More risks, but downside limited
The current share price weakness reflects the risk of inflation and
higher interest rates. However, we see little downside from here as
inflation looks likely to peak in 2H08 and the political climate should
remain stable. We prefer defensive names like BBL and SCB.

Overweight on Banks: little downside risk
We are still Overweight on Thai banks. The increased economic and political risks in
the sector are reflected in our new DDM valuations. We see attractive sector earnings
growth of 954% in 2008 and 18% for 2009-11 compared with -84% and -3% in
2007, respectively. We believe the current valuation of Thai banks under our
coverage (1.3x 2008F PBV and 12x 2008F PER), following the 15% drop in share
prices in the last month, means downside risk is now limited, provided inflation peaks
in 2H08, as we expect, and there is no further political turmoil.
Selective and defensive strategy: BBL, SCB, BAY and KBANK
With the economic situation now more risky, we adopt a selective and defensive stock
selection. For the next 12 months, BBL remains our top pick, as it is the only Thai
bank exposed to Asia's strong loan growth and seems best positioned in our universe
to improve profitability. We also increasingly prefer SCB for its inexpensive valuation
and defensive earnings, and upgrade it to Buy. In the longer term, BAY and KBANK
remain our top choices for their growth and profitability potential.
Sentiment vs fundamentals
We cut our 2008-10 earnings forecasts across the sector by 4% as we believe
inflation and interest rate risks will affect sentiment more than Thai banks' earnings.
Better-than-expected NIMs should largely offset slower loan growth and higher credit
costs. The Thai economy should fare better once inflation peaks in 2H08F. Our
revised 18% earnings growth forecast for 2009-11 for Thai banks still looks
attractive, backed by long-term structural growth and stronger profitability.
Stability behind conflicts
Over the past month the Thai stock market plunged, mainly in response to increased
political turmoil. However, we are optimistic that Thailand will continue to have a
democratically elected government. Over the last 20 years the country has rarely had
a stable government but its economy has grown at a steady 5% pa on average. We
believe this indicates sustainable growth behind constant conflicts.

Contents
B A N K S 1 8 J U N E 2 0 0 8 2
I N V E S T M E N T V I E W
More risks, but downside limited 3
Recent share price weakness suggests the higher inflation and interest rate risks
are mostly priced in. In our view current valuations of Thai banks have limited
downside risk, provided inflation peaks in early 2H08.
Overweight: Inflation should peak in 2H08F 3
Applying a selective and defensive strategy 4
I N D U S T R Y D Y N A M I C S
Sailing through the storm 5
We believe the economic and political risks will affect sentiment more than
fundamentals. Inflation looks set to peak in 2H08. We expect 954% earnings
growth for 2008 and 18% for 2009-11.
Economy risk: more sentimental than fundamental 5
Political risk: stability behind conflicts 7
C O M P A N Y P R O F I L E S
Company profiles 9
Bangkok Bank 10
Bank of Ayudhya 15
Kasikornbank 20
Krung Thai Bank 25
Siam City Bank 30
Siam Commercial Bank 35
TMB Bank 40

I N V E S T M E N T V I E W
B A N K S 1 8 J U N E 2 0 0 8 3
More risks, but downside limited
Recent share price weakness suggests the higher inflation and interest rate
risks are mostly priced in. In our view current valuations of Thai banks have
limited downside risk, provided inflation peaks in early 2H08.
Overweight: Inflation should peak in 2H08F
The 15% plunge in share prices across the banking sector over the past month
reflects the latest hikes in inflation and higher interest rates. We remain Overweight
on Thailand’s banking sector, with current 2008F valuations for companies under our
coverage at 1.3x P/BV, 11.8x PE and 12.5% ROE. We have cut our 2008-10 earnings
forecasts for Thai banks by 4% on average to reflect slower loan growth and higher
NIMs and NPLs. Even after adjusting for the high cost of equity, we see 10-37%
upside potential to our new 2009F DDM-based target prices in our Thai banks
universe.