Ch Karnchang

Ch Karnchang Plc (CK)
3Q13F: Expect net profit Bt480mn. Net profit will continue strong at Bt480mn, with
revenues in 3Q13 expected to reach Bt8.2bn, little changed from both first and second
quarters but up 52% YoY. Gross margin is estimated at ~10.3% with net core profit
margin of ~2.8%. Helping boost net profit is the Bt250mn in capital gains before tax
from selling down its holding in CKP to 31.8% from 38%. Cash on hand was Bt7.7bn at
end-2Q13, which should bring in interest income of Bt288mn. Tax expenses are
estimated at Bt124mn from the huge extra gain from divestment of CKP. Interest
expenses each quarter are separated: ~Bt300mn from its construction business and
Bt160mn from its investment in infrastructure. The latter is mostly deferred tax for its
subsidiaries, and should be put into extra items. Removing these still leaves CK with a
good core profit of Bt230mn in 3Q13F.
Expect revenue of at least Bt8bn quarterly. Revenue from construction in 3Q13
and 4Q13 is estimated at Bt8bn each, giving total construction revenue in 2013 of over
Bt30bn. Construction revenue is largely from: 1) Xayaburi, in which it holds 30%,
accounting for Bt76bn or 50% of its total backlog; 2) MRT Purple Line, contract 1,
valued at Bt14bn; 3) MRT Blue Line, contracts 2 and 5, total value of Bt15bn; 4) MRT
Green Line (Baring-Samutprakarn), contracts 1 and 2, valued at Bt15bn.
New contract pulled backlog up to Bt150bn. CK signed several new contracts in
9M13: 1) MRT Purple Line, contract 4, concession for supply of M&E system and O&E
services, valued at Bt20bn, with BMCL, to run from ~2015 through 2018; 2) MRT Green
Line, contract 2, valued at Bt2.4bn and 3) Nam Bak hydropower plant, 2014-2020,
construction valued at Bt17bn. Big projects help CK to secure long term backlog.
To book equity sharing from BMCL post recapitalization. Currently, CK holds
16.64% in BMCL after selling 7.97% in 2Q13 at the market price of Bt1.15/sh. On Oct 4,
BMCL announced a capital increase of 8,550mn shares, which will bring outstanding
shares to 20,500mn. Allocation for CK is 4,200mn shares at PO price of Bt1/sh, to offset
the bank guarantee for the ~Bt4bn in long-term loans BMCL obtained from CK. This
will allow CK to switch back to recording contribution from BMCL as equity sharing.
After BMCL’s recapitalization, CK may bring its stake in BMCL back to the prior 25-30%.
Buy at TP of Bt30. We maintain BUY with a target price of Bt30 using sum-of-theparts
valuation of CK and its subsidiaries. The industry outlook remains promising,
despite the slowness in passing the Bt2trn bill. Mass transit projects worth Bt226-
470bn, part of the Bt2trn plan, will open for bidding in FY2014 (starting Oct 2013).