Thai Tap water Supply

Thai Tap water Supply Plc (TTW)

2Q13 profit lower than expected due to loss in affiliated company, other as expected
TWW’s 2Q13 profit is at B522m, dropping 40% qoq due to 1Q13 extraordinary
income from B325 tax refund, and decreasing 7% yoy, lower than expected at
8.7% or B50m. Main factor is share of profit from affiliated company, CK Power,
which faced B22m loss (B27 profit projected) due to Fx loss and recognized cost
from Bangpa-in Cogeneration before its commercial run in 3Q13. Other factors
were as expected. Income from tap water rose 6.1% yoy, along with increasing
sales volume (TTW, PTW and Bangpa-in Property, rising 7.8%, -0.6% and
36.6%, respectively) and water charge rose 3% yoy. However, gross margin fell
from 70.9% in 2Q12 to 69% due to electricity charge (36% of total cost), which
rose from increase in FT, water sales (water needed to be produced in the peakhour
with high electricity charge) and B90m addition tax after tax exemption
(BOI) expired since 20 July. Thus, norm margin dropped from 47.1% in 2Q12 to
39.4%.
- 2H13 profit expected stabilizing, standing high
2H13 profit is projected to slightly improve from 1H13. In main business, water
sales are likely to remain high. Share of profit from affiliated company, CK
Power, is likely to be profitable due to the opening of Bangpa-in Cogeneration
(117.5 megawatt). For TTW’s alternative energy business, there are 2 projects
under study that would be excluded in 2H13 earnings: trash-to-power generator
(6 megawatt) invested at B500bn and water management project in industrial
properties (as operating in Bang Pra-in industrial property, invested at B1bn),
which are not expected to boost implicit profit in 2013, and boosting 2014 profit
at maximum B100m, B0.03 EPS, which the information would be clearer after
analysts’ meeting on 31 July. Moreover, TTW would gain B1.2bn tax exemption
from maintenance and improvement of pipes and pumping stations. We predict
that TTW would start tax avoidance since 2014, which is the latest time.
SOTP FV at B13, B0.25 div yield or 0.24%, XD on 7 August
This is one of the defensive plays, interesting when the SET is fluctuating. SOTPbased
fair value is at B13. We reiterate "BUY" and receive 1Q13 dividend
recently announced at B0.25/share, with 2.4% div yield. XD date is 7 August
and dividend will be paid on 23.