Italian-Thai Development

Italian-Thai Development Plc (ITD)
 

Smaller loss than expected: ITD reported a net loss of Bt306m for 4Q11—the seventh consecutive quarter of red ink for its core operation. However, the loss was shallower than our estimate and improved from the loss of Bt795m in 3Q11.
Results highlights: Revenue totaled Bt10.9bn, up by 11.5% YoY and 2.3% QoQ, driven by expanded work progress on its backlog. Gross margin improved to 8.27%, up from 3.0% in 3Q11, mainly due to substantially fatter margins for domestic projects (after cost adjustments in 3Q11). Note that the GM for domestic projects expanded to 9.66% in 4Q11 from -2.5% in 3Q11.
EBIT margin was 3.43%, back in positive territory, but the bottom-line remained in red ink, due to high interest expenses on outstanding loans of Bt23bn at YE11.
Outlook: We expect ITD to continue bleeding, as the improvement in the construction business is unlikely to be sufficient to offset the effect of high interest expenses during the next 6-12 months. Given high net gearing of 2.41x at YE11, we anticipate that ITD will have to either increase capital or restructure its debts (which would probably involve a debt-to-equity swap) in order to bring down interest expenses and restore the balance sheet to a healthy position.
What's changed? We maintain our forecast and target price unchanged.
Recommendation: Our SELL rating stands.