Thoresen Thai Agencies

Thoresen Thai Agencies Plc (TTA)

Below estimates: TTA posted a 1Q12 (Oct-Dec 2011) net loss of Bt560m, a reversal from net earnings of Bt145m in 1Q11 and a deeper QoQ loss. Stripping out a Bt209m one-off write-off of commitment fees paid on a syndicated loan, an asset impairment of Bt109m and an FX gain of Bt56m, the 1Q12 core loss would be Bt208m, a reversal from a core profit of Bt161m in 1Q11, but a shallower QoQ loss. The bottom-line was far below both our projection and the consensus, due to extra expenses. The core loss was slightly deeper than our estimate, due to higher-than-expected interest expenses.
Results highlights: The key factors behind the YoY dive into the red were: 1) a lower freight rate (down 12% YoY to US$11,105/ day/ship), 2) fewer vessels in operation (down 49% YoY to 1,531 days), 3) lower earnings from infrastructure businesses (mainly UMS), and 4) higher interest expenses. But the offshore service business improved YoY, GPM rose to 11% in 1Q12 from 8% in 1Q11 (but softened from 32% in 4Q11, due to low season). The QoQ improvement was driven by: 1) higher shipping GPM (to 54% in 1Q12, from 18% in 1Q11 and 2% in 4Q11, 2) greater earnings at Baconco (fertilizer trading unit)} and 3) profit from the coal business.
Outlook: TTA’s 2Q12 (Jan-March) performance is expected to remain in red ink, as the second-quarter is normally low season for both shipping and offshore services. UMS’s expected post-flooding earnings improvement won’t be sufficient to offset the effect of weak performances at other businesses. However, we expect TTA to post a shallower YoY loss, due to much better numbers for offshore services—higher utilization rates for sub-sea service vessels.
What’s changed? We have downgraded our FY12 bottom-line forecast to a net loss of Bt77m from a net profit of Bt407 to reflect extra items booked in 1Q12. Furthermore, we have revised down our FY12 core profit forecast by 32% to Bt275m, to reflect a higher interest expense assumption.
Recommendation: We think that the bearish outlook for the dry bulk shipping market together with concerns about the global economic slowdown—which may impact on demand for shipping—will limit TTA’s stock price performance. Nonetheless, expected QoQ core bottom-line improvements in the quarters ahead should help support the share price. Moreover, the investment in the coal business and expansion of the offshore and infrastructure operations should build long-term value.  The stock is currently heavily discounted—a YE12 PBV of 0.5x, (0.75SD below its long-term mean of 1.1x).