Thoresen Thai Agencies

Thoresen Thai Agencies Plc (TTA)
Action and recommendation
- Outperform maintain with upcoming turnaround year. We believe 2013 TTA
huge loss has already priced in while upcoming 2014 turnaround is next thing on
market focus. We maintain our “Outperform” rating with fair price at Bt26.90
(Bt19.20-26.00 after capital raising) as we see the upside risk from shipping
business could offset some part of incoming dilution. Despite we have positive view
on the company outlook, share price will be dragged until capital raising end in
early Mar-14.
Key investment points
- 2013 operation improvement: TTA posted net losses of Bt5.1bn in 2013
compare to net losses of Bt4.5bn in 2012, in line with our estimates, mainly from
impairments and provisions item of Bt4.9bn. Meanwhile, on the operation side,
company generated core net loss of Bt185mn in 2013 improved from core net loss
of Bt217mn in 2013 which the key improvement came from Mermaid and Baconco.
Mermaid, energy business, posted net profit of Bt298mn, increased 605%YoY,
thanks to higher utilization rate and AOD’s Bt122mn equity income. Baconco,
infrastructure business, reported net profit of Bt253mn, growing 24%YoY even
though its revenue remains flat. Thanks to gross profit margin improved to 15%
compare with 11% in 2012 given the company shift more focus to higher margin
product. For the shipping business, though it face the lowest BDI since 1999
(average 986pts in 2013), company still generated positive EBITDA of Bt377mn in
2013.
- The more money, the more opportunity: TTA’s Board of Directors meeting on
27 November 2013 has approved capital increase of 339.84mn shares (ratio 10:3)
with subscription price at Bt14 and approved warrants issue of 113.28mn shares
(ratio 3 subscription shared : 1 warrant) with exercise price at Bt18.50. We see new
fair value in range of Bt19.20-26.00, depends on the capital raising option and
possible dilution which might came as high as 28.5% diluted. According to
management, company will spend capital raising of Bt4.7bn to increase its shipping
vessels to 29 vessels (from 19 vessels) in 2014. In addition, company is also looking
for new opportunity in energy business by investing on 2 new jack-up rigs after its
success in AOD associate.
- 2014 turnaround year: We expected TTA’s earnings to turn from loss
Bt5,080mn in 2013 to profit Bt867mn in 2014. As we always discuss the main
driver is up-cycle of energy business, given the robust contract secured and all
three AOD (associate company) jack-up rig's revenue will be fully realized. While
other business group also in an uptrend as Baconco, fertilizer business, has shifted
its focus more on high margin product and TCE rate of shipping business is on the
rising state.
- Baltic supramax index left upside risk to our projection: Baltic supramax
index has gradually increased 56% since mid-Sep to 1,458. At the moment, TCE
rate of TTA has spiked to USD15,000/day compared to 2013 average TCE rate at
USD8,364/day and our 2014 assumption at USD9,500/day , this would be an
upside risk to our full year projection and also the key earnings driver in 1Q14E
given the current operating cost at only USD9,200/day.
Price catalyst
- 1Q14 impressive earnings from shipping business