Please be advised that February 13th, 2017 is our public holiday (Substitution for Makha Bucha Day). Consequently, The Stock Exchange of Thailand (SET), The Market for Alternative Investment (MAI), The Thailand Futures Exchange (TFEX) and KT Zmico Securities Co.,Ltd. will be closed on this coming Monday.
Stable outlook
Our UNDERPERFORM rating reflects the stable operating performance outlook for TTW, which will keep its share price trading in a narrow range. Its yield of 5% will be secured by strong operating cash flow as the catalyst.
4Q16 earnings below view
TTW reported a net profit of Bt568mn (EPS: Bt0.14) in 4Q16, decreasing 8.4%YoY and 11.7%QoQ. This was below the market consensus by 7% due to the unexpected shared loss from CKP, which reversed to a net loss of Bt177mn in 4Q16, largely blamed on a one-off Bt378mn write-off expense linked to Nam Bak.
Flattish core operation in 4Q16
Stripping out shared profit from its associate, core NP increased 6%YoY (flat QoQ) to Bt613mn. This was attributed to GPM expansion to 73.6% from 71.8% in 4Q15 and 71.3% in 3Q16 thanks to effective production cost control. Its SG&A to sales also dropped to 4.6% from 5.7% last year. Loan repayments together with a declining average cost of debt reduced interest expenses by 32%YoY and 9%QoQ.
2016 NP fell 8%YoY
For 2016, TTW delivered a net profit of Bt2.48bn, falling 7.6%YoY, mainly due to the negative effect from effective tax rate normalization. If excluding this, its EBT remained flat YoY at Bt3.1bn. Its revenue fell 1%YoY on the combination of lower sales volume (-0.5%YoY) and selling prices, which were linked to the negative Consumer Price Index (CPI) of 2015. The flat GPM together with declining SG&A to sales were offset by lower shared profit from CKP, which retreated 86.5%YoY to Bt14mn.
DPS of Bt0.30, goes XD on March 13
TTW announced to pay a DPS of Bt0.30 for its 2H16 operating performance. This represents a 2.8% yield for the period. The XD sign will be posted on March 13, with the payment to be made on May 4, 2017.
Earnings forecasts maintained
We reiterate our view on the slow recovery of tap water sales (approximately 1-2%). Our 2017E-2018E earnings estimates are maintained.
Outlook: The SET Index is expected to weaken, with the support of 1,546/1,530 points. We do not expect foreign capital inflows in the near future while the market remains under external pressure, e.g., election calendars in Europe that have triggered concerns that some countries will follow England into an exit from the EU. For instance, the general election in the Netherland is scheduled for 15 Mar-17 and the Party for Freedom (PVV), i.e., the right-wing party that seems keen on an EU exit, is leading its rivals. In France, the first round of presidential elections will take place in Apr-17. Meanwhile, in the US, it is worth highlighting the Fed meeting results. Meanwhile, Trump’s economic and international trade policies will remain a focus.
Domestically, the internal factors may include profit taking activities post earnings reason as well as scheduled XDs. Some technical selling can be expected if the index falls below the major support of 1,546 points. Meanwhile, the support from window dressing in late March may be rather limited.
Recommended Stocks: Recommended stocks include those with huge upside or with short-term positive factors, e.g., ASEFA, BANPU, CPALL, EPG, KTC, PTTGC, SPCG, TMT, TTA and WHA.
March Statistics: Based on ten-year historical data (2007-2016), there was a 60% possibility that the SET Index in the month of February would close positive, with an average return of +2.0%MoM, a maximum return of +9.2%MoM (in 2010) and a minimum return of -3.4% MoM (in 2008). The returns also continued to increase in the months of April and May at the averages of +3.0%MoM and 0.6%MoM, respectively.
Fund Flow: The ten-year historical data for the month of March (2007 – 2016) also shows that foreign investors net bought at an average of +Bt14.1bn and continued to net buy at +Bt3.3bn in April before turning to net sell at -Bt9.1bn in May.
Catalysts: i) revisions to earnings and target prices; ii) continued recovery of the Thai economy; iii more stable oil price; and iv) window dressing.
Concerns:i) Fed meeting (keep a close watch on the rate hike); ii) XDs; iii) European politics (e.g., election in the Netherlands) and iv) Trump’s foreign policy.
Please be advised that April 13th-14th, 2017 is our public holiday (Songkran Festival). Consequently, The Stock Exchange of Thailand (SET), The Market for Alternative Investment (MAI), The Thailand Futures Exchange (TFEX) and KT Zmico Securities Co., Ltd will be closed on this coming , Thursday and Friday .
