TTW

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Results Review August 15, 2014

Thai Tap Water Supply

Buy (TP Bt12.90)

2Q14 results in line

Close Bt12.40

TTW’s 2Q14 earnings were as expected. Its resilient operation with stable cash flow is supporting the share price performance. Although TTW looks fully valued given limited upside to our target price, its dividend yield of 5% remains attractive and will be a good cushion for the share price. Hence, our BUY rating is maintained. Facts & Figures  TTW posted a net profit of Bt760mn (EPS: Bt0.19) in 2Q14, increasing 46%YoY and 6%QoQ. This was in line with our forecast but higher than the street’s forecast by 9%.  Stripping out over-recording of 2013 corporate income tax of Bt55mn, its core earnings were up 41%YoY, but down 2%QoQ to Bt705mn.  TTW will pay an interim DPS of Bt0.30, representing a yield of 2%. The XD sign will be posted on 26 August.  Strong core earnings: On a YoY basis, the strong earnings were attributable to the EBITDA margin improvement from 79% to 81% as a result of flat COGS and higher other income. Total revenue rose 4%YoY due to higher revenue from selling tap water (+5%YoY mainly on increasing selling prices), offsetting the fall in service income (-18%YoY). The effective tax rate dropped from 21% in 2Q13 to 5% on BoI tax privileges. Its earnings excluding share of profit were pretty similar to 1Q14.  Share of profit in CKP another reason for variation: The deviation of earnings YoY and QoQ partly stemmed from fluctuation of the share of profit in its affiliate, CKP. The share of profit in CKP turned around from a Bt22mn loss in 2Q13 to profit of Bt9mn. This was due to i) the kickoff of the operation of Bangpa-in Cogeneration in June 2013; ii) a lower interest burden on loan repayments and iii) no huge Fx loss as in 2Q13 after applying hedge accounting since 3Q13. On a QoQ basis, share of profit plunged 60% owing to the poor performance of the Nam Ngum 2 power plant due to delayed rainfall.  NP forecast is maintained: Its 1H14 core earnings of Bt1.4bn (+36%YoY) account for 50% of our full-year forecast. Hence, we leave our forecast unchanged. Financial and Valuation FY Ended 31 Dec

2011

2012

2013

2014E

2015E

Revenues (Btm)

4,546

4,925

5,182

5,478

5,820

Net profit (Btm)

2,113

2,338

2,574

2,837

2,980

EPS (Bt)

0.53

0.59

0.65

0.71

0.75

Norm EPS (Bt)

0.53

0.55

0.59

0.71

0.75

2%

3%

9%

20%

5%

Dividend (Bt)

0.40

0.52

0.60

0.68

0.71

BV (Bt)

2.55

2.66

2.75

2.86

2.93

FY Ended 31 Dec

1M

3M

12M

Absolute

8.77

25.25

22.77

Relative to SET

8.32

14.58

7.90

Share data Reuters / Bloomberg

Analysis

Norm EPS growth(%)

Stock Performance (%)

TTW.BK/TTW TB

Sector

Energy & Utilities

Paid-up Shares (m)

3,990.00

Par (Bt)

1.00

Market cap (Bt bn / US$ m)

49.00/1,553.00

Foreign limit / actual (%)

49.00/11.85

52 week High / Low (Bt)

12.80/9.10

Avg. daily T/O (shares 000)

3,215.00

NVDR (%)

3.64

Estimated free float (%)

34.5

Beta

0.61

Major Shareholders (11/02/2014) Mitsui Water Holding (Thailand), Co., Bangkok Expressway Plc.

20.24 %

CH. Karnchang Plc.

19.04 % FY14

FY15

Consensus EPS (Bt)

0.699

0.741

KT ZMICO vs. consensus

1.6%

1.2%

Company Profile The Company is principally engaged in the production and sale of treated water to the Provincial Waterworks Authority (PWA) in the Amphur Nakorn Chaisri, Amphur Sam Pran, and Amphur Budha Monthon areas of Nakhon Pathom and the Amphur Muang and Amphur Kratumban areas of Samut Sakhon. Its subsidiaries provide treated water in Pathumthani province. CGR 2013

2011

2012

2013

2014E

2015E

PER (x)

9.54

15.70

15.50

17.44

16.60

EV/EBITDA (x)

7.09

11.05

11.47

13.03

11.77

PBV (x)

1.98

3.45

3.64

4.33

4.23

7.9%

5.7%

6.0%

5.4%

5.7%

ROE (%)

21.5%

22.5%

23.8%

25.3%

25.8%

[email protected]

Net gearing (%)

61.0%

72.0%

64.7%

71.5%

57.9%

66 (0) 2624-6273

Dividend yield (%)

REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES

25.98 %

Ltd.

Waraporn Wiboonkanarak Analyst, no. 2482

page 1 of 3

Table 1: Quarterly review

Source: TTW and KT ZMICO Research

Table 2: Summary of sum-of-the-parts (SOTP) valuation for TTW Company TTW's stake Valuation Value to Note (%) Method TTW (Bt) Tap water business DCF 11.85 WACC 7.8% TTW's investment stake '- CKP 25% SOTP 1.65 KT ZMICO's TP estimate of Bt24 Minus: Net debt used for associate (0.69)

SOTP - based TP Source: TTW and KT ZMICO Research

12.90

Table 3: PER and PBV band

(X) 25

+2 S.D.

PER

5.0 (X)

PBV 20

+1 S.D.

15 10

4.0

+2 S.D.

3.0 +1 S.D. ‐1 S.D.

2.0

0

0.0

May‐08 Aug‐08 Dec‐08 Mar‐09 Jun‐09 Sep‐09 Dec‐09 Apr‐10 Jul‐10 Oct‐10 Jan‐11 Apr‐11 Jul‐11 Nov‐11 Feb‐12 May‐12 Aug‐12 Nov‐12 Mar‐13 Jun‐13 Sep‐13 Dec‐13 Mar‐14 Jul‐14

1.0

May‐08 Aug‐08 Dec‐08 Mar‐09 Jun‐09 Sep‐09 Dec‐09 Apr‐10 Jul‐10 Oct‐10 Jan‐11 Apr‐11 Jul‐11 Nov‐11 Feb‐12 May‐12 Aug‐12 Nov‐12 Mar‐13 Jun‐13 Sep‐13 Dec‐13 Mar‐14 Jul‐14

‐1 S.D.

5

Source: Bloomberg and KT ZMICO Research

REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES

page 2 of 3

DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.

KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months TRADING BUY: Expecting positive total returns of 10% or more over the next 3 months

SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months.

SELL INTO STRENGTH: Expecting total returns between -10% to +10% over the next 12 month; share price has largely priced in fundamentals

The industry, as defined by the NEUTRAL: analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

SELL: Expecting negative total returns of 10% or more over the next 12 months

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months.

REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES

page 3 of 3

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KT•ZMICO Securities Company Limited

st

8 , 15 -17 , 19 , 21 Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500 Telephone: (66-2) 695-5000

Phaholyothin Branch

rd

Fax. (66-2) 631-1709

Ploenchit Branch

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nd

2

Sindhorn Branch

3 Floor, Shinnawatra Tower II,

8 Floor, Ton Son Tower,

1291/1 Phaholyothin Road,

900 Ploenchit Road, Lumpini,

Floor, Sindhorn Tower 1, 130-132 Wireless Road, Lumpini,

Phayathai, Bangkok 10400

Pathumwan, Bangkok 10330

Pathumwan, Bangkok 10330

Telephone: (66-2) 686-1500

Telephone: (66-2) 626-6000

Telephone: (66-2) 627-3550

Fax. (66-2) 686-1666

Fax. (66-2) 626-6111

Fax. (66-2) 627-3582, 627-3600

Nakhon Pathom Branch 1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100

Chachoengsao Branch

Viphavadee Branch

Phitsanulok Branch

G Floor, Lao Peng Nguan 1 Bldg.,

Krung Thai Bank, Singhawat Branch

333 Soi Cheypuand, Viphavadee-Rangsit Road,

114 Singhawat Road,

Ladyao, Jatujak, Bangkok 10900

Muang, Phitsanulok 65000

Telephone: (66-2) 618-8500

Telephone: 083-490-2873

Fax. (66-2) 618-8569

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Chonburi Branch

Pattaya Branch

108/34-36 Mahajakkrapad Road,

4 Floor, Forum Plaza Bldg.,

382/6-8 Moo 9, T. NongPrue,

T.Namuang, A.Muang,

870/52 Sukhumvit Road, T. Bangplasoy,

A. Banglamung, Cholburi 20260

Chachoengsao 24000

A. Muang, Cholburi 20000

Telephone: (038) 362-420-9

Telephone: (038) 813-088

Telephone: (038) 287-635

Fax. (038) 362-430

Fax. (038) 813-099

Fax. (038) 287-637

Khon Kaen Branch

5th Floor, Charoen Thani Princess Hotel,

Hat Yai Branch

Sriworajak Building Branch

200/301 Juldis Hatyai Plaza Floor 3,

1st – 2nd Floor, Sriworajak Building, 222

260 Srichan Road, T. Naimuang,

Niphat-Uthit 3 Rd,

Luang Road, Pomprab,

A. Muang, Khon Kaen 40000

Hatyai Songkhla 90110

Bankgok 10100

Telephone: (043) 389-171-193

Telephone: (074) 355-530-3

Telephone: (02) 689-3100

Fax. (043) 389-209

Fax: (074) 355-534

Fax. (02) 689-3199

Central World Branch

Chiang Mai Branch

Phuket Branch

999/9 The Offices at Central World,

422/49 Changklan Road, Changklan

22/61-63, Luang Por Wat Chalong Road,

16th Fl., Rama 1 Rd, Pathumwan,

Subdistrict, Amphoe Meuang,

Talat Yai, Mueang Phuket,

Bangkok 10330

Chiang Mai 50100

Phuket 83000

Telephone: (66-2) 673-5000,

Telephone: (053) 270-072

Tel. (076) 222-811,(076) 222-683

(66-2) 264-5888 Fax. (66-2) 264-5899

Fax: (053) 272-618

Fax. (076) 222-861

Pak Chong Branch

Cyber Branch @ North Nana

173 175, Mittapap Road,

Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd.,Klong Toey Nua Subdistrict , Wattana District, Bangkok 10110 Telephone: 083-490-2871

Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Tel. (044) 279-511 Fax. (044) 279-574

Nakhon Ratchasima Branch

Bangkhae Branch

6th Floor The Mall Group Building Bangkhae 275 Moo 1 Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Tel. (66-2) 454-9979 Fax. (66-2) 454-9970

624/9 Changphuek Road, . Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171 Information herein was obtained from sources believed to be reliable, but its completeness and accuracy are not guaranteed. All opinions expressed constitute our views on that date and are not intended as an offer or solicitation to sell or buy any securities. Investors should exercise care when making a decision to invest in securities. No one may modify or distribute any part of this report unless written permission is first received from Seamico Securities Plc. If any modifications are made, quotes or references taken from the report and the report date must be clearly mentioned and must not cause misunderstanding or damage to the company.

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