thoresen thai agencies tta) · given the expected deceleration in new supply growth of dry‐bulk...
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REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 14
Thoresen Thai Agencies (TTA) Outperform (17E TP Bt10.20)
Close Bt9.55 Transport & Logistics
October 10, 2016 While recovery may take more time... Price Performance (%)
Source: SET Smart
FY16 FY17
Consensus EPS (Bt) 0.055 0.270
KT ZMICO vs. consensus ‐118.2% ‐88.9%
Share data
Reuters / Bloomberg TTA.BK/TTA TB
Paid‐up Shares (m) 1,822.45
Par (Bt) 1.00
Market cap (Bt bn / US$ m) 17.00/499.00
Foreign limit / actual (%) 49.00/14.30
52 week High / Low (Bt) 11.00/7.00
Avg. daily T/O (shares 000) 9,482.00
NVDR (%) 2.37
Estimated free float (%) 72.5
Beta 1.04
URL www.thoresen.com
CGR
Anti‐corruption n.a.
Raenoo Bhandasukdi Analyst, no. 17989 [email protected] 66 (0) 2695‐5836
...earnings have already bottomed out: recommend “Outperform”We reinitiate our coverage on TTA with an “Outperform” rating and a target price of Bt10.20/share (SOTP, close to P/BV of 0.9x, +0.5SD). We see limited downside risk for TTA and the BDI is believed to have bottomed out. We believe the operation performance of dry bulk, drilling vessels and subsea engineering vessels as well as TTA’s earnings should recover gradually during 2016‐17E and subsequently recover fully in 2018E.
MMT’s earnings performance to improve solidly in 3Q16 (high season) MMT’s earnings result turnaround significantly 1H16 due partly to major maintenance of three vessels in 1Q15. While the utilization rate of subsea IRM vessels has remained rather low at 40‐45%, MMT has benefited from a higher charter rate. MMT secured orders worth around Bt8.4bn currently and half of which will be realized in 2H16. Hence, its earnings are expected to continue to recover, especially in 3Q16, the high season for MMT.
TC rate to rise toward the breakeven point by 2018E Given the expected deceleration in new supply growth of dry‐bulk ships entering the market and the continued recovery of the global economy, the BDI is expected to recover slowly and TTA’s TC rate should reach the breakeven point by 2018E (at US$8,000/vessel/day).
2H16 earnings to turn around, with full recovery expected in 2018E We expect TTA to report a net loss of Bt27mn in 2016E. However, its earnings are expected to rebound to a net profit of Bt235mn in 2H16 on the back of: i) the expected recovery of the TC rate (based on the average BDI in 3Q16 that increased by 20%QoQ); and ii) better earnings contributions from MMT and UMS (because of higher coal prices). In 2017E, TTA’s earnings will continue to be pressured by lower profit contributions from affiliates (owing to the lower charter rate of AOD) as well as higher depreciation and interest expenses after MMT target to receive three newly‐built vessels. All in all, TTA’s net profit is expected to recover significantly from 2018E onwards.
Risks If the global economy remain slows down, the BDI, oil price, and coal price will recover more slowly than expected. If this is the case, all of TTA’s businesses will be negatively impacted but the utility business (PMTA) is expected to be impacted the least. Also, if MMT does not receive vessels as scheduled, it may be subject to fines.
Financials and Valuation
FY Ended 31 Dec 2014 2015 2016E 2017E 2018E
Revenues (Bt mn) 22,341 21,426 14,842 16,932 19,040
Net profit (Bt mn) 902 (11,335) (27) 55 473
EPS (Bt) 0.69 (6.22) (0.01) 0.03 0.26
Norm. profit (Bt mn) 796 (256) (42) 55 473
Norm. EPS (Bt) 0.61 (0.14) (0.02) 0.03 0.26
Norm. EPS growth (%) n.m. (122.97) (83.46) n.m. 754.81
Dividend (Bt) 0.03 0.00 0.10 0.10 0.13
BV (Bt) 18.64 11.86 11.75 11.68 11.81
FY Ended 31 Dec 2014 2015 2016E 2017E 2018E
Norm. PER (x) 15.61 n.m. n.m. 314.82 36.83
EV/EBITDA (x) 5.16 4.76 4.07 11.11 9.50
P/BV (x) 0.51 0.81 0.81 0.82 0.81
Dividend yield (%) 0.26 0.00 1.05 1.05 1.36
ROE (%) 3.76 (1.12) (0.20) 0.26 2.21
Net Gearing (%) 27.82 4.48 cash 58.12 56.91
Company Initiation
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 14
Valuation Recommend “Outperform” with SOTP‐based target price of Bt10.20/share
We reinitiate our coverage on TTA with an “Outperform” rating and a 2017E target price of
Bt10.20/share (SOTP), consisting of: i) the value of its transport business (dry‐bulk), which is
based on 0.9x P/BV (+0.5SD of the historical P/BV); ii) the value of MMT, which is valued by
0.7x P/BV (historical P/BV), iii) the value of PMTA, which generates stable cash flow, derived by
the DCF method (equivalent to 10x PER) and iv) the value of UMS, based on 0.5x P/BV (i.e., we
maintain our conservative view as this is TTA’s weakest business).
We believe the dry‐bulk business and Baltic Dry Index (BDI) have already bottomed out since
1Q16, with prospects for gradual improvement in 2017‐18E. The expected increase in oil prices
during 2017‐18E should help drive the revenue of Mermaid Maritime (MMT). TTA’s current
share price is being traded at 0.8x P/BV and MMT’s share price is being traded in the Singapore
Stock Exchange at 0.4x P/BV, in line with the average of regional peers. Hence, we view that
the downside risk to TTA is rather limited. We believe TTA’s vessel operations (bulk, drilling
rigs, subsea IRM vessels) as well as its overall performance will improve slightly in 2017E before
recovering fully in 2018E. Our TTA’s SOTP‐based target price of Bt10.20/share is closed to the
P/BV of 0.9x or+0.5SD of historical average P/BV, which we view as justified considering the
business outlook as well as the recovery trend.
Figure 1: Summary of sum‐of‐the‐parts (SOTP) valuation Company TTA’s stake Valuation Method Value to TTA
(%) (Btmn) (Bt/share)
Transport 0.9x of book valued (+0.5SD of historical average) 5,505 3.0
MMT 58.2 0.7x of book valued (historical average) 4,346 2.4
PMTA 67.5 DCF of Bt23/share (implied PER of 10x) 1,597 0.9
UMS 90.1 0.5x of BVS 68 0.0
Holding & Eliminate Book valued 7,081 3.9
Total SOTP‐based valuation 18,596 10.2
Source: KT ZMICO Research
Figure 2: TTA’s P/BV band and sensitivity of market prices based on PER at different standard deviation levels
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
(X)
-2.0 S.D.
(X)
Avg.
(X)(X)
-1.5.0 S.D.-1.0 S.D.
+1.0 S.D.
+1.5 S.D.
+2.0 S.D.
+0.5 S.D.
-0.5 S.D.
Implied Upside/Downside
2017E P/BV (x) market price vs. current market
(Bt) price (%)
+2.0SD 1.32 15.6 70.9
+1.50SD 1.19 14.1 54.3
+1.0SD 1.06 12.6 37.7
+0.5SD 0.93 11.1 21.2
Average 0.81 9.6 4.6
‐0.50SD 0.68 8.1 (12.0)
‐1.0SD 0.55 6.5 (28.5)
‐1.5SD 0.42 5.0 (45.1)
‐2.0SD 0.30 3.5 (61.6)
Source: Bloomberg, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 14
Figure 3: MMT’s P/BV band Figure 4: PMTA’s PER band
0.0
0.5
1.0
1.5
2.0
2.5
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
(X)
-1.5.0 S.D.
(X)
Avg.
(X)(X)
-2.0 S.D.
-1.0 S.D.
+1.0 S.D.+1.5.0 S.D.+2.0 S.D.
+0.5.0 S.D.
-0.5.0 S.D.
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
May-1
5
Jun-1
5
Jul-
15
Aug-1
5
Sep-1
5
Oct
-15
Nov-1
5
Dec-
15
Jan-1
6
Feb-1
6
Mar-
16
Apr-
16
May-1
6
Jun-1
6
Jul-
16
Aug-1
6
Sep-1
6
Oct
-16
(X)(X)
Avg.
(X)(X)
+1.5.0 S.D.+1.0 S.D.
-1.0 S.D.
+2.0 S.D.
+0.5.0 S.D.
-0.5 S.D.
-1.5 S.D.-2.0 S.D.
Source: Bloomberg, KT ZMICO Research
Figure 5: Dry‐bulk regional peers
COUNTRY PER (x) PBV (x) Yield (%) ROE (%) EV/EBITDA (x)
15 16E 17E 15 16E 17E 15 16E 17E 15 16E 17E 15 16E 17E
NOBLE GROUP LTD Hong Kong n.a. 6.5 4.8 0.6 0.4 0.4 0.0 1.5 2.3 (44.8) 3.3 5.5 n.a. 13.9 10.3
PACIFIC BASIN SHIPPING LTD Hong Kong n.a. n.a. n.a. 0.4 0.5 0.5 0.0 0.0 0.0 (1.9) (9.2) ‐6.0 8.3 16.8 9.9
SINOTRANS SHIPPING LTD Hong Kong n.a. 26.4 22.7 0.4 0.3 0.3 0.0 3.8 3.8 (3.2) 1.2 1.3 n.a. 1.7 1.8
GREAT EASTERN SHIPPING CO India 7.4 4.5 6.4 0.7 0.6 0.6 3.0 4.3 3.3 10.5 10.5 10.0 6.0 3.6 4.6
MALAYSIAN BULK CARRIERS Malaysia n.a. n.a. n.a. 0.7 0.5 0.5 0.0 1.3 1.3 (75.2) n.a. n.a. n.a. 189.4
79.0
KOREA LINE CORP S. Korea 11.9 12.9 8.2 0.8 0.8 0.7 0.0 n.a. n.a. 7.4 6.9 9.8 7.6 10.5 8.1
PAN OCEAN CO LTD S. Korea n.a. 11.7 8.5 n.a. 0.8 0.7 n.a. n.a. n.a. 2.4 6.6 8.5 8.1 9.1 6.9
MERCATOR LINES SINGAPORE Singapore n.a. n.a. n.a. 0.3 n.a. n.a. 0.0 n.a. n.a. (51.9) n.a. n.a. n.a. n.a. n.a.
U‐MING MARINE TRANSPORT Taiwan 27.8 n.a. n.a. 0.8 0.8 0.8 n.a. 0.6 n.a. 3.0 (4.6) ‐1.2 13.5 18.5 13.4
SINCERE NAVIGATION Taiwan 12.7 14.1 19.8 0.7 0.7 0.7 5.0 4.1 3.1 5.7 3.7 2.9 5.3 5.8 6.5
Precious Shipping PCL* Thailand n.a. n.a. n.a. 0.52 0.68 0.72 0.0 0.0 0.4 (15.3) (12.9) (2.9) 29.6 33.4 13.3
Average (simple) 14.9 12.7 11.7 0.6 0.6 0.6 0.9 2.0 2.0 (14.8) 0.6 3.1 11.2 30.3 15.4
Source: Bloomberg, *KTZMICO estimate
Figure 6: Peers’ valuation comparison for MMT (S/E Asia only)
COUNTRY PER (x) PBV (x) Yield (%) ROE (%) EV/EBITDA (x)
15 16E 17E 15 16E 17E 15 16E 17E 15 16E 17E 15 16E 17E
KEPPEL CORP LTD Singapore 7.8 9.2 9.2 1.1 0.8 0.8 5.2 4.3 4.4 14.2 9.2 8.7 10.8 12.3 12.4
SEMBCORP MARINE LTD Singapore n.a. 14.6 14.9 1.5 1.1 1.0 3.4 2.8 2.7 (10.6) 7.2 6.8 n.a. 13.1 13.2
EZION HOLDINGS LTD Singapore 28.0 6.9 4.9 0.5 0.3 0.3 0.0 0.0 0.0 2.9 4.8 6.3 12.0 8.4 7.3
EZRA HOLDINGS LTD Singapore 2.1 n.a. n.a. 0.1 0.2 0.2 0.0 0.0 0.0 4.1 (56.4) (7.1) 11.3 n.a. 32.0
PACIFIC RADIANCE LTD Singapore 43.8 n.a. n.a. 0.4 0.2 0.2 4.6 0.0 0.0 0.9 (5.5) (5.0) 25.0 n.a. 31.7
PACC OFFSHORE SERVICES Singapore n.a. n.a. 16.7 0.4 0.4 0.4 2.4 1.7 2.6 (11.5) (0.4) 2.3 10.1 17.7 9.4
SWISSCO HOLDINGS LTD Singapore 3.4 n.a. n.a. 0.4 n.a. n.a. 0.5 n.a. n.a. 13.7 3.2 n.a. 10.7 n.a. n.a.
ALAM MARITIM RESOURCES Malaysia 8.7 135.0
14.2 0.4 0.3 0.3 0.0 0.0 0.0 5.3 0.4 1.7 11.4 7.2 6.2
BUMI ARMADA BERHAD Malaysia n.a. 3.3 1.3 0.8 0.6 0.6 0.8 1.3 2.0 (3.4) 3.0 5.7 14.8 13.2 8.7
COASTAL CONTRACTS BHD Malaysia 7.1 4.1 6.7 0.6 0.5 0.5 2.2 3.4 2.7 8.7 13.3 9.2 6.5 3.7 3.6
MALAYSIA MARINE AND HEAVY Malaysia 36.5 22.2 22.2 0.6 0.6 0.6 0.0 0.1 0.1 1.7 2.4 2.8 5.1 6.3 5.6
PERISAI PETROLEUM Malaysia n.a. n.a. n.a. 0.5 0.2 0.2 0.0 0.0 0.0 (76.5) 0.7 (0.8) n.a. 16.2 15.6
SAPURAKENCANA PETROLEUM Malaysia 11.2 n.a. 42.6 1.3 0.9 0.8 1.3 0.7 0.6 12.9 (6.5) 2.0 8.1 5.3 11.2
TH HEAVY ENGINEERING BHD Malaysia n.a. n.a. n.a. 0.5 n.a. n.a. 0.0 n.a. n.a. (12.1) n.a. n.a. n.a. n.a. n.a.
UMW OIL & GAS CORP BHD Malaysia n.a. n.a. n.a. 0.7 0.6 0.7 0.0 0.0 0.4 (11.3) (8.1) (5.9) 19.3 90.9 31.5
LOGINDO SAMUDRAMAKMUR Indonesia 516.3
n.a. n.a. 0.2 0.2 0.2 n.a. n.a. n.a. 0.0 (19.2) (2.0) 6.7 7.8 7.0
WINTERMAR OFFSHORE Indonesia n.a. n.a. 9.2 0.2 0.4 0.4 n.a. 0.0 5.4 (2.7) (1.0) 3.6 7.3 6.1 4.8
Average (simple) 66.5 27.9 14.2 0.6 0.5 0.5 1.4 1.0 1.5 (3.7) (3.3) 1.9 11.4 16.0 13.3
Source: Bloomberg
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 14
Earnings Prospects MMT’s earnings improvement supported TTA’s performance in 1H16
TTA engages in three major businesses:
Transport business: The revenue is generated mainly from dry‐bulk shipping
service and its 40%‐owned Petrolift Inc. operating the petroleum tankering
business in the Philippines.
Energy business: TTA receives a revenue contribution from Mermaid Maritime Plc
(MMT; TTA holds a 58.2% share), which is listed in the Singapore Stock Exchange Market (Bloomberg code: MMT.SP). MMT operates offshore services, consisting
of subsea service and drilling service. The services include repair and maintenance
services of subsea oil and gas pipes as well as drilling structure service with divers
and diving robots. The revenue is generated from charter fees for vessels, rental
fees of diving equipment and diving robots and charges for divers’ services. The
service rates are calculated based on actual dates and time of service usage.
Meanwhile, the revenue generated by the drilling business comes from fees for
drilling rigs (on a daily basis) and forward service contracts as agreed with clients. MMT has an affiliate called Asia Offshore Drilling (AOD; 33.8% owned by MMT)
that operates three jack‐up drilling rigs (i.e., AOD‐1, AOD‐2, and AOD‐3).
Infrastructure business: The revenue from this business is generated by three
firms. First, PM Thoresen Asia Holdings Plc (PMTA: 67.5% owned by TTA as of
2Q16) earned its major income from Bacongo Co., Ltd (100% owned by PMTA),
which produces and distributes fertilizers and leases out warehouse space in
Vietnam. Second, Unique Mining Services (UMS; 90.1% owned by TTA after the
capital increase of UMS in 1Q16) operates coal logistics business and earns
revenue from coal sales and coal logistics services. Third, Baria Seres Ltd. (20%
owned by TTA) engages in port management business in Vietnam.
In 2015, transport, energy, and UMS, were all negatively impacted by the oversupply
situation in global markets. In addition with huge impairment costs, TTA reported a net
loss of Bt11.3bn in 2015. For 1H16, TTA delivered revenue of Bt6.5bn, fell by 39% YoY,
49% from MMT, 24% from dry‐bulk, and 25% from infrastructure business (22% from
PMTA and 3% from UMS). TTA reported a net loss of Bt261mn in 1H16 with significantly
improvement of MMT’s earnings result while dry‐bulk performance remains weak.
Figure 7: Revenue structure (1H16) Figure 8: Performance by business group
Dry Bulk24%
MMT49%
PMTA22%
UMS3%
Other service2%
53
‐8,196
‐3,193
59
‐4‐302
34 185
‐480
‐9,000
‐8,000
‐7,000
‐6,000
‐5,000
‐4,000
‐3,000
‐2,000
‐1,000
0
1,000
Infrastructure Energy Transport, Holdings & Eliminate
Btmn2015 1H15 1H16
Source: TTA
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 14
Figure 9: TTA’s company structure
Source: TTA
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 14
TC rate expected to reach the breakeven point in 2018
As of the end of 2Q16, TTA’s dry‐bulk vessel fleet consisted of 30 vessels, 21 of which were
owned by the firm itself (down from 24 vessels as of the end of 2015). Its fleet includes sixteen
Supramax vessels and five Handysize vessels, with an average fleet capacity of 52,078 DWT per
ship and an average age of 11.60 years. In comparison to PSL, TTA’s fleet size is smaller but its
average fleet capacity is larger (as of the end of 2Q16, PSL’s fleet consisted of 41 vessels, i.e.,
13 Supramax vessels and 28 Handysize vessels, with the average fleet capacity of 38,635 DWT
per vessel and an average age of 7.7 years). Nonetheless, the TC rates for both firms are quite
comparable, with PSL’s TC rate being higher than TTA’s due to the lower average age, in our
view.
Figure 10: Fleet of TTA vs. PSL Figure 11: TC rate of TTA vs. PSL
45 45 45 45 43 41
18
1114 14
8 8
23
23
24 23
22 21
0
5
10
15
20
25
30
35
40
45
50
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
TTA - owned TTA - chartered-in PSL
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
US$/day/vessel
TTA PSL
Source: TTA, PSL
In terms of services, TTA also operates chartered‐in vessels to support occasional demand of
some clients (while PSL does not offer chartered‐in service). In light of this service, the firm
realizes income based on the net TC; consequently, its number of vessel day and average TC
rate are more volatile than PSL’s.
Figure 12: Combination of TTA’s TC rate and BDI Figure 13: Annual increase in dry‐bulk ship supply
1,778
-238
676 850 436-76
6,312
6,482
7,371 6,761
3,3115,156
0
200
400
600
800
1,000
1,200
-1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
US$/day/vesselOwned Chartered-in BDI (RHS)
-10%
-5%
0%
5%
10%
15%
20%
-
100
200
300
400
500
600
700
800
900
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
E
20
17
E
mn DWT
bulk ships supply
% +/- YoY
Source: Bloomberg, TTA, PSL
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 14
TTA’s 1H16 TC rate (per vessel per day) averaged at US$4,391, down 39%YoY. This consisted of
an average TC rate of US$4,203 (‐34%YoY) for its own vessels and a net TC rate of US$188 for
its chartered‐in vessels (‐75%YoY). The declines were attributable to the oversupply situation in
the dry‐bulk market. As a consequence, the transport business’s operation remained in the red
during the period. The breakeven point in 1H16 stood at US$7,000 (PSL’s breakeven point
stands at US$8,000 but TTA’s breakeven point is volatile in accordance with the TC rate of
chartered‐in vessels, which is rather difficult to project).
We believe TTA’s TC rate will increase HoH in 2H16 because the BDI is entering the high season
for exports of agricultural goods. In addition, the stocking for iron ore for steel production will
accelerate. Another reason is that the demand for coal will increase for power generation
during the winter season (note: historical data suggests that the BDI peaks in December).
However, TTA’s average TC rate in 2016E is estimated at US$5,000 (‐33%YoY). Therefore, this
business’s operation is likely to remain in the red in 2016E.
Figure 14: Baltic Dry Index (BDI) ‐ Seasonality
Source: PSL
For 2017E, we expect TTA’s TC rate to increase to US$5,750 (+15%YoY). This figure implies that
the business will continue to generate losses for TTA (but at a lesser extent). While the dry‐bulk
shipping industry is close to entering equilibrium due to smaller orders for newly‐built vessels
and larger scrapping activities, risks on the demand side have remained as the global and
Chinese economies have yet to recover fully. According to PSL’s estimates, global bulk supply in
2016E is projected to increase slightly by +1.5% before declining slightly by ‐1.9% in 2017E,
assuming scrapping of 45.7mn DWT/year and slower delivery of newly‐built vessels at 50%. We
expect TTA’s TC rate to reach the breakeven point by 2018.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 8 of 14
MMT’s operating results to continue improve significantly in 3Q16E (high season)
Subsea Service
As of the end of 2015, MMT’s subsea service BU consisted of 10 subsea vessels (7 owned and 3
chartered‐in) and subsequently decreased to eight (as of 2Q16). In 2015, the utilization rate
stood at 65%, flat YoY, despite major maintenance of three vessels in 1Q15. However, the
average daily charter rate fell to US$76,700 per day (‐21%YoY) as a result of lower demand
amid the weak oil and natural gas markets that prompted oil firms to cut E&P expenditures.
Such unfavorable market conditions led to more intense price competition. Fortunately, MMT
managed to earn more revenue from cable laying service to replace the loss of revenue from
oil & gas operators. Therefore, the revenue from its subsea service held up fairly well, with
+9% growth to Bt11,834mn in 2015.
In 1H16, revenue declined on the back of lower utilization rates to 40% and 45% in 1Q16 and
2Q16, respectively. Moreover, the revenue from cable laying activities also slowed down.
However, MMT’s bottom line turn improved on the back of a growing gross profit margin,
made possible by the increase in the daily charter rate, despite low utilization. Meanwhile,
MMT’s secured orders is at about US$240mn currently, or approximately Bt8,400mn, with
Bt4,200mn will be realized as revenue in 2H16. As a result, we project the utilization rate for
2H16 at 50%, close to that of 1H16, with the peak season in the third quarter.
Figure 15: MMT’s revenue structure Figure 16: Vessel day rate and utilization rate
675
1,851 2,043
1,392
862 998
417
392511
438
495490
873
1,317 851
748
57263
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Btmn
Cable Laying Subsea Services - Non-vessels Subsea IRM - Vessels
69,815
82,45278,889
75,987
67,461
86,588
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
US$/day
Vessel day rate (LHS) Utilization rate (RHS)
Source: TTA, KTZMICO Research
Drilling Service
Since 2015, MMT has not earned revenue from its drilling service given that both of its tender
rigs (MTR‐1 and MTR‐2) have stopped operations as the firm is waiting for the right time to sell
them.
Asia Offshore Drilling (AOD)
AOD’s three jack‐up drilling rigs had 100% utilization in 1H16. Two out of the three rigs have
been granted contract extensions for another three years by the client, Saudi Aramco. The
daily charter rate was lowered to US$125,000/day (vs. US$180,000/day) as the oil price has
remained rather low. In addition, the rate for the third rig is expected to be similarly reduced.
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 9 of 14
Potential CAPEX of Bt14bn in 2017E for delivery of three newly‐built vessels
MMT will receive two newly‐built tender rigs (MTR‐3 and MTR‐4) later this year (having been
postponed from the previous schedules of 1Q16 and 2Q16, respectively). In addition, it will
receive a special new dive support vessel (DSV) in mid‐2017, with CAPEX at approximately
US$400mn (around Bt14bn) in 2017E. Note that we believe MMT will be able to secure new
orders for the new vessels thanks to the expected recovery in the global oil market.
Approximately 80% of the estimated CAPEX may be funded by borrowing; this may have some
impact on TTA’s financial position but to an insignificant extent. MMT is now seeking orders for
the aforementioned three vessels. The risk is that if the oil market has not yet recovered, the
deliveries of the new vessels will be delayed and MMT may be subject to fines.
MMT reported a net profit of Bt320mn in 1H16 vs. a loss of Bt8mn in 1H15 (due partially to the
major maintenance of three vessels in 1Q15). Given the projected recovery in the global oil
market in 2016‐17E, the firm’s utilization rate is expected to improve accordingly. However,
higher interest and depreciation expenses arising from newly‐built vessels, coupled with a
reduction in the charter rate for AOD, are expected to pressure MMT’s 2017E earnings, with
the earnings performance expected to improve again in 2018E.
UMS’s operation results likely to pick up following the recovery in coal prices
UMS imports good quality coal from Indonesia and sells it to targeted domestic industrial
factories, such as those in the beverage sector, the paper sector and the textile sector.
UMS reported a net loss of Bt11mn in 2Q16, better than the net loss of Bt27mn in 2Q15 and
the net loss of Bt18mn in 1Q16. The better performance was attributable mainly to a higher
selling price in 2Q16, in line with the improvement in the Newcastle Index on the back of larger
import volume in China. The higher selling price helped push up UMS’s gross profit margin in
2Q16 despite a significant fall in sales volume. Furthermore, UMS’s operation should also
benefit from lower interest expenses following the capital increase in 1Q16.
With the expected recovery in coal prices, UMS’s earnings are expected to rebound to the
black again in 2017‐18E.
Figure 17: UMS’s sales volume Figure 18: UMS’s operating results
1,900
2,000
2,100
2,200
2,300
2,400
2,500
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Bt/tonmn tons
sale volume (LHS) Average selling price (RHS)
-11-27
-60
-274
-18 -11
-300
-250
-200
-150
-100
-50
0
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Btmn
Source: TTA
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 10 of 14
PMTA to continue generating profit
Baconco Co., Ltd, a 100%‐owned by PMTA, is located in the Phu My I Industrial Estate in Ba Ria
Vung Tau, in the south of Vietnam, 70km from Ho Chi Min City. Baconco produces and
distributes mixed chemical fertilizer, single chemical fertilizer and compound chemical
fertilizer, under the trademark “STORK”. The firm’s total capacity stands at 450,000 metric
tons/year, up from 350,000 tons/year in 2013, following the capacity expansion for the
granular production line, which commenced operation in Feb‐15. Baconco’s products are
distributed domestically and exported to 30 countries globally, with the major markets being in
Africa, the Middle East and Southeast Asia in 2015. The revenue breakdown between domestic
sales: exports is 66:34.
PMTA reported a net profit of Bt89mn in 1H16, down 18%YoY due to lower sales of fertilizer.
The lower sales were caused by the severe drought in Vietnam, which delayed the plantation
season. In particular, a serious impact was seen in 1Q16, the normal low season. However, the
situation has improved due to higher rainfall since late May. Meanwhile, the sales volume was
impacted by higher volume in 2Q15 thanks to special orders from Zambia. PMTA’s fertilizer
sales volume is projected to accelerate in 2H16 vs. 1H16.
In addition to the aforementioned fertilizer sales, Baconco also earns some revenue from
factory space for rent (warehouse space) with a total area of 54,300 sq.m (including the
expansion phase of 8,200 sq.m. in Feb‐16). The rental warehouse now has 100% utilization
rate. While this business contributes a small portion to PMTA’s revenue, in the long term it
should help stabilize the firm’s revenue base.
Figure 19: PMTA’s revenue Figure 20: Sales volume vs. average selling price
0
200
400
600
800
1,000
1,200
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Btmn
Factory area leasing services Sales
13,500
14,000
14,500
15,000
15,500
16,000
16,500
17,000
17,500
18,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Bt/tontons
volume sales (ton) avg selling price (THB/ton)
Source: TTA, KTZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 11 of 14
Earnings to break even in 2016‐17E
We expect TTA’s bottom line to remain in the red at ‐Bt27mn in 2016E. Excluding extra items,
the firm may report a normalized loss of Bt42mn, down from a normalized loss of Bt256mn in
2015. The expected smaller loss should be attributed to a better operating performance at
MMT where the daily charter rate is expected to increase and the utilization rate is likely to
remain stable at 45%. In addition, UMS’s earnings are also expected to show a smaller loss
thanks to the recovery of the coal price. In 2017E, TTA’s earnings are projected to rebound to a
slight net profit of Bt55mn. While all of TTA’s businesses are expected to recover, its overall
performance may be pressured by expected smaller profit contributions from affiliates
because the daily charter rate for AOD is likely to be reduced. Meanwhile, interest and
depreciation expenses are likely to rise as a result of borrowing to fund the three newly‐built
vessels at MMT. We expect the firm’s earnings to show outstanding growth again in 2018E.
Figure 21: Major assumptions behind earnings forecasts for TTA 2015 2016E 2017E 2018EBulk ships
Number of dry bulk vessels (ships) 38 29 29 29
TC rate (US$/vessel/day) 7,507 5,000 5,750 8,000
MMT
Subsea Utilization rate (%) 65 45 46 48
Subsea day rate (‘000 US$/day) 78 81 83 85
MTR‐3, MTR‐4 Utilization rate (%) ‐ ‐ 40 45
MTR‐3, MTR‐4 day rate (US$/day) ‐ ‐ 50 55
PMTA
Sales volume (‘000 tons) 199 199 208 219
Average price (Bt/ton) 16,412 16,084 16,084 16,084
UMS
Sales volume (tons) 0.26 0.16 0.16 0.17
Average price (Bt/ton) 2,221 2,443 2,565 2,565
Revenue (Btmn) 21,426 14,842 16,932 19,040
Bulk Ships 5,756 3,623 3,983 4,904
MMT 11,834 7,680 9,203 10,191
PMTA 3,259 3,193 3,353 3,521
UMS 578 347 393 425
Revenue growth (% YoY) (4.1) (30.7) 14.1 12.5
Bulk Ships (24.9) (37.1) 9.9 23.1
MMT 8.8 (35.1) 19.8 10.7
PMTA 5.5 (2.0) 5.0 5.0
UMS (18.8) (40.0) 13.3 8.2
Blended gross profit margin (%) 8.4 11.7 12.0 13.6
Shared profit from affiliates (Btmn) 823 635 558 794
Normalized profit (loss) (256) (42) 55 473
Net profit (loss) (11,335) (26) 55 473
Source: TTA, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 12 of 14
Earnings to rebound to profit in 2H16
TTA reported a larger net loss of Bt31mn in 2Q16. The YoY earnings deterioration was caused
by a 41%YoY fall in its revenue on the back of lower TC rates as well as lower revenue
contributions from MMT and PMTA. However, on a QoQ basis, the loss was reduced
significantly as the TC rates continued to improve and the charter rates for MMT’s vessels
increased. The outlook for TC rates in 2H16 seems more promising than in 1H16 (based on the
average BDI in 3Q16 that increased by 20%QoQ). Meanwhile, UMS is expected to see a smaller
loss as the coal price is likely to be on the rise. Moreover, the utilization rate and the charter
rate of MMT are likely to remain stable. For these reasons, we believe TTA’s earnings will
rebound to the black in 2H16. Figure 22: 2Q16 earnings review Profit and Loss (Btmn) % % % YTD
Year‐end 31 Dec 2Q15 1Q16 2Q16 YoY QoQ 1H16 YoY 2016E % of 16E
Revenue 5,999 2,957 3,532 (41.1) 19.4 6,488 (38.6) 14,842 43.7
Gross profit 830 71 542 (34.6) 668.7 613 (14.8) 1,733 35.4
SG&A expenses (846) (394) (552) (34.8) 40.0 (946) (38.0) (1,921) 49.2
EBITDA 559 41 352 (37.0) 750.2 394 81.4 1,280 30.8
Interest expenses (130) (151) (146) 11.6 (3.9) (297) 15.0 (549) 54.1
Other income 95 80 92 (3.2) 14.9 173 40.8 338 51.1
Income tax (82) (4) (10) (88.5) 156.9 (13) (87.8) (32) 41.5
Forex gain (loss) ‐ ‐ 16 ‐ ‐ 16 (61.7) 16 100.0
Gn (Ls) from affiliates 345 191 156 (54.8) (18.5) 347 (51.0) 635 54.7
Net profit (loss) (9) (231) (31) 230.5 (86.7) (261) 5.7 (27) 978.8
Normalized profit (loss) (9) (231) (46) 399.9 (79.9) (277) (18.9) (42) 653.5
Reported EPS (Bt) ( 0.01) ( 0.13) ( 0.02) 230.4 (86.7) (0.14) 5.7 (0.01) 978.8
Gross margin (%) 13.8 2.4 15.4 9.4 11.7
EBITDA margin (%) 9.3 1.4 10.0 6.1 8.6
Net margin (%) (0.2) (7.8) (0.9) (4.0) (0.2)
Current ratio (x) 2.4 1.6 1.3 1.3 1.6
Interest coverage (x) (0.1) (2.1) (0.1) (1.1) (0.3)
Debt/equity (x) 0.5 0.6 0.6 0.6 0.4
BVPS (Bt) 17.5 11.9 11.8 11.8 11.8
ROE (%) (0.1) (4.3) (0.6) (2.4) (0.1)
Source: TTA, KT ZMICO Research
Financial Position Three newly‐built vessels to push net D/E up slightly
Given the schedules for deliveries of three newly‐built vessels for MMT, with 80% funding
expected to come from borrowing, we expect TTA’s net D/E to increase slightly to 0.6x in
2017E, which keeps its financial position rather strong. Note that TTA continues to seek
investment diversification opportunities.
Figure 23: Forecasts for TTA’s CAPEX, free cash flow, and D/E ratio (Btmn) 2015 2016E 2017E 2018E
Cash flow from operation 635 2,628 570 805
CAPEX (8,051) 983 (13,692) (500)
Free cash flow (7,416) 3,612 (13,122) 305
Net debt to equity (x) 0.04 cash 0.58 0.57
Source: TTA, KT ZMICO Research
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 13 of 14
Financial tables
PROFIT & LOSS (Btm) 2015 2016E 2017E 2018E Revenues 21,426 14,842 16,932 19,040 Cost of sales and service (19,622) (13,109) (14,893) (16,459) Gross profit 1,804 1,733 2,039 2,581 SG&A (2,543) (1,921) (2,183) (2,472) EBITDA 1,525 1,280 1,667 1,936 Depreciation & amortization (2,263) (1,467) (1,812) (1,827) EBIT (738) (187) (145) 109 Interest expense (570) (549) (593) (560) Other income / exp. 273 338 334 325 EBT (1,035) (398) (404) (125) Corporate tax (21) (32) (32) (38) Forex gain (loss) 0 16 0 0 Extra items (11,079) 0 0 0 Gain (loss) from affiliates 823 635 558 794 Minority interests (23) (248) (67) (159) Net profit (11,335) (27) 55 473 Reported EPS (6.22) (0.01) 0.03 0.26 Fully diluted EPS (6.22) (0.01) 0.03 0.26 Core net profit (256) (42) 55 473 Core EPS (0.14) (0.02) 0.03 0.26 Dividend (Bt) 0.00 0.10 0.10 0.13 BALANCE SHEET (Btm) 2015 2016E 2017E 2018E Cash and equivalents 13,423 11,459 4,111 1,132 Inventories 334 313 363 406 PP&E‐net 18,387 18,361 30,864 30,436 Other assets 13,202 11,241 11,272 11,597 Total assets 45,346 41,374 46,610 43,571 ST debt & current portion 7,256 6,986 3,490 1,490 Long‐term debt 7,136 3,539 12,990 11,888 Total liabilities 18,358 14,346 19,643 16,209 Minority interests 5,372 5,620 5,686 5,845 Shareholder equity 21,616 21,408 21,281 21,517 Total liab. & shareholder equity 45,346 41,374 46,610 43,571
CASH FLOW (Btm) 2015 2016E 2017E 2018E Net income (11,335) (27) 55 473 Depreciation & amortization 2,263 1,467 1,812 1,827 Change in working capital 10,530 1,839 (739) (700) FX, non‐cash adjustment & others (823) (651) (558) (794) Cash flow from operations 635 2,628 570 805 Capex (Invest)/Divest (500) 983 (13,692) (500) Others (7,551) 0 0 0 Cash flow from investing (8,051) 983 (13,692) (500) Debt financing (repayment) (1,113) (3,868) 5,956 (3,102) Equity financing 7,299 0 0 0 Dividend payment (539) (182) (182) (182) Cash flow from financing 5,647 (4,050) 5,773 (3,284) Net change in cash (1,769) (439) (7,348) (2,979) Free cash flow (7,416) 3,612 (13,122) 305 FCF per share (Bt) (4.07) 1.98 (7.20) 0.17 PROFITABILITY 2015 2016E 2017E 2018E Revenue growth (%) (4.1) (30.7) 14.1 12.5 EBITDA growth (%) (39.0) (16.1) 30.3 16.1 Norm. EPS growth (%) (122.9) (83.5) n.m. n.m. Gross margin (%) 8.4 11.7 12.0 13.6 EBITDA margin (%) 7.1 8.6 9.8 10.2 Operating margin (%) (3.4) (1.3) (0.9) 0.6 Net margin (%) (52.9) (0.2) 0.3 2.5 Core profit margin (%) (1.2) (0.3) 0.3 2.5 Effective tax rate (%) (2.0) (8.0) (8.0) (8.0)
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 14 of 14
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore,
prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully.
An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG.
A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, PACE, TPOLY, M‐CHAI, TFD, SUTHA,
EARTH. KT ZMICO is a co‐underwriter of RJH, BCPG, ITEL, SQ, ALLA.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD)
Excellent (scores: 90 ‐ 100) Satisfactory (scores: 60 – 69)
Very Good (scores: 80 – 89) Pass (scores: 50 – 59)
Good (scores: 70 – 79) No Logo N/A (scores: below 50) Anti‐corruption Progress Indicator
Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in
compliance with all relevant laws.
Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives
Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes
Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.)
Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases
Insufficient or not clearly defined policy
Data not available / no policy
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 SECTOR RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between ‐10% to +15%; returns expected to exceed market returns over a six‐month period due to specific catalysts UNDERPERFORM: Expecting total returns between ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months
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.
NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevantprimary market index 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.
KT•ZMICO Securities Company Limited 8th, 15th-17th, 19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok 10500
Telephone: (66-2) 695-5000 Fax. (66-2) 631-1709
Phaholyothin Branch 3rd Floor, Shinnawatra Tower II,
1291/1 Phaholyothin Road,
Phayathai, Bangkok 10400
Telephone: (66-2) 686-1500
Fax. (66-2) 686-1666
Ploenchit Branch 8th Floor, Ton Son Tower,
900 Ploenchit Road, Lumpini,
Pathumwan, Bangkok 10330
Telephone: (66-2) 626-6000
Fax. (66-2) 626-6111
Sindhorn Branch 2nd Floor, Sindhorn Tower 1, 130-132
Wireless Road, Lumpini,
Pathumwan, Bangkok 10330
Telephone: (66-2) 627-3550
Fax. (66-2) 627-3582, 627-3600
Viphavadee Branch G Floor, Lao Peng Nguan 1 Bldg.,
333 Soi Cheypuand, Viphavadee-Rangsit Road,
Ladyao, Jatujak, Bangkok 10900
Telephone: (66-2) 618-8500
Fax. (66-2) 618-8569
Chachoengsao Branch 108/34-36 Mahajakkrapad Road,
T.Namuang, A.Muang,
Chachoengsao 24000
Telephone: (038) 813-088
Fax. (038) 813-099
Chonburi Branch 4th Floor, Forum Plaza Bldg.,
870/52 Sukhumvit Road, T. Bangplasoy,
A. Muang, Cholburi 20000
Telephone: (038) 287-635
Fax. (038) 287-637
Pattaya Branch 382/6-8 Moo 9, T. NongPrue,
A. Banglamung, Cholburi 20260
Telephone: (038) 362-420-9
Fax. (038) 362-430
Khon Kaen Branch 5th Floor, Charoen Thani Princess Hotel,
260 Srichan Road, T. Naimuang,
A. Muang, Khon Kaen 40000
Telephone: (043) 389-171-193
Fax. (043) 389-209
Sriworajak Building Branch1st – 2nd Floor, Sriworajak Building, 222
Luang Road, Pomprab,
Bankgok 10100
Telephone: (02) 689-3100
Fax. (02) 689-3199 Central World Branch
999/9 The Offices at Central World,
16th Fl., Rama 1 Rd, Pathumwan,
Bangkok 10330
Telephone: (66-2) 673-5000,
(66-2) 264-5888 Fax. (66-2) 264-5899
Chiang Mai Branch 422/49 Changklan Road, Changklan
Subdistrict, Amphoe Meuang,
Chiang Mai 50100
Telephone: (053) 270-072
Fax: (053) 272-618
Phuket Branch 22/61-63, Luang Por Wat Chalong Road,
Talat Yai, Mueang Phuket,
Phuket 83000
Tel. (076) 222-811,(076) 222-683
Fax. (076) 222-861
Pak Chong Branch 173 175, Mittapap Road,
Nong Sarai, Pak Chong,
Nakhon Ratchasima 30130
Tel. (044) 279-511
Fax. (044) 279-574
Hat Yai Branch 200/301 Juldis Hatyai Plaza Floor 3,
Niphat-Uthit 3 Rd,
Hatyai Songkhla 90110
Telephone: (074) 355-530-3
Fax: (074) 355-534
Phitsanulok Branch Krung Thai Bank, Singhawat Branch
114 Singhawat Road,
Muang, Phitsanulok 65000
Telephone: 083-490-2873
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.
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
Nakhon Ratchasima Branch 624/9 Changphuek Road, .
Naimaung, A.Maung,
Nakhon Ratchasima 30000
Telephone: (044) 247222
Fax: (044) 247171
Cyber Branch @ North Nana Krung Thai Bank PCL, 2 Floor,
North Nana Branch
35 Sukhumvit Rd.,Klong Toey Nua
Subdistrict , Wattana District,
Bangkok 10110
Telephone: 083-490-2871
Nakhon Pathom Branch1156 Petchakasem Road,
Sanamchan Subdistrict,
Amphoe Meuang ,
Nakhon Pathom Province 73000
Telephone: (034) 271300
Fax: (034) 271300 #100