Thai Tap Water Supply

Thai Tap Water Supply Plc (TTW)

- Strong profit in 2Q14, rising 37%yoy

2Q14 net profit is estimated at B718m (as high as 1Q14), rising 37%yoy;
income is expected to increase by 4.9%yoy mainly thanks to water tariff
rate hike. Water sales volume is expected to stay flat yoy (up 2.3%yoy in
1Q14), mainly from TTW; most factories under TTW's coverage are food
manufacturers and exporters affected by disease problem. Meanwhile, PTW
and BIE's water sales volume is projected to stay unchanged qoq and grow
0.4%yoy and 11.2%yoy, respectively. TTW's gross margin is expected as
high as 70.5%; increasing electricity cost would be negated by water tariff
rate hike and lower chemical cost (thanks to high-quality water). Share of
profit from associated CKP is expected at B16m in 2Q14, reversing from
B20m loss in 2Q13 (due to Fx loss). Moreover, owing to tax exemption, tax
expense is expected to decrease by B90m to B40m. Overall, net margin is
projected to rise to 53.9%.
- Strong profit until 2015. Over 50% net margin
The aforementioned problem is expected to affect TTW's water sales volume
for a short term. Under the assumption that 2H14 water sales volume stays
unchanged yoy like in 2Q14, FY2014 water sales volume is projected to
grow by only 1%yoy, lower than our forecast at 3%yoy. However, this
would slash TTW’s net profit by only 1%, which is an insignificant effect.
Other factors are projected to stay in line with our forecast. Tax exemption
would continue for a full year in 2014 and 2015. Overall, net profit is
projected to remain strong and net margin is expected to stay around 53%-
54% in these two years.
- Attractive defensive play with 5.6% dividend yield
This is a defensive with strong fundamental factors, good growth, attractive
share price and 5.6%p.a. dividend yield. 1H14 interim dividend will be paid
in mid-August 2014 at least at B0.25/share (2.3% dividend yield). We
reiterate BUY for TTW([email protected]).