Contents
Ugly Ducklings 4
Wait for a better entry point 5
Growth outlook to be lukewarm in the near term 5
Medium-term outlook should see an improvement, as growth mix undergoes a
paradigm shift 5
Balance sheets are on strong footing going into the downturn 6
Asset quality to deteriorate, but to be very much manageable 6
Valuations are key given the hazy economic outlook; strong stock price run-up
leaves only limited upside on the table 6
Wait for a better entry point; Initiate coverage with a NEUTRAL sector view 7
Key risks 7
Kasikorn Bank (KBANK): BUY – Asset quality concerns overdone 7
Bangkok Bank (BBL): NEUTRAL, limited upside after run-up 7
Siam Commercial Bank (SCB): NEUTRAL, as valuations factor in quality
franchise 7
Bank of Ayudhya (BAY): REDUCE, as it is dependent on too many factors 7
Growth outlook: It’s darkest before dawn 10
Loan growth to be lukewarm in 2009F 10
But should pick up in 2010F as domestic consumption and investment pick up
steam 11
Look out for long-term positives coming out of structural changes in the economy 13
Sectoral loan growth – retail is our preferred segment 14
Margin outlook: Drivers not yet in place 18
Deciphering margin drivers over the past few years 18
We do not expect margins to come back to 2008 levels 21
Asset quality: It will only be a blip 24
The Asian economy with the least amount of ‘excesses’ leading into the downturn 24
By how much would the provisioning pick up? 27
Sensitivity analysis of individual banks 28
Accounting for quality of balance sheets 29
Near-term outlook is lukewarm 31
Earnings growth to moderate, after bottoming out in 2009F 31
Profitability: being weighed down underutilized balance sheet 34
What if the macro surprises on the positive? – We see a 10-15% upside to
earnings 35
Valuations: No longer at deep value 36
Fundamental valuations – What do current stock prices imply? 36
Excess capital understating the profitability of Thai banks 36
Regional comparison: Low leverage masking underlying high profitability 37
Relative valuations – gap has narrowed down post the run-up 38
Economic outlook — deflation to continue 41
Latest company views
Kasikorn Bank 42
Bangkok Bank 54
Siam Commercial Bank 66
Bank of Ayudhya 77
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