Thoresen Thai Agencies

Thoresen Thai Agencies Plc (TTA)
 

Investment thesis: We think the dry bulk shipping market’s bearish outlook will limit TTA’s stock price performance. But an expected bottom-line improvement in 2H12 will help support the share price. Moreover, the coal business and expansion of the offshore and infrastructure operations should build long-term value.  The stock is currently heavily discounted—a YE12 PBV of 0.4x, (1.5SDs below its long-term mean of 1.1x).
Expect shallower YoY core loss in 2Q12, but… TTA should post a 2Q12 (Jan-March) net loss of Bt243m, deeper than the 2Q11 net loss of Bt115m, but shallower than the 1Q12 net loss of Bt560m. Stripping out extra items, the expected 2Q12 core loss would be Bt243m, shallower YoY (the 2Q11 core loss was Bt275m) but deeper QoQ (the 1Q12 core loss was Bt208m). The key factors behind the smaller YoY core loss were: 1) higher shipping GPM, due to cost-cutting (despite lower freight rates—down 9% YoY to US$9,550/day/ship) and 2) greater earnings from the offshore service business (higher utilization rates for subsea service vessels).
…deeper QoQ: The expected deeper QoQ core loss for 2Q12 is due to: 1) a lower freight rate (down 14% QoQ), 2) fewer ships in operation (15 versus 17 in 1Q12), 3) lower earnings from the offshore service business and 4) a deeper loss at UMS (logistics costs rose—the operation at Samut Sakorn was suspended, due to environmental issues). As the Jan-March quarter is normally low season for the Asian subsea service industry, MM chartered out subsea vessels (which yields a lower GPM than hiring out at day rates). Also, a technical problem forced the MTR-2 rig to stop operating for 21 days. 
Improvement expected in 2H12: We expect better numbers for 2H12, driven by high season for the sub-sea service business, the full utilization of MTR-2 and the deployment of MTR-1 as an accommodation barge, starting April 2012. Moreover, the dry bulk shipping high season runs April-May, which should support the 3Q12 bottom-line. But low season for dry bulk shipping resumes in July, so TTA’s shipping business will be squeezed again. On the flipside, it would be a good opportunity for the firm to buy second-hand vessels at good prices.