THAILAND BANKS
Value trap or value proposition?
• Thai bank stocks performed poorly in 2008, losing 51%
of their value. Share price recovery, when it comes,
could be unusually large. We think investors may have
to wait more than 12 months to recoup their losses.
• We take a hard-headed approach to valuation in this
report and cut our fair value estimates for Thai banks by
48%. We lower our 2009 earnings estimates by 19%.
• Our only Outperform in the sector is Kasikornbank,
which we believe offers the best combination of
fundamental quality and low entry price.

TABLE OF CONTENTS
Summary and recommendations ....................................................................................... 4
Downside in 2008, upside in 2009?.................................................................................... 6
The valuation conundrum................................................................................................... 9
Bad news for bank earnings ............................................................................................. 17
Bank of Ayudhya Underperform ................................................................................... 24
Bangkok Bank In Line .................................................................................................... 27
Kasikornbank Outperform............................................................................................. 30
Krung Thai Bank Underperform.................................................................................... 33
Siam Commercial Bank In Line ............................................................................... 36
Disclosure information...................................................................................................... 39

SUMMARY AND RECOMMENDATIONS
Analyst: Jim Antos +852 3191 8630
We were bearish on Thai banks when we initiated the sector in October 2008 and we
remain bearish as Thailand heads into what could be its worst year economically in a
decade. Despite near-record low share prices and valuation multiples, we think the
surprise for 2009 could be that Thai bank shares continue to fall in value, at least in
the first half.
Do not expect peak prices in 2009
While Thai bank shares seem undervalued at current prices, the catalyst for a rerating
continues to be elusive. The economic outlook is weak, with consensus
estimates calling for 2.3% GDP growth in 2009 according to Consensus Economics
Inc., down from an estimated 4.3% in 2008. Politically, Thailand has a revolving door
democracy, with three different governments coming to power in 2003. Prime Minister
Abhisit Vejjajiva was sworn into office in December 2008 but his thin majority in
parliament is likely to make him a transitional figure, we believe. From a stock market
perspective, bank shares, in particular, continue to be strongly affected by the global
gloom and the global financial crisis.
At some point, quite possibly not until 2010, the current meltdown of Thai bank share
prices will end and investors could be in store for outsized gains 3-12 months after a
stock market bottom is reached. This is what happened following the 1998 Asian
financial crisis and again in early 2004 when the banks recovered sharply from a
credit shock in mid-2003. We expect history to repeat itself on this score. However,
we do not think 2009 will be a year of peak share prices for the Thai banks.
Hard-headed realism about valuations
There is nothing like a financial meltdown to challenge one’s beliefs about valuation.
Although we use what is considered a tried-and-tested capital asset pricing model to
determine fair values, we admit that the fair values we set for the Thai banks in late-
October 2008 were unrealistic. We atone for our errors in this report.
The major error we made in October was to use over-optimistic assumptions to set
fair prices. We eliminate the concept of ‘excess capital’ from our valuation model and
normalise ROE assuming 100% reserve coverage of problem loans. We also adopt a
less optimistic growth assumption for the sector. These changes in our valuation
model allow us to get a better idea of core equity value.
As a result of making these common sense changes, we cut our fair value estimates
for the Thai banks by 48%.