Key Takeaway: TTCL 16 June 2016

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BUY

2016 TP: NR

Closing price: Bt21.50

Upside/downside NR

Sector Construction Services

Paid-up shares (shares bn) 0.56

Market capitalization (Bt bn) 12.04

Free float (%) 61.12

12-mth daily avg. turnover (Bt mn) 59.82

12-mth trading range (Bt) 33.00/14.60

Major shareholders (%) (21/4/2016)

Toyo Engineering Corporation 15.00

Thai NVDR 8.15

Global Business Management 6.90

MR.HIRONOBU IRIYA 6.10

ITD 3.29

Thailand Research Department

Vajiralux Sanglerdsillapachai

License, No. 17385

Tel: 02 680 5077

TTCL PCL (TTCL)

Poor EPC business but company structure is changing

► EPC margins decline further.

► 120 MW power plant in Myanmar to create over 50% of

company’s total net profits.

► PPA for 1,280 MW power plant to start construction in

2017. It will add huge value, but the risk is still very high

from delayed PPA, so we do not include in our estimate.

EPC margins decline further

TTCL is a construction company that designs and constructs

integrated petrochemical petroleum projects (engineering

procurement and construction (EPC)). A breakdown of the

company’s customers show 46% are domestic and 54% are

international. It has changed from small projects worth less than

US$200mn to US$200mn-US$500mn projects. This level faces

fierce competition and dragged TTCL’s gross profit margin (GPM)

down to 5-7% from its usual 10%+ in the past. The low margin

resulted in poor profit in 2014-2015, down 40%-50% from its

record high profit of Bt870mn in 2013. While GPM for construction

business was very low in 2014 and 2015 at 5.2% and 5.6%,

respectively, it was offset by high profit from the power business

which pulled GPM up to 6.4 % and 7.5%, respectively.

Main profit from 120MW power plant in Myanmar

TTCL recognized revenue of Bt675mn from the sale of electricity

from power plants in Myanmar (Ahlone Project) in 2015. With a

gross margin of about 67%, the power business accounted for

55% of the company’s net profit though it only accounted for 4%

of total revenue versus 96% of revenue coming from EPC.

EPC GPM improved but not good enough

The company’s current backlog is Bt30.8bn, with GPM improving

from a very low level over the last two years. This is because TTCL

has finished the Qatar’s Desalination Phase 1 project, which had

a GPM of only 4%. TTCL started Qatar Phase 2, and kept GPM at

6%-7%. However, the new backlog from the Rock Salt Exploitation

and Processing in Laos PDR and PTTGC’s LLDPE and Hexane-I

and work in Turkmenistan have GPM below 7%. We expect EPC’s

revenue to increase by 15% YoY in 2016, while power revenue

and net profit will be maintained.

Key Takeaway: TTCL 16 June 2016

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Pending power projects in Myanmar not included in estimate

The big project on hand for TTCL faces delays in PPA approval. The

1,280MW Ultra Super Critical Coal fired power plant project in Myanmar

got Memorandum of Understanding (MOU) in 1H13, and Memorandum of

Agreement (MOA), with legal commitments in 2Q15. This project is

expected to be granted Power Purchase Agreement (PPA) in 3Q16 and

start construction at the beginning of 2017. The project is valued at

US$3bn, with a three year construction period (2017-2019). TTCL, as the

main operator, will keep a backlog of US$1.5bn for its own work. After

commercial operations begin, TTCL will recognize net profit of

approximately Bt3mn per MW per year, or Bt3.5bn per year. This could

increase the market capitalization of TTCL by as much as Bt30bn or Bt55

per share (step up valuation at completion of each phase until the 2022).

This will be the turning point for TTCL’s valuation, but it faces high risk from

a delay to PPA and construction due to ongoing protests by local residents.

Comment: TTCL’s 2016 earnings are likely to increase from two years

ago, but EPC work still has margins below 7%, which is low compared to

contractors for civil work such as CK, STEC, UNIQ at 8-10%. The EPC

business environment has changed dramatically from the past. The

company focuses on the oil and gas market which is seeing fierce

competition. GPM is expected to stay below 10%, much lower when

compared to the past when its GPM was at 20%-40% during 2011-2013.

Fortunately, TTCL is beginning to rely on power plant business, although

it has not been granted PPA on the 1,280MW power plant in Myanmar yet,

the company will survive with net profit of approximately Bt500mn or EPS

of Bt1/share from its EPC work and its existing 120MW gas turbine power

plant in Myanmar. We are about to initiate coverage on TTCL and we will

report a complete valuation and recommendation later.

CG Report

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Corporate Governance Report disclaimer

The disclosure of the survey result of the Thai Institute of Directors

Association (“IOD”) regarding corporate governance is made pursuant

to the policy of the Office of the Securities and Exchange Commission.

The survey of the IOD is based on the information of a company listed

on the Stock Exchange of Thailand and the Market for Alternative

Investment disclosed to the public and able to be accessed by a

general public investor. The result, therefore, is from the perspective of

a third party. It is not an evaluation of operation and is not based on

inside information.

The survey result is as of the date appearing in the Corporate

Governance Report of Thai Listed Companies. As a result, the survey

result may be changed after that date, Asia wealth Securities Company

Limited does not conform nor certify the accuracy of such survey result.

Score Range Number of Logo Description 90 – 100 80 – 89 70 – 79 60 – 69 50 – 59

Below 50

No logo given

Excellent Very Good

Good Satisfactory

Pass N/A

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2015.

ADVANC BAFS BCP BIGC BTS CK CPN DRT DTAC DTC EASTW EGCO GRAMMYHANA HMPRO INTUCH IRPC IVL KBANK KCE KKP KTB LHBANK LPN MCOT MINTMONO NKI PHOL PPS PS PSL PTT PTTEP PTTGC QTC RATCH ROBINS SAMARTSAMTEL SAT SC SCB SCC SE-ED SIM SNC SPALI THCOM TISCO TKT TMBTOP VGI WACOAL

AAV ACAP AGE AHC AKP AMATA ANAN AOT APCS ARIP BMCL BOL BROOKBWG CENTEL CFRESH CHO CIMBT CM CNT COL CPF CPI CSL DCC DELTADEMCO ECF EE ERW GBX GC GFPT GLOBAL GUNKUL HEMRAJ HOTPOT HYDRO ICCICHI INET IRC KSL KTC LANNA LH LOXLEY LRH MACO MBK MC MEGAMFEC NBC NCH NINE NSI NTV OCC OGC OISHI OTO PAP PDI PEPG PJW PM PPP PR PRANDA PREB PT PTG Q-CON QH RS S&JSABINA SAMCO SCG SEAFCO SFP SIAM SINGER SIS SITHAI SMK SMPC SMT SNPSPI SSF SSI SSSC SST STA STEC SVI SWC SYMC SYNTEC TASCO TBSPTCAP TF TGCI THAI THANA THANI THIP THRE THREL TICON TIP TIPCO TKTKS TMI TMILL TMT TNDT TNITY TNL TOG TPC TPCORP TRC TRU TRUETSC TSTE TSTH TTA TTCL TTW TU TVD TVO TWPC UAC UT UVVNT WAVE WINNER YUASA ZMICOVNT WAVE WINNER YUASA ZMICO

2S AEC AEONTS AF AH AIRA AIT AJ AKR AMANAH AMARIN AP APCOAQUA AS ASIA AUCT AYUD BA BEAUTY BEC BFIT BH BIG BJC BJCHIBKD BTNC CBG CGD CHG CHOW CI CITY CKP CNS CPALL CPL CSCCSP CSS CTW DNA EARTH EASON ECL EFORL ESSO FE FIRE FOCUS FORTHFPI FSMART FSS FVC GCAP GENCO GL GLAND GLOW GOLD GYT HTC HTECHIEC IFEC IFS IHL IRCP ITD JSP JTS JUBILE KASET KBS KCAR KGIKKC KTIS KWC KYE L&E LALIN LHK LIT LIVE LST M MAJOR MAKROMATCH MATI MBKET M-CHAI MFC MILL MJD MK MODERN MOONG MPG MSC MTIMTLS NC NOK NUSA NWR NYT OCEAN PACE PATO PB PCA PCSGH PDGPF PICO PL PLANB PLAT PPM PRG PRIN PSTC PTL PYLON QLT RCIRCL RICHY RML RPC S SALEE SAPPE SAWAD SCCC SCN SCP SEAOIL SIRISKR SMG SOLAR SORKON SPA SPC SPCG SPPT SPVI SRICHA SSC STANLY STPISUC SUSCO SUTHA SYNEX TAE TAKUNI TCC TCCC TCJ TEAM TFD TFI TICTIW TLUXE TMC TMD TOPP TPCH TPIPL TRT TSE TSR UMI UP UPFUPOIC UREKA UWC VIBHA VIH VPO WHA WIN XO

Source: Thai Institute of Directors (IOD)

CG Report

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ระดบ 1ACD AEONTS AFC AIRA AJ ALUCON AMC AQUA ARIP AUCT BAT-3K BIG BJCBLISS BMCL BOL BRR BSBM CBG CCET CCN CGD CMR CPH CSC CSPCTW DCON DRACO DSGT DTCI E EMC ESSO FOCUS FSMART GIFT GLANDGRAND GUNKUL HFT HTECH IHL ILINK ITD JSP KDH KTIS KTP LEE LSTMAJOR MATCH MAX M-CHAI MDX MIDA ML MPIC NC NEP NNCL NWR OHTLPICO PK PL PPM PRAKIT PRECHA PRIN PSTC PYLON RAM RICH RS SANKOSAUCE SAWAD SAWANG SCN SEAFCO SF SHANG SIRI SMART SMM SOLAR SPACK SPGSPPT SPVI STA STAR SVH SVOA SWC TAPAC TC TCCC TCJ TCOAT THTKS TNH TNPC TPA TPAC TPOLY TRC TRUBB TSE TTA TTI TTL TTTMTWP TWZ U UMS UPA UPOIC UTP UVAN VARO VI VIBHA VIH VTEWG

ระดบ 22S ABICO AF AKP AMARIN AMATA AOT APCO AYUD BEAUTY BFIT BH BKDBLAND BTNC CCP CI CSR CSS EFORL EPCO FE FNS FVC GEL GLOBALHEMRAJ IEC IFS INET JUTHA KASET KCAR KKC KSL L&E LALIN LTX MMALEE MBK MBKET MEGA MK MPG MTLS NCH NCL NPP OCC OCEAN PBPCA PRINC QH ROCK RPC S&J SGP SIAM SIS SKR SMG SMIT SORKONSUSCO TAKUNI TEAM TF TIC TIP TIPCO TMC TMI TPP TRT TRU TRUETSC TSI TTW TVD TVO UKEM UNIQ UWC VNG WIIK WIN XO

ระดบ 3AABC ACAP ADVANC AEC AGE AH AIE AMANAH ANAN AP APCS APURE ASASIA ASIAN ASIMAR BIGC BROOK BTS BWG CEN CENTEL CFRESH CHARAN CHO CHOTICM CNT COL CPALL CPF CPI CPL DELTA DEMCO DIMET DNA DTAC EAECF EE EVER FPI GBX GC GFPT GLOW HMPRO HOTPOT ICC ICHI IFECINOX INSURE IRC JAS JTS JUBILE KC KTC KYE LHK LPN LRH MAKROMC MCOT MFC MFEC MINT MJD MONO MOONG NBC NDR NINE NMG NSINTV OGC PACE PCSGH PDI PG PHOL PLAT PPS PR PRANDA PREB PSQLT RATCH RML ROBINS ROJNA RWI SAMCO SCCC SCG SEAOIL SE-ED SENA SINGERSITHAI SMK SMPC SPALI SPC SPCG SPI SRICHA SSI STANLY SUPER SVI SYMCSYNEX SYNTEC TASCO TCMC TFI THAI THRE THREL TICON TKT TLUXE TNL TPCORPTMILL TMT TSTE TSTH TTCL TU TVI UOBKH UREKA VGI VNT WACOAL WHAZMICO

ระดบ 3BAAV AHC AI AIT AKR ARROW ASK BA BDMS BEC BECL BJCHI BUICGH CHG CHOW CIG CITY CK CKP COLOR CWT EARTH EASON EPG F&DFANCY FIRE FMT FORTH GENCO GL GOLD GPSC GRAMMY HYDRO IRCP IT JCTKCM KWC LH LIT LOXLEY MACO MANRIN MATI MODERN MSC NOBLE NOK NPKNUSA OISHI OTO PAF PAP PATO PF PJW PLANB PLE POLAR PRG PTLQ-CON QTC RCI S11 SALEE SAM SAMART SAMTEL SAPPE SC SCP SFP SIMSLP SMT SPA SPORT SSC SST STEC STPI SUC SUTHA T TAE TBSPTCC TFD TGCI TGPRO THANA THIP TIW TK TMW TNDT TOPP TPC TPCHTPIPL TSR TT TYCN UAC UBIS UEC UMI UP UPF UT UV VPOWAVE WINNER YUASA

ระดบ 4ASP BAFS BANPU BAY BBL BKI BLA CIMBT CNS CSL DCC DRT DTCEASTW ECL EGCO ERW FSS GCAP HANA HTC INTUCH IRPC IVL KBANK KCEKGI KKP KTB LANNA LHBANK MTI NKI PSL PTG PTTEP SABINA SCB SNCSNP SSF SSSC TCAP THCOM TISCO TIMB TMD TNITY TOG

ระดบ 5BCP CPN GYT PE PM PPP PT PTT PTTGC SAT SCC THANI TOP

ไมเปดเผยหรอไมมนโยบายA ACC AJD AQ BCH BGT BROCK BSM BTC CHUO CPR CRANE EICFER JMART JMT KAMART KBS KIAT LDC MBAX MCS METCO NEW NEWS NYTPAE PDG PERM PMTA POST RCL RICHY ROH S SIMAT TCB TR TSFTVT WORKหมายเหตระดบ 1 : มนโยบายระดบ 2 : ประกาศเจตนารมณระดบ 3 : มมาตรการปองกน ซงทง 2 กรณ ถอเปนผลการประเมนในระดบเดยวกน

3A : บรษทมการประกาศเจตนารมณเขารวมโครงการ CAC หรอภาค3B : บรษทมค ามน และนโยบายของบรษท แตมไดประกาศเจตนารมณเขารวมโครงการ CAC หรอภาค

ระดบ 4 : ไดรบการรบรองระดบ 5 : ขยายผลสผท เกยวของ

ขอมล Anti-Corruption Progress Indicator ของบรษทจดทะเบยน

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