Thoresen Thai Agencies

Bualuang Securities Gradual earnings improvement expected HOLD (maintained) Target Price: Bt21.00 Price (02/02/12): Bt22.40

Thoresen Thai Agencies Plc (TTA)

Investment thesis: We think that the bearish outlook for the dry bulk shipping market together with concerns about the global economic slowdown—which may impact on demand for shipping—will limit TTA's stock price performance. Nonetheless, expected QoQ core bottom-line improvements in the quarters ahead should help support the share price. Moreover, the investment in the coal business and expansion of the offshore and infrastructure businesses should build long-term value. The stock is currently heavily discounted—a YE12 PBV of 0.5x, (0.75SD below its long-term mean of 1.1x).

Expect shallower loss for 1Q12: TTA should post a 1Q12 (Oct-Dec) net loss of Bt135m; it reported a net profit of Bt145m in 1Q11, but the loss should be shallower than the 4Q11 loss of Bt187m. Moreover, the 1Q12 core loss is expected to be much shallower QoQ—the 4Q11 core loss was Bt249m. The key factors behind the YoY dive into the red were: 1) fewer vessels in operation, 2) a lower profit contribution from UMS (disrupted by flooding) and 3) higher interest expenses. The expected QoQ bottom-line improvement was driven by: 1) higher shipping GPM (TTA sold loss-making vessels), 2) greater earnings at Baconco (fertilizer trading unit) and 3) profit from the coal business.

2Q12 bottom-line to remain in red ink: TTA's 2Q12 (Jan-March) performance is expected to remain in red ink, as the second-quarter is normally low season for both shipping and offshore services. UMS's expected post-flooding earnings improvement won't be sufficient to offset the effect of weak numbers at other businesses. However, we expect the firm to post a shallower YoY loss, due to much better numbers for offshore services—higher utilization rates for sub-sea service vessels.

Further improvement in 2H12: We expect better numbers for 2H12, driven by high season for the sub-sea service unit and greater utilization rates for its sub-sea service vessels in tandem with expanding demand. However, the dry bulk shipping market is likely to remain in a slump, due to industry oversupply. On the flipside, it would be a good opportunity for TTA to purchase second-hand vessels at reasonable prices—the firm plans to buy three ships, which could mean scope for earnings upside.