Construction materials

Construction materials

Contractor sector has been prosperous and share prices have surged
rapidly. Medium contractor stocks with good fundamental factors
(SYNTEC, PYLON and SEAFCO) still possess lower P/E ratio than
major contractor stocks, making them attractive.
- Time to prosper: private investments resume as normal

Private investments, especially condominiums and shopping centers, have
resumed as normal after the political turmoil receded. SYNTEC, SEAFCO and
PYLON have been signing more contracts since June; their earnings are
expected to grow significantly from 2H14 on. Though the government mega
projects would resume, the auction of most projects has not started yet. It
usually takes at least four to six months before the bid winner can sign the
contract. Consequently, major contractor companies (ITD, CK, STEC and
UNIQ) would benefit from the mega projects from mid-2015 on.
- Medium contractor stocks have lower P/E ratio than major contractor stocks
Prices of contractor stocks have surged significantly due to projection on
good growth in the future. Contractor companies participating in the
government mega projects (ITD, CK, STEC and NWR) have possessed P/E
ratio of over 25x. Medium contractor stocks (SYNTEC, PYLON and SEAFCO)
still possess P/E ratio of only 11-12x. They would benefit more rapidly from
growth in private investments as well as the government investments.
Engineering contractors companies (STPI, TTCL, SRICHA and BJCHI) do not
participate in the government mega projects; 100% of their works are in
private sector. However, their earnings are stable and their dividend yields
are considerably higher than other contractor stocks, making them
favorable contractor stocks.
- Raise good-fundamental medium contractor stocks' P/E ratio to 14x
We revise up fair values of medium contractor stocks with good
fundamental factors (SYNTEC, PYLON and SEAFCO). We rerate their P/E
ratio from 12x to 14x (in line with the stock market) in order to reflect
rebound. Fair values of SYNTEC, SEAFCO and PYLON are revised up to
B2.60 (from B2.23), B7.04 (from B6.03) and B8.60 (from 6.57),
respectively.