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Thoresen Thai Agencies

First profitable quarter in 2 years

Thoresen Thai Agencies Plc (TTA)

Action and recommendation

- Maintain Outperform with fair price at Bt26.10

TTA's 1Q14 results, which showed an improvement in every business unit, give us more confidence that 2014 will be a turnaround year for the company. We maintain our Outperform rating with a fair price of Bt26.10.

Key investment points

- 1Q14 the first profitable quarter after 9 consecutive quarterly losses:

TTA reported a 1Q14 (Oct-Dec 13) net profit of Bt250mn, turning from losses of

Bt138mn and Bt4,185mn in 1Q13 and 4Q13, respectively. Improvements were

seen in every business unit, although the energy business was the standout

performer, reporting its highest earnings in 5 years.

- Mermaid earnings at 5-year high:

Mermaid Maritime posted a net profit of Bt238mn, a 5-year high, driven by: 1) impressive revenue growth to Bt2,659mn, up 64% YoY and 28% QoQ, thanks to utilization rate of 74% at its subsea unit, compared to 51% in 1Q13; and 2) associated income from AOD, which swung

from a loss of Bt11mn in 1Q13 to a gain of Bt234mn in 1Q14.

- Shipping business posted 3-year-high earnings:

Thoresen Shipping returned to the black, posting its highest earnings for 3 years at Bt117mn on the back of rising revenue of Bt1,440mn, up 19% YoY and 16% QoQ, from an improvement in

its TCE rate, which increased 38.5% YoY and 13.5% QoQ to USD10,446/day.

- Infrastructure unit driven by Baconco:

UMS posted a loss of Bt35mn in 1Q14 as it cleared its coal stocks. Meanwhile, Baconco posted a net profit of Bt88mn, thanks to a shift to focus on high-margin products, which boosted GPM to 20% in 1Q14 compared with 15% in 1Q13.

- Solid outlook for the rest of the year:

We expect TTA to post 2014 earnings of Bt1,025mn, after making a huge loss of Bt5,080mn last year (mainly due to an asset impairment of Bt4,895mn).

The return to profitability will be driven by: 1) the strong operation of its energy business (Mermaid), which has secured long-term

contracts and will fully realize revenue from an associated company (AOD); 2)

current high freight rates, which should see the shipping business recover from

2013; and 3) no further impairments at its coal (UMS) or shipping businesses.

While a 28% decline in the freight rate (Jan-early Feb 2014) may cause a QoQ

earnings drop in 2Q14, it will not change the solid outlook for TTA, especially in the

second half.

Price catalyst

- IPO of PMTA (holding company that owns 100% of Baconco, TTA's fertilizer unit in Vietnam).

Risk

- The BSI has fallen 38.4percent from its peak of 1,562 in mid-Dec 13. This may cause

2Q14 performance to drop QoQ but it doesn't change our expectations that 2014

will be a turnaround year for TTA.


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