Thoresen Thai Agencies

Thoresen Thai Agencies Plc (TTA)

Investment thesis: Management discussions at the analyst meeting yesterday reaffirmed the good outlook for TTA’s offshore service business, but the prospects for the dry bulk shipping market are poor. We think the bearish dry bulk shipping market together with the unfavorable 1H12 earnings profile may cap TTA’s share price performance in the near-term. But an expected bottom-line improvement in 4Q12 should support the share price, while ongoing investments across all core businesses will build long-term value. TTA is currently heavily discounted—a YE12 PBV of 0.5x, (1SD below its long-term mean of 1.1x).
Earnings to remain weak in near-term; recovery in 4Q12: The second-quarter is low season for both dry bulk shipping and sub-sea services. The third-quarter is high season for sub-sea services, but the MTR-2 rig is scheduled for maintenance in May (for 3-4 months). Nonetheless, the contribution from MTR-1, which has just been awarded a 5-month contract as an accommodation barge (starting April 2012), should mitigate the effect of the earnings loss from the laid-up MTR-2 rig. We expect TTA's profit to rebound strongly in 4Q12 (July-Sept), driven by high seasonal demand for sub-sea services, a working MTR-1 barge, a working MTR-2 rig and a normalized UMS operation.
Better outlook for sub-sea service business and fleet expansion will support earnings: While the outlook for the offshore service business is improving, supported by a high oil price environment, the dry bulk shipping market is expected to remain subdued this year because of an oversupply of vessels (recovery is expected in 2013). But the downturn in the dry bulk shipping market presents opportunities for TTA to buy second-hand ships at reasonable prices. Management said that it plans to buy three second-hand vessels this year and take delivery of two new ones (April 2012 and Oct 2012). So TTA's fleet will rise to 20 vessels at YE12 from 15 vessels at YE11. 
To pursue growth through every core business: Management said that over the long-term the firm will grow through three core businesses—shipping, energy (offshore services and coal mining) and infrastructure. Based on investments to date, the revenue contribution from the energy business is expected to comprise the largest portion (about 50% of total revenue), followed by shipping (30%) and infrastructure (20%).