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Thai Tap water Supply

6% dividend yield. 1H14 profit to prosper. Good entry point BUY

Thai Tap water Supply Plc (TTW)

- High water sales volume and BOI tax exemption to boost 1Q14 normalized profit

TTW’s 1Q14 net profit is projected at B700m, leaping 98%qoq

but falling 20%yoy, thanks to B325 extraordinary income from

the reversal of tax expense. Excluding extraordinary items,

1Q14 normalized profit is expected to grow by 14%qoq and

27%yoy owing to the following factors: 1) TTW would benefit

from post-flood BOI tax exemption (starting from 3Q13), thus

reducing tax expense to B40m in 1Q14 (versus B132m tax

expense in 1Q13). 2) Income from water sales would grow by

6%yoy. TTW’s water sales volume is likely to rebound by

4.3%yoy after slowing down in 3Q13 (local food exporting

companies were threatened by livestock diseases). PTW sales

volume is projected to stay unchanged (full capacity), and

Bangpa-in plant’s sales volume is expected to grow by 34%yoy.

Thus, total water sales volume would grow by 2.3%yoy. Water

tariff rate is expected to rise by 3%. Gross margin is projected

to rise from 69.5% in 1Q13 to 70.5% in 1Q14. Despite an

increase in electricity charge rate as a result of FT hike, it would

be negated by lower chemical cost.

- 2Q14 profit to prosper

2Q14 net profit is projected to grow qoq and yoy thanks to the

following factors: 1) Water sales volume is expected to increase

yoy and qoq owing to hot weather. 2) BOI tax exemption would

be booked for a full year. 3) Share of profit from associated

companies is expected to increase significantly; reversing from

B22m loss in 2Q13 (as a result of Fx loss).

- Good for investing and speculating. 6% dividend yield

This is a good entry point to invest or speculate on

TTW(FV@B13.3). TTW’s 1H14 earnings result is projected to be

strong. Its current share price is attractive, and its dividend

yield might be as high as 6.1%. We reiterate to buy.

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