Thai Tap Water Supply - TTW - BUY
Target price : Bt5.60
Recommendation : BUY
Closing Price (3 April 09) : Bt4.02
1Q09 net profit sets to fall by 15.1% on bond issuance and compensation charges
- Sales volume of treated water rose by a mere 0.15% to 54.04m cu.m. in 1Q09. Slowing sales of TTW were due to lower demand from seafood
exporter and 1 working day less for the period. Likewise, the company will also book expenses relating debenture issuance and penalty on loan prepayment. Hence, we expect net profit will declined by 15.06% YoY to Bt257.50m
- We foresee ongoing pressure on TTW stock price until there is a clear outcome on the allegations by the PWA labour union seeking investigation on the PWA's water purchase agreement with TTW. This was despite management confirmation and previous ruling by the Council of State Committee in 1997. We expect this would take time as the PTT case took over 1 year whereas the AOT-King Power case has not yet been resolved.
- We have revised down 2009 net profit to Bt1,733.90m due to discounts given to the PWA. As the impact on fair value was minimal, we therefore retain our Bt5.60 target price, as well as our 'BUY' rating on the stock.
1Q09 net profit sets to fall by 15.06% on bond issuance and compensation charges
TTW, Thailand's largest private tap water supplier, reported total sales volume of treated water to the PWA amounting to 54.04m cu.m., increasing modestly by 0.15% YoY due to 1 working day less for the period. The daily average was at 600,434 cu.m., increasing by 1.27% YoY and comprising of 283,806 cu.m. for TTW (down 0.99% YoY due to lower demand from seafood exporters) and 316,628 cu.m. for PTW (up by 3.38% YoY due to higher water tariff and an increase in MOQ). We project sales of treated water at Bt908.57m. There will also be Bt35.8m in compensation for MOQ shortfalls from the PWA and Bt25.7m in discounts given to the PWA , which would lead to a net revenue figure from treated water of Bt918.67m. Including Bt10.10m in revenue from services, total revenue would stand at Bt928.77m, increasing by 8.72% YoY. Selling and admin charges are projected to rise by 8.50% and when including Bt14m expenses relating to debenture issuance and Bt120m penalty on loan prepayment, net profit for the quarter would stand at Bt257.50m, decreasing by 15.06% YoY, 29.02% QoQ.
Allegations by the PWA labour union seeking investigation on the PWA's water purchase agreement with TTW will continue to put pressure on stock price until the outcome is made know, which would take sometimes
Allegations by the PWA labour union seeking investigation on the PWA's water purchase agreement with TTW have been submitted to the Parliament's Anti-Corruption Commission. TTW management has expressed confidences that the agreement was made in good faith. There had also been previous ruling by the Council of State Committee on the issue. Nonetheless, we perceive ongoing pressure on TTW stock price until the outcome has been made known. We believe this would take time as the PTT case took over 1 year whereas the AOT-King Power case has not yet been resolved.
We have revised down 2009 net profit slightly
With discounts given to the PWA not yet factored into our estimates, we have deducted them from our projection thereby arriving at a total revenue figure of Bt3,829.02m. Net profit would decline slightly to Bt1,733.90. As the impact on fair value was minimal, we therefore retain our Bt5.60 target price, as well as our 'BUY' rating on the stock.
By Phillip Securities (Thailand) Plc. on Apr 7, 2009
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