Thai Tap water Supply

Thai Tap water Supply Plc (TTW)

2Q13 profit to kept unchanged yoy, water sale rises, but higher cost
2Q13 profit is projected to fall by 34.5% qoq because of B325m extraordinary
income from tax refund in 1Q13. Ordinary income is projected to rise 4% qoq
but unchanged yoy. Water sale in this quarter has increased by 4.1% yoy
because of the following: 1) TTW's sales have risen by 7.9% yoy, along with
extension of Samut Sakorn industrial property. 2) The sales of Pathum Thani
Water Company (subsidiary) have remained unchanged as water transfer has
nearly reached the capacity of the pipe. 3) The sales of Bang Pra-in industrial
property has increased by 36.6% yoy from continuous recovery after the flood.
Moreover, share of profit from affiliated CK Power is projected to rise from 2Q12
B29m loss to B27m as power generation from Nam Ngum Dam 2 that has
started to generate solid profit close to 1Q13. However, it is projected to be
slashed from gross margin that reduced from 70.9% in 2Q13 to 69% because of
electricity cost (36% of total cost) has risen from FT and higher rate of peak
time production, plus B100m increase tax that need to be paid, as tax exemption
(BOI) has expired since 20 July 2012.
- B1.2bn tax exemption from BOI, implicitly benefit 2014-2015 profit
TTW has disclosed to be given tax exemption (BOI) for a special case due to
late-2011 flood, as TTW had to invest in maintenance and efficiency
improvement of pipes and pumping stations in the area under TTW's coverage
(Nakornpathom and Samut Sakorn) and under the subsidiary's coverage
(Pathum Thani Water Company), Rangsit-Pathum Thani area, at the total of
B1.3-1.5bn. TTW was given tax exemption of B1.2bn, aside from partial
exemption currently given to TTW and PTW for sales exceeding 300,000 and
288,000 cubic meter per day. Though exact time of exemption has not been
scheduled, it is forecasted to be activated at the latest from 2014 on, helping
TTW not to pay tax for 2.15 years, from having to pay B545m in 2014 and
B587m in 2015, as well as reducing B68m tax in 2016. Thus, we increase our
projection by 24%, 26% and 6%, respectively. Under this assumption, FY2014
net profit is projected to grow by 15% yoy, from falling 7% due to B325m
extraordinary expense from tax in 2013. Norm profit is projected to grow 31%
yoy. Under this assumption, 2 new projects under study that conclusion would
be made in 2H13 are excluded. The new projects are trash-to-power generator
(6 megawatt) invested at B500bn, and water management project in industrial
properties (as operating in Bang Pra-in industrial property, invested at B1bn).
Initially, these projects would boost 2014 profit base at the maximum of B100m,
or B0.03 EPS, or B0.45/share additional value. Whereas 2013 profit is mainly
driven by tap water business that increases by 7% yoy, and share of profit from
affiliated CK Power (holding 25% share after registered) projected to leap from
B17m in 2012 to about B100m.
- New FV at B13, 5.6% div yield, upgrade to "BUY"
Price has been lowered from the peak by over 12% in 1 month, making the price
attractive. New FV based on SOTP has reflected tax exemption, rising B13 from
B10, with 5.6% dividend yield. Interim dividend is projected at B0.22/share, or
2.2% paid in August. We upgrade from "HOLD" to "BUY". There will be short
term positive sentiment from affiliated CK Power that will register in the market
on 18 July.