TTW

Best defensive play BUY

TTW Plc

- Profit remains high as expected in 3Q14

3Q14 net profit was B742m (as expected), dropping 10%yoy and 2%qoq

because of non-recurring income of B113m and B55m in 3Q13 and 2Q14,

respectively. Excluding extraordinary items, 3Q14 normalized profit grew by

4%yoy and 5%qoq. 3Q14 water sales volume showed flat growth both qoq

and yoy (a 2.9%yoy increase for TTW, versus flat growth yoy in 2Q14,

thanks to an improving situation of epidemic disease among animals; a

4.9%yoy decrease for PTW as it almost reached the capacity; and a

6.8%yoy increase for BIE). However, water tariff rate rose by 4%yoy. 3Q14

net margin stayed as high as 56% owing to the flood tax exemption (since

3Q13).

- Continuously strong profit in 2015, but growth rate to slowdown

9M14 earnings made up 78% of the forecast. 4Q14 profit is expected to slip

from 3Q14 slightly because SG&A usually peaks in the fourth quarter. We

maintain our earnings forecast; normalized profit is estimated to grow by

20% in 2014, and then reach B3bn and make a new high. However, growth

rate is projected to slow down to 7%. Water sales volume would rise by

only 1% (+5% for TTW, flat for PTW, and +6% for BIE). PTW's production

would have reached its capacity with no expansion until 1H16. Water tariff

rate would be raised by 2% along with the inflation. Net margin is expected

to remain as high as 53% owing to water tariff rate hike and the flood tax

exemption.

- Sturdy

With its sturdy business, very high net margin, ROE of 25%, and 5.3%

dividend yield, TTW is still a favorable choice. We reiterate BUY.