STP&I

STP&I Plc (STPI)

Ichthys to boost profit notably in 2013-2015
The big success from a construction of LNG module for Pluto 1 project during 2008-2010 has brought about reputation and high acceptance from both LPN project owner and the main contractor which is a worldclass engineering construction company for STPI. In 2010, STPI got a
new job for Queenland Curtis LNG project worth of B3bn (to be transferred in 2011-2013), and in February 2012 the company got a mega project, Ichthys onshore LNG worth of US$739m (to be
transferred in 2012-2015). With experience and good preparation, the company could almost entirely get rid of the risk about the cost of the projects. Consequently, STPI would post remarkably growing earnings in 2013-2015 from the value of the projects it transfers. In addition, the business opportunity of STPI will still open widely after 2015 from more than 13 LNG projects in Australia that are now under a feasibility study. As the number of experienced contractors is small, there is a high chance for STPI to get additional jobs in the future.

Strong fundamental. Advantageous from both location and internal potential
STPI has a strong point in terms of location. The company has a steel structure factory with a capacity of 50,000 tons/year adjacent to Laem Chabang deep-sea port (with a 10-year rental contract with the Thailand Transport Portal (ending in 2020 and renewable)), which is used in a
construction of modules for exporting. Moreover, the company also has other 3 factories with a total production capacity of 60,000 tons/year in Rayong, Sriracha, and Chonburi. In the future, the company has a plan to move the 3 factories to locate in the same area for better and easier management and product transportation to Laem Chabang port. Additionally, it has also planned to expand the factory at Laem Chabang port by renting more land and increase the factory’s capacity to 80,000 ton/year. STPI will also invest for a painting factory and enhancing efficiency of a subsidiary, STIT, to be able to receive jobs that will support STPI’s construction jobs in order to reduce outsourcing and increase profitability.

Fair value at end-2012 based on 12x PER is B43.21
With a gradual transfer of Ichthys project since 2012-2015, we estimate that STPI will have a net profit at B633m in 2012, which will increase to B1,490m in 2013. Fair value at end-2013, based on a profit base in 2013 which would likely be a minimum profit the company would generate during 2013-2015, is B48.31/share (12x PER). However, fair value at end-2012, with a discount rate from Ke of 11.96%, is B43.21/share, implying 28% from the current share price. Buy.