Sino-Thai Eng & Con

3Q14F: Net profit Bt390mn (Bt0.26/share), +1%YoY and -3%QoQ, another regular quarter for STEC. Construction revenue is estimated at Bt5.1bn, down 19%YoY and 6.4%QoQ with a gross margin of 10.8%, versus 10.9% in 2Q14 and 8.9% in 3Q13. We estimate net margin at 7.6%, slipping QoQ due to a rise in SG&A to 3.3% from 2.5%. 

Major revenue contributors in 3Q14: Blue Line contract 4 (valued at Bt13bn), 46% completed and Purple Line contract 2 (Bt13bn), on track to finish in 4Q14. It is also booking revenue from the construction of power plants with a total value of Bt24bn: two IPPs for Gulf Electric group and seven SPPs and the LNG Modularization project for STPI, which may wind up this year. This carries a high margin as it does not have to pay for construction materials. Other income is mostly interest income on overseas bonds, estimated at Bt112mn. 

2015-2016: construction service industry looks very good. After an unexciting 2014, STEC is looking good for 2015-2016. It is expected to win at least one of the four North Green Line (Morchit-Saphanmai-Koo Kot) contracts, total value of Bt26bn; this project is under the Mass Transit Authority of Thailand (MRTA). The four civil work contracts are detailed in Figure 2. The final auction is expected in December 2014 or early 2015, with the intervening time used to draw up the technical specifications and come up with a price below the MRTA’s base price. 

Further MRT projects to move the industry. Projects awaiting cabinet approval are the Orange (partial underground route from Taling Chan to Minburi), Pink (Khae Rai-Minburi) and Yellow (Ladprao-Samrong) lines. Bidding for these is expected to open in 2015. These three lines have a total value of Bt230bn. 

Bt20bn in private sector projects to lift backlog, now below Bt45bn. STEC, with the lowest backlog of all big contractors, needs more projects. It is bidding for some private jobs and though it has provided no details, it expects to be announcing new backlog in late 4Q14. We expect flat core profit YoY in 2014. However, the revival of this industry brings with it an excellent chance for STEC to add backlog. 

Maintain BUY with target price of Bt30, based on 2015 PER of 30x, (+2SD). STEC has the smallest backlog of peers at less than Bt45bn currently – enough to support only two years of profit. Still, we are comfortable with a Buy as its profitability is the best of the three and it offers good dividend yield and ROE.