SET Announcements

account for Bt. 9.28 million and Bt. 0.05 million respectively for 2006 (being the actual figures prevailing in 2006 which is the base year). In 2007, we have projected the R&M cost based on the inflation rate, while the cost of machinery and equipment maintenance and the miscellaneous expenses are estimated at Bt. 10 million and Bt. 0.05 million respectively, under the same assumption that the inflation rate will remain constant at 3% per year between 2008 and 2023 which is the end of the concession period. 4. Selling and administrative expenses We have estimated selling and administrative expenses for 2007 based on the actual figures incurred in 2006. Personnel expenses are projected to increase at a constant rate of 7% per year (estimated from inflation plus cost of living) from 2007 to 2023, while other expenses are estimated under the assumption that the inflation rate will remain constant at 3% per year between 2008 and 2023. 5. Financial cost Financial cost will correlate with the interest rates on long-term loans from shareholders, long-term loans from financial institutions, and overdraft loans. It is projected based on the terms and conditions under the individual loan agreements made by PTW with each lender. 6. Corporate income tax We project that PTW will be subject to the full tax rate of 30% from 2011 onwards. In the past years, it had enjoyed tax benefits under the BOI promotion certificate no. 1739/1996 for the tap water business awarded on November 6, 1996, comprising exemption from corporate income tax on net profit earned from the promoted activity for an eight-year period from the date of first income earning (October 1998). As such, PTW must begin to pay such tax in October 2006. However, as it had a loss on tax brought forward from the preceding year, PTW was not obliged to pay the corporate income tax. 7. Capital expenditure Capital expenditure in 2006 is estimated from the actual figures at Bt. 7.73 million. Such amount is divided into two portions: Bt. 4.5 million for the assets used in tap water production and Bt. 3.23 million for the machinery and equipment. The machinery and equipment is projected to increase by the same rate of inflation growth of 3% per year during 2007-2023. For the assets used in tap water production, we set the assumption for the tap water supply contract between PTW and PWA (as described in Item 10 Concession agreement) in respect of the capacity expansion of 70,000 cu.m./day, which is expected to become operative in June 2008. We assume the assets used in tap water production will be amortized from the beginning of the commercial operation to the end of the concession term and the assets will be transferred to PWA after the expiry of the concession. 8. Goodwill Goodwill arises from PTW's acquisition of BJT shares worth Bt. 305 million, which resulted in a difference from the book value of BJT. We also assume an amortization of goodwill at a constant rate for a five-year period amounting to about Bt. 50 million a year from 2007 to 2011. 9. Working Capital Estimated from historical record of payment period and collection period of the Company in the past - Account receivables - PWA Average 30 days - Account receivables - OPCO Average 30 days - Account receivables - BJT Average 30 days (commence 2007) 10. Concession agreement PTW was awarded a 25-year concession by PWA, commencing on the first commercial operation date which was October 15, 1998. Under the concession, PTW is the sole authorized operator in the Pathum Thani - Rangsit areas. On September 15, 2006, it signed another contract with PWA for an additional supply of 70,000 cu.m./day of tap water. The key assumptions in our BJT's valuation are as follows: 1. PTW owns the entire shares in BJT throughout the projection period. 2. BJT's customers BJT's main business is to provide O&M and quality control service on public utilities. It has only two customers, PTW and Amata Water Co., Ltd. (divided into 70 : 30 propotion which based on year ended actual). 3. Revenues from sales of tap water We have projected the service fee based on the same inflation rate assumption as that of PTW. Here are the details of each customer: 3.1 PTW The average service fee (including salary, security, chemical, energy, disposal of sludge, water quality taste and other expenses) is Bt. 0.79/cu.m. in 2006 (this is the actual rate prevailing in 2006 which is the base year). For 2007, the average fee (including salary, security, chemical, energy, disposal of sludge, water quality taste and other expenses) will be Bt. 2.40/cu.m. (this is based on the actual figures incurred in January and February 2007). As PTW has terminated the O&M contract with OPCO as from 2007, it accordingly is to pay the service fee only to BJT. Thus, the service fee is different in 2006 and 2007. The average production output from 2006 to the end of the concession term in 2023 will be as follows: - 2006 = 0.294 million cu.m./day (based on actual) - 2007 = 0.330 million cu.m./day - 2008 = 0.345 million cu.m./day - 2009 = 0.358 million cu.m./day (from 2009 onwards the projected average output will equal the minimum off-take quantity of 0.358 million cu.m./day) The minimum availability rate throughout the concession period not exceeding 0.288 cu.m. / day. On 15th September 2006, it signed another contract with PWA for an additional supply of 70,000 cu.m./day of tap water. 3.2 Amata Water Co., Ltd. ("AMT") Amata Water Co., Ltd. ("AMT"), with office at 700/2 Moo 1, Khlong Tamru Subdistrict, Muang District, Chon Buri Province, has employed BJT to set up a tap water production system for the industrial estate and to operate the tap water piping network & pumping system, phases 1-7. The service fee is based on the contract between AMT and BJT and is subject to adjustment by the calculation formula specified in the contract. 1. Amata Nakorn Phase 1 & 2 (AMT 1): The service fee is Bt. 0.211 million/month (contract period of January - October 2006) and Bt. 0.200 million/month starting November 2006 because the contract is made on a monthly basis (this is the actual rate prevailing in 2006 which is the base year). For 2007, the average service fee is Bt. 0.200 million/month (based on the actual fee prevailing in January and February 2007), during March - October 2007 and for every November and December, the said fee is projected to rise at the same constant rate of inflation growth of 3% per year over 2008-2023. 2. Amata Nakorn Phase 4 (AMT 2): The service fee is Bt. 0.148 million/month (contract period of January - October 2006) and Bt. 0.150 million/month starting November 2006 because the contract is made on a monthly basis (this is the actual rate prevailing in 2006 which is the base year). For 2007, the average service fee is Bt. 0.150 million/month (based on the actual fee prevailing in January and February 2007), during March - October 2007 and for every November and December, the said fee is projected to rise at the same constant rate of inflation growth of 3% per year over 2008-2023. 3. Amata Nakorn (AMT3): The service fee is an average of Bt. 3.45/cu.m. (this is the actual rate prevailing in 2006 which is used as the base year). For 2007, the service fee will be an average of Bt. 3.61/cu.m. (this is the actual rate of inflation 4.70 in 2006). We project the service fee will grow by the same rate of inflation growth of 3% per year, constant over 2008-2023. 4. Amata City (AMT4): The service fee is Bt. 0.131 million/month (contract period of January - October 2006) and Bt. 0.133 million/month starting November 2006 because the contract is made on a monthly basis (this is the actual rate prevailing in 2006 which is the base year). For 2007, the average service fee is Bt. 0.133 million/month (based on the actual fee prevailing in January and February 2007), during March - October 2007 and for every November and December, the said fee is projected to rise at the same constant rate of inflation growth of 3% per year over 2008-2023. 5. Amata City (AMT 5): The service fee is Bt. 0.128 million/month (contract period of January - October 2006) and is at an average Bt. 2.60/cu.m. commencing November 2006 because the contract is made on a monthly basis (this is the actual rate prevailing in 2006 which is the base year). For 2007, the service fee will be an average of Bt. 2.6/cu.m. (based on the actual fee prevailing in January and February 2007) during March - October 2007 and for every November and December, the said fee is projected to rise at the same constant rate of inflation growth of 3% per year over 2008-2023 which is total of value the year, its divided by 12 months, using the following formula: [(Service fee in forgoing year X First 10 months of current year) + ((Service fee in forgoing year X (1+Inflation rate)) X Last 2 months of current year] 6. Amata Nakorn (AMT 6): The service fee is Bt. 0.100 million/month (contract period of April 2006 - March 2007) this is the actual rate prevailing in 2006 which is the base year and January - March 2007 which is projected to rise at the rate of inflation. For 2007, the average service fee is Bt. 0.105 million/month during April - December 2007 (based on the actual fee rate of inflation 4.70 in 2006), We project the service fee will grow by the same rate of inflation growth of 3% per year, constant over 2008-2023. 7. Amata City (AMT 7): The service fee is Bt. 0.66 million/month (this is the actual rate prevailing in 2006 which is the base year). We project the service fee will remain constant throughout the 17-year projection period (during 2007-2023). 4. Cost of service Cost of service broken down by customer is as follows: 4.1 PTW (under new O&M agreement) The chemical substance charge is an average of Bt. 0.4742/cu.m. and the average energy charge is Bt. 0.9688/cu.m. in 2006 (these are the actual rates prevailing in 2006 which is the base year). We project the chemical substance charge and energy charge will grow by the same rate of inflation growth of 3% per year, constant over 2007-2023. Administrative expenses consist of the key items as below: Salary is expected at around Bt. 21.33 million in 2006 (this is the actual figures incurred in 2006 which is the base year) and is projected to grow at a constant rate of 7% per year from 2007 through 2023. Fee on disposal of sludge and water quality test is roughly Bt. 5.78 million in 2006 (this is the actual rate prevailing in 2006 which is the base year) under the assumption that the inflation rate will remain constant at 3% per year between 2007 and 2023. Security guard fee is set to be Bt. 1.43 million in 2006 (this is the actual rate prevailing in 2006 which is the base year) and is estimated to increase at a constant rate of 6% annually from 2007 to 2023. Other expenses (including training, uniform, health insurance, chemical, material and equipment, repair and maintenance) are around Bt. 10.02 million in 2006 (this is the actual rate prevailing in 2006 which is the base year) and are projected to rise by a constant rate of 3% a year during 2007-2023. 4.2 AMT 1. Amata Nakorn (AMT 3): The chemical substance charge is an average of Baht 1.09/cu.m. and the average energy charge is Baht 1.01/cu.m. in 2006 (these are the actual rates prevailing in 2006 which is the base year). We project the two items to rise by the same rate of inflation growth of 3% per year during 2007-2023. For cost of service on chemical substance and energy, the total value will vary with the tap water distribution unit since the service encompasses the tap water production and piping system operation, hence a difference in cost from the entire seven units. 2. Amata City (AMT 5): The chemical substance charge is Baht 0.32/cu.m. on an average in 2006 (this is the actual rate prevailing in 2006 which is the base year) and is expected to increase by the same rate of inflation growth of 3% per year during 2007-2023. For cost of service on chemical substance, the total value will vary with the tap water distribution unit since the service encompasses the tap water quality control and piping system operation, hence a difference in cost from the entire seven units. AMT's administrative expenses Salary and other expenses on maintenance of machinery are set at approximately Bt. 9.96 million in 2006 and will grow by a constant rate of 3% per year from 2007 to 2023. 5. Selling and administrative expenses We estimate the selling and administrative expenses for 2007 based on the actual figures incurred in 2006 and expect that the personnel expenses will rise by a constant rate of 7% annually during 2007-2023. 6. Corporate income tax We project that BJT will be subject to a full tax rate of 30% annually as BJT has successively operated at a profit. 7. Capital expenditure For the capital expenditure in 2006, we assume there will be additional investments in machinery and equipment of Bt. 3 million, which will remain constant throughout the 17-year projection period. 8. Working Capital Estimated from historical record of payment period and collection period of the Company in the past - Account receivables - PWA Average 30 days - Account receivables - AMATA Average 45 days - Account receivables - Related cos. Average 60 days - Account receivables - Other Average 30 days Valuation Opinion for this basis Assuming that the Company is operated under the same management on a going concern basis and based on the underlying assumptions above, the Company is valued at Baht 337.10 to 402.41 per share, from 1.54 to 21.21 per cent higher than the indicative selling price. Summary of the results of the various valuation methods Ref. Valuation Approach Valuation Price % higher or lower than the (Baht per share) indicative selling price of Baht 332 per share 5.1.1 Book Value Method (43.80) n.a. 5.1.2 Adjusted Book Value Method 69.97 78.92% lower 5.1.3 Price to Earnings Ratio: P/E Method 81.44 - 85.09 74.37 - 75.47% lower 5.1.4 Price to Book Value: P/BV Ratio Method 107.05 - 114.40 65.54 - 67.75% lower 5.1.5 Discounted Cash Flow Approach 337.40 - 402.41 1.54 - 21.21% higher For the reasons stated above, we believe that the value derived from using the Book Value Method, the Adjusted Book Value Method, the Price to Earnings Ratio Method and Price to Book Value Ratio Method are not appropriate to determine the fair value of the Company's shares. Therefore, we conclude that the suitable approach is the Discounted Cash Flow valuation method as mentioned in Clause 5.1.5, which yields a valuation which is between 1.54 and 21.21 per cent higher than the indicative selling price. 7. Summary of the opinion of the Independent Financial Advisor 7.1 The Valuation Range We conclude that a suitable guide to evaluate PTW's share price is the Discounted Cash Flow approach. From this approach, the fair value of PTW's shares would be between Baht 337.10 and 402.41 per share. This represents a premium of 1.54 - 21.21 per cent to the indicative selling price of Baht 332 per share. 7.2 Reasons for the shareholders to vote in favor of the transactions The sale of PTW ordinary shares to TTW is aimed at shareholding restructure in the tap water business of the CK group and at further listing of TTW on the SET. Given a successful listing of TTW, the Company's shareholders will directly enjoy gains on the listing premium for the listing status of TTW. 7.3 Other crucial information for decision-making 7.3.1 As the selling price for PTW shares in this transaction will be in a range of Baht 332 - 365 per share while CK's average cost of investment in PTW is Baht 228.77 per share, if CK sells its entire stake in PTW to TTW and/or persons and/or legal entities having no connection with the Company, the Company will enjoy an average gain on such sale of Baht 103.23 - 136.23 per share. CK can record this as gains on sale of investments in the accounting period that the transaction takes place. Meantime, given that TTW buys PTW shares from CK at the price of between Baht 332 and 365 per share, TTW will have to recognize the goodwill from the difference between the book value and the purchase value at transaction date (PTW's adjusted book value will be Baht 69.97 per share. Such difference value will depend on the operational of PTW from 1st March 2007 until the transaction takes place). TTW can be accounted two ways based on two scenarios that TTW amortize the goodwill within the period specified in the accepted accounting standards or write off the goodwill in total amount. However, it is depends on an interpretation of the shareholding restructure between TTW and PTW is a business integration under the same management or under separated management. Finally, the decision on which method is to be used will be made jointly by TTW and its auditor. The decision making in this regard, is likely impacting TTW's performance during such amortization period. As well, CK (owning a stake of 47.69% of TTW's paid-up capital) will have to recognize the working results of TTW pro rata with its investments in TTW. 7.3.2 The price of PTW shares set at a minimum of Baht 332 up to Baht 365 per share is within the range of the valuated price figured out by the appraiser by the Discounted Cash Flow Approach, with the final price to be agreed upon by the two parties after TTW has obtained the approval from the shareholders who have no vested interest therein. Meantime, the Company still has to wait for the share valuation results from the Independent Financial Advisor, the approval of the PTW share sale transaction from shareholders' meeting and also higher than the Company's average acquisition cost. Nonetheless, the reasonable share price range valuated by the Financial Advisor in 7.1 above is higher than the minimum selling price of Baht 332 per share by 1.54% - 21.2%. For the above reasons and to ensure fairness and transparency in this transaction, the Company agreed to undertake as the recommendation of its Financial Advisor as follows: 3. As the share price of between a minimum of Baht 332 and maximum of Baht 365 per share is still under negotiation, the persons authorized to negotiate for and determine the final price must firstly put forward the matter to the Audit Committee's meeting for discussion and consideration in details before proceeding with the transaction. 4. After the final price has been agreed upon, the Company must so notify the SET and/or the shareholders immediately. Upon considering all the factors outlined above, we are of the opinion that the indicative selling price is fair and reasonable and that the shareholders should accept this transaction. Far East Securities Co., Ltd., as the Independent Financial Advisor, hereby certify that we have rendered our opinion regarding the above transaction with due care in accordance with professional standards taking into account the best interests of the minority shareholders. Yours Faithfully, Far East Securities Co., Ltd. Chaipant Pongtanakorn Pornpin Chaivikrai ( Dr.Chaipant Pongtanakorn) (Miss Pornpin Chaivikrai) Chief Executive Officer Senior Executive Vice President