See disclaimer at the end of report

SECTOR UPDATE

CONSTRUCTION 13 July 2015Ready to take off

Sector: Construction Overweight

Investment thesis We believe now is a good time to start loading construction stocks to investor portfolios ahead of upcoming bidding on infrastructure projects in 2H15. The last time such a series of biddings took place in mid-2010, contractors rerated to +1SD above their long-term PBV, but they are now trading at +0.5SD. CK is our top BUY due to its clearest visibility to add new projects, followed by UNIQ due to strong earnings growth in 2H15.

Long-awaited infrastructure projects coming soon The big-ticket infrastructure projects are scheduled to be bid on in 2H15 and have a small chance to slip into next year should be two lines of double-track railways (ChachoengsaoKaeng Khoi, worth Bt11bn and Jira station in Nakhon RatchasimaKhon Kaen, worth Bt27bn), Suvarnabhumi airport Phase II, worth Bt62bn; MRT Orange Line, Phase I, worth Bt115bn; and, the PattayaMap Ta Phut motorway, worth Bt14bn. The invitation for bidding on the ChachoengsaoKaeng Khoi line project is expected to be released in September, followed by the JiraKhon Kaen, Suvarnabhumi Airport and Orange Line projects in October. The motorway has yet to be scheduled exactly as its TOR is still under the preparation process, but it should be ready for bidding to open by YE15.

Big-ticket infra projects may yet be added to backlogs by YE15 The total value of Bt229bn for the projects mentioned should substantially enlarge contractors backlogs. However, these projects are unlikely to be added to those backlogs until early 2016. Normally, it takes around 2-3 months from the bidding invitation to bid submission and another 2-3 months for state agencies to review the tenders and announce the winners.

CK and STEC should still meet our assumptions We expect CK to sign new contracts worth Bt20bn this year, in line with managements guidance. The firm added new contracts worth Bt2.4bn to its backlog YTD and is submitting tenders valued at around Bt15bn. Moreover, the firm is likely to secure M&E works for the MRT Blue Line worth Bt20-25bn once BMCL signs the contract to operate the Blue Line extension, which is expected to take place soon.

STEC signed Bt4.2bn in new contracts YTD and is submitting bids of around Bt12-15bn (mainly power plants, an area in which the firm has expertise). Moreover, there will be some building projects from the private sector in which the firm is interested. As such, we believe STEC could achieve our assumption of Bt20bn (lower than the firms expectation of Bt30bn) for new projects this year.

Only UNIQ faces the risk of missing our forecast (and that contained in managements guidance) of Bt30bn in FY15. The firm added Bt10bn YTD, while the remaining amount will depend largely on public infrastructure projects. However, the mere few months in delays (slipping over to early FY16) would have only a small impact on our earnings projections.

CK Rating: BUY Target Price: Bt32.75 Price (10 July 2015): Bt27.00 STEC Rating: BUY Target Price: Bt26.00 Price (10 July 2015): Bt22.90 UNIQ Rating: BUY Target Price: Bt21.00 Price (10 July 2015): Bt17.60

Sector PBV band

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-2.0 STD = 0.6x

-1.0 STD = 1.2x

A+1.0 STD = 2.5x

+2.0 STD = 3.1x

x+3.0 STD = 3.8x

Average = 1.8x

Chaiyatorn Sricharoen, CFA Securities Fundamental Investment Analyst chaiyatorn@bualuang.co.th +66 2 618 1344

Construction - 2

Figure 1 : MRT and SRT projects

Total project value (Btm) Bidding MRT Line

Orange (Cultural Center Min Buri) 115,054 Oct-15 Pink (Kae Rai Min Buri) 56,691 2016 Yellow (Lardprao Samrong) 57,306 2016 Dark Green (Samut Prakan Bang Pu) 13,344 2016 Orange (Taling Chan Thailand Cultural Center) 85,281 2016 Purple (Tao Poon Rat Burana) 91,549 2016 Green (Kukot Lam Luk Ka) 11,988 2017 Blue (Bang Khae - Phutthamonthon 4) 17,209 2018

Double-track railway Chachoengsao Kaeng Khoi 10,805 Sep-15 Jira Khon Kaen 27,007 Oct-15 Prachuap Khiri Khan Chumphon 17,292 2015 Lopburi Paknam Po 24,842 2016 Map Kabao (Saraburi) Jira 29,855 2016 Nakhon Pathom Hua Hin 20,038 2016 Hua Hin Prachuap Khiri Khan 9,436 2016 Standard guage: Nong Khai Map Ta Phut 400,000 2016 Paknam Po Den Chai 29,882 2017 Jira Ubon Ratchathani 32,398 2017 Khon Kaen Nong Khai 18,243 2017 Chumphon Surat Thani 17,509 2017 Surat Thani Padang Besar 35,544 2017 Den Chai Chiang Rai Chiang Khong 77,485 2017 Ban Pai Nakhon Phanom 60,512 2017

Motorway Pattaya Map Ta hut 14,200 2015 Bang Pa-in Saraburi 84,600 2015 Bang Yai Ban Pong 55,600 2016

Expressway N2 N3 69,000 2016 Dao Khanong Outer ring road 18,000 2017

Airport Suvarnbhumi International Airport, Phase II 62,100 Oct-15 The third runway at Suvarnabhumi 20,000 2016 Terminal 2 Suvarnabhumi airport 27,000 2016 Phuket airport expansion 4,000 2017 Chiang Mai airport expansion 4,000 2018

Port Songkhla 3,600 2016 Pak Bara Satun 12,000 2016

Water management Nong Bon Drainage way 5900 2015 Nong Bon wastewater treatment plant 7000 2016 Khlong Toei wastewater treatment plant 12000 2016

Source: Company data, Bualuang Research

Construction - 3

CK : Financial Tables Year PROFIT & LOSS (Btm) 2013 2014 2015E 2016E 2017ERevenue 32,627 32,865 34,239 35,300 29,536Cost of sales and services (29,233) (29,827) (31,272) (32,150) (26,905)Gross profit 3,394 3,038 2,967 3,150 2,631SG&A (1,505) (1,475) (1,550) (1,597) (1,437)EBIT 1,889 1,562 1,417 1,553 1,195Interest expense (1,538) (1,468) (1,313) (1,207) (1,242)Other income/exp. 1,637 1,274 1,182 1,109 1,123EBT 1,988 1,369 1,285 1,455 1,075Corporate tax (190) (89) (254) (288) (212)After-tax net profit (loss) 1,797 1,280 1,031 1,167 863Minority interest (38) (61) (50) (60) (60)Equity earnings from affiliates (489) 27 3 67 81Extra items 6,403 1,050 1,532 0 0Net profit (loss) 7,674 2,296 2,515 1,174 884Reported EPS 4.53 1.36 1.49 0.69 0.52Fully diluted EPS 4.53 1.36 1.49 0.69 0.52Core net profit 1,271 1,246 984 1,174 884Core EPS 0.75 0.74 0.58 0.69 0.52EBITDA 2,606 2,571 2,472 2,672 2,374KEY RATIOSRevenue growth (%) 57.1 0.7 4.2 3.1 (16.3)Gross margin (%) 10.4 9.2 8.7 8.9 8.9EBITDA margin (%) 8.0 7.8 7.2 7.6 8.0Operating margin (%) 5.8 4.8 4.1 4.4 4.0Net margin (%) 23.5 7.0 7.3 3.3 3.0Core profit margin (%) 3.9 3.8 2.9 3.3 3.0ROA (%) 12.5 3.0 3.2 1.5 1.1ROCE (%) 16.8 4.0 4.1 1.9 1.4Asset turnover (x) 0.5 0.4 0.4 0.5 0.4Current ratio (x) 1.4 1.5 1.8 2.0 1.9Gearing ratio (x) 2.2 2.2 1.9 1.8 1.9Interest coverage (x) 1.2 1.1 1.1 1.3 1.0BALANCE SHEET (Btm)Cash & Equivalent 5,393 5,949 3,975 3,404 3,214Accounts receivable 4,288 5,337 5,798 5,682 5,901Inventory 17,894 21,838 19,858 19,840 21,607PP&E-net 7,518 6,962 7,046 7,085 7,064Other assets 36,941 40,787 41,461 42,373 43,969Total assets 72,034 80,872 78,138 78,383 81,755Accounts payable 6,846 5,904 6,604 6,518 7,642ST debts & current portion 13,696 13,070 6,891 4,527 7,527Long-term debt 23,636 29,322 32,335 34,700 34,200Other liabilities 11,016 13,105 11,118 11,221 10,494Total liabilities 55,194 61,402 56,949 56,966 59,863Paid-up capital 1,653 1,694 1,694 1,694 1,694Share premium 4,869 4,869 4,869 4,869 4,869Retained earnings 7,182 8,762 10,431 10,598 11,013Shareholders equity 16,551 19,125 20,793 20,961 21,376Minority interests 290 346 396 456 516Total Liab.&Shareholders' equity 72,034 80,872 78,138 78,383 81,755CASH FLOW (Btm)Net income 7,674 2,296 2,515 1,174 884Depreciation and amortization 717 1,009 1,055 1,119 1,179Change in working capital (10,033) (6,305) 2,359 (20) (1,665)FX, non-cash adjustment & others (6,767) (1,931) (2,264) (710) (727)Cash flows from operating activities (8,409) (4,931) 3,665 1,564 (328)Capex (Invest)/Divest (8,253) (2,397) (1,936) (1,952) (1,952)Others 9,102 3,712 1,324 823 60Cash flows from investing activities 849 1,316 (612) (1,129) (1,892)Debt financing (repayment) 8,380 5,656 (3,497) 0 2,500Equity financing 0 0 0 (0) (0)Dividend payment (936) (701) (847) (1,006) (470)Others 9,102 3,712 1,324 823 60Cash flows from financing activities 7,446 4,958 (4,340) (1,001) 2,036Net change in cash (58) 1,355 (1,286) (567) (184)Free cash flow (Btm) (16,663) (7,327) 1,729 (388) (2,280)FCF per share (Bt) (9.8) (4.3) 1.0 (0.2) (1.3)Key AssumptionsNew contract signed 22,967 7,742 20,000 30,000 40,000Backlog 112,473 93,583 79,903 74,722 85,314Gross margin (%) 10.4 9.2 8.7 8.9 8.9

0.00.10.20.30.40.50.6

(40)(20)

020406080

100

11 12 13 14 15E 16E 17E

Revenue growth (%) (LHS)Asset turnover (x) (RHS)

% x

0306090

120150180

11 12 13 14 15E 16E 17E

AR / Sales (days)AP / Cost of Goods (days)

days

(10)(5)

05

1015

11 12 13 14 15E 16E 17E

Gross margin (%)EBIT margin (%)

%

020406080100120140160180

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11 12 13 14 15E 16E 17E

Capex (Bt,bn)Capex / Net PPE (%)

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(60)

(40)

(20)

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20

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(ST debt + Interest) / EBITDA(Debt + Interest) / EBITDA

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0.34 0.34 0.43

0.50 0.59

0.28 0.21

020406080100120

0.000.100.200.300.400.500.600.70

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Dividend (Bt)Payout ratio (%)

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Revenue growth and asset turnover

A/C receivable & A/C payable days

Profit margins

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Dividend payout

Construction - 4

STEC : Financial Tables Year PROFIT & LOSS (Btm) 2013 2014 2015E 2016E 2017ERevenue 22,294 21,652 18,798 21,335 26,911Cost of sales and services (20,168) (19,435) (17,282) (19,606) (24,716)Gross profit 2,126 2,217 1,516 1,728 2,195SG&A (539) (583) (569) (571) (573)EBIT 1,587 1,634 947 1,158 1,622Interest expense (29) (18) (24) (24) (25)Other income/exp. 360 292 220 220 220EBT 1,918 1,908 1,143 1,353 1,817Corporate tax (449) (389) (223) (265) (357)After-tax net profit (loss) 1,468 1,519 920 1,089 1,460Minority interest (7) (10) (5) (4) (3)Equity earnings from affiliates (22) 11 10 10 11Extra items 294 0 0 0 0Net profit (loss) 1,733 1,521 925 1,095 1,468Reported EPS 1.14 1.00 0.61 0.72 0.96Fully diluted EPS 1.14 1.00 0.61 0.72 0.96Core net profit 1,439 1,521 925 1,095 1,468Core EPS 0.94 1.00 0.61 0.72 0.96EBITDA 2,315 2,354 1,616 1,853 2,342KEY RATIOSRevenue growth (%) 12.2 (2.9) (13.2) 13.5 26.1Gross margin (%) 9.5 10.2 8.1 8.1 8.2EBITDA margin (%) 10.4 10.9 8.6 8.7 8.7Operating margin (%) 7.1 7.5 5.0 5.4 6.0Net margin (%) 7.8 7.0 4.9 5.1 5.5Core profit margin (%) 6.5 7.0 4.9 5.1 5.5ROA (%) 7.7 6.1 3.8 4.6 5.8ROCE (%) 23.7 18.0 10.4 11.8 14.5Asset turnover (x) 1.0 0.9 0.8 0.9 1.1Current ratio (x) 1.2 1.2 1.2 1.2 1.2Gearing ratio (x) 0.0 0.0 0.0 0.0 0.0Interest coverage (x) 54.3 89.6 40.2 47.8 65.1BALANCE SHEET (Btm)Cash & Equivalent 8,663 5,565 5,232 5,509 6,394Accounts receivable 7,831 9,115 8,383 7,825 9,053Inventory 1,118 1,187 1,117 1,333 1,574PP&E-net 2,650 3,166 3,301 3,414 4,003Other assets 4,748 5,971 5,577 5,843 5,825Total assets 25,010 25,004 23,611 23,924 26,850Accounts payable 2,966 3,727 3,185 2,847 3,743ST debts & current portion 178 160 70 70 70Long-term debt 121 101 193 200 208Other liabilities 13,969 12,466 11,443 11,451 12,550Total liabilities 17,233 16,454 14,892 14,569 16,572Paid-up capital 1,525 1,525 1,525 1,525 1,525Share premium 2,097 2,097 2,097 2,097 2,097Retained earnings 4,003 4,754 4,920 5,552 6,472Shareholders equity 7,588 8,351 8,516 9,148 10,068Minority interests 189 198 203 207 210Total Liab.&Shareholders' equity 25,010 25,004 23,611 23,924 26,850CASH FLOW (Btm)Net income 1,733 1,521 925 1,095 1,468Depreciation and amortization 368 427 449 475 500Change in working capital 433 (2,583) (426) (261) (55)FX, non-cash adjustment & others (196) (74) (29) 12 102Cash flows from operating activities 2,338 (709) 920 1,321 2,014Capex (Invest)/Divest (772) (860) (584) (589) (589)Others (82) 2,470 0 0 0Cash flows from investing activities (854) 1,610 (584) (589) (589)Debt financing (repayment) (144) (114) 91 7 7Equity financing 0 0 0 0 0Dividend payment (38) (763) (760) (463) (547)Others (82) 2,470 0 0 0Cash flows from financing activities (182) (877) (669) (455) (540)Net change in cash 1,302 24 (333) 277 885Free cash flow (Btm) 1,566 (1,568) 336 732 1,425FCF per share (Bt) 1.0 (1.0) 0.2 0.5 0.9Key AssumptionsNew contract signed 34,615 15,747 20,000 30,000 30,000Backlog 51,088 47,821 53,450 60,144 61,517Gross margin (%) 9.5 10.2 8.1 8.1 8.2

0.00.20.40.60.81.01.2

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Revenue growth (%) (LHS)Asset turnover (x) (RHS)

% x

0306090

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days

02468

1012

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%

0102030405060

0.00.20.40.60.81.01.2

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Capex (Bt,bn)Capex / Net PPE (%)

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0.00.10.10.20.20.30.3

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Construction - 5

UNIQ : Financial Tables Year PROFIT & LOSS (Btm) 2013 2014 2015E 2016E 2017ERevenue 6,709 8,109 12,630 14,265 16,650Cost of sales and services (5,432) (6,635) (10,357) (11,697) (13,653)Gross profit 1,278 1,473 2,273 2,568 2,997SG&A (505) (624) (941) (1,062) (1,236)EBIT 773 849 1,332 1,506 1,761Interest expense (140) (309) (323) (354) (388)Other income/exp. 99 91 101 111 122EBT 731 632 1,110 1,263 1,495Corporate tax (146) (130) (222) (253) (299)After-tax net profit (loss) 586 502 888 1,011 1,196Minority interest 0 0 0 (45) (80)Equity earnings from affiliates 0 0 0 0 0Extra items 1 0 0 0 0Net profit (loss) 587 502 888 966 1,116Reported EPS 0.75 0.46 0.82 0.89 1.03Fully diluted EPS 0.54 0.46 0.82 0.89 1.03Core net profit 586 502 888 966 1,116Core EPS 0.54 0.46 0.82 0.89 1.03EBITDA 1,103 1,580 2,038 2,179 2,407KEY RATIOSRevenue growth (%) 67.1 20.9 55.8 12.9 16.7Gross margin (%) 19.0 18.2 18.0 18.0 18.0EBITDA margin (%) 16.4 19.5 16.1 15.3 14.5Operating margin (%) 11.5 10.5 10.5 10.6 10.6Net margin (%) 8.7 6.2 7.0 6.8 6.7Core profit margin (%) 8.7 6.2 7.0 6.8 6.7ROA (%) 6.2 3.4 5.4 5.9 6.3ROCE (%) 15.7 7.6 9.9 10.0 10.7Asset turnover (x) 0.7 0.5 0.8 0.9 0.9Current ratio (x) 1.0 1.2 1.4 1.4 1.5Gearing ratio (x) 0.8 0.5 0.5 0.5 0.4Interest coverage (x) 5.5 2.8 4.1 4.3 4.5BALANCE SHEET (Btm)Cash & Equivalent 359 627 1,154 1,715 2,194Accounts receivable 3,178 4,551 6,189 6,990 8,159Inventory 556 1,053 1,553 1,755 2,048PP&E-net 3,753 4,415 4,465 4,515 4,565Other assets 4,771 6,688 2,206 1,923 1,604Total assets 12,617 17,334 15,566 16,897 18,569Accounts payable 3,123 2,274 3,728 4,211 4,915ST debts & current portion 539 850 900 900 900Long-term debt 1,540 2,024 2,274 2,344 2,444Other liabilities 4,811 6,533 2,477 2,676 2,875Total liabilities 10,013 11,682 9,380 10,132 11,135Paid-up capital 780 1,081 1,082 1,082 1,082Share premium 94 2,463 2,463 2,463 2,463Retained earnings 1,731 2,108 2,641 3,220 3,890Shareholders equity 2,604 5,652 6,186 6,765 7,435Minority interests 0 0 0 0 0Total Liab.&Shareholders' equity 12,617 17,334 15,566 16,897 18,569CASH FLOW (Btm)Net income 587 502 888 966 1,116Depreciation and amortization 331 731 706 673 646Change in working capital (3,565) (2,852) (2,139) (1,002) (1,462)FX, non-cash adjustment & others 4,075 (316) 1,337 528 784Cash flows from operating activities 1,428 (1,935) 792 1,164 1,083Capex (Invest)/Divest (1,063) (552) (500) (500) (500)Others (265) (844) (17) (18) (18)Cash flows from investing activities (1,328) (1,395) (517) (518) (518)Debt financing (repayment) 479 1,156 205 200 200Equity financing 0 0 0 0 0Dividend payment (47) (125) (205) (355) (386)Others (265) (844) (17) (18) (18)Cash flows from financing activities 113 3,599 249 (85) (86)Net change in cash 213 269 525 562 479Free cash flow (Btm) 364 (2,487) 292 664 583FCF per share (Bt) 0.5 (2.3) 0.3 0.6 0.5

0.00.20.40.60.81.0

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5

10

15

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13 14 15E 16E 17E

Gross margin (%) EBIT margin (%)%

051015202530

0.000.200.400.600.801.001.20

13 14 15E 16E 17E

Capex (Bt,bn)Capex / Net PPE (%)

Bt,bn %

0.00.51.01.52.02.5

13 14 15E 16E 17E

(ST debt + Interest) / EBITDA(Debt + Interest) / EBITDA

x

0.16 0.19

0.33 0.36 0.41

01020304050

0.00.10.20.30.40.5

13 14 15E 16E 17E

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Revenue growth and asset turnover

A/C receivable & A/C payable days

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Capital expenditure

Debt serviceability

Dividend payout

Construction - 6

Regional Comparisons Bloomberg Price Market Cap

Code (local curr.)(US$

equivalent) 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Italian-Thai Development ITD TB THB8.05 1,252 56.3 38.9 -3.0 43.7 2.8 2.6 5.7 6.9 0.8 1.1Nawarat Patanakarn NWR TB THB1.83 139 24.4 17.8 1263.6 16.7 1.2 1.1 4.9 7.3 1.3 2.0Toyo-Thai Corporation TTCL TB THB31.00 511 25.4 13.6 48.8 86.2 3.0 3.0 11.5 17.8 1.9 2.1Sriracha Construction SRICHA TB THB25.75 234 8.5 9.7 -20.5 -5.9 2.8 3.0 34.4 27.5 9.1 8.6STP&I STPI TB THB16.20 776 8.5 9.9 20.3 -9.3 2.5 2.1 32.0 22.9 3.9 4.6TRC Construction TRC TB THB2.18 268 42.3 19.5 -79.6 117.3 3.3 3.0 11.2 16.1 0.7 1.5Syntec Construction SYNTEC TB THB3.00 141 10.0 12.8 n.a. n.a. 1.5 1.4 n.a. 13.6 2.7 2.5Dcon Products DCON TB THB1.83 115 22.6 20.4 -39.2 11.0 3.5 3.4 21.9 21.5 4.9 4.7Unique Engineering & Cons. UNIQ TB THB17.60 560 21.4 19.7 76.8 8.7 3.1 2.8 15.0 14.9 1.9 2.0Pylon PYLON TB THB11.70 129 19.5 17.2 15.1 13.6 4.3 3.8 23.9 23.9 2.6 2.9CH. Karnchang CK TB THB27.00 1,347 20.4 24.0 -2.5 -14.9 2.2 2.1 11.3 9.1 2.0 1.7Sino-Thai Engineering & Cons. STEC TB THB22.90 1,029 35.6 25.9 -35.4 37.5 4.1 3.7 11.6 15.0 1.4 1.9Simple average 24.6 19.1 113.1 27.7 2.9 2.7 16.7 16.4 2.8 3.0

PER (x) EPS Growth (%) PBV (x) ROE (%) Div Yield (%)

Construction - 7

Bualuang Securities Public Company Limited

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Underwriter/ Co-underwriter

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Corporate Governance Report disclaimer

The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. Bualuang Securities Public Company Limited does not conform nor certify the accuracy of such survey result. BUALUANG RESEARCH RECOMMENDATION FRAMEWORK STOCK RECOMMENDATIONS BUY: Expected positive total returns of 15% or more over the next 12 months. HOLD: Expected total returns of between -15% and +15% over the next 12 months. SELL: Expected negative total returns of 15% or more over the next 12 months. TRADING BUY: Expected positive total returns of 15% or more over the next 3 months.

SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months.

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