Nawarat Patanakarn
3Q14 Preview: Not good, but better days ahead BUY
Nawarat Patanakarn Plc (NWR)
- 3Q14 earnings still poor. We expect 3Q14 core profit of Bt21mn, up246% YoY but
down 30%QoQ as it shouldered the startup costs for a project for Bangkok
Metropolitan Administration (BMA #7 contract 2) but had no material revenue due to
delay of land expropriation. The value of this contract is Bt740mn, and was to finish in
October 2014 but NWR now expects at least two quarters of delay. We forecast 3Q14
revenue of Bt1.8bn, up 3% YoY but down 3% QoQ. Most of the revenue continues to
come from the drainage tunnel under Bangsue Canal, a contract with the BMA, which
has total remaining value of Bt1.9bn. A second contributor is Baan Baranee (margin
15-20%), for which revenue is estimated at Bt60mn, similar to Bt62mn in 1Q14 and
Bt63mn in 2Q14. This property development project accounts for 3% of quarterly
revenue. Gross margin in 3Q14 is expected to be 6.7%, stable from 6.8% in 1Q14 and
6.9% in 2Q14. We have lowered our 2014 gross margin to 6.8% from 7.8% and adjusted
SG&A to sales to 5.25% from the previous forecast of 5.5%. We also cut 2014 profit to
Bt92mn from Bt127mn. If 3Q14 comes in as expected, 9M14 will amount to Bt62mn,
71% of our new forecast.
Poor contribution from 40%-held C.I.N. in 2014. In 3Q14 equity sharing is expected
to be only Bt1mn, stagnant from 2Q14. However, 4Q15 will bring resurgence in income
from 40%-held C.I.N when it books revenue from ISSI Condominium Suksawat. This
892-unit condo is valued at Bt1.8bn and is expected to bring equity sharing of Bt90mn
in 4Q15 and Bt332mn in 2016 after an operational loss of Bt4mn in 2014.
Current backlog stronger at Bt14bn. NWR has added almost Bt6bn to backlog YTD;
it is bidding for another Bt2bn to be awarded within 2014 and another Bt6-7bn from
2015. New projects include construction of Baranee Park, Romklao valued at Bt500mn,
road improvement in Lao PDR valued at Bt600mn and PTT jetty work in Rayong for
Bt600mn. The opening of a multitude of huge infrastructure projects will ease the
competition for jobs, opening the way for NWR to select good jobs with good margin
as they begin to come in from 2015.
BUY and maintain TP to Bt2.7 (30x 2015 PER). We expect NWR to get in on the
greatly improved climate for construction with a flood of new jobs from 2015. The big
shots in the construction industry will get the major public projects, particularly rapid
transit, with NWR ideally situated as a well-qualified subcontractor. It also has a key
support lying in its property business. It will book ~Bt229mn revenue from property
development in Mana Pathanakarn, in which it holds 100%, in 2014, and this will double
to Bt550mn in 2015. C.I.N. will get back to contributing as well, with an estimated
Bt90mn in 2015 and Bt302mn in 2016.
