Thai Tap Water Supply

Thai Tap Water Supply Plc (TTW)

Investment thesis: Meeting with TTW strengthened our optimism in the firm’s bottom-line growth profile for this year, led by above-normal growth in water sales. There will also be earnings accretion from new acquisitions—at least three deals are expected to be closed this year. Management also reassured on the FY12 DPS, which will be not less than FY11’s Bt0.40, implying a generous yield of 7%. The possibility of increased inflation means scope for upside to forward earnings.
FY12 number upped 11%: We have raised our FY12 EPS forecast by 11% to Bt0.54. Effective Jan 2012, the water tariffs for TTW and PTW facilities rose to Bt26.01/cu.m and Bt11.83/cu.m, respectively, from Bt25.11/cu.m and Bt11.37/cu.m in 2011. FY12 water sales growth will also strengthen more than we earlier envisaged, due to the low-base effect set by last year (due to the 4Q11 flooding and the loss of water sales to the Provincial Waterworks Authority’s [PWA] new Nakhon Pathom plant last year). As such, we have revised up our FY12 TTW and PTW YoY water sales growth forecasts to 10% and 5%, respectively, from 5% and 3% previously.
Buoyant water sales outlook: Flat FY11 sales for the TTW facility will be followed by above-normal growth this year. The threat from the start-up of the new PWA plant has faded, as it took virtually all of TTW’s water sales in overlapping service areas. Late last year, the firm added a new sizable client, the Samut Sakhon City Municipality, topping up its water sales growth profile by 2%. Meanwhile, the flooding in Pathumthani had only a negligible effect on PTW’s water sales—it still posted normal 4% YoY growth last year.   
Earnings accretions from new acquisitions: TTW will spend Bt2.73bn—financed entirely by debt—to buy a 30% stake in CK Power when it recapitalizes at end-March. The firm also aims to purchase the right to operate and manage treated water and waste water services—a deal is expected to be sealed by 2Q12. TTW guided that the production capacity is close to that of the Bangpa-In Industrial Estate facility (which it bought in April 2009), but with a cheaper acquisition cost. We preliminarily estimate that the two purchases (CKP and water treatment management rights) could add 3-4% to our FY12-13 earnings forecasts.  
Branching into power: The firm aims to enter the power business with a focus on solar and bio mass-fired generation. TTW is currently negotiating to buy stakes in both greenfield and operating solar projects with a combined power capacity of 30MW for the first phase. A deal should be closed well before the end of the year.