Thai Tap water Supply

Share price already reflects new FV at B9.4 after CKP's FV included HOLD

Thai Tap water Supplly Plc (TTW)

Q4 2012 net profit projected to drop 11% QoQ, but norm profit would stabilise

4Q12 profit is projected to be only from operating profit since there's no

extraordinary revenue from overpaid tax payment of PTW since 2008

(B61.6m recognized in 3Q12). Accordingly, 4Q12 profit would decline by

around 11% QoQ (rising by 11% YoY). For the norm profit, it has stabilised

from 3Q12 due to tap water sales volume of TTW, PTW and Bangpa-in that

has been steady QoQ. Although 4Q12 was the time when each plant had

run on full production capacity, there's an offset from long holidays during

the late of year. For profitability, it would decrease slightly since the gross

margin is projected to fall from 69.1% in 3Q12 to 68.8% as a result of

increased electricity cost (33% of the total cost) of which FT rate has

increased by B0.18/unit for full quarter in 4Q12. In terms of administrative

and selling expenses, they're projected to hit the record high as usual like

that of every 4th quarter in preceding years, rising by B16m approximately

compared with 3Q12. Nevertheless, this could be partially offset by revenue

sharing from the associated company CKP (holding 30percent stake) which is

projected to hit the record high due to seasonal benefits and to increase by

around B12m QoQ to B45m. Accordingly, the norm profit margin would

stabilize QoQ at about 45%, putting FY2012 profit close to our projection.

2013 profit projected to grow 11% YoY, as new investment plans clearer

The company's profit in 2013 is projected to increase continuously by 11%

QoQ due to extraordinary revenue recognition from overpaid tax payment

of PTW that is left by around B325m which would help offset high tax

expense of almost B200m (the effective tax rate increasing from 13% in

2012 to 18%) due to expiration of BOI tax privilege that TTW has to pay

tax for 320,000 million cubic meters/day of water production (65% of total

profit). For the main operation, it is from tap water sales volume that is

projected to increase by 5% and revising up tap water tariff rate along with

CPI (based on the selling price in December of around 3.6percent for TTW, and

2.7% in July for PTW). The profit sharing from CKP is likely to increase from

2012 since there would be full-year revenue recognition of Bangkhen Chai

solar power plant (8 MW) and Nakhon Ratchasima (6.5 MW). Moreover, CKP

is likely to invest more in solar power plant business in the future after

getting listed in the SET in 1H13. Recently, TTW has revealed that its

investment in alternative power business which is the solar power plant

business (less than 10 MW) should be concluded in late-1Q13, while there's

no clearness for other projects which aren't included in our forecast unless

they're made clear.




Fair value, using SOTP, revised up to B9.40… reiterate "HOLD"

We switch our method to estimate the new fair value from DCF to SOTP to

reflect the company's potential and added value that is able to occur for

CKP after getting listed in the SET. According to CKP's fair value based on

1.5x P/BV (close to the power plant's average), TTW's new fair value has

increased from B7.9 to B9.40. However, the current share price has already

been fully valued, so we reiterate our recommendation of "HOLD" for TTW

in order to receive dividend yield which should be paid in March by around

B0.23/share (2.4%).

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