TTCL

TTCL Plc (TB) 

We maintain our Outperform rating on TTCL with an unchanged fair price of Bt41.9 based on an SOTP valuation. We expect TTCL to report strong earnings growth in 2Q15 of 64% YoY and 49% QoQ, thanks to: i) increasing revenue from EPC business; ii) the start of contributions from its 120MW combined-cycle power plant at Ahlone, Myanmar, in May 15; and iii) the completion of a low-margin project, Desalination Plant Phase I, in 1Q15. TTCL is trading at 26.0x 2015 EPS and only 17.0x 2016EPS, or at +0.4SD and -0.4SD, respectively, of its historical mean of 21.8x.  

Investment highlights 

- Strong 2Q15 earnings expected. We expect TTCL’s 2Q15 earnings to rise 64% YoY and 49% QoQ to Bt148mn on the back of: i) an expanding gross margin; ii) increasing revenue from EPC business; and iii) the start of contributions from its 120 MW combined-cycle power plant in Myanmar since May 15. We forecast TTCL’s total revenue at Bt5.8bn, down 2.8% YoY but up 19.3% QoQ, while its 2Q15 gross margin should rise to 8.5% thanks to an improving gross margin at the EPC business and wider gross margin from its power plant business (Ahlone project) at about 50-60%.  

- Secured backlog outlook. During 2Q15, TTCL signed two new contracts, including a Bt7.3bn (USD220mn) rock salt exploitation and processing plant in Lao PRD and a Bt715mn (USD22mn) ROC debottlenecking project in Rayong province. As a result, its backlog currently stands at Bt38.6bn (vs. Bt30.6bn at end-1Q15), or 1.8 times our 2015 revenue forecast. Meanwhile, TTCL is chasing 12 potential projects with a proposal value of Bt62.1bn, with about half of the winners due to be announced in 2H15. As such, we expect our 2015 target of Bt25.6bn will be achieved. 

- Maintain our 2015 net profit forecast. If we are correct, TTCL’s 1H15 earnings will account for 40.3% of our full-year forecast of Bt611mn. We expect its 2H15 performance to show an improvement over 1H15, driven by its large backlog on hand and the completion of a low-margin project in 1Q15 as well as a bigger contribution from the 120MW Ahlone power plant, which will contribute on a full-quarter basis from 3Q15 onward. 

- Coal-fired power plant in Myanmar is on track. Since TTCL and its subsidiary signed an MOA with Myanmar in Apr 15 to develop a 1,280 MW coal-fired power plant in Mon state, Myanmar, the company has been working on finalizing a PPA and negotiating with potential lenders, mainly JBIC. We expect the construction of phase 1 of the coal-fired power plant will be awarded either in late 2015 or early 0216. In the meantime, TTCL is weighing the pros and cons of listing its subsidiary, TTPHD, on either the SET or Singapore’s SGX. A final decision should be made by end-2015. 

Valuation 

- We reiterate our SOTP-based fair value of Bt41.5. Our fair price includes Bt29.3 from the EPC business, Bt7.10 from current investments, and Bt5.1 of additional value from 50% progress on the coal-fired power plant project.  

- The current price provides over 40% upside to our new fair price, and is equivalent to 1.0x PEG in 2015 and 0.20x PEG in 2016E.