Thai Tap water Supply

Thai Tap water Supply Plc (TTW)

Efficient water production, lower water loss rate during transportation
Yesterday, we visited one of the water plants of Pathum Thani Water Company
(PTW, TTW holding 98%). The plant's capacity was 388,000 cubic meter/day,
making up 30% profit of total profit, covering Rangsit - Pathum Thani. PTW uses
water from Chaophraya River; chemical is added and the water is filtered in
order to produce tap water. Then, the water is distributed to consumers. Overall,
PTW's technology and management is good. The water plant is built on platform
elevated from the ground by tens meter, which is safe from flood. Moreover,
energy from gravity is used on water distribution, saving electricity cost. PTW
have good control on production from the central, so it can trace the area with
problem and deal with problems efficiently. Thus, PTW has low water loss rate
during transportation, lower than 1% of water sales volume, compared to MWA's
pipeline with 10% water loss rate.
- 3Q13 profit to rise 12%qoq as affiliated company rebound to profit
We believe that there will be short-term pressure on the factory, as the
production has nearly reached its capacity (currently 98%). Area under TTW's
coverage has been expanding continuously by 3-5%/year, especially housing
development projects (LPN plans a 10,000-unit project, and PS plans a 7,000-
unit project). However, there is currently no conclusion on 100,000 cubic
meter/day capacity expansion plan, and it would take two years to complete.
Thus, it would be unlikely for PTW to increase its sales volume. However, TTW
benefits from CPI-based 3%/year increase in water price; earnings result of one
of TTW's major plants grew by 6%yoy as usual, and share of profit from
affiliated CKP has rebounded to profit. Moreover, TTW would benefit from tax
exemption (BOI) from 2014 on. Thus, TTW's profit growth is likely to be strong.
For short-term future, 3Q13 profit would be B584m, growing by 12%qoq, mainly
from share of profit from affiliated CKP (TTW holding 25%) that rebounded to
profit due to high season, increasing its power generation. Share of profit is
projected at B42m, compared to B22m loss (Fx loss) in 2Q13. TTW's core
business would stay unchanged from 2Q13, as water sales volume is likely to
stay flat (falling 2.6%qoq for TTW, but rising 1.6%qoq for PTW and 7.7%qoq for
Bangpa-in). Gross margin is projected to fall slightly from 2Q13 by 0.3% due to
B0.07/unit increase in FT rate in September. Overall, TTW's earnings result
would be good, and TTW would be able to keep normalized margin over 42%.
- Defensive, 5% dividend yield, 27% upside. Reiterate "BUY"
This is one of the defensive plays. As current dividend yield is 5.3%, TTW suits
long-term investors looking for low-risk stocks. We reiterate "BUY".