Sino-Thai Engineering & Construction

Sino-Thai Engineering & Construction Plc (STEC)

Continue beating our estimate: STEC reported a strong 4Q11 net profit of Bt239m, up 57% YoY but down 14% QoQ. The figure overshot our estimate by 78% and the consensus by 72%, due mainly to higher-than-expected construction and interest income and lower-than-anticipated SG&A expenses. Note that STEC’s results have now beaten both our estimates and the consensus for eight consecutive quarters.
Results highlights: Revenue rose 4% YoY but fell 20% QoQ to Bt3.4bn as the flooding halted construction of the Purple Line for one and a half months and made for slow progress at some other projects, due to logistics problems. But It was still better than our expectation. 4Q11 gross margin was 8.33%, in line with our assumption, making for an FY11 GM of 8.29%. The SG&A/sales ratio was well-managed at 3.25% for FY11 and 3.55% for 4Q11, despite some extra expenses during the flooding.
STEC booked interest income of Bt50m in 4Q11, up by 339% YoY and 67% QOQ, as the company allocated much of its substantial cash on-hand to investments in units trusts (open-ended funds and debt securities). The balance sheet remained healthy with a net cash position of Bt3.2bn (Bt2.7/share) at YE11.
Outlook: The operation will be sustained strong this year. We expect 26% revenue growth to Bt18.8bn and a 28 bps increase in GM to 8.57%, driven by STEC’s large and good-quality backlog on-hand. However, the resumption of tax expenses, once it burns through the last of its tax shield in 1Q12, will make for a deceleration in bottom-line growth this year.
What’s changed? We have upgraded our FY12-13 earnings forecasts by 7% and 4%, respectively, to reflect higher interest income and good control of SG&A expenses. Our YE12 target price rises to Bt14.60 from Bt14.
Recommendation: STEC remains our top BUY rating in the Construction sector.