Sino-Thai Eng & Con

Sino-Thai Eng & Con Plc (STEC)
2Q13F net profit Bt313mn, -22% QoQ, +18% YoY. 2Q13F sales are estimated at
~Bt5.5bn, -1% QoQ and +24% YoY, little changed from first quarter. Gross margin is
estimated to have declined to 9.0% from 9.4% in 1Q13. SG&A to sales is estimated at
2.5%, down QoQ due to better economies of scale after passing breakeven in 2011. The
unimpressive item is other income. STEC had huge short-term investment of nearly
Bt6bn; Bt8bn when including cash on hand as of end-1Q13, but with the fluctuation in
the money market, return on investment had to be marked to market at the end of
quarter. This leads us to expect other income in 2Q13 of Bt60mn, half the Bt125mn in
1Q13. 1H13 earnings are estimated at Bt716mn, accounting for 47% of 2013F.
Latest backlog at Bt77bn. In July, STEC signed two contracts worth more than
Bt1.8bn. One is for the construction of structure, architecture and landscaping for
Pattaya Country Club, valued at Bt119mn, starting in mid-2013 and finishing in October
2014. The second contract, signed on June 28, is to design and build Buriram
International Circuit. This contract is valued at Bt1.7bn and construction will take place
from June 28 this year to October 4, 2014. These projects bring backlog to Bt77bn, with
Bt21.4bn added this year, more than half STEC 2013 target of Bt30-40bn.
Major active project update: Large public projects: 1) Red Line contract 1, with the
SRT, valued at Bt17mn, is on schedule; 2) Purple Line contract 2, with the MRTA, valued
at Bt13bn, is 70% completed and STEC expects to close the project in 2014; 3) Blue Line
contract 4, with the MRTA, valued at Bt12.4bn, is also on schedule. The MRTA is
expected to open bidding for the Green Line (Mor Chit-Saphan Mai-KuKod) and the
Pink Line in October 2013, with bidding for the Orange Line also expected to open
before the end of 2013. Another project with high return is “erection of steel module
for STPI” valued at Bt2.54bn. This does not include raw material cost and primarily
requires the actual manual labor. This will give STEC as much cash as from its large
state projects. This project will start in 3Q13 and run to 3Q15. Power plant construction
is one of its strong points and at this time STEC is working three major projects for
Gulf JP - two being IPPs (valued at Bt8.7bn and Bt8.5bn) and one involving 7 SPPs,
valued at Bt7.2bn. In June 2013, Gulf Energy Development Co, for which it has done
work in the past, was the only winner in the third round of IPP bidding, with combined
capacity of 5,000MW, worth ~Bt21.5bn. Expected COD is 2021. Bids for 39 more SPPs
will open in 2014. These new IPPs and SPPs give STEC a very good chance of gaining
considerably more backlog.
Valuation and recommendation. STEC has the strongest cash flow among its
contractor peers with the cash on hand and in short term investment of Bt8bn. We
assign a target price of Bt30, estimating our fair value from DCF (discounted cash flow)
over seven years.