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Phillip Online Discount Stock Brokers Recommends Buy TTW

Thai Tap Water Supply – TTW - BUY

Target price : Bt5.60
Recommendation : BUY
Closing Price (15 May 09) : Bt3.96

1Q09 net profit up 0.86% YoY, beating estimates by 16.45%
- Total sales volume rose 0.15% YoY in 1Q09. Much of the increase came from sales volume growth at its 98%-owned subsidiary PTW. The

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increase in MOQ and water tariff increases pulled revenue from the sale of treated water up 11.61%. Costs climbed upward on discounts given to PWA. Financial costs edged higher on a Bt116.8m prepayment penalty fee.
- Tap water supplier TTW reported a net profit rise of 0.86% YoY to Bt305.77m in 1Q09. The results came in 16.45% better than our forecast of Bt262.57m on lower-than-expected costs and financial costs.
- We leave our 2009 net profit outlook unchanged at Bt1,733.90m. Our price target is unchanged at Bt5.60/share. We maintain a BUY recommendation on TTW. So far, no progress has yet been made over the Parliament Anti-Corruption Commission's probe into irregularities in PWA's water purchase agreement with TTW in Nakorn Pathom and Samut Sakorn Provinces filed by PWA labor union, alleging that the water purchase agreement might violate the Public-Private Joint Venture Act. This is the key issue to watch, going forward.

1Q09 net profit up 0.86% YoY, beating estimates by 16.45%
TTW, Thailand's largest private tap water supplier sold 54.04 million m3 of treated water in 1Q08, up 0.15% YoY. Much of the increase came from sales volume growth at its 98%-owned subsidiary PTW, while sales volume at TTW dropped. The confluence of factors including an increase in minimum off-take quantity (MOQ), water tariff increases and compensation of Bt35.8m for shortfalls from PWA pulled revenue from the sale of treated water up 11.61% YoY to Bt943.03m, which was 2.59% better than our forecast. Service revenue leapt 39.79%. Total revenue for the quarter upped 11.84% YoY to Bt928.77m. Cost of sales rose 15.19% along with higher sales volume, maintenance expenses and discounts given to PWA worth Bt25.7m. SG&A expenses surged 41.15% on legal fees, advertising expenses and other fees. Other income and expenses dropped. Financial costs increased 21.94% on a Bt116.8m prepayment penalty fee. In sum, TTW posted a net profit of Bt305.77m in 1Q09, up 0.86% YoY. The results came in 16.45% better than our forecast of Bt262.57m on lower-than-expected costs and financial costs.

2009 estimates unchanged
We keep our 2009 net profit outlook for TTW unchanged at Bt1,733.90m. The Parliament's Anti-Corruption Commission is now looking into irregularities in PWA's water purchase agreement with VKCS (Thailand) Co, later renamed as Thai Tap Water Supply in Nakorn Pathom and Samut Sakorn Provinces filed by PWA labor union, alleging that the water purchase agreement may violate the Public-Private Joint Venture Act. No progress of the probe has yet been made, so far. This is the key thing to watch, going forward. Our price target of Bt5.60/share is DCF-based. We maintain a BUY recommendation on TTW.

By Phillip Securities (Thailand) Plc. on May 18, 2009

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