Sino-Thai Engineering & Construction

Sino-Thai Engineering & Construction Plc (STEC)
 

Beat our estimate: STEC reported an impressive 1Q12 net profit of Bt301m, up by 81% YoY and 37% QoQ. The figure overshot our estimate of Bt214m by a country mile, due mainly to higher-than-expected gross margin and interest income.
Results highlights: The top-line increased in line with our estimate by 26% YoY and 24% QoQ to Bt4.3bn, as the company had significantly more ongoing work during the quarter. 1Q12 gross margin was 9.05%, fatter than our estimate of 8.76%. The SG&A/sales ratio was 2.89%, in line with our model.
Interest income was Bt39m in 1Q12, up by 270% YoY, due to an expanding pile of cash on-hand. STEC’s net cash position rose to Bt5.2bn (Bt4.4/share) at end-March 2012 from Bt3.2bn YE11.
Outlook: Despite the resumption of tax expenses, once it burns through the last of its tax shield in 1Q12, STEC’s profitability expansion should sustain momentum through to year-end, thanks to its large and high-quality backlog on-hand.
What’s changed? We have upgraded our FY12 earnings forecast by 11% to reflect the strong 1Q12 performance and the promise of sustained gross margin growth momentum. As a result, our YE12 target price rises to Bt15.90 from Bt14.60. Our new target price implies an FY12 PER of 17.2x and a YE12 PBV of Bt3.0x.
Recommendation: STEC is the only big contractor whose fundamentals make it worthy of taking a position in. It has the clearest earnings visibility and the healthiest balance sheet in the sector, making it the best and safest play in the sector. BUY!