TDM – Cash dividend to be paid in May, seeking loan from JICA & ADB for cheap funding – AGM note
  • 2024-03-28T00:00:00
  • Company Research
  • We attended TDM’s annual general meeting (AGM) in Binh Duong Province on March 28, 2024. Overall, TDM’s management is optimistic in its business and M&A strategies and expects to solidly grow in the years to come. TDM also expects BWE to return to cash dividends from 2024 onwards.
  • TDM’s 2M preliminary results are broadly in line with our forecast. TDMs management explained that TDM’s slower sales volume growth than BWE (4% YoY vs 10% YoY) is due to Di An district’s seasonally lower demand in the first quarter (specifically 4% YoY for 2M 2024).
  • TDM’s management sets its 2024 guidance with sales volume of 71.2 million cubic meters (+5% YoY), revenue from water generation of VND497bn (+5% YoY), and NPAT of VND193bn (-32% YoY), which is in line with our expectations (NPAT is equivalent to 96% of our forecast).
  • Water tariff increase of 5% p.a. to be approved at the end of 2024. According to Mr. Thien, Chairman of BWE, the company’s water tariff hike proposal of 5% p.a. is expected to be approved at the end of this year, which is slightly higher than our assumption (3% increase p.a.)  and six months sooner than our forecast (mid July, 2025). We believe that TDM can raise its water tariff in proportion to BWE’s tariff increase and are waiting for more developments to factor in the new assumptions.
  • Total capex plan is estimated at VND1,041bn and is in line with our forecast. The Di An pipeline project is expected to finish by end-April, 2024, while the Bau Bang waterplant project finishes its paperwork by ~70% and is finalizing several environment & society impact evaluations required by the Japan International Cooperation Agency (JICA) & ADB – its potential loan provider with competitive USD loan financing.
  • Shareholders approved the cash dividend payment for 2023 at VND1,400/share, which is expected to be paid on May 15, 2024.
  • Shareholders approved the preliminary plan to pay a cash dividend for 2024 of at least VND1,400/share vs our forecast of VND1,500/share.
  • We currently have a MARKET PERFORM rating for TDM with a target price of VND42,100/share.

 

TDM’s 2M prelim results are broadly in line with our forecast. The sales volume/revenue/NPAT for the 2M 2024 were 9.4 million cubic meters (+4% YoY), VND66bn (+6% YoY), and VND22bn (+9% YoY), respectively. These fulfil 13%/12%/11% of our respective full-year forecasts and are broadly in line with our expectations, as Q1 is usually a low season. TDM’s 2M sales volume growth is 4% YoY while that of BWE is 10%. TDM’s management explains that the Di An area is surrounded by industrial parks and in Q1 when the Tet holiday occurs, factories and residential areas are vacated, thus producing a lower water demand. We note that TDM’s current major water plant is in Di An, with a designed capacity of 200,000 cbm/day and 2023’s average volume of 157,806 cbm/day.

TDM’s management sets its 2024 guidance with sales volume of 71.2 million cubic meter (+5% YoY), revenue from water generation of VND497bn (+5% YoY), and NPAT of VND193bn (-32% YoY). These are equivalent to 100%/99% and 96% of our current 2024 respective forecasts. The lower YoY NPAT target is due to the substantial decrease in TDM’s financial revenue from BWE due to the latter’s stock dividend policy instead of cash dividends in 2024, which is in line with our expectation. TDM’s management also stated that this is a one-off event and BWE will return to cash dividends starting from FY2024.

TDM successfully raised capital by 10%. In February 2024, TDM’s 10% rights issuance has been fully subscribed at VND30,000/share. The total outstanding shares after distribution (expected Q2 2024) are 110 million shares, comprised of 95.4% domestic and 4.6% foreign shareholders. The VND300bn raised capital is used to acquire a 25% stake in Can Tho Water Supply Sewerage JSC (UPCoM: CTW; VND143bn), a 24% stake in Ca Mau Water Supply SJC (UPCoM: CMW; VND54bn), coming due loans from Binh Duong’s investment and development fund (VND94bn), and loans from Shinhan Bank Vietnam (VND9bn). 

Total capex plan is estimated at VND1,041bn with two major projects. The water pipeline project in Di An with a length of 4.38 km and capex of VND276bn has fully obtained the necessary legal documents. Of the total capex, VND76bn (~27%) is from TDM’s working capital and the remaining is a long-term loan from Wooribank Dubai with a 7-year term and floating interest rate of SOFR 3M + 1.41%. The project’s construction commenced in November 2023 and is expected to finish by end-April, 2024. Meanwhile, TDM’s management plans to increase its Bau Bang water pipeline capacity, with an estimated capex of VND365bn. Aftewards, it will further invest VND400bn into its Di An and Bau Bang’s water plants’ capacity expansion. The financing source is from JICA and ADB, which TDM’s management believes that if the loan is approved, TDM’s credibility is confirmed. It expresses hopes to further expedite the process and ensuring the proposed schedule.

Gia Tan Water Plant (in which TDM has a 23% stake) in Dong Nai Province expects another losing year before break even. Gia Tan water plant reported a 2023 loss of VND71bn. The 2023 loss is due to its higher financial expenses (+157% YoY) and higher depreciation cost (+152% YoY), despite a triple-digit growth in revenue (+118% YoY). According to Gia Tan water’s 2024 AGM materials, revenue and NPAT guidance for 2024 are set at VN46bn and negative VN62bn, respectively. TDM’s management is optimistic that it will reach the break-even point and generate positive NPAT soon, following the expected demand from the Long Thanh highway and satellite industrial parks, as well as a lower financial expense. For FY2024, TDM guides for a loss provision of VND23bn from both the Gia Tan and Quang Binh water plants, ensuring the thoroughness of the 2024 NPAT guidance. They expect Gia Tan to break even in 2025 with potential sales volume of 35,000 cbm/day.

2023 fund allocation approved. Shareholders approved the 2023 NPAT allocation as follows: 1) 49% for the cash dividend, amounting to VND140bn (14% of par value on VND1tn capital charter), 2) 25% towards the development fund, 3) 5% towards bonus & welfare funds (of which 4% is for bonus fund), and 4) 3% to renumeration funds.

2024 fund allocation approved. Shareholders approved the 2024 NPAT allocation to the aforementioned funds with the same percentages in 2023The cash dividend is set to be at least 14% of the year-end capital charter, which is estimated at VND154bn on TDM’s newly raised capital charter of VND1.1tn.

Shareholders approved the procedure proposal for virtual and hybrid general meetings. TDM’s management proposed regulations for online and hybrid general meetings, in which shareholders can attend the general meetings (both annual and extraordinary general meetings) and cast their votes through the electronic voting system, using their provided identifiable accounts. Other procedures are similar to that of the in-person meetings.

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