Sino-Thai Eng & Construction
Unperturbed by political noises Outperform
Sino-Thai Eng & Construction Plc (STEC)
At our recent Thai Construction Day, STEC expressed continued optimism on the industry’s outlook. With its massive backlog, delays in government infrastructure projects do not perturb it as it believes the country would need to speed up its infrastructure spending. Maintain Outperform and DCF target price, with a 10.1% WACC assumption. Passage of a THB2tr Infrastructure Bill and a favourable Constitution Court ruling on the bill could catalyse its share price, in our view. STEC remains our top pick in the sector.
What Happened
During our Thai Construction Day recently, management was unfazed by talk of any delays to Thailand’s THB2tr Infrastructure Bill. It expects the bill to be passed in the current parliamentary session i.e. by 28 Nov 13, though opposition parties could petition the Constitution Court to rule against it on grounds that the government has no authority to borrow money to finance infrastructure projects through such bills. If so, infrastructure spending may be delayed by a few months, depending on how long the Court would take to hand down its judgement. With its THB63bn backlog orders, equivalent to 2.5 years of revenue, STEC is not too concerned about delays.
What We Think
We agree that even though the legal process could delay government infrastructure projects by a few months, these projects are still likely to be implemented as the country needs to invest in infrastructure. Therefore, we see the current weakness as a great buying opportunity.
What You Should Do
STEC is our top pick for the sector on the back of its clean balance sheet and earnings visibility. Although some investors may be worried that it is not close enough to the current government, we believe there are far more government projects to go around than qualified contractors. This suggests that each top-3 contractor may bag many projects over the next few years. STEC has already secured a few large government projects this year, underscoring our belief.
