Ch. Karnchang

Ch. Karnchang Plc (CK)
 

Below estimate: CK reported a net loss of Bt289m for
4Q11, a reversal from the profit of Bt692m it reported
for 3Q11, as there was no divestment gain to book this
quarter. The loss was much deeper than our estimate of
an Bt86m loss. FY11 profit came to Bt927m, mainly due
to Bt2.28bn in combined gains from the sales of a 38%
stake in SEAN to CK Power and an 11% holding in CK
Power to TTW. Stripping out the divestment gains, CK
would have posted a loss of Bt877m for last year.
Results highlights: Revenue fell 25% YoY but
improved 71% QoQ to Bt2.74bn with the resumption of
work progress on the Purple Line and the Blue Line.
Gross margin expanded substantially to 13.1% in 4Q11
from 6.5% in 3Q11, but was insufficient to bring the
bottom-line into the black, due to high SG&A expenses,
which equaled 17.6% of revenue.
The loss pushed up net gearing to 2.7x at YE11, which
was still below the debt covenant of 3.0x. Note that CK
negotiated with its creditors to increase its covenant
ceiling to 3.0x from 2.5x earlier.
The firm announced a final DPS of Bt0.25 for 2H11,
making for a total FY11 dividend of Bt0.35/share. XD on
April 30.
Outlook: We expect operational losses to persist into
1H12, then a turnaround in 2H12, driven by increased
construction income from CK’s Bt42bn backlog onhand.
Note that last year, the firm set a new record for
new projects signed of Bt40bn. This amount is expected
to be booked as revenue during the next three years
What’s changed? Our earnings forecast and target
price stand unchanged.
Recommendation: We believe it is a bit too early to
take a position on CK as a turnaround play. Another
operational loss looks almost certain for 1Q12, so there
is likely to be further downward pressure on the stock.
Moreover, there remains the risk of a capital increase,
particularly if CK is awarded more big-ticket projects.
We prefer STEC, which is our top pick in the
Construction sector.