Ch Karnchang

Price Target : Bt9.50 

Backlog could reach record high of Bt139bn, lifting backlog/revenue ratio to 9.5 in FY12F

Potential upside from post-flood reconstruction and water management infrastructure contracts

Maintain BUY, SOP-TP raised to Bt9.5

Expect to sign Bt106bn worth of contracts for mega projects. These could raise CK’s backlog by over 4-fold to a record high of Bt139bn from Bt30.8bn currently. The three projects are (i) construction of the 1,260MW Xayaburi hydropower plant worth Bt76bn, (ii) Light Green mass rapid transit line worth Bt13.2bn, and (iii) Si-rat expressway extension worth Bt17bn. It is expected to sign these contracts by mid-2012. Excluding potential contracts for post-flood reconstruction and water management infrastructure, its backlog-to-FY12F revenue ratio stands at a 9.5, securing our forecast revenue for several years ahead.

Flood will affect FY11 core earnings. Three projects with a total of Bt8.7bn remaining backlog (28% of current backlog) have been affected by the floods, prompting us to revise down FY11F core earnings by 3%. But construction and revenue recognition should accelerate in 1Q12, after the floodwaters recede. And the expecting signing of three contracts worth Bt106bn should improve CK’s earnings profile substantially.   

Reiterate BUY. We raised target price to Bt9.5 from Bt7.65, based on sum-of-parts valuation. It implies 2.3x FY12 PBV against its historical average of 2.4x. There is 27% upside to our target price from current levels.