Securities house: Seamico Securities

The management of Krung Thai Bank said the planned issue of hybrid securities to raise its tier 1 capital has been postponed from this quarter to May.

The amount to be issued will remain the same, at US$200 million (Bt7.8 billion), and the securities will still be offered to foreign investors only.

The broker believes there should be no negative impact from the postponement because the bank's tier 1 capital is not low. At the end of 2005, the bank reported that it stood at 9.43 per cent.

 The broker estimates that after the issue of its hybrid securities, the bank's tier 1 capital will increase by 1.05 percentage points to 10.48 per cent, thus strengthening Krung Thai Bank's capital base.

The broker has downgraded its recommendation on the stock from buy to fully valued because of the narrow upside from the broker's fair value estimate of Bt13.10 per share.

Stock: GMM Grammy Plc (GRAMMY)

Recommendation: Sell

Securities house: Tisco Securities

The outlook for GRAMMY's music business remains gloomy due to intensified competition and weak demand. By contrast, its media business should show some improvement this year.

In addition, there may be room for some margin gains from more efficient cost control and adjustments to its marketing strategy in the music business.

The broker has raised its net profit forecast for GMM Grammy by 13 per cent to Bt424 million in 2006 and by 6 per cent to Bt467 million in 2007.

However, the company's music division is likely to see its contribution to total revenue decline to 51 per cent from 52 per cent in 2005. By contrast, both its media and movie divisions should see their contributions to total revenue increase this year.

The broker has increased its target price for the stock from Bt9.40 to Bt11.50, but has rated it "sell" because it shows no upside gain.

Stock: Siam City Bank (SCIB)

Recommendation: Buy

Securities house: Thanachart Securities

The broker believes that Siam City Bank will achieve the highest margin improvement this year due to the redemption of its remaining Bt67 billion in Asset Management Corporation (AMC)'s notes, a shift in lending focus towards consumer and SME loans and a continued reduction in non-performing loans.

The broker expects SCIB's net interest margins to improve by 47 basis points in 2006, the biggest improvement in the sector.

It says the redemption of AMC notes this year will benefit Siam City Bank in two ways. First, it will relieve pressure on the bank to raise rates and compete for deposits. Second, once redeemed, average lending yields will rise as the notes earn only the average cost of Siam City Bank's funds.

In addition, the broker believes average lending yields will gradually improve as SCIB is now focused on lending to the higher-yielding SME and consumer markets.

Finally, the bank is expected to continue reducing its non-performing loans, which will improve earning asset yields and require less provisioning expenses.

The broker believes Siam City Bank is the most attractive acquisition target among medium-sized banks.

oranan@nationgroup.com.