Ch Karnchang

3Q14 core profit estimated at Bt333mn, down 32.8%YoY but up 6.6%QoQ, meeting its usual quarterly average of Bt300mn and bringing 9M14 core profit to Bt1.0bn, accounting for 70% of our 2014 forecast. Net profit is expected to reach Bt1.15bn, +22.9%YoY and +269.3%QoQ. We expect gross margin of 10.0%, close to our 2014 forecast of 10.3%. CK will record dividend income of Bt321mn: Bt93mn from BECL and Bt228mn from TTW. It also had Bt820mn after-tax gain from selling 5% or 1.025mn shares in BMCL. Revenue is expected to reach Bt8.9bn in 3Q14, up 4.2% YoY and 0.7%QoQ.   

Still booking losses from investment (BMCL, CKP and Xayaburi) at an estimated Bt112mn, 3% less than in 3Q13 but 732% greater than in 2Q14, largely on a change in BMCL’s concession fee to Bt1bn/year from mid-2014. BMCL is thus expected to contribute a loss of Bt80mn (its 3Q14 loss is estimated at Bt320mn). Xayaburi is expected to contribute a loss of Bt80mn (its loss for the quarter is estimated at Bt267mn). We continue to expect BMCL to get into the black in 2016, boosted by the opening of the Purple and Blue lines. Offsetting these two loss-makers is CKP, which is expected to contribute a net profit of Bt48mn (CKP’s profit is estimated at Bt150mn).

Current backlog Bt100bn, down from end-2Q14 backlog of Bt101bn: in 3Q14 CK booked Bt8.9bn as revenue and added backlog of Bt7.3bn. Of the backlog, Bt3.0bn is for civil work for TTW and Bt4.3bn from Bang Pa-in Cogen, where CKP is project owner. Before the end of the year it expects to sign the contract for the Bt17bn Nambak hydropower project in Laos and for the Blue Line (supply and installation of M&E system). It is also waiting for the result of its bid for the North Green Line (Mo Chit –Khu Kot), expected by the end of this year.

Buy with TP of Bt34. We value CK via sum-of-the-parts, using 8-year DCF for its contractor business. We allow Bt25 for its own construction revenue, minus Bt10, which works out to Bt15, plus valuation for its investments of Bt18 (Bt5.5 for TTW, Bt5.9 for BMCL, Bt2.6 for BECL and Bt4.4 for CKP). We note that if we use the market price for subsidiaries, value of subsidiary holdings rises to Bt18.5 from Bt15. CK in our view is looking at a promising 2015 given the onset of a multitude of infrastructure projects.