Thailand Daily View151299 Highlights: Communication-Advanced Info Service, ADVA.BK, Buy Formation of Trust Fund to partially alleviate foreign queue Commerce - Neutral Retail competitor shuts down operation Banking - Overweight Thai Oil aims to complete debt restructuring by April 2000 Building & Furnishing - TPI Polene, TPIP.BK, Sell Share price continues to hold ---------------- AIS: formation of Trust Fund to partially alleviate foreign queue Jim Fraser +66 2 231 3777, jim@jft.co.th Advanced Info Service (AIS) is expected to approve a Thai Trust Fund which will hold local shares of AIS, but which can be sold to foreigners. This is one way to lift its foreign limit. The fund will hold 2.5% of the company's total outstanding shares (6.9m shares). Half (1.3% of total shares) will be handed over to Singtel, since these shares have been due since earlier this year, and the rest (1.2% of total shares or 3.3m shares) will be sold to existing foreign shareholders that have been queuing for additional allocations for several months, supposedly on a first-come first-served basis. There is apparently demand for about 10m-12m additional foreign shares including Singtel's allocation; this latest move will reduce the number of extra shares required to about 3m-5m. About 1.5% of the shares will come from the local board and 1.0% from a company that is 100%-owned by Shin Corp. Therefore, Shin Corp's holding in AIS will reduce from 41% to 40%. We expect the Thai Trust Fund will form a third trading board. AIS says this could be ready by end-February. Comment: We continue to recommend a Buy for the local shares of AIS, which closed yesterday at a 6% discount to FY00 NPV. Although we are maintaining our Buy recommendation on foreign shares of AIS for the time being, we note they are currently trading at a premium to NPV of more than 20% and an EV/subscriber of US$3,600-at the top end of regional valuations. Since Shin Corp's holding in AIS will be reduced to 40% from 41%, the NAV premium for Shin Corp foreign shares will rise to 19.8% from 17.2%, while Shin Corp local shares will match NAV from a discount of 2.2% previously. We maintain our Buy for both foreign and local shares of Shin Corp. Shin Corp (f) is cheaper than AIS (f) in terms of premiums, and less risky in terms of AIS increasing its foreign limit. ---------------- Retail competitor shuts down operation Susheel Narula +66 2 231 3777, susheel@jft.co.th The Booker Wholesale (Thailand), a UK retailer operating two cash & carry stores in Bangkok and another in Pattaya, shut down its business at the end of November. Poor profitability, lack of economies of scale and strong competition were the stated reasons for the closure. The impact on Siam Makro from this will be positive but marginal. The closure is indicative of the state of the industry- very competitive, with each serious player in excellent financial health and enjoying critical mass. This ensures that the industry will not be seeing new entrants for some time. We are preparing a retailing industry report that will focus on Makro and Big C Supercenter. Based on our preliminary estimates, we rate Makro a Buy despite tough market conditions in the near term. Its valuations are cheap relative to international players (FY00 PER of 21x, EV/EBITDA 5x). Big C is a Trading Buy due to near-term earnings recovery (FY00 PER of 24x, EV/EBITDA 12x). ---------------- Thai Oil aims to complete debt restructuring by April 2000 Pornchai (Chris) Prasertsintanah +66 2 231 3777, pornchai@jft.co.th The Petroleum Authority of Thailand (PTT) says Thai Oil has received 90% approval-weighted by amount of loans-from its creditors on a debt restructuring plan, an improvement from the previous 75% approval received on 23 November 1999. The plan will reduce Thai Oil's debt to US$1.38bn from US$2.25bn through a combination of debt to equity swap (US$400m by creditors and US$101m by PTT), capital injection by PTT (US$149m) and debt buyback at a 50% discount (US$285m-US$315m). The remaining outstanding amount will be repaid over 14 years with a three-year grace period. PTT expects the restructuring process to be taken to the rehabilitation court and be completed by April 2000. Comment: The expected success of Thai Oil's debt restructuring will be very positive for trading sentiment in banking stocks, since Thai Oil's debt case is the second-largest in Thailand (the largest is the US$3.4bn owed by Thai Petrochemical Industry, or TPI). Of Thai Oil's total loans, 40% is owed to Japanese banks, 20% to Thai banks and the remaining 40% to US and European banks. Thai banks with the highest exposure to Thai Oil include Bangkok Bank (BBL), Thai Farmers Bank (TFB) and IFCT. Since Thai Oil's restructuring is under the Corporate Debt Restructuring Advisory Committee (CDRAC), the signing of the restructuring agreement, if done by YE99, should allow Thai Oil's NPLs to be excluded from the BoT's December sector NPL figure. However, banks will not declassify Thai Oil from loans until the final court agreement. ---------------- TPIPL share price continues to hold Susheel Narula +66 2 231 3777, susheel@jft.co.th Based on public information, it appears that TPI Polene's debt restructuring-including the sale of a stake to a strategic partner-will leave little value for shareholders. Assuming a haircut of 50% on subordinated debt (total size Bt16.5bn; see our 7 December 1999 Daily View) and acquisition price of the company's cement plant at US$100/tonne, the value of equity would be Bt1.5bn or Bt3 per share. However, the stock price is unwilling to go below Bt15, indicating to us that some investors know something the market does not. Two variables are crucial to valuing TPIPL. One is the cement price per tonne of capacity, and the other is the level of haircut on debt. If TPIPL succeeds in convincing someone to buy its plant at US$150/tonne, our valuation can change dramatically. Extending this argument further, we think Holderbank is more likely to pay a premium rather than Heidenbur, since Holderbank already has an established base here. Regarding a haircut on principal, it is possible that some secured creditors may be willing to absorb a haircut in return for immediate debt repayment. This scheme would not be unlike Thai Oil's debt restructuring. Although there may be some basis to these speculations, we prefer to be conservative, and maintain our Sell recommendation on the stock. ---------------- The information contained in this research report has been compiled by Jardine Fleming Thanakom Securities Limited. This report is made available by way of restricted access only to authorised recipients who have made prior arrangements with a member of the Jardine Fleming or Robert Fleming groups of companies. Your attention is drawn to the terms and conditions upon which this research report is distributed to the authorised recipients. A copy of such terms and conditions has previously been sent to each of the authorised recipients and is also available at Jardine Fleming's www.flemingsresearch.com. This report must not be copied, published, reproduced or redistributed (in whole or in part) by any recipient for any purpose. c Jardine Fleming 1999