Sino-Thai Engineering & Construction

Sino-Thai Engineering & Construction Plc (STEC)

- Loss of Bt2trn bill dims outlook, but some projects will still come up for bid
- Backlog: Bt51bn, enough to carry it for two years
- Expect a strong 1Q14F
- Maintain BUY, target price of Bt21

Outlook dimmed by loss of Bt2trn bill but some projects still possible. Though
the Constitutional Court ruled the Bt2trn bill unconstitutional, removing its projects
from the picture, the next government will no doubt continue the efforts to build up
the country’s transport infrastructure. Until it revives the other projects using other
funding, we expect some projects to be opened for bidding. Bidding for the Green Line
(Mor Chit-Ku Kod) extension of the current sky train valued at Bt58bn (including
Bt20bn for the rail system) is expected to open on April 10, with winners announced in
May to June. The State Railway of Thailand (SRT) plans to open bidding for dualtracking
of the Chachoengsao-Klong 19-Kaeng Khoi route with construction to begin
this year though E-action (results to be known immediately) after several years of
delay; this has already been approved by the Cabinet. Phase 2 of Suvarnabhumi
Airport, valued at Bt62bn, which was not on the list on the Bt2trn bill, will open for
bidding in April, with winning bid announced in August 2014.
Expect 2015 public jobs of Bt105-125bn. The SRT has prioritized five other routes for
dual tracking: Map Kabao-Jira Junction (132km); Nakhon Pathom-Nong Pladuk-Hua
Hin (165km); Lop Buri-Pak Nampo (118km); Nakhon Ratchasima-Khon Kaen (185km);
and Prachuap Khiri Khan-Chumphon (167km), all had been included in the Bt2trn bill.
However, the SRT believes it can open bidding for the five routes, total value of
Bt105bn, in 2015, giving a boost for all major contractors.
Secured by Bt51bn backlog, enough to support profit for two years. At the end
of 2013, STEC had backlog of Bt51bn, sufficient to supply revenue for two years. In
2014, it plans to add private jobs, adding Bt20-30bn to backlog. Modularization is
another arena that is becoming of increasing interest for STEC.
1Q14F good on MRT. We estimate 1Q14 construction revenue of ~Bt6bn with core
profit of Bt350-Bt380mn. Most will come from two MRT lines: Purple Line contract 2
and Blue Line contract 4. It also has revenue from power plant construction: two IPPs
for Gulf Electric group plus seven SPPs. This year will also begin material revenue from
the Si Rat expressway operated by BECL. Adding to this is ~Bt300mn STEC books
annually from interest income. We note that though this year is supposed to bring the
first revenue from construction of the new parliament building, we note concerns of a
delay from land expropriation troubles.
BUY with target price of Bt21 based on 2014 PER of 20x; we also use DCF assuming
zero growth and this gives a value of Bt21.38. STEC has the smallest backlog of Bt51bn
– enough to support two years of profit. Still, we are comfortable tagging it as a Buy,
underwritten by its profitability – the best of the three – plus dividend yield and ROE.