Thai Tap Water Supply

Thai Tap Water Supply Plc (TTW)

- 4Q13 net profit weak as expected due to tax expense
TTW's 4Q13 net profit was reported at B353m, falling 37%yoy and
57%qoq, as expected, mainly due to B260m tax expense from
2012. Excluding the extraordinary item, TTW's 4Q13 normalized
profit was B613m, falling 14%qoq but rising 10%yoy as a result of
higher-than-expected selling an administrative expense. B18m
extraordinary expense from organization restructure and study on
plausibility of the investment project. Meanwhile, other factors were
as expected: 1) 4Q13 water sales volume stayed flat qoq (flat for
TTW and PTW, but rising 5.3%qoq for Bangpa-in). 2) 4Q13 gross
margin dropped by 1%qoq to 69.2% due to a usual increase in
chemical cost for low-quality water in 4Q. 3) Share of profit from
associated CKP (TTW holding 25% stake) decreased from B40m in
3Q13 to B17m in 4Q13, as expected. Overall, 4Q13 normalized
profit was similar to our forecast, whereas net profit was 9% below
expectation as a result of the tax expense.
- FY2014 normalized profit to make new high. 1H14 to skyrocket yoy
FY2014 normalized profit is projected to leap by 20%yoy. TTW
would benefit from the BOI tax exempt that compensates for the
2011 flood damage, lowering tax expense by B350/year from 3Q13
to 2015. In 2014, TTW would recognize tax exempt for a full year
(increasing from 2013 by B160m). Thus, FY2014 normalized profit
would grow significantly yoy, especially in 1H14. Water business
would be growing steadily. Income from TTW's core business is
projected to rise by 5%yoy. Water sales volume is expected to rise
by 3%yoy, and water tariff rate is projected to increase by 1.5%yoy
as a result of inflation rate. Meanwhile, PTW's (29% of total profit)
production has reached the capacity, so PTW would only benefit
from increasing water tariff rate (its production capacity would be
expanded by 65,000 cubic meter/day or 8% of the total capacity in
late-2015). Moreover, share of profit from associated CKP is
projected to increase from 2013 by B50m (under conservative
assumption). Income from Bangpa-in Cogeneration (117.5
megawatt) would be recognized for a full year (opened on 28 June
2013), possibly increasing CKP's profit significantly.
- "BUY" for 2H13 dividend at B0.35/share, 3.6% p.adividend yield. XD date is 6 February
Share price is currently attractive. We recommend "BUY" as
normalized profit is expected to leap, especially in 1H14. Moreover,
2H13 dividend is announced at B0.35/share (3.6%p.a dividend
yield). XD date is 6 February, and dividend will be paid on 21 March.