Surging product prices bring rural affluence

One-third of all provinces are expected have an average monthly household income of at least Bt20,000 this year - a figure similar to Bangkok before the Asian financial crisis - thanks to the spike in agricultural product prices, Phatra Securities said last week.

Rising rural disposable income will create greater demand for lifestyle products and luxury goods. Spending will grow fastest for housing, financial services, insurance, transport and communications, recreation, and food and beverages.

The brokerage recommends 10 listed stocks expected to gain from the growth in countryside consumption.

Advanced Info Service: The largest mobile phone operator's network covers more than 90 per cent of all populated areas.

There is no available data on exactly what proportion of AIS's total revenue is derived from subscribers upcountry. However, the company has said it is in the region of 30-40 per cent.

Total Access Communication: DTAC, the second-largest mobile phone player, recently posted first-quarter pre-exceptional net profit of Bt2.4 billion, up 51 per cent on year and 34 per cent on quarter and significantly above consensus forecasts.

The impressive results were almost exclusively due to strong demand in rural areas due to high crop prices, as 80 per cent of DTAC's net adds in the first quarter were from the upcountry markets.

Bangkok Bank: The country's largest bank provides a full range of commercial banking services. Its size means that together with Krung Thai Bank it has the greatest penetration outside Bangkok through its extensive branch network.

Krung Thai Bank: Krung Thai Bank is one of the largest banks in terms of loans, deposits and branches. It benefits substantially as the only gateway for all government-related procurement.

Its valuation discount versus other large banks is due to its lower level of provisions for NPLs. However, the discount is overly done, even assuming a severe write-down of assets, and undervalues a bank that has the lowest funding cost of any commercial bank.

Bangkok Dusit Medical Services  : The largest private hospital operator by market capitalisation, revenue and number of hospitals, operates not only in Bangkok but in urban centres throughout the country.

As provincial households become wealthier, they are expected to spend a greater proportion of income on medical care. Earnings growth should be driven both through volume and margin expansion as utilisation levels rise.

Big C Supercentre: Big C is the second-largest discount store chain with 54 stores nationwide last year, only trailing Tesco-Lotus.

The company's strategy focuses on an everyday low-price concept. Besides opening a store in Ayutthaya at the end of February, it will roll out seven more stores this year, including five upcountry.

CP All: CP All has the fourth-largest 7-Eleven convenience store network in the world, behind Japan, the US and Taiwan. It targets to open 400-450 stores each year and expects to have 5,000 outlets nationwide this year.

CP All has a dominant position capturing roughly 50 per cent of the convenience store market.

Major Cineplex Group: Major operates the largest cinema chain with 60-65 per cent of the market. Its cinema complexes offer retail space, bowling, karaoke and fitness centres.

It also secures film rights and distributes films in VCD and DVD format.

Major has a 21-per-cent stake in mall developer Siam Future Development and a 37-per-cent stake in California Wow, a fitness centre operator.

There is significant room for cinema expansion upcountry as the population per screen is still very high compared to emerging Asian countries, with 170 people per screen here compared with 100 in India and 90 in the Philippines.

Up to 42 provinces out of the total of 76 have sufficient per capita income to support a modern cinema but have yet to get one. Major plans to tap this growth through expanding upcountry in conjunction with hypermarket chains.

Siam City Cement: The second-largest cement producer. Cement products account for about 85 per cent of its total revenue.

Holcim of Switzerland is its strategic partner.

Its positives are a healthy balance sheet and strong dividend payout policy.

Key earnings drivers are cement volume and prices. About 50 per cent of its sales are upcountry and historically these sales have been tied to changes in farm incomes. It is potentially a significant beneficiary of sustained high crop prices.

Thai Beverage: ThaiBev's principal businesses are spirits and beer. It is the largest alcoholic beverage manufacturer with a market share of 60 per cent in beer and 74 per cent in spirits.

Its earnings are very sensitive to changes in rural incomes. About 75 per cent of its sales are from upcountry.