Thoresen Thai Agencies

Thoresen Thai Agencies Plc (TTA)

Below estimates: TTA posted a 4Q11 (July-Sept) net loss of Bt187m, a reversal from net profits of Bt226m in 4Q10 and Bt297m in 3Q11. Stripping out extra items, the 4Q11 core loss would be Bt249m, compared to core losses of Bt348m in 4Q10 and Bt281m in 3Q11. TTA's FY11 net profit was Bt139m, down 82% YoY, while its core loss for the year was Bt643m. The result was somewhat below our net profit forecast of Bt295m and far below the consensus estimate of Bt527m. The disappointing earnings were due mainly to: 1) a weaker-than-expected shipping business profit and 2) higher-than-modeled SG&A expenses.
Results highlights: The FY11 YoY profit drop was due to: 1) a lower freight rate (down 7% YoY to US$11,713/ day/ship), 2) fewer vessel operating days (down 30% YoY to 9,389 days), 3) a smaller profit contribution from the infrastructure business (down 4% YoY)—GPM at UMS softened to 17% from 18% in FY10—and 4) an SG&A/sales ratio jump to 23.9% from 18.6% in FY10. But Mermaid Maritime’s (MM) net loss was only Bt110m (it was Bt200m in FY10), due to a higher sub-sea service vessel utilization rate of 69% (up from 40% in FY10). MM’s GPM rose to 16% from 7% last year.
Outlook: As we are now in a period of high seasonal demand for dry bulk shipping (grain trading season) and of strong Chinese and Japanese demand for iron ore and coal, the average BDI for Oct-Nov has increased 28% QoQ. Furthermore, the earnings contribution from MM should increase QoQ, driven by a higher mean utilization rate for sub-sea service vessels brought on by high season. We, therefore, expect TTA’s 1Q12 core earnings to improve QoQ, despite the expected loss at UMS, due to flooding in Ayudhya in Oct.
What’s changed? As we have already factored a potential slowdown in demand for dry bulk shipping into our model, we maintain our FY12 net profit forecast at Bt407m. However, a consensus FY12 earnings projection downgrade is likely.
Recommendation: We think that the bearish outlook for the dry bulk shipping market (due to oversupply) together with concerns about the global economic slowdown—which may impact on demand for shipping—may cap TTA’s share price performance. Nonetheless, an expected QoQ core profit improvement in 1Q12 should help support the share price. Valuation-wise, the stock is currently heavily discounted, we believe—a YE12 PBV of 0.4x, (1.0SD below its long-term mean of 1.1x).  We, therefore, maintain our HOLD rating with a YE12 target price of Bt21.