TTW

Good shelter BUY

TTW Plc

Profit to remain high in 3Q14

We project TTW’s 3Q14 profit to remain high at B735m, though dropping

11%yoy and 3%qoq because of non-recurring income of B113m and B55m

in 3Q13 and 2Q14, respectively. In terms of normalized profit, 3%yoy and

4%qoq growth can be expected. Water sales volume in 3Q14 may show flat

growth both qoq and yoy (a 2.9%yoy increase for TTW, versus flat growth

yoy in 2Q14, thanks to an improving situation of epidemic disease among

animals; a 4.9%yoy decrease for PTW; and a 6.8%yoy increase for BIE),

but it would be negated by a 4%yoy water tariff rate hike. Net margin is

projected to stay close to that of the same period last year at 55.1%, owing

to the flood tax exemption (since 3Q13).

- 4Q14 profit projected near 3Q14. Slower growth in 2015

Profit in the last quarter of the year is still estimated high near the prior

quarters’. However, the profit may double from the same period last year

because in 4Q13 there was an extraordinary expense of over B260m.

Overall, we maintain our profit forecast, projecting normalized profit to grow

20% in FY2014 and make a new high by touching B3bn in 2015 but with the

growth rate slowing down to 7%. Water sales volume in 2015 would rise

only 1% (a 5% increase for TTW, a flat increase for PTW, and a 6% increase

for BIE) since PTW has already operated to its capacity limit and a capacity

expansion will have to wait until 1H16. Water tariff rate will be raised 2%

following the inflation rate, while net margin would be as high as 53% from

the tariff rate hike and tax exemption.

- Good choice amidst market fluctuation

With its sturdy business, very high net margin, and ROE of 25%, TTW is a

good choice for investment amidst the market correction, plus its high

dividend yield of 5%. Buy.