TTW

TTW Plc 

 

- 1Q15 profit to stay flat yoy, qoq  

1Q15 profit is projected at B724m, staying flat qoq and yoy since its income is expected to stay unchanged. Although water sales volume is projected to drop 3.2%yoy (-1.2%yoy for TTW, -5%yoy for PTW after losing some customers to PWA with capacity expansion, and -7.4%yoy for BIE), water tariff rate has increased by 1.5%yoy. Gross margin is expected to rise from 1Q14 by 20 bps to 71.4% thanks to lower Ft rate and chemical cost. Still, SG&A would increase due to advertisement expense for the government. Share of profit from associated CKP is projected to stay flat from 1Q14. 

- Profit to remain high for two years 

TTW's profit is expected to stay flat in these two years, returning to normal since the water business is not likely to grow significantly and the flood tax exemption of B924m will end in 4Q15. Although 1Q15 water sales volume is likely to drop and miss our forecast of 0.9%yoy (+3.8% for TTW, -2% for PTW, and stay flat for BIE), it is not likely to have a significant effect. Every 1% decrease in water sales volume is projected to weaken TTW's net profit by 0.3%. Still, this will be compensated by 2.3% or B0.0935/unit decrease in May-August Ft rate (33% of total cost); every 5% decrease in Ft rate would boost TTW's net profit by 1%. Overall, we maintain our earnings forecast. 

Given that the inflation rate stays low (based on inflation rate forecast in July, November, and December 2015), water tariff rate will increase less than our projection of 2%; every 1% increase in water tariff rate would affect TTW's net profit by 1%. We still maintain our FY2016 earnings forecast since it is not a significant change. 

- Low velocity, 5.9% dividend yield 

TTW is stable. With low velocity, strong financial status, and 5.9% dividend yield, we reiterate BUY.