Ch Karnchang

2015 plans: needs public jobs to add backlog. Management reports that total revenue without new backlog is expected at Bt34bn, well below its full capacity of Bt45bn. However, CK expects to add numerous public projects in 2015: Civil work on MRT Green Line (North), it is expected to start in March 2015; bidding is expected to open for MRT Orange Line in 1Q15; discussions are being held with regards to changing the system for the Pink and Yellow Lines; bidding for the Blue Line M&E system is expected to open early in 2015, to be the target to start up between end-2017 to mid-2018. Bidding for Suvarnabhumi Airport phase 2, total value of Bt65bn, is also expected to open for bidding in August 2015.   

Current backlog ~Bt100bn. At end-3Q14 backlog was reported at ~Bt91bn. In 4Q14 it has added Bt7.5bn - Bt3.2bn civil work from TTW, and Bt4.3bn from Ban Pa-in Cogen. Early in 2015 it expects to add Nambak hydropower project in Laos (valued at Bt17bn) and the supply and installation of the M&E system for the MRT Blue Line. Another project in the wings will be for subsidiary CKP, which will open bidding for a new cogeneration power plant with total project value of Bt4bn in 2015. 

3Q14 and 4Q14 outlook: expect 3Q14 core profit of Bt333mn, down 32.8%YoY but up 6.6%QoQ with net profit of Bt1.15bn, +22.9%YoY and +269.3%QoQ. However, profit may be slightly better than we expect on a lower loss from BMCL in both quarters of Bt160mn each rather than the expected Bt320mn/quarter as the new concession fee paid to the MRTA of Bt1bn per year will be put off from July 2014 to the beginning of 2015. This cuts the loss to CK from BMCL to Bt40mn from Bt80mn. Additionally, Xayaburi will report a loss of only Bt20mn/quarter instead of the Bt80-120mn per quarter seen in 2013 through 1Q14. In 3Q14, CK had Bt820mn after-tax extra gain from sale of 5% or 1.025mn shares in BMCL. It will also book dividends: Bt227mn from TTW and Bt93mn from BECL in 3Q14, while in 4Q14, it will record extra gain from sale of 2% of CKP (21mn shares) at a price of Bt18/share, several times its cost of Bt7/share. This should give CK net profit before tax of Bt231mn in 4Q14.    

Working to raise credit rating. CK will need capex of Bt900mn in 2015 for Xayaburi operations, after which it plans to bring loans down from the high Bt30bn by selling shares in subsidiaries, BMCL and CKP. Ultimately, it plans to hold no more than 15% in its subsidiaries except for CKP where it plans to keep at least 25%. CK hopes to pay down loans to the extent where its credit rating will be upgraded to AA- from BBB+. This will lower the cost of refinancing and cost of debt from the current 5%. Its most recent bond carries a cost of 4.8% (5 years 9 months). Current net debt to equity ratio stands at 1.5x. Maintain BUY, target price Bt34