Toyo-Thai Corporation

·       Backlog now at record high of Bt20bn

·       Flooding will slow down revenue recognition temporarily; limited impact from minimum wage hike

·       Maintain Buy and Bt14.4/sh TP, pegged to 12x FY12F PE

Backlog at record high. TTCL has been awarded major project for three consecutive months from July to September. The most recent is a petrochemical project valued at Bt3.7bn for EPC work. As a result, its backlog has reached another record high of Bt20bn. By end FY11, we expect it to receive another substantial contract worth Bt10bn to construct a desalination plant in Qatar.

Temporary impact from worst floods in five decades. Thailand’s latest floods are expected to take a toll on TTCL’s domestic projects, by delaying progress work and revenue recognition to the next quarter. We trimmed FY11F revenue by 15% to reflect this, while maintaining key profitability metrics. The flooding is only a temporary hiccup for TTCL, as its fundamentals remain intact with an impressive project pipeline.

Maintain Buy. Despite the temporary hiccup as a result of the floods, TTCL’s fundamentals remain strong. Hence, we are retaining our Bt14.4 target price, which is pegged to 12x FY12 PE. Our target valuation is justified by its record backlog, solid growth outlook, and healthy balance sheet. Our TP also implies 0.4x PEG based on fully diluted PE vs 2-year EPS CAGR. The stock offers 60% upside to our target price plus satisfactory 4.5% FY11F dividend yield.