TTW

Still attractive for over 5% dividend yield BUY

TTW Plc

- 4Q14 earnings to weaken slightly

We project TTW’s net profit in 4Q14 at B692m, down 7%qoq because income is

predicted to show flat growth in this quarter while selling and administrative expense

is usually high in the last quarter of the year. The net profit, however, would leap

96%yoy because in 4Q13 there was non-recurring expense of B260m. At the same

time, normalized profit would still increase 13%yoy; although income would stabilize

yoy as a result of flat growth in water sales volume of TTW and BIE, income from

PTW’s water sales would decrease 5%yoy for it has lost some of its customer base to

Pathum Thani Water Company Limited, which has increased its capacity, causing

PTW’s water sales volume to decrease around 20,000-30,000 cubic meter/day

(around 4% of its total capacity). Nevertheless, this will be partly compensated by

the water tariff rate hike and flood tax exemption, so normalized margin would rise to

53%, close to that of 9M14.

- High profit expected in 2015

We maintain our earnings forecast in 2015, though it may be an overestimation of

income for 1) water sales volume in 2014 was 2% lower than projected and 2) TTW’s

water tariff rate hike in 2015 is only 1%, lower than our assumption of 2%. However,

this may be negated by decreasing cost. Cost of electricity (33% of total cost) may

lower from B0.1/unit Ft rate cut for January – April, resulting in around 3% decrease

in overall electricity charge per unit; the Ft rate might be reduced further in the next

round if the oil price remains low. According to our study, at every 5% decrease in

the Ft rate, TTW’s profit will increase 1%. Therefore, we keep our forecast

unchanged, projecting profit in the next two years to only stay high because the

company will have to depend solely on its core business (treated water sales) after

the flood tax exemption of B924m recedes since 4Q15 and the company has to pay

tax again. In addition, shared income from CKP will stabilize since 2015 onward, while

growth is not expected until 2017.

- Dividend yield expected over 5%

Although the profit would only stay flat, TTW is still attractive for its dividend yield,

which is expected not lower than at of 2014, approximately B0.65/share or 5.7%

(B0.35/share or 3.2% in 2H14), in line with the company’s plan to pay dividend at a

rate of not lower than last years’. The share price still has an upside of over 20%.