thailand industry focus property funds and reits property fund into a real estate investment trust...

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa:TP, PY

More REIT conversion in 2H17

SPWPF being converted into REIT and renamed

SRIPANWA, more conversion to be seen in 2H17

One new office REIT, named GLANDRT, recently

listed; but three property funds are being taken

private

Sector offering market-cap weighted average

yield of 5.8%, a 304bps spread over Thai 10-year

government bond yield at 2.78%

Our top picks are LHHOTEL, CPNRF and CPTGF

About the REIT conversion. The Thai government has agreed to extend all taxes waivers relating to the conversion from property funds into REITs until end-2017. So far, only SPFPF was converted into REIT and renamed SRIPANWA. We expect to see more property funds being converted into REITs in 2H17. Among these are CPN Retail Growth Property Fund (CPNRF), WHA Premium Factory & Warehouse Freehold and Leasehold Property Fund (WHAPF), Quality Houses Leasehold Property Fund (QHPF) and Quality Houses Hotel & Residence Leasehold Property Fund (QHHR).

Interest rate hike? Thai listed property funds’ gearing is very low at 0-10%, while Thai REITs’ gearing is moderate, averaging 21%. Despite the US interest rate hikes, we expect domestic interest rate to remain flat this year. We therefore see limited impact to the sector’s net investment income and distribution. The sector index has come off 4.6% YTD, underperforming the SET Index’s 1.5% gain. This was amid concerns over the sector’s narrower yield-spread over Thai government bond yield, and selling by some local institutional investors. We therefore start to see good value in some office PFPO/REITs as their stocks came down to a more reasonable level.

Our top picks. Our top three PFPO/REIT picks are LH Hotel Leasehold REIT (LHHOTEL), CPN Retail Growth Property Fund (CPNRF), and CP Tower Growth Leasehold Property Fund (CPTGF). We like LHHOTEL for its quality asset in good location, generous distribution yield of 7.3% and potential acquisition growth. CPNRF is looking to convert from property fund into a REIT and acquire more assets from CPN. This could help enhance yield from 6.3% this year. CPTGF’s price has come down to an attractive level with a 2017 yield of 6.9%. The fund possesses leasehold rights to three office towers, all in prime locations.

SET : 1,573.05

Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected] Thailand Research Team +662 658 1222 [email protected]

CPN Retail Growth Property Fund : Property Fund – Investing in retail properties

LH Hotel Leasehold REIT : REIT – Investing in hotel asset

Tesco Lotus Retail Growth Freehold and Leasehold Property Fund : Property Fund – Investing in retail properties

CP Tower Growth Leasehold : Property Fund – Investing in office towers

Samui Airport Property Fund : Property Fund – Investing in Samui Airport

DBS Group Research . Equity 5 May 2017

Thailand Industry Focus

Property Funds and REITs

Refer to important disclosures at the end of this report

STOCKS

12-mth

Price Mkt Cap Target Price Performance (%)

Bt US$m Bt 3 mth 12 mth Rating

CPN Retail Growth Property Fund

18.60 1,191 21.70 (4.6) (8.4) BUY

LH Hotel Leasehold REIT

13.80 125 16.70 0.7 6.2 BUY

Tesco Lotus Retail Growth Freehold and Leasehold Property Fund

16.80 1,137 18.50 (4.0) (0.6) HOLD

CP Tower Growth Leasehold

12.80 358 13.80 (14.7) (18.0) BUY

Samui Airport Property Fund

23.00 632 24.00 (5.7) (6.1) HOLD

Source: DBSVTH, Bloomberg Finance L.P. Closing price as of 3 May 2017

Industry Focus

ASIAN INSIGHTS VICKERS SECURITIES

What’s new

One property fund converted into REIT. Sri Panwa Hotel Property Fund (SPWPF) was converted from property fund into a real estate investment trust (REIT) and renamed SRIPANWA in late 2016. The REIT also acquired additional assets from Charn Issara Residence Co., Ltd. The new assets include (i) a luxury hotel in Phuket named “Sri Panwa Hotel”, and (ii) a resort in Phuket named “X29”. SRIPANWA has now a total market capitalisation of Bt3.0bn, comprising 279m units at a market price of Bt10.8. Out of the total 279m shares, 200m shares were swapped with the assets from SPWPF valued at Bt2.3bn, the remaining 79m shares were new units issued for the acquisition of additional assets valued at Bt1.3bn. At end-2016, SRIPANWA’s gearing was 12.4%. Tax waivers for REIT conversion extended by one year. The Cabinet has approved the Ministry of Finance’s proposal to extend the waivers on various taxes (VAT, specific business tax, stamp duty, income tax on unitholders of property funds that are converted into REITs) and transaction costs (transfer fees, mortgage registration, leasehold registration) to facilitate conversion from property funds into REITs from end-2016 to end-2017. We view this positively and believe that they should the pave way for the conversion of PFPOs into REITs, given that major transaction costs are cleared. Thai PFPOs are not allowed to increase capital to acquire new assets. The conversion into REITs should help extend the lives of property funds, especially those with leasehold assets, enabling the funds to grow their fund size, boost distribution yields given the higher gearing allowed under REITs. Note that a REIT is allowed to gear up to 35% of total assets (or up to 60% if it secures an investment grade rating), vs 10% of NAV for a property fund. REITs have more flexibility as they can invest overseas. They can invest in green-field projects up to 10% of total assets. More REIT conversion expected in 2H17. The Thai government has agreed to extend all taxes relating to the conversion from property funds into REITs until end-2017. So far, only SPFPF was converted into REIT and renamed SRIPANWA. We expect to see more property funds being converted into REITs in 2H17. Among these are CPN Retail Growth Property Fund (CPNRF), WHA Premium Factory & Warehouse Freehold and Leasehold Property Fund (WHAPF), Quality Houses

Leasehold Property Fund (QHPF) and Quality Houses Hotel & Residence Leasehold Property Fund (QHHR), Ticon Property Fund (TFUND), Tpark Logistics Property Fund (TLOGIS), and Ticon Industrial Growth Leasehold Property Fund (TGROWTH). All such conversion needs approval from their unitholders. CPNRF is looking to convert into a REIT and acquire 1-2 assets from CPN within 2H17. WHAPF is looking to convert into a REIT and consolidate into WHART. This should double WHART’s size. QHPF is looking to convert into a REIT and acquire Q House Asoke office tower from QH. QHHR is looking to convert into a REIT and acquire two provincial residential condominium towers from QH. TFUND, TLOGIS, and TGROWTH are looking to convert into REITs and consolidate into TREIT. What’s new

REIT Conversion

SPWPF Already converted into SRIPANWA

CPNRF Looking to convert into REIT in 2H17

QHHR Looking to convert into REIT in 2H17

QHPF Looking to convert into REIT in 2H17

WHAPF Looking to consolidate assets into WHART

TFUND Looking to consolidate assets into TREIT

TLOGIS Looking to consolidate assets into TREIT

TGROWTH Looking to consolidate assets into TREIT

Asset Acquisition CPNRF To acquire new assets from CPN after conversion into

REIT QHHR To acquire new assets from QH after conversion into

REIT QHPF To acquire an office tower from QH after conversion

into REIT LHHOTEL To acquire Grande Centre Point Rajdamri Hotel from LH WHART To acquire new assets from WHA in 2H17 New listing

GLANDRT First REIT IPO in 2017 Source: Company, DBSVTH

One new office REIT named GLANDRT recently listed. A new office REIT named GLAND Office Leasehold REIT (GLANDRT) recently made its debut on the Stock Exchange of Thailand on 21 April. GLANDRT holds 30-year leasehold rights to The Nine Tower and 17-year leasehold rights to Unilever House, both are located on Rama IX Road. The fund issued 499.8m units at Bt10 apiece to the public. At IPO, the fund offers a relatively generous distribution yield of 7.2%. Its share price went up to Bt11.6 on its first day trade, before easing to Bt10.70 of late. At the current price of Bt10.7, the fund offers a moderate distribution yield of 6.7%, in line with office fund/REIT peers.

Industry Focus


About GLANDRT

2014 2015 2016

Office The Nine Tower

Occupiers 64 71 76

Leasable area (sqm) 62,950 62,950 62,950

Occupancy (%) 92.0 93.5 95.0

Rental rate (Bt/sqm/month) 529 534 560

Revenue (Btm) 212 404 415

Cost & expenses (Btm) (76) (130) (130)

EBITDA (Btm) 136 273 285

EBITDA margin (%) 64.0 67.7 68.7

Office Unilever House

Occupiers 1 1 1

Leasable area (sqm) 18,527 18,527 18,527

Occupancy (%) 100.0 100.0 100.0

Rental rate (Bt/sqm/month) 640 640 640

Revenue (Btm) 0 159 156

Cost & expenses (Btm) 0 (55) (58)

EBITDA (Btm) 0 104 98

EBITDA margin (%) n.a. 65.5 62.9 Source: Company, DBSVTH

Thailand’s office property funds/REITs

PFPR/REIT DPU Price Distr. Yield Mkt Cap Remaining

Office (Bt) (Bt) (%) (Btm) Years*

TCIF 0.7400 14.00 5.3% 30,982 90 CPTGF 0.9000 12.30 7.3% 11,894 26 GVREIT 0.7836 13.40 5.8% 10,918 24 QHPF 0.8150 11.50 7.1% 9,166 18 TPRIME 0.6643 12.20 5.4% 6,680 75 POPF 1.0708 13.80 7.8% 6,647 22 CPNCG 0.9268 13.30 7.0% 5,674 15 GLANDRT 0.7200 10.70 6.7% 5,348 27 WHABT 0.6180 9.90 6.2% 2,000 91 KPNPF 0.5150 9.80 5.3% 1,764 Freehold SIRIPF 0.5800 9.90 5.9% 1,683 Freehold BKKCP 0.6400 10.40 6.2% 1,040 Freehold

Simple Avg 6.3% 93,795

Mkt Cap WA 6.2% *Average remaining leasehold life of the combined assets Source: Company, DBSVTH

Ending certain tax exemptions for PFPOs from 24 May 2017. The cabinet on 9 February 2016 resolved to end various tax exemptions for property funds in order to make it fair to the REIT sector and to encourage the conversion of property funds into REITs. Such tax exemptions ended include the exemption on value-added tax, specific business tax and stamp duty. The

cabinet’s resolution had been submitted for royal endorsement and was published in the Royal Gazette. The government has given a one-year grace period for property funds, as the law will become effective on 24 May 2017 which is one year after it was published in the Royal Gazette. These tax exemptions for property funds were introduced to help the property sector and resolve the problems inherent in the financial system during the Asian Financial Crisis in 1997. Now that the property sector has recovered, the government sees no further need for such tax exemptions. This is negative for property funds, but has no impact on REITs. The impact on property funds, however, is not that material. Most property funds can pass on value-added tax (7%) and stamp duty (0.1%) to tenants, while the specific business tax is applied only upon the sale of the assets. Three property funds are being taken private. Asset World Co., Ltd., a company under the TCC group, has made an offer to purchase all assets of three property funds under the TCC Group namely Thai Commercial Investment Freehold and Leasehold Fund (TCIF), Thai Retail Investment Fund (TRIF), and Thai Hotel Investment Freehold and Leasehold Fund (THIF). Asset World has now 33% stakes in TCIF and THIF and 30.9% in TRIF. These three property funds will hold their shareholders meeting on 17-18 May 2017 to consider whether to approve: (i) The sale of the fund’s assets and the transfer of all

leasehold rights of the funds to Asset World. (ii) The dissolution of the fund and the delisting of

investment units on the SET. The resolution approving the sale of the assets shall be passed by the votes of no less than three-quarters of the total units of the unitholders attending the meeting who are entitled to vote. Should the unitholders approve the sale of the assets, the offeror has offered to buy the investment units from every unitholder who wishes to sell the investment units and informs their intention to sell the investment units to the buyer within 14 days after the date of the meeting of unitholders. The purchase price is based on the volume- weighted average market price during the 15-day period before the date of the meeting of the Board of Directors of the management company, which is higher than the offering price when calculated as a price per one investment unit.

Industry Focus


2016 distribution yield of the three property funds

Fund DPU DPU Price Yield 2015 2016 (Bt) 2016

TCIF 0.625 0.740 14.0 5.3%

TRIF 0.651 0.719 13.7 5.2%

THIF 0.501 0.542 11.8 4.6% Source: Company, DBSVTH

The following table shows details of the assets held by the three property funds, as well as the offering price by Asset World, the offeror.

The three property funds that are being taken private

Fund TCIF TRIF THIF

Type of assets Office Retail Hotel

Assets Empire Tower (F) Panthip Plaza at Sheraton Samui (F)

Note: F = Freehold Athinee Project (L) - Ngamwongwan (F) Imperial Boat House Beach Resort (F)

L = Leasehold 208 Wireless (F) - Chiangmai (F) Bangkok Marriott Marquis Queenspark (F)

Interlink (F) - Bangkapi (F) The Metropole Phuket (F)

Cyberworld (F) - Pratunam(F) Le Meridien Bangkok (F)

Asiatique The Riverfront (F) Banyan Tree Samui (F)

Tawanna (F) Vanabelle Samui (F)

O.P. Place (F) Hilton Sukhumvit (F)

Doubletree Hilton Sukhumvit (F)

Le Meridien Chiangmai (F)

Plaza Athinee Bangkok (L)

The Okura Prestige Bangkok (L)

Appraised Value (Btm)

C.I.T. Appraisal 28,382

15 Business Advisory 28,888 18,705 24,647 Knightfrank Charter 20,767

CB Richard Ellis 27,552

Final offering price (Btm) 29,000 21,000 30,000

Total units (m) 2,213 1,589 2,620

Offering price/unit (Bt) 13.10 13.22 11.45

15 days WA price (Bt0 14.12 15.38 11.98

Note: F = Freehold, L = Leasehold Source: Company, DBSVTH

Industry Focus


Share price performance An underperformer YTD. The sector index dropped 4.7% YTD, underperforming the SET Index’s 1.4% gain, amid concerns over rising government bond yields and selling by some local institutional investors. PFPO/REIT sector vs SET Index

Source: SET, DBSVTH

Top gainers YTD

Stock Price (Bt) % Change Mkt Cap 3 May 2017 (Btm) TU-PF 2.44 24.49 254 TNPF 3.80 16.56 556 GOLDPF 7.20 9.09 1,483 GLANDRT* 10.80 8.00 5,398 TLOGIS 10.90 7.92 4,511 LUXF 7.10 5.97 1,395 SIRIP 11.00 3.77 1,870 TIF1 8.25 3.77 743 PPF 11.90 3.48 2,672 LHHOTEL 13.60 3.03 4,266 REIT sector 175.16 -4.67 SET 1564.12 1.37

* New listing on 21 Apr 2017, price change from IPO price of Bt10

Source: SET, DBSVTH

Top losers YTD

Stock Price (Bt) % Change Mkt Cap 3 May 2017 (Btm) REIT sector 175.16 -4.67 SET 1564.12 1.37 DTCPF 6.60 -19.51 2,702 MIT 8.05 -19.50 785 HPF 6.60 -18.01 3,102 CPTGF 12.30 -18.00 11,894 QHHR 9.65 -13.84 3,242 AMATAR 9.90 -13.16 3,543 POPF 13.70 -12.74 6,598 TRIF 14.60 -12.57 23,199 SSTPF 7.95 -10.67 537 CPNCG 13.30 -9.52 5,674

Source: SET, DBSVTH

Yield Sector offers moderate 2017F market-cap weighted distribution yield of 5.8%. This is a 304-bp premium to the Thai 10-year government bond yield of 2.78% currently. Most funds pay quarterly dividends, while some pay semi-annually. Market-cap weighted distribution yield of Thai PFPOs/REITs

Source: SET, DBSVTH Note: Distribution includes dividends and capital reduction

PFPO/REIT – yield comparison. The following chart shows our estimated 2017F market-cap weighted yields for several types of PFPO/REITs. 2017F yield comparison for various types of PFPO/REIT

Source: SET, DBSVTH Yield spread. The following chart shows that the spread between the market-cap weighted average yield of Thai PFPO/REITs and Thai 10-year government bond yield averaged 2.98% during 2009-2016. The current yield spread is now at 3.04%, which is very close to the historical average.

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Industry Focus


Yield of Thai PFPOs/REITs vs Thai 10-yr government bond

Source: SET, DBSVTH

Premium over Thai 10-year government bond yield

Source: SET, DBS VTH

Still offering attractive returns vs other investment alternatives. At 5.8% market-cap weighted average distribution yield, the property fund/REIT/infrastructure fund sector still offers attractive risk-adjusted returns as compared to other investment alternatives. PFPO/REIT returns vs other investment alternatives

Source: SET, DBSVTH

Valuation The sector is now trading at 1.1x P/NAV. Thai PFPOs/REITs have been trading in the range of 1.04-1.27x P/NAV during the last five years. It is now trading at 1.1x P/NAV, which is pretty in line with the historical average.

Price/NAV

Source: SET, DBSVTH

Recommendation Opportunity emerges after recent price correction. The recent price correction of a number of stocks in the sector, especially the office subsector, has made some funds look interesting as valuation is now coming down to a more reasonable level.

Factors we consider to arrive at our top picks. The following table is summary of valuation of PFPOs/REITs under our coverage. The key factors we consider to arrive at our conclusion of top picks are distribution yields, IRR (given that the remaining leasehold period of these funds varies), upside to our DCF-based TP, quality of assets in the portfolio and potential for growth.

Our top picks are LHHOTEL, CPNRF and CPTGF. We like LHHOTEL for its quality assets in good locations, generous distribution yield of 7.3% and potential acquisition growth. CPNRF is looking to convert from property fund into a REIT and acquire more assets from CPN. This could help enhance yield from 6.3% this year. CPTGF’s price has come down to an attractive level with 2017 yield of 6.9%. The fund possesses leasehold rights to three office towers, all in prime locations.

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Industry Focus


Peer comparison

Ticker Price (Bt) Units Mkt Cap TP Upside IRR DPU (Bt) Dividend Yield (%) NAV (Bt) P/NAV Discount

04-May (m) (Btm) (Bt) (%) 2015A 2016A 2017F 2016A 2017F 2016 (x) rate (%)

Retail

CPNRF 18.60 2,212 41,152 21.70 17% 7.7% 1.01 1.15 1.18 6.2% 6.3% 13.56 1.37 7.1%

TLGF 16.70 2,337 39,033 18.50 11% 6.1% 0.81 0.87 0.86 5.2% 5.1% 11.80 1.41 7.4%

FUTUREPF 22.30 530 11,809 23.00 3% 6.8% 1.25 1.33 1.37 6.0% 6.2% 12.62 1.77 6.9%

CRYSTAL 11.30 390 4,407 12.40 10% 8.1% 0.80 0.78 0.82 6.9% 7.2% 10.91 1.04 7.5%

Average 5,469 96,401 5.6% 5.9% 1.45

Industrial

AMATAR 9.90 358 3,543 10.40 5% 7.8% 0.42 0.84 0.77 8.4% 7.7% 10.11 0.98 6.6%

TREIT 9.30 567 5,271 9.70 4% 7.5% 0.77 0.77 0.50 8.3% 5.3% 9.94 0.94 6.1%

WHAPF 10.10 939 9,485 11.40 13% 8.2% 0.68 0.64 0.63 6.3% 6.3% 10.43 0.97 7.6%

WHART 9.75 972 9,478 10.60 9% 8.7% 0.68 0.77 0.78 7.9% 8.0% 7.95 1.23 6.1%

TFUND 10.30 1,150 11,840 10.00 -3% 9.0% 0.65 0.63 0.63 6.1% 6.1% 11.44 0.90 8.2%

TGROWTH 10.70 555 5,939 11.60 8% 8.8% 0.85 0.83 0.81 7.7% 7.6% 10.34 1.03 7.3%

TLOGIS 10.90 414 4,511 10.00 -8% 8.3% 0.80 0.70 0.71 6.4% 6.5% 11.71 0.93 7.8%

Average 50,067 6.2% 6.2% 1.13

Office

CPNCG 13.30 427 5,674 13.70 3% 6.8% 0.86 0.93 0.97 7.0% 7.3% 11.90 1.12 6.9%

CPTGF 12.30 967 11,894 13.70 11% 8.6% 0.81 0.85 0.84 6.9% 6.9% 10.31 1.19 7.5%

GVREIT 13.40 815 10,918 13.60 1% 6.8% na 0.42 0.78 5.4% 5.8% 10.09 1.33 6.9%

POPF 13.70 482 6,598 13.50 -1% 9.1% 1.05 1.06 1.07 7.7% 7.8% 11.22 1.22 6.9%

TPRIME 12.20 548 6,680 14.00 15% 9.3% 0.82 0.41 0.70 3.4% 5.7% 10.12 1.21 7.1%

Average 41,765 4.8% 6.6% 1.38

Hotel/Serviced Apartment

LHPF 8.95 330 2,954 10.00 12% 7.3% 0.70 0.53 0.51 5.9% 5.7% 10.68 0.84 6.9%

LHHOTEL 13.60 314 4,266 16.70 23% 9.7% 0.00 0.99 0.99 7.2% 7.3% 10.61 1.28 8.9%

QHHR 9.65 336 3,242 10.80 12% 7.8% 0.72 0.63 0.63 6.5% 6.5% 12.30 0.78 7.1%

DTCPF 6.60 409 2,702 6.67 1% 2.8% 0.47 0.47 0.48 7.1% 7.3% 10.55 0.63 10.0%

ERWPF 7.60 176 1,338 8.40 11% 7.9% 0.60 0.59 0.48 7.8% 6.4% 10.53 0.72 8.0%

Average 14,502 6.3% 6.7% 0.91

Others

IMPACT 14.50 1,483 21,496 15.50 7% 8.5% 0.77 0.66 0.67 4.6% 4.6% 10.87 1.33 6.5%

MJLF 14.30 330 4,719 14.50 1% 6.7% 1.01 1.03 1.06 7.2% 7.4% 12.26 1.17 7.5%

SPF 22.90 950 21,755 24.00 5% 7.6% 1.29 1.47 1.54 6.4% 6.7% 13.28 1.72 6.9%

Average 47,970 5.4% 5.8% 1.53

Infrastructure funds

BTSGIF 11.40 5,788 65,983 12.50 10% 7.1% 0.61 0.69 0.78 6.1% 6.9% 11.61 0.98 7.2%

DIF 14.20 5,808 82,474 16.20 14% 9.6% 0.95 0.96 1.02 6.7% 7.2% 14.62 0.97 8.5%

JASIF 11.40 5,500 62,700 11.20 -2% 6.9% 0.93 0.98 1.01 8.6% 8.8% 10.24 1.11 8.4%

Average 211,157 7.1% 7.6% 1.01

Source: Company, DBSVTH

Industry Focus


Industry Outlook Office: Still bright prospects. We continue to see a positive outlook for the office sector, thanks to the reasonable level of demand while near-term supply is quite limited. The vacancy rate had dropped steadily to 7.7% in 4Q16. Office: Supply, demand and vacancy

Source: CBRE, DBSVTH

Supply: According to CBRE (Thailand), total supply of offices in Bangkok was 8.56m sqm at end-4Q16. Looking forward, around 485,000 sqm of office space is under construction, and due for completion between 2017 and 2019. Most of the new supply will be in non-CBD areas, e.g. Northern Corridor and late Sukhumvit areas. Only 27% of the new supply will be grade A offices for rent in the CBD. These include Gaysorn Tower, Singha Complex, and Samyan Mitrtown. On a longer term, the TCC Group recently announced plan to build a huge mixed-use project named “One Bangkok”, covering 1.83m sqm of gross floor area to be completed by 2025. The project will comprise Grade A office tower, a 5-star hotel, three residential towers, together with retail areas. Central Pattana (CPN) has recently entered into a JV with Dusit Thani Group to develop a mixed-use project on Silom Road. The project will cover a luxury hotel, an office tower, a large shopping complex, and residential condominium. Construction has yet to start and should be completed in 5-7 years.

Office: New office supply by area

Source: CBRE (Thailand), DBSVTH

Demand: Net take-up of office space in Bangkok was 195,500 sqm in 2016, a slight drop of 1.4% y-o-y. It is estimated that total net take-up will be around 200,000 sqm this year.

Office: Annual take-up rate


Rents: Average rental rates of Grade A CBD office rose by 6.2% y-o-y to Bt953/sqm/month in 4Q16. Average Grade A non-CBD office rents grew faster by 8.9% y-o-y to Bt770/sqm/month. Grade B CBD office rents grew 6.70% y-o-y to Bt700/sqm/month, while Grade B non-CBD rents rose 4.7% y-o-y to Bt642/sqm/month. Office: Average rental rates

Source: CBRE (Thailand), DBSVTH

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Industry Focus


Retail: Improving outlook. Newly completed retail supply in Bangkok has begun to slow down after rising sharply in recent years. According to CBRE (Thailand), total supply of retail space in Bangkok was 7.3m sqm at end-4Q16. The occupancy rate has improved to 93.8%. Rents continued to grow, albeit at a softer rate amid a slow economy. Retail sales, however, have shown signs of recovery. Supply: In 2016, there was 227,921 sqm of new retail supply in Bangkok, still lower than the new supply in 2015 and 2014 at 503,248 sqm and 382,117 sqm respectively. The biggest retail development being added to the market was “Show DC” which covers a total area of 74,000 sqm. Retail: Rising occupancies

Source: CBRE, DBS VTH

Retail sales, however, have shown positive y-o-y growth for four consecutive months since November 2016, after registering negative 1.7% growth in October 2016 due to the mourning period. Nominal farm income has turned positive y-o-y growth for three consecutive months since December 2016, thanks to the recovery in agricultural product prices, e.g. rubber, sugarcane, mangosteen, lychee, groundnuts, shrimp, etc. Thailand’s Consumer Confidence Index has recovered nicely, rising for five consecutive months since December 2016.

Retail: Retail sales turned positive for four consecutive months

Source: Bank of Thailand, DBSVTH

Retail: Rising farm income

Source: Bank of Thailand, DBSVTH

Retail: Consumer Confidence Index

Source: University of Thai Chamber of Commerce, DBSVTH

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

sqm

Supply (Sqm) Demand (Sqm) Occupancy (RHS)

‐10%

‐5%

0%

5%

10%

15%

180

190

200

210

220

230

240

1Q13

3Q13

1Q14

3Q14

1Q15

3Q15

1Q16

3Q16

1Q17F

Retail sales index

y‐o‐y change (RHS)

‐30%

‐20%

‐10%

0%

10%

20%

30%

Jan‐15

Mar‐15

May‐15

Jul‐15

Sep‐15

Nov‐15

Jan‐16

Mar‐16

May‐16

Jul‐16

Sep‐16

Nov‐16

Jan‐17

Nominal farm income

Agricultural production

Agricultural price

68

69

70

71

72

73

74

75

76

77

78

Mar‐16

Apr‐16

May‐16

Jun‐16

Jul‐16

Aug‐16

Sep‐16

Oct‐16

Nov‐16

Dec‐16

Jan‐17

Feb‐17

Mar‐17

Apr‐17

Industry Focus


Ready-built factories: Oversupply and weak demand. High vacancies amid weak demand and abundant supply of ready-built factories remain our key concern. The vacancy rate remained very high at 31% in 4Q16, as demand remained very weak. Looking forward, we believe rents can hardly increase amid the current high vacancy levels and as developers try hard to fill their vacant spaces. Ready-built factories: Oversupply persists


Logistics centres (warehouse): Vacancy remained high. The vacancy rate remained high at 19.0% in 4Q16, as demand remained soft. Rental rates for warehouses continued to face downward pressure, as asset owners tried hard to fill their space. Warehouses: Rising vacancies


Hotel: We prefer downtown Bangkok hotels. We see a positive outlook for the hotel sector, thanks to calmer politics and the continued strong growth in tourist arrivals to Thailand. In 2016, international tourist arrivals to Thailand rose by 9% y-o-y to a record high of 32.6m people despite the mourning period and the crackdown on zero-dollar tour which led to a drop of 1% in tourist arrivals in 4Q16. In 1Q17, tourist arrivals to Thailand increased 1.7% y-o-y. According to CBRE, the total supply of hotels in Bangkok stood at 42,600 keys as of end-2016. The ADR in Bangkok hotels was Bt3,400/night in 4Q16, up 3% y-o-y. RevPAR stood at Bt2,600/night, up 6% y-o-y. We still prefer downtown Bangkok hotels which should continue to benefit from the strong tourism outlook. Their occupancies are always high, regardless of seasonality, resulting in relatively stable cash flows. Tourist arrivals to Thailand

Source: Immigration Bureau, Department of Tourism, DBSVTH Hotel occupancy rate

Source: Bank of Thailand, DBS Vickers

0%

5%

10%

15%

20%

25%

30%

35%

0

50,000

100,000

150,000

200,000

250,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Sqm

Supply

Demand

Vacancy (RHS)

0%

5%

10%

15%

20%

25%

30%

35%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

Total Space (Sqm) Leased Space (Sqm) Vacancy (RHS)

600

1,000

1,400

1,800

2,200

2,600

3,000

3,400Ja

n

Feb

Mar

Apr

May Jun Jul

Aug Se

p

Oct

Nov

Dec

'000 People

2009 2010 2011 2012 20132014 2015 2016 2017

30

40

50

60

70

80

Jan

Feb

Mar

Apr

May Jun Jul

Aug Se

p

Oct

Nov

Dec

%

2009 2010 2011 2012 2013 2014 2015 2016 2017

Industry Focus


Stock Profiles

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa: TP, PY

BUY Last Traded Price ( 3 May 2017): Bt18.60 (SET : 1,564.12) Price Target 12-mth: Bt21.70 (17% upside) (Prev Bt22.70) Potential Catalyst: Strong rental reversion Where we differ: We have factored in potential drop in occupancy rate at Central Rama III in 2018, while consensus may have yet to do so. Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Btm) 2015A 2016A 2017F 2018F Gross Revenue 3,038 3,425 3,644 3,829 Net Property Inc 2,864 3,241 3,410 3,570 Total Return 3,980 3,162 3,006 3,146 Distribution Inc 2,421 2,831 2,892 2,975 EPU (Bt) 1.80 1.43 1.36 1.42 EPU Gth (%) 11 (21) (5) 5 DPU (Bt) 1.01 1.15 1.18 1.21 DPU Gth (%) (24) 14 2 3 NAV per shr (Bt) 13.2 13.6 13.7 14.0 PE (X) 10.3 13.0 13.7 13.1 Distribution Yield (%) 5.4 6.2 6.3 6.5 P/NAV (x) 1.4 1.4 1.4 1.3 Aggregate Leverage (%) 6.0 5.7 5.3 4.8 ROAE (%) 14.0 10.7 10.0 10.3 Distn. Inc Chng (%): 0 (2) Consensus DPU (Bt): 1.14 1.34 Other Broker Recs: B: 3 S: 0 H: 0

Source of all data on this page: Company, DBSVTH, Bloomberg Finance L.P.

Conversion into a REIT to be completed in 2H17 A portfolio of four successful assets in strategic locations. CPNRF holds leasehold rights to operate four shopping malls in Thailand. These malls have been enjoying high average occupancy rates of over 90%, thanks to their superb locations and the quality of the property manager, Central Pattana (CPN), which is Thailand’s leading shopping mall developer. DPU to stay flat in 2017 before picking up strongly in 2019. We expect CPNRF to record a meagre 2% growth in DPU in 2017. This is mainly because the fund has announced minor renovation of CentralPlaza Rama II (Jan to Aug 2017) and CentralPlaza Chiangmai Airport (Sep 2016 – April 2017). In addition, the fund is now planning for a major renovation of CentralPlaza Rama III from 2H17 onwards. This will take about 12 months to complete. Revenue and DPU should therefore pick up strongly in 2019 when the renovation at these malls is completed. Conversion into a REIT to be completed in 2H17. CPNRF plans to convert from a property fund into a REIT in 2H17. The fund also looks to acquire additional assets using more debts allowed under the REIT structure. Final conclusion on the acquisition of new assets has yet to be reached. The conversion into REIT should help extend the asset lives of CPNRF and improve its yields given the higher gearing allowed under REITs. Note that Thai REITs are allowed to take on a higher gearing of up to 35% of total assets (up to 60% if they have investment grade rating) vs a maximum of 10% of NAV under property funds. Valuation:

Our target price for CPNRF is B21.70, based on discounted cash flow (DCF) valuation methodology. Key Risks to Our View:

Key risks are (i) lower-than-expected occupancy rates, and (ii) weaker-than-expected rental rate reversion. At A Glance Issued Capital (m shrs) 2,212 Mkt. Cap (Btm/US$m) 41,152 / 1,191 Major Shareholders (%) Central Pattana 26.7 Government Savings Bank 3.1 HSBC (Singapore) Nominees Pte. Ltd. 2.4

Free Float (%) 66.9 3m Avg. Daily Val (US$m) 0.36 ICB Industry : Financials / Real Estate Investment Trusts


Thailand Company Guide

CPN Retail Growth Property Fund Version 7 | Bloomberg: CPNRF TB | Reuters: CPNRu.BK Refer to important disclosures at the end of this report

ASIAN INSIGHTS VICKERS SECURITIES Page 2

Company Guide


CRITICAL DATA POINTS TO WATCH

Earnings Drivers:

Asset enhancement. CPNRF is planning to renovate CentralPlaza Rama 2, 3, and Chiangmai Airport in 2017. We therefore believe there could be a potential hiccup to earnings and DPU in 2017 and 2018, and earnings should jump again in 2019 when all assets are completely renovated. Improved occupancy and rents. Blended occupancy rate was 91.7% at end-4Q16. While occupancy rate may remain low during the renovation period, it should pick up strongly after the renovation is completed. The fund normally can demand higher rents after its major renovation. We assume that rents will grow 3% this year and 5% thereafter for all properties. We then cut the rental growth rate to 3% from 2066-2095. Acquisition of new assets. CPNRF has finalised its decision to convert from a property fund into a real estate investment trust (REIT). The conversion, expected to be completed by 2H17, should help ease concerns over the short lease of its two major assets. The successful conversion into a REIT will help extend the life of these assets, as it can increase capital or borrow more to pay for such land lease extension or to acquire new assets. A REIT can borrow up to 35% of total assets (or as high as 60% of total assets if it secures an investment grade rating), compared to only 10% of NAV for property funds. The fund is also studying the potential acquisition of 1-2 assets from CPN, which should be finalised by end-2017. Higher gearing should help improve yield. CPNRF’s total assets amounted to Bt33.6bn as at end-2016. Its borrowing was at only Bt1.9bn, or 5.6% of total assets. Lifting the gearing to the maximum 35% limit should mean the REIT has room to borrow up to Bt11.8bn to fund its expansion. Considering the low cost of borrowing at about 3.7% vs the assets’ net investment yield at about 8.0-9.0%, this suggests potential improvement in the REIT’s net investment yield after increasing its gearing. Potential special dividends. CPNRF will likely pay special dividends upon conversion into REIT. This is to help compensate local institutional investors who will have to pay 20% tax on dividends that they receive from the REIT, as compared to 0% tax on dividends received from a property fund if they hold the investment more than three months before and after the dividend payment. Local retail investors should see no change in the tax treatment, as the dividends they receive from either a property fund or a REIT is subject to the same 10% withholding tax rate. Foreign investors are subject to 10% withholding income tax on dividends that they receive from REITs.

Net Property Income and Margins (%)


Distribution Paid / Net Operating CF

Interest Cover (x)



Company Guide


Balance Sheet:

Total borrowings stood at Bt1.9bn, and gearing reached 6.8% at end-2016. This is within the 10% maximum gearing allowed for property funds. Share Price Drivers:

Strong rental reversion could lift rental income and distribution per unit. Conversion into a REIT structure. The successful conversion to a REIT structure would mean the current fund can gear up further and rely less on equity financing. This should lift DPU and yields. Key Risks:

A sharp slowdown in the Thai economy could result in higher vacancy rates and make rental reversions difficult, as tenants would suffer from weaker revenues. Company Background

CPNRF is Thailand's largest property fund by market capitalisation. The fund invests in leasehold rights to four retail assets namely CentralPlaza Rama 2, Rama 3, Pinklao, and Chiangmai Airport. The following table shows the remaining leasehold life of each of the four assets. We can see that while the blended leasehold life is about 34 years, the leasehold lives of two major assets CentralPlaza Pinklao (29% of revenue) and CentralPlaza Rama II (34% of total revenue) are coming closer to their end, at about 7.7 and 8.3 years respectively. We therefore see the successful conversion into a REIT as being quite critical for the fund’s growth.

CPNRF: Assets in the portfolio

Assets NAV Lease ends Remaining

Life

(Btm) (Years)

Central Plaza Rama 2 6,705 15-Aug-25 8.3

Central Plaza Rama 3 9,156 15-Aug-95 78.3

Central Pinklao 5,495 31-Dec-24 7.7

Central Chiangmai 10,953 23-Apr-44 27.0

Total 32,309 34.4


Aggregate Leverage (%)

ROE (%)

Distribution Yield (%)

PB Band (x)



Company Guide


Key Assumptions

FY Dec 2014A 2015A 2016A 2017F 2018F Leasable area (sqm) 208,543 219,865 225,685 225,685 225,685 OR 97% 92% 91% 94% 94% Leased area (sqm) 201,434 201,295 204,470 211,200 211,359 Average rents 1,318 1,258 1,396 1,438 1,510 Change 8% -5% 11% 3% 5% Total rents 3,185 3,038 3,425 3,644 3,829

Segmental Breakdown

FY Dec 2014A 2015A 2016A 2017F 2018F Revenues (Btm) Central Rama 2 1,145 1,217 1,213 1,221 1,367 Central Rama 3 619 652 683 596 511 Central Pinklao 949 562 888 1,208 1,265 Central Chiangmai Airport 469 672 630 619 686 Others 113 26 110 100 101 Total 3,297 3,129 3,525 3,744 3,931 Revenue Breakdown Central Rama 2 34.7% 38.9% 34.4% 32.6% 34.8% Central Rama 3 18.8% 20.8% 19.4% 15.9% 13.0% Central Pinklao 28.8% 18.0% 25.2% 32.3% 32.2% Central Chiangmai Airport 14.2% 21.5% 17.9% 16.5% 17.5% Others 3.4% 0.8% 3.1% 2.7% 2.6% Total 100.0% 100.0% 100.0% 100.0% 100.0%

Income Statement (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F Gross revenue 3,185 3,038 3,425 3,644 3,829 Property expenses (161) (173) (185) (234) (259) Net Property Income 3,024 2,864 3,241 3,410 3,570 Other Operating expenses (409) (468) (443) (456) (488) Other Non Opg (Exp)/Inc 112 91.3 99.5 100 101 Net Interest (Exp)/Inc (43.4) (66.5) (66.3) (48.4) (37.5) Net Investment Income 2,684 2,422 2,831 3,006 3,146 Exceptional Gain/(Loss) 527 1,559 332 0.0 0.0 Net Income After Tax 3,211 3,980 3,162 3,006 3,146 Distributable Income 2,684 2,422 2,831 2,892 2,975 Dividend pay-out ratio 98% 92% 90% 90% 90% Distribution 2,630 2,230 2,551 2,603 2,678 DPU (Bt) 1.33 1.01 1.15 1.18 1.21 Growth & Ratio Revenue Gth (%) 23.0 (4.6) 12.8 6.4 5.1 N Property Inc Gth (%) 25.3 (5.3) 13.1 5.2 4.7 Net Inc Gth (%) 19.3 23.9 (20.5) (4.9) 4.6 Dist. Payout Ratio (%) 100.5 92.1 90.1 90.0 90.0 Net Prop Inc Margins (%) 94.9 94.3 94.6 93.6 93.2 Net Income Margins (%) 100.8 131.0 92.3 82.5 82.2 Dist to revenue (%) 84.3 79.7 82.6 79.4 77.7 Managers & Trustee’s fees 12.8 15.4 12.9 12.5 12.7 ROAE (%) 14.1 14.0 10.7 10.0 10.3 ROA (%) 12.6 12.5 9.5 8.9 9.2 ROCE (%) 10.9 7.9 8.9 9.2 9.5 Int. Cover (x) 60.3 36.1 42.2 61.0 82.2


Renovation of CentralPlaza Pinklao mall


Company Guide


Quarterly / Interim Income Statement (Btm)

FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Gross revenue 755 828 848 862 887 Property expenses (57.8) (42.7) (52.0) (35.5) (54.3) Net Property Income 697 785 796 826 833 Other Operating expenses (155) (105) (112) (109) (117) Other Non Opg (Exp)/Inc 23.8 25.5 27.1 24.4 22.4 Net Interest (Exp)/Inc (16.9) (16.8) (16.7) (16.3) (16.5) Net Investment Income 549 689 694 725 722 Exceptional Gain/(Loss) 178 96.5 147 122 (33.4) Net Income after Tax 728 786 841 847 689 Distributable Income 549 689 694 725 722 Dividend pay-out ratio 92.9% 89.5% 86.4% 94.6% 89.7% Distribution 510 617 600 686 648 DPU (Bt) 0.2305 0.2788 0.2710 0.3100 0.2930 Growth & Ratio Revenue Gth (%) 9 10 2 2 3 N Property Inc Gth (%) 6 13 1 4 1 Net Inc Gth (%) (18) 8 7 1 (19) Net Prop Inc Margin (%) 92.3 94.8 93.9 95.9 93.9 Dist. Payout Ratio (%) 92.9 89.5 86.4 94.6 89.7

Balance Sheet (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F Investment Properties 29,920 31,790 32,309 32,736 32,736 Other LT Assets 768 563 830 830 830 Cash & ST Invts 304 431 465 421 814 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 0.0 0.0 0.0 0.0 0.0 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 30,991 32,784 33,604 33,988 34,381 ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 994 1,034 1,138 1,211 1,272 Other Current Liab 352 572 599 599 599 LT Debt 1,955 1,936 1,875 1,770 1,615 Other LT Liabilities 0.0 0.0 0.0 0.0 0.0 Unit holders’ funds 27,690 29,242 29,993 30,409 30,895 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 30,991 32,784 33,604 33,988 34,381 Non-Cash Wkg. Capital (1,346) (1,605) (1,737) (1,809) (1,871) Net Cash/(Debt) (1,651) (1,505) (1,410) (1,349) (800) Ratio Current Ratio (x) 0.2 0.3 0.3 0.2 0.4 Quick Ratio (x) 0.2 0.3 0.3 0.2 0.4 Aggregate Leverage (%) 6.4 6.0 5.7 5.3 4.8 Z-Score (X) 7.5 7.8 7.7 7.9 7.9



Company Guide


Cash Flow Statement (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F Pre-Tax Income 3,211 3,980 3,162 3,006 3,146 Dep. & Amort. 0.0 0.0 0.0 0.0 0.0 Tax Paid 0.0 0.0 0.0 0.0 0.0 Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 118 325 137 73.4 61.5 Other Operating CF (527) (1,558) (332) 0.0 0.0 Net Operating CF 2,801 2,747 2,968 3,080 3,207 Net Invt in Properties (10,742) (314) (184) (428) 0.0 Other Invts (net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (10,742) (314) (184) (428) 0.0 Distribution Paid (2,480) (2,428) (2,412) (2,590) (2,659) Chg in Gross Debt 1,615 (19.0) (61.4) (105) (155) New units issued 8,642 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF 7,777 (2,447) (2,474) (2,695) (2,814) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (163) (14.8) 311 (43.5) 393 Operating CFPS (Bt) 1.35 1.09 1.28 1.36 1.42 Free CFPS (Bt) (4.0) 1.10 1.26 1.20 1.45 Source: Company, DBSVTH

Target Price & Ratings History

Source: DBSVTH

Analyst: Chanpen SIRITHANARATTANAKUL

ASIAN INSIGHTS VICKERS SECURITIES ed: CK / sa: CS, PY

BUY Last Traded Price (3 May 2017): Bt12.30 (SET : 1,564.12) Price Target 12-mth: Bt13.70 (11% upside) (Prev Bt15.30) Where we differ: n/a Analyst Apichaya KETRUTTANABORVORN +66 2657 7823 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Btm) 2015A 2016A 2017F 2018F Gross Revenue 1,354 1,372 1,382 1,449 Net Property Inc 798 817 847 895 Total Return 785 804 834 882 Distribution Inc 779 822 817 820 EPU (Bt) 0.81 0.83 0.86 0.91 EPU Gth (%) 8 3 4 6 DPU (Bt) 0.81 0.85 0.84 0.85 DPU Gth (%) 4 6 (1) 0 NAV per shr (Bt) 10.3 10.3 10.3 10.4 PE (X) 15.2 14.8 14.3 13.5 Distribution Yield (%) 6.6 6.9 6.9 6.9 P/NAV (x) 1.2 1.2 1.2 1.2 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 ROAE (%) 7.9 8.1 8.4 8.8 Distn. Inc Chng (%): (6) (4) Consensus DPU (Bt): N/A N/A Other Broker Recs: B: 1 S: 0 H: 0


A buying opportunity

BUY, Bt13.70 TP based on DCF valuation. Given CPTGF’s recent share price retracement, we are expecting 6.6% dividend yield for FY17F and 7.0% for FY17F, although we have revised down our FY17F/18F earnings by 6%/4%.This was on the back of a slowdown in the rental increase in FY17F. However, we still like CPTGF for the prime location of its assets and high occupancy rates with prime tenant quality. Thus, we view the current share price weakness as an opportunity to buy. Facing a slowdown in rental increase in FY17F. Previously, we expect rental reversion to be 3.0-5.0% p.a. for retail space and 10% every three years for office space. However, in FY17F, the number of lease contract expiry is below the average level. Thus, FY17F revenue growth should be limited, at only 0.7%. However, this should be only a small hiccup as the fund manager believes that in FY18F the number of lease contract expiry should be higher than average. Thus, we expect the FY18F revenue growth to be c.4.8%. However, the number of lease expiry profile is undisclosed. We also revised down the gross property margin from 73% to 71% to be line with CPTGF’s actual performance in FY16. Expect occupancy rate for CP Tower III to bounce back to 98% by 2Q17. In April 2016, TMB Bank returned its rental space of 700 sqm to the fund, resulting in a decline in occupancy rate of CP Tower III to 92%, from 98%. However, as the 700 sqm is quite large that makes it difficult to find a new tenant, the fund is considering investing in capex of c.Bt0.7m to divide the available space to meet the needs of tenants in the waiting list. With such investment, we expect the fund to find new tenants soon and occupancy rate to rebound to 98% by the end of 2Q17.

Valuation:

We value CPTGF at Bt13.70 using DCF (WACC: 7.3%).

Key Risks to Our View:

The key risks are (i) lower-than-expected rental reversion, and (ii) weaker-than-expected occupancy rates. At A Glance Issued Capital (m shrs) 967 Mkt. Cap (Btm/US$m) 12,378 / 357 Major Shareholders (%) CPL Group Pcl. (%) 33.33 Krung Thai Bank (%) 9.93 Social Security Office (%) 8.72

Free Float (%) 48.0 3m Avg. Daily Val (US$m) 0.15 ICB Industry : Property & Construction / Property Fund & REITs



CP Tower Growth Leasehold Version 6 | Bloomberg: CPTGF TB | Reuters: CPTGFu.BK Refer to important disclosures at the end of this report

69

89

109

129

149

169

189

209

8.2

9.2

10.2

11.2

12.2

13.2

14.2

15.2

16.2

17.2

Dec-13 Dec-14 Dec-15 Dec-16

Relative IndexBt

CP Tower Growth Leasehold (LHS) Relative SET (RHS)


Company Guide



Earnings Drivers:

Invests in leasehold rights to three office buildings in Bangkok’s prime area. These are office buildings in prime locations with 95% average occupancy rate. The fund’s assets include i) C.P. Tower I (Silom), ii) C.P. Tower II (Fortune Town), and iii) C.P. Tower III (Phayathai). The remaining tenure of each lease is more than 27 years. Positive rental reversion to drive growth. We expect rental reversion to be 3.0-5.0% p.a. for retail space and 10% every three years for office space. The geographical diversification of the buildings helps to reduce concentration risk for the fund. Note that the weighted average lease term (WALE) of all assets is c.3 years. Strong occupancy rates despite some hiccups. Although the occupancy rates of C.P. Tower II and III dropped in 1Q16 due to the transition period of the new tenants, the occupancy rates rebounded to the normal levels as of end-August 2016.Currently, the occupancy rate for C.P. Tower II is at 98% but the occupancy rate for C.P. Tower III is 92%, which is lower than the average of 98%. Note that the occupancy rate of C.P. Tower I remains impressive at 100%. Limited impact from revocation of VAT, specific business tax and stamp duty exemptions on 24 May 2017. Since 24 May 2017, the property fund is subject to various tax burdens, including VAT, specific business tax and stamp duty. However, we expect limited impact from this development, given that the tenants will pay the VAT incurred. For the specific business tax, which will occurs in two cases (i) contract renewal –Bt1,000 will be charged for every Bt1m contract value, which is insignificant, and (ii) when the fund sells assets (which will incur stamp duty as well) – the fund manager insists that the buyer will have to be responsible for tax burden incurred. High dividend payout. CPTGF has been paying a DPU of c.Bt0.20 per quarter on average. However, the DPU dropped to Bt0.1709 in 3Q16, given the Bt36m unrealised loss from the decrease in the fair value of its assets. However, this is expected to be a one-off charge.



Rental Rates

Occupancy Rates


53.5%

55.5%

57.5%

59.5%

61.5%

63.5%

65.5%

67.5%

0

100

200

300

400

500

600

700

800

900

2014A 2015A 2016A 2017F 2018F

Bt m

Net Property Income Net Property Income Margin %

48%

50%

52%

54%

56%

58%

60%

62%

64%

170

180

190

200

210

220

3Q20

14

4Q20

14

1Q20

15

2Q20

15

3Q20

15

4Q20

15

1Q20

16

2Q20

16

3Q20

16

4Q20

16


644

965

222

1,155

0

200

400

600

800

1000

1200

1400

Office for rent Retail Tesco Lotus Others

1Q16 2Q16 3Q16 4Q16

100%

98%

92%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

C.P. Tower 1 C.P. Tower 2 C.P. Tower 3


Company Guide


Balance Sheet:

Currently, the fund is debt-free. Share Price Drivers:

Strong rental reversion. The assets’ occupancy rates are relatively high, which implies limited growth prospects. Thus, growth in rental income and distribution per unit are dependent on strong rental reversions. Attractive yield. CPTGF is offering an attractive annual yield of about 6.9%, compared to 3.0% for the 10-year Thai government bonds, 3.6-3.9% for stocks under DBS coverage (75% of the SET market cap) and 5.9-6.3% for other fund of office properties. Key Risks:

Economic slowdown. An economic slowdown would result in weaker-than-expected occupancy rates and slower-than-expected rental reversion, which would limit the fund’s growth, and hence, DPU. Company Background

CPTGF is a property fund that invests in leasehold rights to three office buildings in Bangkok’s prime business areas with a total leasable area of 132,191 sqm. The assets are C.P. Tower I (Silom), C.P. Tower II (Fortune Town), and C.P. Tower III (Phayathai). The key anchor tenants are C.P. group and its subsidiaries, Tesco Lotus, and also public sector clients, which cover 34%, 6% and 5% of the total lettable area respectively. For the office rental space, CPTGF will renew rental contracts and revise up rental rates by 10% every three years. The fund was listed on the Stock Exchange of Thailand on 16 December 2013. The IPO price was Bt10.15/sh. C.P. Land Public Company Limited is the fund’s sponsor, a major shareholder with a 33.33% stake, and also the property manager.

Net Asset Value/ Unit

ROE (%)


PB Band (x)


10.31

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34Bt/unit

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2015A 2016A 2017F 2018F

Avg: 3.9%

+1sd: 7.4%

+2sd: 10.8%

‐1sd: 0.5%

-2.6

-0.6

1.4

3.4

5.4

7.4

9.4

11.4

2013 2014 2015 2016

(%)

Avg: 1.2x

+1sd: 1.44x

+2sd: 1.68x

‐1sd: 0.96x

‐2sd: 0.72x

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

(x)


Company Guide



FY Dec 2014A 2015A 2016A 2017F 2018F Gross revenue 1,307 1,354 1,372 1,382 1,454 Property expenses (571) (557) (555) (536) (556) Net Property Income 736 798 817 846 898 Other Operating expenses (18.0) (25.2) (24.6) (24.6) (24.6) Other Non Opg (Exp)/Inc 2.75 5.00 4.67 4.67 4.67 Net Interest (Exp)/Inc 6.59 6.94 6.92 6.92 6.92 Exceptional Gain/(Loss) 2.51 (20.5) (35.6) 0.0 0.0 Net Income 730 764 769 833 885 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Income After Tax 730 764 769 833 885 Total Return 727 785 804 833 885 Non-tax deductible Items 14.2 0.0 0.0 0.0 0.0 Net Inc available for Dist. 751 774 784 816 867 Growth & Ratio Revenue Gth (%) N/A 3.6 1.3 0.7 5.2 N Property Inc Gth (%) nm 8.4 2.5 3.5 6.2 Net Inc Gth (%) nm 4.7 0.6 8.3 6.3 Dist. Payout Ratio (%) 98.3 96.5 97.6 98.0 98.0 Net Prop Inc Margins (%) 56.3 58.9 59.6 61.2 61.8 Net Income Margins (%) 55.8 56.4 56.0 60.3 60.9 Dist to revenue (%) 57.5 57.1 57.1 59.1 59.7 Managers & Trustee’s fees 1.4 1.9 1.8 1.8 1.7 ROAE (%) N/A 7.7 7.7 8.4 8.9 ROA (%) N/A 7.4 7.4 8.0 8.5 ROCE (%) N/A 7.6 7.8 8.0 8.5 Int. Cover (x) NM NM NM NM NM



Company Guide



FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Gross revenue 339 337 343 349 343 Property expenses (142) (136) (140) (149) (130) Net Property Income 197 201 204 201 213 Other Operating expenses (7.7) (6.1) (5.4) (6.3) (6.8) Other Non Opg (Exp)/Inc 0.96 1.75 0.94 1.77 0.21 Net Interest (Exp)/Inc 1.57 1.70 1.63 1.07 2.52 Exceptional Gain/(Loss) 25.1 0.07 0.0 (35.7) 0.03 Net Income 217 198 201 161 209 Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Net Income after Tax 217 198 201 161 209 Total Return 192 0.06 0.09 0.25 0.0 Non-tax deductible Items 0.0 0.0 0.0 0.0 0.0 Net Inc available for Dist. 201 0.26 0.07 0.0 0.0 Growth & Ratio Revenue Gth (%) (1) (1) 2 2 (2) N Property Inc Gth (%) (2) 2 2 (2) 6 Net Inc Gth (%) 22 (9) 1 (20) 29 Net Prop Inc Margin (%) 58.1 59.6 59.3 57.4 62.0 Dist. Payout Ratio (%) 97.5 2.1 1.2 0.0 0.0

Balance Sheet (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F Investment Properties 9,651 9,691 9,638 9,638 9,638 Other LT Assets 0.0 0.0 0.0 0.0 0.0 Cash & ST Invts 561 568 645 672 719 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 63.5 76.8 77.8 78.3 82.4 Other Current Assets 80.3 41.8 7.21 7.21 7.21 Total Assets 10,355 10,378 10,368 10,396 10,447 ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 64.3 54.9 55.6 56.0 58.9 Other Current Liab 63.4 91.2 93.5 94.1 97.9 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 259 264 267 269 283 Unit holders’ funds 9,969 9,966 9,952 9,977 10,008 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 10,355 10,376 10,369 10,396 10,448 Non-Cash Wkg. Capital 16.1 (27.5) (64.1) (64.5) (67.2) Net Cash/(Debt) 561 568 645 672 719 Ratio Current Ratio (x) 5.5 4.7 4.9 5.0 5.2 Quick Ratio (x) 4.9 4.4 4.8 5.0 5.1 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 0.0 Z-Score (X) 22.8 21.6 21.1 20.5 20.5



Company Guide



FY Dec 2014A 2015A 2016A 2017F 2018F Pre-Tax Income 730 764 769 833 885 Dep. & Amort. 0.0 0.0 0.0 0.0 0.0 Tax Paid 0.0 0.0 0.0 0.0 0.0 Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (871) (10.9) 91.7 2.23 16.7 Other Operating CF (2.5) 20.5 35.6 0.0 0.0 Net Operating CF (144) 774 896 835 902 Net Invt in Properties 0.0 0.0 0.0 0.0 0.0 Other Invts (net) (402) 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (402) 0.0 0.0 0.0 0.0 Distribution Paid (599) (768) (781) (808) (855) Chg in Gross Debt 0.0 1.41 0.0 0.0 0.0 New units issued (28.8) (15.5) 15.5 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (628) (782) (766) (808) (855) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (1,174) (8.4) 130 27.0 47.3 Operating CFPS (Bt) 0.75 0.81 0.83 0.86 0.92 Free CFPS (Bt) (0.1) 0.80 0.93 0.86 0.93 Source: Company, DBSVTH


Source: DBSVTH

Analyst: Apichaya KETRUTTANABORVORN

S.No.Date of Report

Closing Price

12-mth Target Price

Rat ing

1: 12 May 16 15.10 15.60 BUY

2: 17 Jun 16 14.10 15.60 BUY

3: 19 Sep 16 15.10 15.60 BUY

4: 21 Mar 17 14.40 15.30 BUY

Note : Share price and Target price are adjusted for corporate actions.

12

3 4

11.49

12.49

13.49

14.49

15.49

16.49

May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17

Bt


BUY Last Traded Price ( 3 May 2017): Bt13.60 (SET : 1,564.12) Price Target 12-mth: Bt16.70 (23% upside) (Prev Bt16.30) Potential Catalyst: Strong tourism in Bangkok Where we differ: n.a. Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected]

Price Relative

Forecasts and Valuation FY Dec (Btm) 2015A 2016A 2017F 2018F Gross Revenue 20.4 377 381 392 Net Property Inc 20.3 371 375 385 Total Return 18.3 410 329 338 Distribution Inc 18.3 326 329 338 EPU (Bt) 0.06 1.31 1.05 1.08 EPU Gth (%) nm 2,146 (20) 3 DPU (Bt) 0.0 0.99 0.99 1.02 DPU Gth (%) nm nm 1 3 NAV per shr (Bt) 10.1 10.6 10.7 10.7 PE (X) 233.6 10.4 13.0 12.6 Distribution Yield (%) 0.0 7.2 7.3 7.5 P/NAV (x) 1.4 1.3 1.3 1.3 Aggregate Leverage (%) 18.0 17.7 17.7 17.0 ROAE (%) N/A 12.7 9.8 10.1 Distn. Inc Chng (%): 0 0 2 Consensus DPU (Bt): 0.99 0.94 0.95 Other Broker Recs: B: 1 S: 0 H: 0


Our top hotel REIT pick

Offering generous 2017 distribution yield of 7.3%. LHHOTEL is our top hotel REIT pick. We like the stock for its well-located asset, generous distribution yield of 7.3%, attractive valuation, strong organic growth from continued growth in ADR and potential for acquisition growth. We rate the stock a BUY with a DCF-based target price of Bt16.70, which suggests a hefty 23% potential upside from the current level. Invests in Grande Centre Point Terminal 21 Hotel with 25-year leasehold right. This is a 5-star hotel on Sukhumvit Road, located right at the Asoke BTS and Sukhumvit MRT interchange stations. Given its superb location, the hotel has always enjoyed high occupancy rates of 84-91% since its opening in 2012. Its average room rate grew at a compounded annual growth rate of 15% during 2012-16. Its customers are mainly from Japan, Hong Kong, South Korea, China, and others. Looking to acquire 21-year leasehold rights to Grande Centre Point Rajdamri Hotel in 2Q17. This is a 5-star 497-room hotel located on Rajdamri Road, near the BTS Ramdamri station. LHHOTEL will acquire the asset at the price to be finalised but no more than Bt3.9bn via debts and capital increase. The fund will issue no more than 388.7m new shares (at the price to be determined) via rights offering, private placement, and public offering. The stock will go ex-rights on 9 May 2017. Apart from this new asset, we see potential for the REIT to grow further. LH still has two other Grande Centre Point hotels (Ploenchit and Thonglor) that can be injected into LHHOTEL in the future. Both are also located in prime locations in Bangkok. Valuation:

We value LHHOTEL at Bt16.7, based on DCF valuation. Key Risks to Our View:

A sharp drop in tourist arrivals to Thailand, and political unrest are key risks. Nonetheless, the fixed rate portion of revenue amounting to Bt240m+ per annum should help provide a cushion. Based on such fixed revenue amount, it suggests a 2016 distribution yield of about 4.5% at current price. At A Glance Issued Capital (m shrs) 314 Mkt. Cap (Btm/US$m) 4,266 / 123 Major Shareholders (%) Pacific Real Estate Co., Ltd. 9.0 GIC Private Ltd. 6.0 Mr. Peera Pattamavorakulchai 3.2

Free Float (%) 84.1 3m Avg. Daily Val (US$m) 0.06 ICB Industry : Property & Construction / Property Fund & REITs



LH Hotel Leasehold Real Estate Investment Trust Version 3 | Bloomberg: LHHOTEL TB | Reuters: LHHOTELu.BK Refer to important disclosures at the end of this report


Company Guide

LH Hotel Leasehold Real Estate Investment Trust


Earnings Drivers:

High occupancy rate. The Grande Centre Point Terminal 21 hotel has been enjoying high average occupancy rates of 84-91% since its opening in February 2012, thanks to its superb location right at the BTS Asoke and MRT Sukhumvit interchange stations. Despite the political unrest in Thailand which has led to a military coup in 2014, the hotel enjoyed occupancy rates of 85.4% in 2014 and 84.1% in 2015. We have assumed an occupancy rate of 85% throughout our forecast period until 2040. Average daily rate (ADR) should continue to grow. Average daily rate (excluding breakfast, VAT, and service charges) grew at a compounded annual growth rate of 15% during 2012-2016 to about Bt3,778/room/night in 2016. We have conservatively assumed that ADR will grow 5% p.a. throughout our forecast period. Net investment income should continue to rise. We expect net investment income to surge to Bt329m and Bt335m in 2017 and 2018, respectively. Assuming a 95% dividend payout ratio, the DPU for 2017 should be Bt0.995. This suggests a generous dividend yield of 7.4% at the current price. Downside risk protected by fixed portion of the rent. The rental income received by the fund can be divided into two parts; fixed and variable. The fixed portion alone amounts to a minimum of Bt240m per annum, which should ensure 2017 distribution yield of at least 4.5% at the current price. The variable portion depends a lot on the hotel’s operations, as it is derived from 85% of (the hotel EBITDA minus fixed rent per annum). Looking to acquire 21-year leasehold rights to Grande Centre Point Rajdamri Hotel in 2Q17. This is a 5-star 497-room hotel located on Rajdamri Road, near the BTS Ramdamri station. The average asset value by two independent appraisers was Bt3.6bn. LHHOTEL will acquire the asset at the price has yet to be finalised but no more than Bt3.9bn via debts and capital increase. The fund will issue no more than 388.7m new shares (at the price to be determined) via rights offering, private placement, and public offering. The stock will go ex-rights on 9 May 2017. Apart from this new asset, we see potential for the REIT to grow further. LH still has two other Grande Centre Point hotels (Ploenchit and Thonglor) that can be injected into LHHOTEL in the future. Both are also located in prime locations in Bangkok.

Occupancy Rate (%)

Average Daily Rate (Bt/room/night)


Interest Cover (x)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015 2016 2017F 2018F

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2012 2013 2014 2015 2016 2017F 2018F


Company Guide


Balance Sheet:

The REIT has total borrowings of Bt688.5m as at end-2016. The loan is to be repaid in 13 years, with a 3-year grace period. The loan carries no more than 5% interest for three years, and then MLR-1% thereafter. Share Price Drivers:

Strong occupancy and strong increase in ADR. The strong increase in average room rate should be positive for the stock and implies potential upside to our forecasts and TP. Acquisition of new assets for injection into the REIT Successful acquisition of new assets should not only help diversify its risk from relying on a single asset, but also expand the REIT’s size and thus, make it more investable by large funds. Key Risks:

Political unrest Since LHHOTEL currently relies solely on the revenue from Grande Centre Point Terminal 21 hotel, any political unrest should have a negative impact on tourist arrivals and the revenue of the fund. Company Background

LHHOTEL was set up in Dec 2015 to invest in a 25-year leasehold right to Grande Centre Point Terminal 21 Hotel from L&H Property Co., Ltd. at Bt3.7bn. The acquisition price represents a slight discount to the appraised value by two independent appraisers at Bt3.8bn and Bt3.85bn, respectively. Such leasehold right will end on 31 Aug 2040. The acquisition was funded by Bt3.1bn proceeds from IPO of 313.7m shares at Bt10 apiece and borrowings of Bt688.5m. LHHOTEL subleases the hotel to L&H Hotel Management Co., Ltd. for three years. The REIT will receive rental income from L&H Hotel Management in the form of (i) fixed rent of at least Bt60m per quarter (Bt240m per year), and (ii) variable rent which is equivalent to 85% of (hotel EBITDA – fixed rent). In terms of customer breakdown by nationality, customers from Japan made up 28.6% of total in 2016. This was followed by Hong Kong 17.2%, South Korea 11.1%, China 5.3%, Singapore 4.4%, and others. In terms of types of customer channels, 45.4% are through online travel agencies, 27.4% travel agents, 18.7% corporate clients, and 8.6% from others.


ROE (%)


PB Band (x)



Company Guide


Key Assumptions

FY Dec 2014NA 2015A 2016A 2017F 2018F Rooms 462 462 462 462 Occupancy 84% 87% 85% 85% ADR (Bt/room/night) 3,493 3,778 3,967 4,165 Rental growth 16% 8% 5% 5% Total rents (Btm) 495 553 569 597 Others 135 145 152 160 Total 631 698 721 757 EBITDA 350 401 404 413 EBITDA margin 56% 57% 56% 55% Dividend payout 0% 95% 95% 95%


FY Dec 2014N/A 2015A 2016A 2017F 2018F Gross revenue 20.4 377 381 392 Property expenses (0.1) (5.7) (6.0) (6.3) Net Property Income 20.3 371 375 385 Other Operating expenses (1.3) (21.9) (22.5) (23.2) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (0.7) (23.9) (24.0) (24.5) Net Investment ncome 18 326 329 335 Unrealized asset revaluation 0.0 84.8 0.0 0.0 Net Income After Tax 18.3 410 329 338 Distributable income 18 326 329 335 Payout 0% 95% 95% 95% Distribution 0 309 312 318 No. of units (m) 314 314 314 314 DPU (Bt) 0.00 0.9855 0.9949 1.0132 Growth & Ratio Revenue Gth (%) N/A 1,750.4 1.0 2.8 N Property Inc Gth (%) nm 1,731.4 1.0 2.8 Net Inc Gth (%) nm 2,146.5 (19.9) 2.8 Dist. Payout Ratio (%) 0.0 95.0 95.0 95.0 Net Prop Inc Margins (%) 99.5 98.5 98.4 98.4 Net Income Margins (%) 89.6 108.8 86.2 86.2 Dist to revenue (%) 0.0 86.3 86.2 86.2 Managers & Trustee’s fees 3.3 3.3 3.4 3.5 ROAE (%) N/A 12.7 9.8 10.1 ROA (%) N/A 10.2 7.9 7.9 ROCE (%) N/A 8.9 8.8 9.0 Int. Cover (x) 27.3 14.6 14.7 14.8



Company Guide



FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 Gross revenue 20.4 97.5 87.7 96.6 87.7 Property expenses (0.7) (1.3) (1.5) (1.4) (3.9) Net Property Income 19.6 96.2 86.2 95.2 83.8 Other Operating expenses (1.2) (4.6) (4.7) (6.0) (4.7) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc (0.2) (6.0) (5.9) (6.0) (5.9) Net Investment Income 18 86 76 83 73 Exceptional Gain/(Loss) 0.0 0.0 86.0 (0.5) 0.0 Increase in net assets 18.3 85.6 162 82.7 73.3 Distributable Income 18 86 76 83 73 Payout ratio 0% 93% 110% 90% 98% Distribution 0 79 83 74 72 No. of Units (m) 313.66 313.66 313.66 313.66 313.66 Distribution/unit (Bt) 0 0.2530 0.2650 0.2375 0.2300 Growth & Ratio Revenue Gth (%) N/A 378 (10) 10 (9) N Property Inc Gth (%) nm 390 (10) 10 (12) Net Inc Gth (%) nm 369 89 (49) (11) Net Prop Inc Margin (%) 96.4 98.7 98.3 98.5 95.6

Balance Sheet (Btm)

FY Dec 2014N/A 2015A 2016A 2017F 2018F Investment Properties 3,753 3,840 3,840 3,840 Other LT Assets 68.1 56.7 47.2 37.7 Cash & ST Invts 219 25.7 360 360 Inventory 0.0 0.0 0.0 0.0 Debtors 20.5 96.0 30.8 31.7 Other Current Assets 0.0 0.0 0.0 0.0 Total Assets 4,061 4,018 4,278 4,269 ST Debt 0.0 0.0 0.0 0.0 Creditor 0.0 0.0 0.0 0.0 Other Current Liab 217 1.71 244 246 LT Debt 689 689 689 659 Other LT Liabilities 0.0 0.0 0.0 0.0 Unit holders’ funds 3,155 3,328 3,345 3,364 Minority Interests 0.0 0.0 0.0 0.0 Total Funds & Liabilities 4,061 4,018 4,278 4,269 Non-Cash Wkg. Capital (197) 94.3 (213) (214) Net Cash/(Debt) (470) (663) (329) (299) Ratio Current Ratio (x) 1.1 71.2 1.6 1.6 Quick Ratio (x) 1.1 71.2 1.6 1.6 Aggregate Leverage (%) 18.0 17.7 17.7 17.0 Z-Score (X) 2.9 3.2 3.2 3.3


Unrealized asset revaluation gain


Company Guide



FY Dec 2014N/A 2015A 2016A 2017F 2018F Pre-Tax Income 18.3 410 329 338 Dep. & Amort. 0.64 9.54 9.54 9.54 Tax Paid 0.0 0.0 0.0 0.0 Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 0.0 (84.8) 0.0 0.0 Other Operating CF 176 (289) 307 0.91 Net Operating CF 195 45.8 646 348 Net Invt in Properties (3,753) (1.8) 0.0 0.0 Other Invts (net) 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 Net Investing CF (3,753) (1.8) 0.0 0.0 Distribution Paid 0.0 (237) (311) (319) Chg in Gross Debt 689 0.0 0.0 (29.9) New units issued 3,089 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 Net Financing CF 3,778 (237) (311) (349) Currency Adjustments 0.0 0.0 0.0 0.0 Chg in Cash 219 (193) 334 (0.4) Operating CFPS (Bt) 0.62 0.42 2.06 1.11 Free CFPS (Bt) (11.3) 0.14 2.06 1.11 Source: Company, DBSVTH


Source: DBSVTH


Acquired leasehold rights to operate Grande Centre Point Terminal 21


HOLDLast Traded Price ( 3 May 2017): Bt22.90 (SET : 1,564.12) Price Target 12-mth: Bt24.00 (5% upside) (Prev Bt24.00)

Potential Catalyst: Strong tourism in Samui Where we differ: n.a. Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected]

What’s New Expect 1Q17F net investment income to grow 2%

y-o-y and 22% q-o-q

A huge unrealised asset revaluation gain booked

in 1Q17, but with no impact on dividend payout

Forecasts cut to reflect a more conservative

passenger volume

Maintain HOLD with a lower DCF-based TP of Bt24

Price Relative

Forecasts and Valuation FY Dec (Btm) 2015A 2016A 2017F 2018F Gross Revenue 1,283 1,438 1,497 1,571 Net Property Inc 1,283 1,438 1,497 1,571 Total Return 1,101 1,558 1,460 1,533 Distribution Inc 1,248 1,402 1,460 1,533 EPU (Bt) 1.16 1.64 1.54 1.61 EPU Gth (%) (7) 41 (6) 5DPU (Bt) 1.29 1.47 1.54 1.61DPU Gth (%) 3 14 5 5 NAV per shr (Bt) 10.9 11.1 11.2 11.2 PE (X) 19.8 14.0 14.9 14.2 Distribution Yield (%) 5.6 6.4 6.7 7.0 P/NAV (x) 2.1 2.1 2.1 2.0 Aggregate Leverage (%) 0.0 0.0 0.0 0.0 ROAE (%) 10.6 14.9 13.8 14.5

Distn. Inc Chng (%): 0 0 Consensus DPU (Bt): 1.54 1.65 Other Broker Recs: B: 0 S: 0 H: 3


At A Glance Issued Capital (m shrs) 950 Mkt. Cap (Btm/US$m) 21,755 / 630 Major Shareholders (%) Bangkok Airways 32.7 Kiatnakin Bank Plc. 8.1 Ayudhya Allianz C.P. 7.1

Free Float (%) 46.9 3m Avg. Daily Val (US$m) 0.46 ICB Industry : Real Estate / Real Estate Investment Trusts


Hold for 6.7% yields

Maintain HOLD with a DCF-based TP of Bt24.00. The fund offers a moderate dividend yield of 6.7% for 2017 (payable quarterly), representing a 3.9% premium over the Thai 10-year government bond yield of 2.78%.

Direct beneficiary of strong Samui tourism. SPF derives revenues from departing passengers and incoming flights at Samui Airport. With the calmer political climate and martial law lifted in April 2015, traffic volume has shown a significant improvement since then. Passenger volume surged 14.8% in 2016. We conservatively expect passenger volume to grow 3% in 2017, and 5% thereafter until 2036. Note that despite the political uncertainty, SPF’s passenger numbers had expanded by 6.0% CAGR over the last decade.

Clears key hurdle. Bangkok Airways (BA), the property manager, had received approval from the Department of Civil Aviation to increase the maximum number of flights per day to Samui Airport from 36 to 50 effective November 2014. This has removed earlier concerns about capacity. In 2016, the average number of flights to Samui Airport was 40 flights per day, still far below the maximum level allowed. Nonetheless, BA has submitted Environmental Impact Assessment (EIA) report to the Office of Natural Resources & Environmental Policy and Planning to ask for approval to increase the maximum number of flights to over 70 flights per day. This is in preparation for the growth in flight volume which may exceed the current 50 flights per day limit in the next few years.

Valuation:

We value SPF at Bt24.00, based on the DCF model.


The key risk is a sharp drop in tourists to Samui. Nonetheless, the downside is protected by annual revenue guarantee of Bt570m (Bt0.6 per share) from Bangkok Airways, the property manager, which implies a dividend yield of 2.4% at the current price.


Samui Airport Property Fund Version 7 | Bloomberg: SPF TB | Reuters: SPFu.BK Refer to important disclosures at the end of this report


Company Guide



Earnings Drivers:

Increasing passenger and flight volume. Unlike many other PFPOs and REITs which are now running at nearly full capacity, SPF is operating below its full capacity. The fund has ample room to grow – current traffic is only 1.3m passengers per year compared to its maximum capacity of over 2m passengers at Samui Airport. In terms of flights, current number of flights in 2016 averaged 40 flights per day in 2016, still below its maximum 50 flights per day. In addition, Bangkok Airways (BA), the property manager, had submitted EIA to the relevant authorities to ask for approval to increase the maximum number of flights to Samui Airport from 50 to 70+. This is in preparation for future growth at the airport. Recovering tourism industry. SPF’s passenger and flight volumes have improved substantially since 2Q15, following the lifting of martial law in April 2015. Passenger volume dropped 1.6% in 2014, before rebounding 5.4% in 2015, and 14.8% in 2016. The positive momentum should continue in 2017. We conservatively expect passenger volume to grow 3% in 2017, and 5% thereafter until 2036. Note that despite the political uncertainty, SPF’s passenger numbers had expanded by 6.0% CAGR in the last decade. Increasing international passenger service charge. BA, the property manager, has secured approval from the Department of Civil Aviation (DCA) to raise the passenger service charge (PSC) for international passengers at Samui Airport from Bt600 to Bt700, effective June 2015. Under the agreement with BA, SPF will get 20% of the increase and the rest will go to BA. SPF’s share of PSC is now Bt340 per passenger on international flights (from Bt320 earlier). The full-year impact from the hike was seen in 2016. Our forecast assumes the PSC stays flat throughout our forecast period. Successful increase in international PSC in the future will mean upside to our forecast. More new services by BA to Samui Airport. Note that BA accounts for a large portion (c 90%) of flight volume at Samui Airport. Other airlines include Thai Airways, Silk Air, and Firefly. BA currently flies directly to five international destinations, including Hong Kong, Singapore, Kuala Lumpur, Chengdu, and Guangzhou. The company plans to increase flight frequency from Samui to both domestic and these international destinations in the future, while offering direct flights to new destination in China this year. These additional flights and services should help to support growth at Samui Airport in the future.






Company Guide


Balance Sheet:

Its balance sheet is strong with a net cash position and virtually no debt. SPF has no operating expenses or capex, as these are borne by Bangkok Airways, the property manager. The fund incurs only annual fund expenses of about Bt40m. Hence, any increases in revenue would flow directly to the bottom line. The fund normally pays out 100% of cash profits every quarter. Distributions have risen steadily since its inception, in line with rising passenger and flight numbers. Even with the political unrest in 2014 which led to a military coup in May 2014, SPF managed to pay stable dividends compared to 2013. Share Price Drivers:

Recovering tourism industry. Since the fund’s revenues and profits are tied directly to Samui’s tourism, the strong tourist recovery will be a key driver for both earnings and share price. Key Risks:

Political unrest. Political unrest, like what happened in 2014 which led to the implementation of martial law, will affect tourist arrivals to Thailand including Samui Airport, and hence, revenues of the fund. Reliance on a single asset. SPF relies on a single asset to generate its revenues, which is Samui Airport. Company Background

SPF is one of Thailand's leading property funds. The fund has invested in leasehold rights to operate Samui Airport for 30 years (2006-2036). Bangkok Airways, the sponsor, has voluntarily agreed to retain a stake of at least 25% in the fund for 20 years. Bangkok Airways has been steadily raising its stake in SPF from 25% since 2015 to 32.7% currently. There were recent news reports that Samui Airport encroached onto public land. Bangkok Airways (BA), the owner of the airport who leased the land to SPF for 30 years since 2006, has clarified that Samui airport was officially opened in 1989. At that time, the company submitted necessary documents evidencing its ownership and possession right over the land on Samui Airport to the relevant authorities prior to construction. BA then was granted permission and licence to legally construct Samui Airport. In 1999, BA signed an agreement with the Treasury Department to lease a plot of land to use as an extended aviation safety in accordance to Air Aviation Act B.E. 1954 area (where construction structures and buildings around the airport are strictly prohibited from obstructing air navigation). The company has confirmed that the land is located about 100 meters away from the runway and the boundary is not directly attached to the airport.

ROE (%)


PB Band (x)



Company Guide


Key Assumptions

FY Dec 2014A 2015A 2016A 2017F 2018F

No. of passengers (m) 1.1 1.1 1.3 1.3 1.4 Growth -1.6% 5.4% 14.8% 3.0% 5.0% Sharing (Bt/pax) Domestic passengers 300.0 300.0 300.0 300.0 300.0 International passengers 320.0 330.0 340.0 340.0 340.0 Passenger rev (Btm) 326.7 349.5 403.8 415.6 437.0 Cabin factor 80% 80% 80% 80% 80% Operating hours/day 16.0 16.0 16.0 16.0 16.0 No. of flights p.a.: ATR 4,731 4,831 4,767 4,672 4,654 Boeing/Airbus 8,146 8,632 9,933 10,592 11,263 Sharing: ATR (Bt/flight) 50,000 50,000 50,000 50,000 50,000 Boeing (Bt/flight) 80,000 80,000 80,000 80,000 80,000 Div. Payout 100% 98% 100% 100% 100%

Segmental Breakdown

FY Dec 2014A 2015A 2016A 2017F 2018F

Revenues (Btm) Passenger revenue 327 349 404 416 437 Flight revenue ATR 237 242 238 234 233 Boeing 652 691 795 847 901 Total flight revenue 888 932 1,033 1,081 1,134 Total revenue 1,215 1,282 1,437 1,497 1,571 Revenue breakdown Passenger revenue 27% 27% 28% 28% 28% Flight revenue ATR 19% 19% 17% 16% 15% Boeing 54% 54% 55% 57% 57% Total flight revenue 73% 73% 72% 72% 72% Total revenue 100% 100% 100% 100% 100%


FY Dec 2014A 2015A 2016A 2017F 2018F

Gross revenue 1,216 1,283 1,438 1,497 1,571 Property expenses 0.0 0.0 0.0 0.0 0.0 Net Property Income 1,216 1,283 1,438 1,497 1,571 Other Operating expenses (39.6) (40.1) (40.9) (42.1) (43.4) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 8.79 5.30 5.25 5.13 5.54 Net Investment Income 1,185 1,248 1,402 1,460 1,533 Unrealized asset revaluation (7.0) (147) 156 0.0 0.0 Increase in net assets 1,178 1,101 1,558 1,460 1,533

Distributable income 1,185 1,248 1,402 1,460 1,533 Payout ratio 100% 98% 100% 100% 100% Distribution 1,188 1,226 1,402 1,460 1,533 Distribution per unit (Bt) 1.2500 1.2900 1.4700 1.5365 1.6136 Growth & Ratio

Revenue Gth (%) (0.4) 5.5 12.0 4.1 4.9 N Property Inc Gth (%) (0.4) 5.5 12.0 4.1 4.9 Net Inc Gth (%) (13.3) (6.5) 41.5 (6.3) 5.0 Dist. Payout Ratio (%) 100.2 98.2 100.0 100.0 100.0 Net Prop Inc Margins (%) 96.7 96.9 97.2 97.2 97.2 Net Income Margins (%) 96.9 85.8 108.4 97.5 97.6 Dist to revenue (%) 97.5 97.3 97.5 97.5 97.6 Managers & Trustee’s fees 3.3 3.1 2.8 2.8 2.8 ROAE (%) 11.2 10.6 14.9 13.8 14.5 ROA (%) 11.2 10.5 14.8 13.7 14.4 ROCE (%) 11.2 11.9 13.3 13.7 14.3


Strong jump in passenger volume


Company Guide



FY Dec 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016

Gross revenue 304 393 328 386 331 Property expenses 0.0 0.0 0.0 0.0 0.0 Net Property Income 304 393 328 386 331 Other Operating expenses (10.7) (9.9) (10.1) (10.4) (10.0) Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Net Interest (Exp)/Inc 1.31 1.25 1.28 1.28 1.45 Net Investment Income 295 384 319 377 322 Unrealized asset revaluation (31.0) 259 (32.0) (35.0) (36.0) Increase in net assets 264 643 287 342 286

Distributable income 295 384 319 377 322 Payout ratio 99.9% 99.0% 99.7% 99.5% 100.2% Distribution 295 380 318 375 323 Distribution per unit (Bt) 0.3100 0.4000 0.3350 0.3950 0.3400 Growth & Ratio

Revenue Gth (%) (12) 29 (16) 18 (14) N Property Inc Gth (%) (12) 29 (16) 18 (14) Net Inc Gth (%) (14) 144 (55) 19 (16) Net Prop Inc Margin (%) 100.0 100.0 100.0 100.0 100.0

Balance Sheet (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F

Investment Properties 10,175 10,028 10,184 10,184 10,184 Other LT Assets 364 403 426 426 426 Cash & ST Invts 2.60 1.40 12.6 48.8 67.1 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 0.0 0.0 0.0 0.0 0.0 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 10,542 10,433 10,623 10,659 10,677

ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 0.0 0.0 0.0 0.0 0.0 Other Current Liab 0.0 0.0 0.0 0.0 0.0 LT Debt 0.0 0.0 0.0 0.0 0.0 Other LT Liabilities 61.1 61.7 62.1 62.1 62.1 Unit holders’ funds 10,481 10,371 10,561 10,597 10,615 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 10,542 10,433 10,623 10,659 10,677

Non-Cash Wkg. Capital 0.0 0.0 0.0 0.0 0.0 Net Cash/(Debt) 2.60 1.40 12.6 48.8 67.1 Ratio

Current Ratio (x) N/A N/A N/A N/A N/A Quick Ratio (x) N/A N/A N/A N/A N/A Aggregate Leverage (%) 0.0 0.0 0.0 0.0 0.0 Z-Score (X) 273.6 273.5 0.0 NA NA



Company Guide



FY Dec 2014A 2015A 2016A 2017F 2018F Pre-Tax Income 1,178 1,101 1,558 1,460 1,533 Dep. & Amort. 0.0 0.0 0.0 0.0 0.0 Tax Paid 0.0 0.0 0.0 0.0 0.0 Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. 3.24 (14.4) (1.2) 1.00 0.0 Other Operating CF 7.00 147 (156) 0.0 0.0 Net Operating CF 1,188 1,234 1,401 1,461 1,533 Net Invt in Properties 0.0 0.0 0.0 0.0 0.0 Other Invts (net) (1.0) (25.0) (22.5) 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0 Other Investing CF 0.0 0.0 0.0 0.0 0.0 Net Investing CF (1.0) (25.0) (22.5) 0.0 0.0 Distribution Paid (1,188) (1,211) (1,368) (1,424) (1,515) Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 New units issued 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (1,188) (1,211) (1,368) (1,424) (1,515) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash (0.2) (2.3) 10.9 36.9 18.3 Operating CFPS (Bt) 1.25 1.31 1.48 1.54 1.61 Free CFPS (Bt) 1.25 1.30 1.47 1.54 1.61 Source: Company, DBSVTH


Source: DBSVTH



HOLDLast Traded Price ( 3 May 2017): Bt16.70 (SET : 1,564.12) Price Target 12-mth: Bt18.50 (11% upside)

Potential Catalyst: Strong rental reversion Where we differ: n.a. Analyst Chanpen SIRITHANARATTANAKUL +662 657 7824 [email protected]

What’s New 4Q16/17 net investment income up 5% y-o-y (in-

line)

Rental and service income inched up 2% y-o-y

while operating expenses dropped 16%

Offering a moderate 2017/18 yield of 5.2%

Maintain HOLD with a DCF-based TP of Bt18.50

Price Relative

Forecasts and Valuation FY Feb (Btm) 2016A 2017A 2018F 2019F Gross Revenue 2,846 2,934 3,035 3,226 Net Property Inc 2,425 2,548 2,630 2,797 Total Return 2,466 2,842 2,267 2,431 Distribution Inc 2,028 2,008 2,040 2,187 EPU (Bt) 1.06 1.22 0.97 1.04 EPU Gth (%) 31 15 (20) 7DPU (Bt) 0.87 0.86 0.87 0.94 DPU Gth (%) 7 (1) 2 7 NAV per shr (Bt) 11.5 11.8 11.9 12.0 PE (X) 15.8 13.7 17.2 16.1 Distribution Yield (%) 5.2 5.1 5.2 5.6 P/NAV (x) 1.5 1.4 1.4 1.4 Aggregate Leverage (%) 8.9 8.7 8.7 6.7 ROAE (%) 9.3 10.5 8.2 8.7

Distn. Inc Chng (%): 0 0 0 Consensus DPU (Bt): N/A N/A N/A Other Broker Recs: B: 0 S: 1 H: 4


At A Glance

Issued Capital (m shrs) 2,337 Mkt. Cap (Btm/US$m) 39,033 / 1,130 Major Shareholders (%) Ek-Chai Distribution System Co., Ltd. 25.0 Government Pension Fund 8.2 Littledown Nominees Limited 6.2

Free Float (%) 75.0 3m Avg. Daily Val (US$m) 1.2 ICB Industry : Real Estate / Real Estate Investment Trusts

DBS Group Research . Equity

Thailand Company Guide Tesco Lotus Retail Growth Freehold and Leasehold Property Fund Version 6 | Bloomberg: TLGF TB | Reuters: TLGFu.BK Refer to important disclosures at the end of this report

5 May 2017

Offering decent yield of 5.2%

Portfolio of quality retail assets in diversified locations. Freehold assets represent 61% of TLGF’s total leasable area and 73% of its appraised value. These are successful malls in good locations with 98% average occupancy rate. Twelve of the malls are located in Bangkok and 11 in the provinces. The geographical diversification helps to reduce concentration risks. As many of its assets are freehold and in good locations, the fund stands to benefit from future capital appreciation.

Proven track record. Occupancy rate has always been high at 98%+ since inception. Tesco Lotus is the largest anchor tenant, occupying 57% of the fund’s leasable area and generating 26% of revenue. The contracts with Tesco Lotus are for a period of 10 years and renewable automatically for two terms of 10 years each (total 30 years). Rents are raised by 10% every three years. For non-Tesco Lotus area, we assume rental growth of 5% p.a.

Offering moderate 2017/18 dividend yield of 5.2%. The fund now offers moderate 2017 dividend yield of 5.2%. Note that we currently assume 90% dividend payout ratio in 2017/18 and 2018/19 and 97% thereafter. This reflects the current net gearing of 9% which is approaching the 10% ceiling, suggesting the fund needs to reserve cash for any capital expenditure that may arise. TLGF is now offering 10% upside to our TP of Bt18.50, and a moderate dividend yield of 5.2%. We therefore maintain our HOLD call.

Valuation:

We value TLGF at Bt18.50, based on DCF valuation.


Key risks are (i) lower-than-expected rental reversion, and (ii) weaker-than-expected occupancy rate.

73

93

113

133

153

173

193

213

10.5

11.5

12.5

13.5

14.5

15.5

16.5

17.5

18.5

19.5

May-13 May-14 May-15 May-16 May-17

Relative IndexBt

Tesco Lotus Retail Growth Freehold and Leasehold PropertyFund (LHS)

Relative SET (RHS)


Company Guide



Earnings Drivers:

Portfolio of 23 shopping malls in good locations throughout Thailand, most of which are freehold assets. Freehold assets represent 60% of TLGF’s total leasable area of 336,400sqm, and 73% of the appraised value of the assets. These are successful malls in good locations with 98% average occupancy rate. Twelve of the malls are located in Bangkok and 11 in the provinces. The geographical diversification helps to reduce concentration risks. As many of its assets are freehold and in good locations, the fund stands to benefit from future capital appreciation of such assets. Proven track record, average 98% occupancy. Tesco Lotus is the largest anchor tenant, occupying 57% of the fund’s leasable area and generating 27% of revenue. Growth drivers. The contracts with Tesco Lotus are for a period of 10 years and renewable automatically for two terms of 10 years each (total 30 years). Rents are raised by 10% every three years. The main contracts with Tesco Lotus are subject to 10% rental reversion in 2018/2019. For this year, we expect growth to come from rental reversion (estimated at 5.0% p.a. for non-Tesco Lotus space). No immediate plans for conversion into a REIT. According to management, Tesco Lotus Thailand performed very well last year and saw its market share continue to rise. It is now in a debt-free position and sees no need to divest more assets into a REIT for fund raising. With no immediate plans for asset injection by Tesco Lotus, TLGF sees no need for its conversion from property fund into a REIT. Note that the key concern for most property funds (including TLGF) is the 20% tax on dividend income received from REITs by institutional investors, as compared to 0% tax on dividend received from property funds currently. Despite the higher gearing allowed under a REIT structure, the improvement in DPUs from taking on higher gearing may not offset the 20% tax on dividends from REITs that institutional investors will have to pay. Dividend payout assumptions. We currently assume 90% dividend payout ratio in our 2018-2019 projections and 97% thereafter. This reflects the current net gearing which has almost hit the ceiling, suggesting the fund needs to reserve cash for any capital expenditure that may arise.




Interest Cover (x)


79.9%

81.9%

83.9%

85.9%

87.9%

89.9%

91.9%

93.9%

0

500

1,000

1,500

2,000

2,500

2015A 2016A 2017A 2018F 2019F

Bt m


83%

84%

85%

86%

87%

88%

89%

90%

91%

559

579

599

619

639

659

679

699

3Q20

15

4Q20

15

1Q20

16

2Q20

16

3Q20

16

4Q20

16

1Q20

17

2Q20

17

3Q20

17

4Q20

17


0.3

0.4

0.5

0.6

0.7

0.8

0.9

2015A 2016A 2017A 2018F 2019F

(x)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

2015A 2016A 2017A 2018F 2019F

(x)


Company Guide


Balance Sheet:

Total borrowings amounted to Bt2.59bn, representing 9.4% of its net asset value at end-4Q16/17. Share Price Drivers:

Strong rental reversion could lift rental income and distribution per unit. Key Risks:

Political unrest & slowing economy. Political unrest and a slowing economy could hurt consumer confidence and delay spending, and in turn affect the potential for rental rate hikes. Acquisition growth to stall unless the fund converts into a REIT. All property funds, including TLGF, can no longer increase capital to acquire additional assets. To be able to grow the fund size, the fund needs to be converted into a REIT. Losing key anchor tenant. If anchor tenant Tesco Lotus does not renew its contract, TLGF would need to fill the area with other tenants. The area is quite large, filling the entire space with new tenants may become difficult if the economy is weak. Company Background

TLGF is Thailand’s second largest property fund in terms of market capitalisation. It invests in 23 Tesco Lotus shopping malls throughout Thailand, with total leasable area of 336,400 sqm. Of the total 23 stores, 12 stores are located in Bangkok, three stores in the Northern region, and eight stores in the Southern region. In terms of asset ownership, 14 stores occupying 61% of total leasable area and 73% of its appraised value are freehold, with the remaining nine stores occupying the remaining 39% of total leasable area and 27% of its appraised value being leasehold. These leasehold assets have a remaining leasehold life of 20 years.


ROE (%)


PB Band (x)


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2015A 2016A 2017A 2018F 2019F

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2015A 2016A 2017A 2018F 2019F

Avg: 5.7%

+1sd: 6.3%

+2sd: 6.8%

‐1sd: 5.2%

‐2sd: 4.6%

4.1

4.6

5.1

5.6

6.1

6.6

7.1

7.6

2013 2014 2015 2016 2017

(%)

Avg: 1.24x

+1sd: 1.4x

+2sd: 1.55x

‐1sd: 1.08x

‐2sd: 0.92x

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

May-13 May-14 May-15 May-16 May-17

(x)


Company Guide


Key Assumptions

FY Feb 2015A 2016A 2017A 2018F 2019F Leasable area (sqm) 335,482 336,110 336,485 336,485 336,486 Occupancy 99.0% 98.0% 98% 98% 98% Occupied area (sqm) 332,108 329,491 329,849 329,272 329,272 Rents (bt/sqm/month) 687 720 741 768 816 Total rents (Btm) 2,736 2,846 2,934 3,035 3,226

Segmental Breakdown

FY Feb 2015A 2016A 2017A 2018F 2019F Revenues (Btm) Hypermarkets & foodcourt 790 784 784 784 863 Long-term lease 1,489 1,543 1,624 1,699 1,783 Short-term lease 431 484 508 533 560 Others 26 35 18 19 20 Total 2,736 2,846 2,934 3,035 3,226 Revenue Breakdown Hypermarkets & foodcourt 29% 28% 27% 26% 27% Long-term lease 54% 54% 55% 56% 55% Short-term lease 16% 17% 17% 18% 17% Others 1% 1% 1% 1% 1% Total 100% 100% 100% 100% 100% Growth Hypermarkets & foodcourt 2% -1% 0% 0% 10% Long-term lease 15% 4% 5% 5% 5% Short-term lease 33% 12% 5% 5% 5% Others 33% 35% -49% 5% 5% Total 13% 4% 3% 3% 6%


FY Feb 2015A 2016A 2017A 2018F 2019F Gross revenue 2,736 2,846 2,934 3,035 3,226 Property expenses (435) (421) (386) (405) (429) Net Property Income 2,302 2,425 2,548 2,630 2,797 Other Operating expenses (497) (338) (281) (295) (310) Other Non Opg (Exp)/Inc 1.40 2.00 1.50 1.55 1.59 Net Interest (Exp)/Inc (68.0) (68.0) (63.4) (69.5) (58.1) Net Investment Income 1,738 2,022 2,205 2,267 2,431 Asset Revaluation Gain 139 444 637 0 0 Increase in Net Assets 1,877 2,466 2,842 2,267 2,431

Distributable income 1,888 2,055 2,205 2,267 2,431 Payout 100% 99% 91% 90% 90% Distribution 1,893 2,028 2,008 2,040 2,187 No. of units 2,337 2,337 2,337 2,337 2,337 Distribution per unit (Bt) 0.8099 0.8675 0.8590 0.8730 0.9359 Growth & Ratio Revenue Gth (%) 13.3 4.0 3.1 3.4 6.3 N Property Inc Gth (%) 11.9 5.4 5.1 3.2 6.3 Net Inc Gth (%) 6.6 31.4 15.2 (20.2) 7.2 Dist. Payout Ratio (%) 100.3 98.7 91.0 90.0 90.0 Net Prop Inc Margins (%) 84.1 85.2 86.9 86.7 86.7 Net Income Margins (%) 63.5 71.0 75.2 74.7 75.3 Dist to revenue (%) 69.2 71.2 68.4 67.2 67.8 Managers & Trustee’s fees 9.8 9.8 9.6 9.7 9.6 ROAE (%) 7.1 9.3 10.5 8.2 8.7 ROA (%) 6.4 8.3 9.3 7.3 7.8 ROCE (%) 6.3 7.2 7.6 7.7 8.2 Int. Cover (x) 26.5 30.7 35.8 33.6 42.8


A sharp drop in utilities expenses and property tax


Company Guide



FY Feb 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 Gross revenue 728 742 728 723 741 Property expenses (87.6) (91.3) (82.1) (78.3) (73.9) Net Property Income 640 651 646 645 667 Other Operating expenses (69.5) (71.1) (70.3) (68.5) (70.9) Other Non Opg (Exp)/Inc 4.43 3.75 3.75 4.50 3.10 Net Interest (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Net Investment Income 541 547 542 548 568 Exceptional Gain/(Loss) 331 0.0 260 (0.5) 377 Net Income after Tax 872 547 801 548 946 Distributable income 541 547 542 548 568 Payout 94.7% 93% 93.1% 89.9% 88.3% Distribution 512 509 504 493 502 No. of units 2,337 2,337 2,337 2,337 2,337 Distribution per unit (Bt) 0.2190 0.2176 0.2157 0.2109 0.2148 Growth & Ratio Revenue Gth (%) 2 2 (2) (1) 3 N Property Inc Gth (%) 3 2 (1) 0 4 Net Inc Gth (%) 68 (36) 44 (31) 68 Net Prop Inc Margin (%) 88.0 87.7 88.7 89.2 90.0

Balance Sheet (Btm)

FY Feb 2015A 2016A 2017A 2018F 2019F Investment Properties 28,043 28,509 29,171 29,271 29,371 Other LT Assets 473 446 485 482 478 Cash & ST Invts 1,070 1,089 1,253 1,406 1,014 Inventory 0.0 0.0 0.0 0.0 0.0 Debtors 0.0 0.0 0.0 0.0 0.0 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 29,586 30,043 30,909 31,158 30,863 ST Debt 0.0 0.0 0.0 0.0 0.0 Creditor 0.0 0.0 0.0 0.0 0.0 Other Current Liab 719 690 731 746 762 LT Debt 2,591 2,591 2,591 2,591 2,000 Other LT Liabilities 0.0 0.0 0.0 0.0 0.0 Unit holders’ funds 26,276 26,762 27,587 27,821 28,101 Minority Interests 0.0 0.0 0.0 0.0 0.0 Total Funds & Liabilities 29,586 30,043 30,909 31,159 30,863 Non-Cash Wkg. Capital (719) (690) (731) (746) (762) Net Cash/(Debt) (1,522) (1,502) (1,338) (1,185) (986) Ratio Current Ratio (x) 1.5 1.6 1.7 1.9 1.3 Quick Ratio (x) 1.5 1.6 1.7 1.9 1.3 Aggregate Leverage (%) 9.1 8.9 8.7 8.7 6.7 Z-Score (X) 27.6 27.4 27.2 27.0 27.0


Unrealized asset revaluation gain


Company Guide



FY Feb 2015A 2016A 2017A 2018F 2019F Pre-Tax Income 1,877 2,466 2,842 2,267 2,431 Dep. & Amort. 230 59.3 0.0 0.0 0.0 Tax Paid 0.0 0.0 0.0 0.0 0.0 Associates &JV Inc/(Loss) 0.0 0.0 0.0 0.0 0.0 Chg in Wkg.Cap. (139) (444) (637) 0.0 0.0 Other Operating CF 167 15.3 96.9 93.9 106 Net Operating CF 2,134 2,096 2,302 2,361 2,536 Net Invt in Properties (435) (20.9) (25.7) (100.0) (110) Other Invts (net) 7.60 0.0 (217) 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc. & JVs 0.0 0.0 0.0 0.0 0.0 Other Investing CF (76.0) (76.0) (76.0) (76.0) (76.0) Net Investing CF (504) (96.9) (319) (176) (186) Distribution Paid (1,900) (1,979) (2,018) (2,032) (2,151) Chg in Gross Debt 308 0.0 0.0 0.0 (591) New units issued 0.0 0.0 0.0 0.0 0.0 Other Financing CF 0.0 0.0 0.0 0.0 0.0 Net Financing CF (1,592) (1,979) (2,018) (2,032) (2,742) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 38.5 20.2 (34.2) 153 (392) Operating CFPS (Bt) 0.97 1.09 1.26 1.01 1.09 Free CFPS (Bt) 0.73 0.89 0.97 0.97 1.04 Source: Company, DBSVTH


Source: DBSVTH


S.No.Date of Report

Closing Price

12-mth Target Price

Rat ing

1: 03 May 16 16.90 16.10 HOLD

2: 11 May 16 16.60 16.10 HOLD

3: 08 Aug 16 17.40 18.50 HOLD

4: 20 Sep 16 17.30 18.50 HOLD

5: 02 Nov 16 18.00 18.50 HOLD

6: 17 Jan 17 17.30 18.50 HOLD

7: 07 Feb 17 17.70 18.50 HOLD

8: 03 May 17 16.70 18.50 HOLD

Note : Share price and Target price are adjusted for corporate actions.

1

23

4 5 67

8

14.82

15.32

15.82

16.32

16.82

17.32

17.82

18.32

18.82

19.32

May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17

Bt

Industry Focus


Page 12

DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 5 May 2017 06:20:54 (THA) Dissemination Date: 5 May 2017 06:22:22 (THA)

Sources for all charts and tables are DBSVTH unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its

respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in

any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH'').

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific

investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees

only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial

advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)

arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not

to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons

associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

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Page 13

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Vickers Securities (Thailand) Co, Ltd and its subsidiaries do not have a proprietary position in the securities recommended in this report

as of 28 Apr 2017.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of

which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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Page 14

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

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Page 15

United Kingdom

This report is produced by DBS Vickers Securities (Thailand) Co Ltd which is regulated by the Securities and Exchange Commission, Thailand.

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by DBS Vickers Securities (Thailand) Co Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Vickers Securities (Thailand) Co Ltd

989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330

Tel. 66 2 657 7831, Fax: 66 2 658 1269 Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

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