 freight rate was abnormally high for the low season. Therefore, we see downside risk to our forecasts. However, we still expect the industry to remain in an uptrend given a supplydriven cycle. Implementation of the International Maritime Organization s (IMO) new sulfur emission regulation in January 22 will likely result in more old ships being scrapped too. PSL announced that it will not pay a dividend for 218. We reaffirm our BUY on PSL. We believe its valuations are cheap at 1.1x P/BV, or close to -1 STD historical P/BV. Income Statement (consolidated) Income Statement 12M as Yr-end Dec (Bt m) 4Q17 1Q18 2Q18 3Q18 4Q18 (Bt m) q-q% y-y% %218F 218A 219F Revenue 1,164 1,89 1,185 1,314 1,345 Revenue ,933 5,24 Gross profit Gross profit (2) ,677 2,33 SG&A SG&A (17) Operating profit Operating profit ,228 1,813 EBITDA EBITDA ,413 2,928 Other income Other income (12) Other expense Other expense Interest expense Interest expense (15) (5) Profit before tax Profit before tax ,9 Income tax () 2 Income tax na na na 2 Equity & invest. income Equity & invest. income Minority interests () () Minority interests na na 5 () () Extraordinary items (1) (2) (1) (3) Extraordinary items na na na (5) Net profit Net profit ,1 Normalized profit Normalized profit ,1 EPS (Bt) EPS (Bt) Normalized EPS (Bt) Normalized EPS (Bt) Balance Sheet (consolidated) Financial Ratios Yr-end Dec (Bt m) 4Q17 1Q18 2Q18 3Q18 4Q18 (%) 4Q17 1Q18 2Q18 3Q18 4Q18 Cash & equivalent 1,854 1,716 2,14 1,698 1,843 Sales grow th A/C receivable Operating profit grow th Inventory EBITDA grow th Other current assets Norm profit grow th na na na na 28.1 Investment Norm EPS grow th na na na na 28.1 Fixed assets 23,475 22,213 23,392 22,592 22,49 Other assets 3,32 3,173 2,975 3,54 3,37 Gross margin Total assets 28,833 27,533 28,94 27,854 27,837 Operating margin S-T debt 82 4,682 3,452 3,472 1,877 EBITDA margin A/C payable Norm net margin Other current liabilities L-T debt 14,988 1,367 12,41 11,275 12,661 D/E (x) Other liabilities Net D/E (x) Minority interest Interest coverage (x) Shareholders' equity 12,335 11,94 12,728 12,529 12,695 Interest rate Working capital (281) (188) (34) (138) (134) Effective tax rate.2 - (.1) Total debt 15,79 15,49 15,493 14,747 14,538 ROA Net debt 13,937 13,333 13,389 13,48 12,695 ROE Sources: Company data, Thanachart estimates THANACHART SECURITIES 1

11 NEWS CLIPPING Princess-bid execs may resign : Thai Raksa Chart all at sea as probe looms. The Thai Raksa Chart Party is mulling whether its executives should resign from their posts to make sure its election strategy remains intact in the wake of their unprecedented nomination of a princess for prime minister. Party faces survival test : Group, NCPO see scope for Thai Raksa chart's dissolution over princess nomination. Steps are being taken for the dissolution of the political party that nominated Princess Ubolratana as its PM candidate for the March 24 general election. Market U-turn after poll nominations : Stocks rebound, close slightly down following announcements of prime minister candidates. The stock market rebounded yesterday from a morning plunge to close slightly in the red after announcements by political parties of their prime minister candidates, with Princess Ubolratana nominated as the Thai Raksa Chart Party's sole candidate. Somkid presses ministry on CPTPP : Despite the fast-approaching end to its term, the government has vowed to apply for membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a newly formed bloc of 11 Pacific Rim nations excluding the US. Thai bonds to draw foreign investors : Rise in capital inflow seen if baht maintains upward trend in first half of year. The strengthening of the baht since the beginning of the year would draw foreign investors to the Thai bond market, said Thiti Tantikulanan, head of Kasikornbank's Captial Markets Business Division, adding that sectors expected to perform were real estate, food and beverages, agriculture as well as telecom. KBank sees BoT pausing rate hikes throughout year : Business operators' financial costs are expected to remain constant based on anticipation that the Bank of Thailand will pause rate hikes throughout the year after December's 25-basis-point increase, says a Kasikornbank (KBank) executive. AIS launches automated Digit ALL store in Phuket : Largest mobile operator Advanced Info Service (AIS) yesterday launched Thailand's first unmanned store at Central Floresta Phuket, offering a new customer experience designed for the "connected generation". Bangkok Post The Nation Bangkok Post Bangkok Post The Nation Bangkok Post Bangkok Post THANACHART SECURITIES 11

12 Market data Close Δ % Δ PRICE CHANGE - MOST ACTIVE SET Index 1, % Change 1 Day (%) Change 1 Week (%) SET5 Index 1, % SET1 Index 2, % MAI Index % Economic data Current -1M -3M INTUCH BDMS ADVANC SCC EA BDMS IVL PT T BBL KBANK 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 (%) Source: Bloomberg, Thai BMA CPALL PT TEP AO T AO T SCB CPALL PT T KT B KBANK SCB (2) (1) (2) Change 1Month (%) Change Year-To-Date (%) KBANK CPALL CPALL PT TEP ADVANC ADVANC BDMS KBANK SET Forward PE Band AO T PT TEP AO T PT T (index) 3, 2,5 2, 1,5 1, 5 25x 21x 17x 13x 9x 6x PT T SCB SCB BDMS PT TGC PT TGC IVL IVL (15) (1) (5) 5 1 (2) (1) 1 2 SECTOR CHANGE Change 1 Day (%) Change 1 Week (%) F 22F SET PE Discount to MSCI Asia x JP (x) STD = 7x STD = 4x Average = 1.1x (2) (4) -1 STD = -2x -2 STD = -4.9x (6) (8) Jan-3 Oct-6 Jul-1 Apr-14 Jan-18 Source: Bloomberg ICT ICT HELTH CONMAT CONMAT AUTO PROP ETRON ETRON HELTH AUTO MEDIA SET SET MEDIA PROP TRANS COMM COMM BA NK BA NK ENERG ENERG TRANS FOOD FOOD PE TRO PE TRO (2.) (1.) (2.) Change 1 Month (%) Change Year-To-Date (%) ICT ICT CONMAT CONMAT AUTO FOOD PROP ENERG FOOD AUTO MEDIA PROP HELTH COMM SET TRANS ETRON SET COMM ETRON BA NK MEDIA ENERG BA NK TRANS HELTH PE TRO PE TRO (1.) (5.) (1.) (5.) Source: Bloomberg THANACHART SECURITIES 12

13 REGIONAL MARKET PERFORMANCE REGIONAL FUND FLOWS Change 1 Day (%) Change 1 Week (%) Change 1 Day (-1D) China Nasdaq S&P5 Singapore Taiwan Thailand Hang Seng Indonesia Dow Jones Philippines Hang Seng Taiwan Singapore Philippines China Nasdaq India Dow Jones S&P5 Thailand (US$ m) 5 5 (5) (15) (21) (1) (15) (2) (25) (3) (249) (279) Philip. Taiwan India Indonesia Thailand Korea Asia-6 Change 1 Week (-1W) (US$ m) Malaysia MSCI Asia x JP India S.Korea Nikkei (3.) (2.) (1.) Indonesia Malaysia MSCI Asia x JP S. Korea Nikkei (3.) (2.) (1.) (5) (1) (15) (15) (16) India Asia-6 Philip. Thailand Taiwan Indonesia Korea Change 1 Month (%) Change Year-To-Date (%) Change 1 Month (-1M) (US$ m) S. Korea Hang Seng Nasdaq Dow Jones S&P5 MSCI Asia x JP China Nasdaq Hang Seng Philippines S&P5 Dow Jones MSCI Asia x JP S.Korea 8, 7, 6, 5, 4, 3, 2, 1, 6,948 3,44 1, Asia-6 Korea Taiwan Indonesia Thailand India Philip. Thailand Indonesia Philippines Taiwan India Malaysia Singapore Nikkei (2) Thailand Indonesia China Singapore Taiwan Nikkei India Malaysia (5) Change Year-To-Date (YTD) (US$ m) 8, 7, 6,827 6, 5, 4, 3,731 3, 2, 1,2 1,2 1, Asia-6 Korea Taiwan Indonesia Philip. Thailand India Source: Bloomberg Source: Bloomberg THANACHART SECURITIES 13

14 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, CPALL, 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 14

15 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, AFPT TM 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 15