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
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Thoresen Thai Agencies TTA) · 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
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REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 14
...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.
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
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)
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
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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
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