Sino-Thai Eng & Con

Sino-Thai Eng & Con Plc (STECON)

Q1 2013F net profit Bt363mn. The flourishing environment for the contractor business since the beginning of 2013 has led us to estimate construction revenue of ~Bt5.9bn in 1Q13F, +8.9% QoQ and +39.3% YoY. Gross margin is expected to improve to 8.8% from 8.0% in 4Q12, and though this is still below the 9.1% in 1Q12, it is still very good. By proportion, 60-70% of revenues will come from public jobs; the remainder are private, these include a power plant, an LNG plant (subcontracted from STPI), among others.
Latest backlog at Bt74bn. STEC has signed a contract with the government to build the new parliament building valued at Bt12bn within a period of 900 days. This project brings backlog to Bt74bn. Backlog in 2013 will be 24% government and 57% state enterprises, up from 10% and 37% respectively in 2012 with private shrinking to 19% this year from 53% in 2012. Type of work in 2013 is largely infrastructure (57%), followed by buildings (27%), power plant (12%) and industrial (4%). In 2013 the power plant segment is expected to decline to 12% from 45% in 2012. STEC expects to get some of the new jobs being parceled out by the government, particularly in its Bt2trn in infrastructure projects and specifically the mass rapid transit (MRT) bids. There are three MRT lines (Dark Green, Pink and Orange) lined up to be put up for bid once the Bt2trn infrastructure project act is passed, with the bidding expected to open in 2013.
Plans new precast concrete plant. STEC has budgeted capex of Bt1bn in 2013, double the average of Bt400mn in prior years. It plans to set up a new precast concrete factory near Bangkok to support its main business. It already has a precast concrete plant at Chonburi, but this will be dedicated to service its petroleum, petrochemical and power plant jobs instead. Undertaking backward integration will continue in order to exert better control over costs and time. 
Valuation and recommendation. We reiterate BUY with a TP of Bt38/share. Our fair value estimates for each segment are based on discounted cash flow, assuming risk-free rate (RFR) of 4.5%, equity risk premium (ERP) of 6.5% and terminal growth of 3%. The recent stock dividend boosted the number of shares to 1.525bn from 1.186bn and the 22% dilution effect has been priced in.