CH. Karnchang

CH. Karnchang Plc (CK)

Beat estimate on gain on fair value measurement
CK reported a 1Q13 net profit of Bt5.07bn, up by 4584% YoY and 1904% QoQ, due mainly to a Bt2.2bn gain on the sale of an 11% stake in TTW to BECL and a Bt3.8bn gain on a fair value measurement (at the transition date) of its remaining 19% stake in TTW. Even excluding the extra gains, core profit still shot up 195% YoY to Bt319m, driven by stronger construction income.
Results highlights
Revenue rose by 90% YoY and 18% QoQ to Bt8.1bn, led by a bigger backlog on-hand. Gross margin was sustained strong at 10.1% in 1Q13, relatively unchanged from the previous two quarters.
The SG&A/sales ratio declined to only 3.96% from 6.94% in 1Q12 and 5.5% in 4Q12, thanks to effective cost control and the achievement of economies-of-scale following a big jump in revenue.
The huge extra gains brought down net gearing to only 1.48x at end-March, from 2.69x at YE12.
Outlook
2Q13 should be another strong quarter. The current backlog of Bt110bn should continue driving the top-line going forward. Moreover, the bottom-line should get another boost during the quarter from a gain of around Bt1bn from selling a 7.97% stake in BMCL.
What’s changed?
We have revised up our FY13 earnings forecast by 89% to factor in the gain on the fair value measurement. Given that it is a non-cash transaction and has no impact on CK’s fundamentals, our YE13 target price remains unchanged.
Recommendation
Our BUY rating stands. We believe CK’s earnings super-cycle has just kicked off and should last for at least the next couple of years, supported by a large backlog on-hand and upcoming tenders for mega projects.