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

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


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


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


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


Figure 9: TTA’s company structure

Source: TTA


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


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.


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.


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


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


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


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)


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



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)


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

Documents

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