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Thai Tap Water Supply

Stable, free from political turmoil BUY

Thai Tap Water Supply Plc (TTW)

- 4Q13 net profit weak as expected due to tax expense

TTW’s 4Q13 net profit was reported at B353m, falling 37%yoy and

57%qoq, as expected, mainly due to B260m tax expense from

2012. Excluding the extraordinary item, TTW’s 4Q13 normalized

profit was B613m, falling 14%qoq but rising 10%yoy as a result of

higher-than-expected selling an administrative expense. B18m

extraordinary expense from organization restructure and study on

plausibility of the investment project. Meanwhile, other factors were

as expected: 1) 4Q13 water sales volume stayed flat qoq (flat for

TTW and PTW, but rising 5.3%qoq for Bangpa-in). 2) 4Q13 gross

margin dropped by 1%qoq to 69.2% due to a usual increase in

chemical cost for low-quality water in 4Q. 3) Share of profit from

associated CKP (TTW holding 25percent stake) decreased from B40m in

3Q13 to B17m in 4Q13, as expected. Overall, 4Q13 normalized

profit was similar to our forecast, whereas net profit was 9% below

expectation as a result of the tax expense.

- FY2014 normalized profit to make new high. 1H14 to skyrocket yoy

FY2014 normalized profit is projected to leap by 20%yoy. TTW

would benefit from the BOI tax exempt that compensates for the

2011 flood damage, lowering tax expense by B350/year from 3Q13

to 2015. In 2014, TTW would recognize tax exempt for a full year

(increasing from 2013 by B160m). Thus, FY2014 normalized profit

would grow significantly yoy, especially in 1H14. Water business

would be growing steadily. Income from TTW’s core business is

projected to rise by 5%yoy. Water sales volume is expected to rise

by 3%yoy, and water tariff rate is projected to increase by 1.5%yoy

as a result of inflation rate. Meanwhile, PTW’s (29% of total profit)

production has reached the capacity, so PTW would only benefit

from increasing water tariff rate (its production capacity would be

expanded by 65,000 cubic meter/day or 8% of the total capacity in

late-2015). Moreover, share of profit from associated CKP is

projected to increase from 2013 by B50m (under conservative

assumption). Income from Bangpa-in Cogeneration (117.5

megawatt) would be recognized for a full year (opened on 28 June

2013), possibly increasing CKP’s profit significantly.

- "BUY" for 2H13 dividend at B0.35/share, 3.6% p.adividend yield. XD date is 6 February

Share price is currently attractive. We recommend "BUY" as

normalized profit is expected to leap, especially in 1H14. Moreover,

2H13 dividend is announced at B0.35/share (3.6%p.a dividend

yield). XD date is 6 February, and dividend will be paid on 21 March.

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