Thai Tap Water Supply PCL (TTW): 3QFY17 profit seen up 7.2% y-y on rising sales volumes October 17, 2017

3QFY17 profit seen up 7.2% y‐y on rising sales volumes: We believe sales volume growth would be the main driver of profit growth for TTW in 3QFY17. In our forecast, we assume (i) total sales volumes of treated water will jump 7.1% y‐y to 74.73 MCM in 3QFY17 (TTW +9.6%, PTW +4.3%, BLDC +10.6%) as the end of the recent water loss reduction project and the commercial commissioning of the Bang Pa‐In Cogeneration Power Plant 2 (BIC‐2) on Jun 29 drive sales volumes at TTW and BLDC higher, and (ii) average water tariff rates will drop 1.5% y‐y to Bt18.74/m3 as a result of higher sales volumes in excess of MOQ which fetch lower water tariff rates. For the quarter, total revenue is projected to inch up 5.5% y‐y to Bt1,430mn on expectations that revenue from tap water sales will edge up 5.6% y‐y. Costs are expected to go up 4.4% y‐y along with sales volume growth. SG&A expenses tend to be similar to the levels seen in the same year‐ago period but share of profit from CKP is expected to drift lower. On this basis, we forecast TTW will post a 7.2% y‐y rise in 3QFY17 profit to Bt690mn.

Sales volume growth set to continue in 4QFY17 and well into FY18: The upward momentum in sales volumes looks set to continue in 4QFY17 and well into FY18 as urbanization and pipeline of new property development projects would act as a long‐term boost for tap water demand. In addition, TTW is currently negotiating selling price and MOQ with PWA under a deal to supply water from its new second tap water production plant. On the other hand, it remains unclear whether water from public sources will be subject to tax under the controversial water resources bill. If so, the additional tax burden will be passed onto PWA.

‘BUY’ rating unchanged with FY18 target price of Bt12.20/share: We stick to our forecast that TTW will achieve FY17 profit of Bt2,628mn. We also leave our ‘BUY’ rating unchanged for TTW with a FY18 SOTP‐based target price of Bt12.20/share in light of some upside from current trading levels and its consistent dividend paying track record.

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