Sino-Thai Engineering and Construction

Buy; Bt11.40

Price Target : Bt16.80 (Prev: Bt12.80)

·      Record high backlog of Bt56bn will ensure 3 years revenue stream

·      Upside from potential public and private contract following floods

·      Compelling 47% upside potential to our upgraded Bt16.8 TP, pegged to 4x FY12F PBV; reiterate Buy, STEC remains our top pick in the sector

Superior earnings visibility. STEC has signed Bt42bn worth of new contracts YTD following its most recent with the Royal Navy to construct a hospital, taking its backlog to a record high. Coupled with its strong financial position, STEC is now able to selectively bid for projects that yield attractive margins. Hence, going forward, it should be able to maintain the 8.5% average gross margin achieved in the past few quarters.   

Massive post-floods reconstruction work ahead. There are still no details on the Bt800bn earmarked for the so-called “New Thailand” for post-flood rehabilitation and building water management. However, as one Thailand’s leading contractor, STEC should stand to receive more contracts from both public and private sector next year.

Reiterate BUY. STEC remains our top pick in the sector for its: (i) record backlog, (ii) strong financial position, (iii) positive news flow in the sector, and most importantly, (iv) strong corporate governance. Additionally, this contractor offers substantial 47% upside to our target price.