TTW

TTW Plc 

 

- 1Q15 profit stays flat yoy as expected 

 

1Q15 profit was reported at B716m, staying flat yoy since its income remained unchanged. Water sales volume dropped 3.2%yoy (-1.2%yoy for TTW, -5%yoy for PTW after losing some customers to PWA with capacity expansion, and -7.4%yoy for BIE). However, water tariff rate increased by 1.5%yoy, production cost decreased by 3.4%yoy owing to lower chemical cost and lower Ft rate (45% of production cost), and interest expense dropped by 9.5%yoy. Still, SG&A increased due to advertisement and fee expenses. Share of profit from associated CKP stayed flat from 1Q14. In terms of profitability, net profit margin stayed at 55%. 

 

- Profit to remain high for two years 

 

After the flood tax exemption of B924m (TTW's driving force in the past two years) ends in 4Q15, TTW's profit is expected to stay flat in these two years, returning to normal and depending solely on the water business. Water sales volume would be limited as TTW is currently working at its full capacity and there would be no capacity expansion until late 2016. Based on inflation rate forecast in July, November, and December 2015, its water tariff rate is likely to remain below our projection, but this would be compensated by a decrease in Ft rate (33% of total cost). We maintain our forecast. 

 

- Defensive play with high dividend yield 

 

Although TWW's profit would stay flat in the next two years, it has stable business, strong financial status, and 6% expected dividend yield. With 0.55x Beta, TTW's share price is less volatile than peers, thus making it the best defensive play; we reiterate BUY.