1QFY16 net profit seen down 9.6% y‐y on lower sales volume of raw water and higher cost

　　We expect EASTW’s 1QFY16 net profit to fall 9.6% y‐y to Bt370mn on lower sales volume ofraw water and higher cost. Sales volume of raw water is expected to decline 5.7% to 65.19mncu.m. as EASTW diverted water from its Rayong reservoir to Chonburi but its water pipeline#1 from Nong Pla Lai to Nong Khor has reached its capacity, and decreased water transferringvolume in Chachoengsao in a bid to save water at a private reservoir while waiting for therainfall. Average selling price for raw water appears to remain flat at Bt10.70/cu.m. As for tapwater, sales volume is expected to grow 18.1% to 23.07mn cu.m. in part due to acquisition ofEgcom Tara on August 31, 2015, and average selling price is likely to rise, given higher sellingprice from Egcom Tara. Combined with revenue from construction, lease and services,revenue from sales and services are expected to grow 3.5% to Bt1,116mn. Cost wouldincrease 18% on higher cost of raw water production due to water diversion, purchase of rawwater from the private parties’s natural water reservoir, consolidated cost of Egcom Tara, andamortization charges of intangible assets (Bt120mn per year) from the acquisition of EgcomTara. SG&A expense would increase by 5.3% and this moderate increase would attribute toEASTW’s cost control, which seemingly helped mitigate impact from higher cost in itssubsidiary UU.

　　2QFY16 outlook brighter on more water diversion from an opening of Nong Pla Lai ‐ NongKor water pipeline #2

　　As Thailand enters the rainy season around late 2QFY16, a predictable seasonal rainfall willlikely alleviate tight water reserves, particularly in Chachoengsao where EASTW sources rawwater from private parties. Also, an opening of Nong Pla Lai – Nong Kor water pipeline #2 inlate April is expected to help diverse more water from Rayong to Chonburi. Hence, salesvolume of raw water should pick up. The water diversion however would cause electricitycharges higher but a cut of Ft in January – August would help mitigate impact since electricityexpense accounts for 42% of raw water production cost and 20% of tap water production.

　　Nevertheless, the company’s water reserve and water diversion problems should be resolvedafter its work‐in‐progress projects—Tabma reservoir, Prasae – Nong Pla Lai water pipeline,and Chonburi water pipeline—complete in late 2016. EASTW is expected to shoulder heavierburden on high capex beforehand and the company has a plan to ask for higher rate of rawwater for 2017.

　　FY16 earnings projection unchanged, ‘NEUTRAL’ rating maintained with target price ofBt12.60

　　We forecast FY16 revenue of Bt4,921mn and net profit of Bt1,492mn, representing decline of5.9% y‐y. Our target price is Bt12.60, pegged to P/E of 14x and we reiterate a ‘NEUTRAL’rating on EASTW.