Development: 64% y-y growth in 4Q08 recurring earnings in line with our expectation

Development: 64% y-y growth in 4Q08 recurring earnings in line with our expectation

• TTW reported recurring earnings of THB387m in 4Q08, up 64% y-y and 8% q-q. This came in line with our expectation. Earnings growth was driven by sales volume growth and a drop in interest expenses.

• Revenue grew 18% y-y and 3% q-q. TTW’s sales volume in 4Q08 grew 8% y-y but it dropped 0.4% q-q due to low seasons while PTW’s sales volume grew 8% y-y and 0.7% q-q. The average water tariff increased 10% y-y and 3.2% q-q in 4Q08 as 20% increase in minimum off-take quantity on July 21, 2008 allowed the company to charge PWA at full tariff for additional 50,000 cubic maters.

• Gross margin improved to 68% in 4Q08 from 67% in 4Q07 and 65% in 3Q08 due to an increase in the average water tariff.

• We like the company for long-term investment as tap water business is resilient to economy slowdown. The company’s sales volume is also guaranteed by the government (Provincial Waterwork Authority). A concern on deflation to impact the company’s water tariff adjustment could be offset by a fall in interest expenses as the company has now issued THB7b bonds to refinance its debts and fund its expansion project. There would be one-time early debt repayment fee of around THB120m booked in 1Q09 but the company will benefit in long term as its average coupon rates for the bonds would be around 4.6% while its current interest rate is 5.25%.

• With a full-year benefit from an increase in minimum off-take quantity, an increase in water tariff and a fall in interest expenses, we forecast TTW’s recurring earnings to grow 36% y-y in 2009. Our BUY call is maintained with a target price of THB5.6.