Good measures, good news The Samak government announced its Bt45bn economic stimulus package yesterday, which largely offers needed tax breaks to low-income taxpayers, small and newly listed companies and the property sector. We are encouraged by this news and disagree with any assertion that it has already been fully discounted by the Thai stock market (except for a number of fully valued property shares), despite having been leaked over the last several weeks. It may be overshadowed in the near-term by the poor economic / financial news coming from the US, but the key takeaway point is that these measures are needed, being correctly applied to the right sectors and are quite long-term positive. Needed tax breaks for low income taxpayers Individuals, whose taxable income is below Bt150,000/year, will be exempted from personal income tax. This was raised from the previous limit of Bt100,000/ per year. This is quite good news for a relatively large portion of Thai taxpayers earning Bt12,500 per month or less. For employees working as either production line staff or mid-tier management in a manufacturing plant (most of whom report taxable income), this is needed to help export manufacturers keep staff and offset the rising baht to maintain their export competitiveness. For low-income taxpayers in general, this is needed to offset rising inflation. We believe the measures do not directly add to inflation. This may be a populist measure, but in our opinion, the tax exemption for low-income earners is a good and needed populist measure. Needed tax breaks for newly listed and small / medium-sized firms In our view, the health of a national economy is basically determined by the health and growth of its corporate sector. It may be called populist to support small and medium-sized enterprises (SME), but this time-tested Asian model of growth and encouraged access to the capital market is a means for further growth. We applaud the Samak government's stimulus plan to lower the corporate income tax rate for newly listed companies and companies earning less than Bt300mn per year from 30% to 25% for three years. Investors should realise that this view is coming from a local stock-broker. Property - if you don't have it, you should One of the most effective stimulus measures is the plan to boost home ownership through short-term tax breaks, including the reduction of the special business tax from 3.3% to 0.1% and the reduction of the transfer and mortgage registration fee to 0.01% for one year. These measures, which are typically shared by the developer and the home purchaser, will help spur the housing market, which has been badly affected by rising costs. Our property analyst, Khun Surasak Anutarasoth believes that this measure will help spur housing demand. This is needed since recent economic indicators clearly show that private sector construction has continued to lag. According to the NESDB, private building construction fell by 7.84% yoy in 4Q07 and, according to the BOT, domestic cement demand continues to be weak with a 6.97% yoy decline. Economic growth is the key Government proponents pushing these measures state that it will boost GDP growth this year to 6%. We would wish that this is the case. Unfortunately there are other factors at play, such as rising inflation from oil prices above US$100/barrel, the strengthening baht and US economic problems stemming from the housing market bubble. We still believe that the 5.0-6.0% GDP growth this year is feasible for Thailand and quite appropriate. The long and short of it The best angle to play this ?good news? is probably domestic consumption plays. Currently, we like BEC, CPALL, KBANK, BBL, PTT, PTTCH, LPN and SPALI despite our expectations of a short-term weaker market ahead on negative news flow, particular from the US. Besides that, our property analyst is saying that many of the other property stocks have already risen too far and too fast and should be sold on strength. Meanwhile, most small caps with earnings less than Bt300mn (less than US$10mn) are under our radar screen and we cover about 150 companies on the SET. In other words, the net effect on the market in the near-term may not be so positive but the long-term effect on stronger economic growth is quite positive.

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