Thai Tap Water's price jumps 3.81% on debut

TTW shares jumped 3.81 per cent from their initial public offering (IPO) price of Bt4.20 to close at Bt4.36 on the company's debut yesterday.

It is the largest player among 81 private operators in the tap-water market, is highly profitable and has the low-risk nature of a utilities business operating in areas with strong growth potential, they said.

"TTW is a sound investment, with low operational risk, strong growth plans, monopoly status and protection from high entry barriers, plus a number of upside risks. It provides an attractive total return of 29 per cent, including 21-per-cent capital gain and 8.3-per-cent 12-month yield," SCB Securities said.

The company's operations are underwritten by a take-or-pay agreement covering a high 90 per cent of its current capacity, its agreements have a long life, it has favourable water tariffs with an annual escalation factor and low sensitivity to costs and a cost-protection agreement with the Provincial Waterworks Authority, the broker said.

Competition from outside the local area is impossible, because tap water has great bulk, and delivery is both geographically determined and expensive. TTW therefore has a definitive cost advantage from being the first and the largest operator, SCB securities said. It set a 12-month target price for TTW shares of Bt5.10.

Kim Eng Securities (Thailand) recommends "buy" for TTW shares, with a fair value of Bt5 apiece at a price-to-earnings ratio of 13.7 for this year.

Kim Eng said TTW planned to boost its production capacity by 100,000 cubic metres per day to 420,000 cubic metres in Samut Sakhon province. Its total capacity accounts for 57 per cent of industry capacity and is more than triple that of its closest competitor.

The broker estimates TTW's sales will reach Bt3.17 billion this year. It said the new share issue was likely to reduce the company's interest payments 10 per cent, so its net profit was expected to be Bt1.32 billion, up 43 per cent from last year.

DBS Vickers Securities also recommends "buy" for TTW shares, with a target price of Bt5.65 apiece, which excludes the value added from the company's capacity expansion.

"Its production process is uncomplicated, sales volume is guaranteed, water tariffs are adjusted in accordance with the Consumer Price Index and gross and net profit margins are as high as 68 per cent and 34 per cent, respectively," DBS Vickers said.

Meanwhile, TTW managing director Sompodh Sripoom said he was satisfied with the share price after the first day's trading. "If the stock is traded lower than the IPO price, that's okay, because TTW is a utility stock, and we're confident of the company's potential. Our earnings in the second half of the year will be better than in the first, because we won't have interest expenses. The proceeds from the recapitalisation will be used to pay debts," Sompodh said.

He said his company expected to pay a dividend of 15 satang per share in the fourth quarter. Meanwhile, CH Karnchang, TTW's major shareholder, said it would not sell TTW shares but would buy if the stock price fell below the IPO price.

TTW chairman Plew Trivisvavet said CH Karnchang's shareholding in the company fell from 47.11 per cent to 35.26 per cent, because of the IPO. He said CH Karnchang would not sell its TTW shares, because they provided a good return.