Ch Karnchang

Ch Karnchang Plc (CK)

New project, Nam Bak, adds substantial backlog. CK signed an agreement with
the Laotian government to develop Nam Bak hydropower plant, which is designed to
have 160MW of installed capacity. Total project value is Bt20bn, with Bt17bn of that for
construction. Construction is expected to start by the end of 2014 and take ~4.5 years
to complete. CK will be the contractor for the project while CKP will be the operator. CK
also signed a contract for improvement and expansion for the PWA in Lampang valued
at Bt658mn, with a construction period of 600 days.
Total backlog of Bt160bn. CK’s major jobs now include: 1) Xayaburi, in which it holds
30%, accounts for Bt76bn or 50% of its total backlog, and will cover seven years, from
2012 to 2019; 2) MRT Purple Line, contract 1, valued at Bt14bn, will finish in mid-2014;
3) MRT Blue Line, contracts 2 and 5, total value of Bt15bn; 4) MRT Green Line (Baring-
Samut Prakarn), contracts 1 and 2, valued at Bt15bn; 5) MRT Purple Line, contract 4,
concession for supply of M&E system and O&E services, valued Bt20bn, will run from
~2015 through 2018; 6) MRT Green Line, contract 2, valued at Bt2.4bn. To this is now
added: 7) Nam Bak hydropower plant, with construction valued at Bt17bn.
Adjust 2013, 2014 net profit. Construction revenue in 3Q13 and 4Q13 is estimated at
Bt8bn in each quarter, giving total 2013 construction revenue of Bt30bn. 2Q13 net
profit was Bt6.3bn from an extra gain of Bt5.7bn from divestment and marking to
market its investment in TTW and BMCL. In 3Q13, CK will book after-tax profit of
~Bt300mn from a reduction of its holding in CKP when it listed to 31.78% from 38%. We
raised core profit with equity share in 2013 by 21% to Bt1.59bn and for 2014 by 8% to
Bt1.65bn, but we lowered net profit with extra gain in 2013 by 17% from Bt8.78bn to
Bt7.28bn or Bt4.4 per share, as 2Q13 missed our forecast on accounting treatment.
Bt2trn government project is closed to be kicked off. The latest information puts
the debate on the Bt2tn borrowing bill in early September 2013. Supporters see the
borrowing as necessary for economic development and restoration of foreign investor
confidence and passage is expected, with Bt203mn in the first disbursement, likely in
October 2013; and it will surge to Bt150bn in 2014 and Bt300bn/year in each of 2015
and 2016, with the remainder spread out through 2020.
Buy, but cut TP. We maintain BUY but cut target price to Bt30 from Bt33. The climate
for the industry remains promising, despite possible setbacks in the planned Bt2tn in
projects. However we value CK through sum-of-the-parts using DCF for CK’s own
business and its investment in subsidiaries (BECL, BMCL, TTW, Xayaburi and CKP).
However, we cut the duration of calculation from 7 years to 5 years.